Operating Margins

https://fi-le.net/margin/

by fi-le • 9 months ago

289 122 9 months ago

fi-le.net

soontimes• 8 months ago

I like your style - clear, on point, and no attempts to sell me anything. It’s honestly refreshing to read

i_am_a_peasant• 8 months ago

++1

NebulaStorm456• 8 months ago

There is another aspect to this, "Can the margins scale?"

https://www.bloomberg.com/opinion/newsletters/2025-11-13/bla...

cies3• 8 months ago

https://archive.is/EdxHn interesting read.

fi-le2• 8 months ago

Thank you for the kind words.

tekne• 8 months ago

This is an excellent article, but the graph is unreadable on mobile even with a relatively large screen.

forgetfulness• 8 months ago

I did like famous visionary CEO Steve Jobs used to advice, and it read well enough

I held my phone sideways

kqr4• 8 months ago

For the benefit of you and other small viewport users, here's an image of the plot, with a line indicating where the median is the same as the mean.

https://i.xkqr.org/medianvsmeanmargin.png

Though I do recommend exploring the plot on a full-size monitor too – it's zoomable etc.

aitchnyu• 8 months ago

Thanks. Guess you hacked the Plot.ly widget? Graph also needed dotted lines for 0s in y and x axis since some data points are close to those values.

achairapart• 8 months ago

Also, at the end of the article:

    > Appendix

    > The by-category margins are repeated in this table.

It's basically the same data in a more mobile-friendly table.

kqr4• 8 months ago

Divide a company's income by its revenue

If I'm a person who believes income is the same thing as revenue, how would you explain this division to me in a way I'd understand? Or does "income" in this case mean "profit"?

unmole• 8 months ago

The next line makes it clear:

For some volume of sales that comes into the business, it gives an idea of what percentage is left as cash in the end.

sokoloff2• 8 months ago

Income is closer to profit than you're thinking.

There is gross income, which is roughly sales (revenue) minus the direct costs of those sales. There is net income, which is the money left over after also accounting for other costs, like fixed overheads and marketing.

cies3• 8 months ago

I stumbled over this sentence in the same way. And drew the same conclusion: the author uses "income" to mean "profit"

sokoloff2• 8 months ago

That is the standard meaning of that term in business accounting. When you or I work for a salary, we think of income as all the money coming in, but that's because there are no allowable expenses that we get to deduct against that income, so our "revenue as employees" is all "income".

phrygian• 8 months ago

The operative word should have been ‘operating’ income, which is revenue - operating expenses - cost of goods sold

RamblingCTO• 8 months ago

Income is a company's total earnings after all expenses and earnings that aren't counted as revenue are deducted.

I found different definitions, but it seems net profit = net income.

TrackerFF• 8 months ago

Revenue is what you sell your product for.

Income is what you sit with after all the expenses and taxes have been deducted from the retail price.

Let's say you create some product, XYZ, which takes you exactly 5 hours to make. The materials to make the product costs you $50, the salary costs $100 ($20/hr * 5 hours), the shop costs (rent, utilities, etc.) costs roughly $5 pr product. And the things involved in selling your product (marketing, etc.) costs you $45 pr. product.

So in order to break even, you need to charge $50 + $100 + $5 + $45 = $200

You decide to sell the product for $250.

So before taxes you've earned $250 - $200 = $50

And let's say you have to pay 10% taxes on that, so 10% off $50 = $5

Your shop is left with $45 for each product they sell. Or you have $45 in income.

Your operating margins would be $45 / $250 = 18%

timothymwiti• 8 months ago

I believe that for operating income which would be used to calculate operating margin, taxes are not yet deducted.

kgwgk• 8 months ago

Income is what you sit with after all the expenses and taxes have been deducted from the retail price.

That’s the net income. That word is doing a job there!

Your operating margins would be $45 / $250 = 18%

No, that’s the profit margin or net margin.

telesilla• 8 months ago

You need to deduct Cost Of Goods and Services, or COGS, from revenue in order to determine income. Then you have other things like taxes and depreciation, then you get profit.

next_xibalba2• 8 months ago

This is not correct. Your calculation gives gross margin. However, gross margin doesn't account for all the other operating expenses associated with running a business. If you also include those, you get operating profit. Finally, if you then also account for values (negative and positive) associated with financing, investing, and taxes, you get to to net income. Net income is "the bottom line". It is what is generally referred to as "profit" by investors. And, its not the same thing as positive, neutral, or negative cash flows.

