How can a publicly traded company lose billions of dollars in one day and what happens with that money?

Question

E.g., Google lost $100b after its AI made a factual error in a demo.

Or when Musk lost $200b.

What happens with that loss? Do they need to do layoffs specifically because of that? Close massive projects? How can a company continue to even exist after that kind of financial loss?

Thanks!

In: 5

Answer 1

Imagine you have a lemonade stand, and you are thinking of selling it. Your stand makes like 50 bucks a month, and the word on the street is some people would be willing to buy it from you for 10 times your earnings. So your stand is valued at about 6,000 dollars if it was to be sold to someone else. Next week you get some bad lemons, and some people got sick. The word spreads, and now you are lucky to make 10 bucks a month. Now your company’s value is more like 1200 bucks. The headline in the school paper is that your lemonade stand lost over 5000 dollars in value due to the bad lemons.

At a high level, we are talking about things people are buying and selling (stocks). If people are willing to pay more for them, the value goes up, and if they are willing to pay less for them, the value goes down. Most of Elon’s money is tied up in stock. It is not sitting in a bank account. So say he has a billion shares of tesla, if the trading price goes up or down (for whatever reason), every dollar it goes up his net worth, or the “value” of his shares goes up or down 1 billion dollars. If Googles stock price dips, the value/market cap/value of google goes down. It is different than revenue or money coming into the lemonade stand. It is more about the value of the assets/stocks etc.