PopAlongKid3• 8 months ago

Some terms as defined in an accounting course I took once (U.S. based).

Revenue = The total value of goods or services a company sells during a particular accounting period.

Gross Margin = The difference between revenue and the cost of goods sold. Also called Gross Profit.

Net Income = A corporation’s net earnings or “bottom line.” Net income is the residual of revenues after cost of goods sold, operating expenses, depreciation, interest, and taxes are considered.

Operating Expense = Expenses incurred in conducting normal business operations. Operating expenses may include wages and salaries, employee benefits, administrative expenses, research and development costs, and other similar expenses.

jimnotgym4• 8 months ago

Despite my career in accountancy,including at global companies, and despite the definitions in all the comments below that disagree with you, I have never heard anyone in the real world describe Operating Profit as income. I have heard small business owners describe revenue as income. I agree with you, income was a terrible choice of word for this article.

littlestymaar• 8 months ago

I found the per calculation highly suspicious, especially the first row:

Country Median Margin Average Margin Sample Size South Africa 28.86% 82.37% 7

How can the average be 82% with a median being 28% without having one that is above 100%?

foolswisdom• 8 months ago

It's probably a weighted average, as described earlier in the article.

kqr4• 8 months ago

Good catch. If there are n samples, and the lower half of them are equal to or less than 0.29, then a total mean of 0.82 would require that sum of the the upper half must be greater than 0.82n - 0.29n/2 = 0.675n. For n/2 numbers to sum to 0.675n, the mean of those numbers must be 1.35, which is decidedly above 100 %, proving at least one of the numbers must have been greater than 100 %.

It being a weighted average does sound like a reasonable explanation, though. A median of 0.29 and weighted mean of 0.82 is trivially possible given e.g. values (0.29, 0.29, 0.82) and weights (0, 0, 1).

dmboyd• 8 months ago

Certainly possible if their calculation of income included non operating income otherwise excluded from revenue. (Eg. A gain on sale that dwarfs the underlying business). Such presentation is prevalent and a disclosure of “gross profit” isn’t uniformly required under GAAP

cmiles8• 8 months ago

“Your margin is my opportunity”

Absent a true monopoly or government protection high margin businesses are usually those most ripe for disruption. Someone eventually comes along and, for various reasons, is willing to make far lower margin and then the battle begins. Lots of sleepy high margin businesses out there just waiting to get picked off by a new entrant.

regularfry• 8 months ago

Conversely, the ones which still exist are biased towards industries where that's very hard.

cluckindan• 8 months ago

And thus we get into the territory of profit hiding and transfer. Executive consultancies are a common mechanism for doing that, as hourly fees can be exorbitant without anyone batting an eye.

It lowers the profit of a public company, thus decreasing pressures to pay a dividend, while the consultancy leeches money and pays it forward to some other company in which the public company’s founders/executives are direct beneficiaries.

raw_anon_1111• 8 months ago

Margins are also high based on brand. But software by definition should be a high marginal profit business.

scott_w2• 8 months ago

In theory but not in practice. Apple has massive margins but they're not being disrupted by a slightly cheaper iPhone. In fact, plenty of big tech companies sit in this bucket (thus the reason they've sat on massive cash piles for so long!)

Sevii• 8 months ago

A slightly cheaper iPhone is already in the market (android). In theory Apple shouldn't be able to maintain these high margins.

Vaslo• 8 months ago

Not when you have a huge lead over your competitors and it’s almost impossible for a new entrant to catch up without excessive funding. Even with that, if you have products that need lots of approval with long duration tests (this materials leeching into food and water over a long time), it can be years before even good products will replace you.

JCM9• 8 months ago

Good article although especially in tech it’s not so simple. Thanks to games with depreciation and other financial engineering a company may look “profitable” but still be quite unhealthy or at risk. One generally needs to look at “profit” in the context of cash flow.

I.e. a company could be “profitable” but also basically broke at the same time with no cash to pay people or suppliers.

jbs789• 8 months ago

Many lenses. I do like the authors focus on one. But you’re right it doesn’t tell the whole story.

Op margins are a great way to think about where one might see mean reversion, which then flows to net.

Ie are there structural reasons for the op income or is it a maturing sector which will attract new entrants.

jddj• 8 months ago

It skews the other way just as often in my experience. That large clump at 10% has some wildly profitable businesses in it.

PopAlongKid3• 8 months ago

The comment you are responding to was "profitable but no cash flow" (due to non-cash deductions). I'm not clear what you mean by "the other way".

mbesto• 8 months ago

Also, "tech" and "AI" are not markets. A software provider that provides let's say CRM software may have very different operating margins than Tesla (automobiles), a hardware manufacturer (TSMC), a chip designer (NVIDIA), or a media company (Facebook). Yet these are all "tech" and "ai".

alexpotato2• 8 months ago

This article is very timely as I was just thinking about margins given that I run a couple small websites that use Amazon Affiliate marketing.

The margin on most items is 4% (some lower, some higher e.g. luxury items are 10%).

4% is not terrible in and of itself.

But then you factor in:

- advertising costs

- conversion rates on clicks from the above

- taxes

and you get a real appreciation for how hard it must be to run high volume/low margin businesses.

Sure, you can do organic marketing etc but then you are just trading time for dollars.

a5seo• 8 months ago

organic marketing etc but then you are just trading time for dollars.

But the alternative, trading dollars for dollars, is essentially just arbitrage, which tends to disappear from competition. Organic marketing is the only sustainable source of alpha I’ve found in affiliate marketing.

k3liutZu• 8 months ago

Shouldn't you include the ad costs in your margin calculation?

alexpotato2• 8 months ago

Yeah, the 4% is really Gross Margin (although COGS here is effectively zero).

therealdeal2020• 8 months ago

hmm yes but also most great startups have a negative operating margin on paper since they re-invest almost all their earnings into development, marketing, etc... just dividing earnings by revenue won't give meaningful insight in most companies that intend to grow or expand.

zeckalpha• 8 months ago

Reinvestments in the business factor into a different ratio. This only factors operating expenses.

projektfu• 8 months ago

I suppose it depends where things end up in the system you use. Usually, R&D ends up as an expense in GAAP (in the US) but you could produce a supplemental statement showing that as capitalized investment. Even so, early-stage industries often have negative operating profit.

Imagine you are working on a drug you will take to testing next year. You could be 5 years from actually marketing it. Even if you capitalize all the expense of research and development, to get it off the income statement, you still have to pay for the rest of the business.

carefulfungi• 8 months ago

Operating margin doesn't include interest or taxes; it is an incomplete ratio (but any single ratio will be incomplete) when comparing companies across industries with different capital expense levels, debt levels, and tax exposures.

This article compares the gross profit vs. net profit differences by industry.

https://www.venasolutions.com/blog/average-profit-margin-by-...

truelson• 8 months ago

Operating margins are also holding up the economy in a different way than you think (the cyclical economy). Wrote about it here: https://writings.alethia.news/the-biggest-piece-of-the-reces...

OisinMoran• 8 months ago

If you enjoyed this you'll probably also enjoy "The Games People Play With Cash Flow" [0]

And for the classic HN comment about the site itself: I think it looks very nice, but the native justification algorithm is not very good (especially with hyphenation turned off) so it ends up looking quite sparse at parts on mobile and is a bit jarring to read. I'm a big fan of this implementation [1] of the TeX linebreak algorithm for the web, and think it would make this site look even better with minimal effort.

[0] https://commoncog.com/cash-flow-games/

[1] https://github.com/robertknight/tex-linebreak

cs7025• 8 months ago

This ignores the capital intensity of different businesses, and the rate of return on that invested capital, which is tied up in the business.[a]

[a] Warren Buffett has written and spoken extensively about return on invested capital for more than six decades.

baxtr3• 8 months ago

Do you mind sharing a link of your linking for (a)? Thank you

coatmatter• 8 months ago

https://www.berkshirehathaway.com/letters/letters.html

jimnotgym4• 8 months ago

I'll summarise the thinking for you. If you got $1m in profit that sounds great. But if you had to invest $1bn to get it, that sounds less good, because you could have made more by putting the money in the bank at a much lower risk.

Profit only makes sense when considered against the amount of capital required.

cs7025• 8 months ago

Buffett routinely mentions it in his annual letters:

https://www.berkshirehathaway.com/letters/letters.html

A good place to start is by reading his thoughts on See's Candy as of 2007 (~four decades after he bought it):

https://berkshirehathaway.com/letters/2007ltr.pdf (search for "See's Candy")

akshayrajp• 8 months ago

Can I just say that your blog's design is so beautiful and readable? Do you mind sharing how you built it?

lbotos• 8 months ago

right click -> inspect

HTML looks pretty handwritten (lack of crazy css classes and simple structure)

They are using tufte.css https://edwardtufte.github.io/tufte-css/

graerg• 8 months ago

Part of it is this tufte.css: https://edwardtufte.github.io/tufte-css/

fi-le2• 8 months ago

Thank you! As the other commenters already figured out, I manually write HTML and use tufte.css with some minor customizations.

infecto• 8 months ago

Gross margin along with ebitda are great ways to do quick views on a company from an investor standpoint. You don’t care about tax, interest depreciation because those things can easily change, you care about the core business. Gross margins are high but ebitda margins are low? Then you know where to look in the finances to ask the first question of what is happening in the middle. If gross margins are low, probably a non starter unless it’s a non commodity product where you can raise price.

jgeada• 8 months ago

Would be interesting to see the historical trends for operating margins.

These days it seems that 30%+ operating margins are what VCs and stock market are expecting now, which seems unsustainable. Software and similar businesses can easily do it because cost of manufacturing one more unit is close to zero, all the costs are primarily NRE. Not all business fit that model and but yet they all aspire to the same margins.

abirch• 8 months ago

I think another aspect here is Return on Equity (part of the Dupont equations) where you can have lower operating margins but be heavily levered.

That's what private equity loves.

bob1029• 8 months ago

While it's not illegal to try and compete with Nvidia (margin in 2025: 61%) or Mastercard (margin in 2025: 54%), it's just so capital-intensive to catch up with their graphics card R&D / bank partner network that few companies are brave enough.

I think the "quasi-monopoly" segment is the best attack vector if you are willing to get your hands a bit dirty. Companies like Mastercard and Visa are the closest thing you'll get to an actual money printer.

The trick with starting these kinds of businesses is to find one customer (B2B) who is willing to do the crazy thing with you. Someone who is fed up with the current state of affairs in their domain. Ideally, someone who is already a customer of one of these vendors you seek to compete with.

If I wanted to build a payment network from scratch, I would partner with a bank and begin with existing payment rails (Jack Henry, etc.,). and layer value-add on top (custom fraud detection, rewards programs). Over time, issuance, merchant acquiring and other concerns could be discussed once the trust and value proposition has been proven out. This is a very long play.

The hardest part of breaking in is finding that first customer and making sure they're a good one. If you have a good partner, it really does feel like cheating by comparison. I've worked with banks who could get things out of vendors with a five minute phone call that we couldn't in a million years. Stack a few of these and it begins to look like you're on the correct side of the moat.

corry• 8 months ago

Every other type of business I come across or analyze makes me think "Man, there really is nothing as good as SaaS" and I thank my lucky stars I was here for it.

High 80%+ gross margins; high retention/recurring revenues (if you're doing it right); easily metric'd (CAC, LTV, conv%, etc); capital specialized for deploying into it (most VC of the last decade); alignment with clients w.r.t. value/impact (or they don't renew); straightforward lining up of 'value to customer' and pricing; common benchmarks and shorthands for valuation multiples; etc.

Simple business to understand / run / grow, assuming you have a good product in a good market.

It really is quite the business model.

jimnotgym4• 8 months ago

I really hate the terminology of the first sentence

Divide a company's income by its revenue

How about dividing a companies operating profit by its revenue? Income is a vague term and is just as often equated with revenue... which makes the opening sentence a bit weird.

Going further, most people talking about different sectors having different margins are talking about the gross profit margin. In a retailer gross profit could be the sales minus the cost of the things that got sold and probably the cost of the people in the stores. In a service business it is normally the sales minus the cost of people doing the work that was sold. At a hosting company it could be the sales- minus the electricity, Internet, engineers.

The important distinction is that gp does not normally include 'head office costs', accountants and other parasites, so it is easier to compare the different segments from the amount they are going to contribute towards your fixed costs.

zackmorris• 8 months ago

This is maybe the first dataset I've seen that clearly illustrates how margin (profit) is inversely correlated with value to humanity.

Other than Ports, the top 7 highest-margin industries (stock/crypto exchanges, stock exchanges, banks, toll road operators, financial services and asset management) are in financialization and rent-seeking, basically acting as middlemen that use other people's money to extract wealth.

Meanwhile the bottom 7 lowest-margin industries other than LiDAR and aircraft leasing (CRISPR, gene therapy, hydrogen fuel cell, genomics and mRNA therapeutics) arguably have some of the greatest potential to improve quality of life and help the planet.

Sometimes it feels like everything that I care about most has been marginalized and commodified to the point of financial inviability. Meanwhile people who simply came out on the winning side of the multiverse and pulled up the ladder behind them are doing so well that they mock the rest of us for working by actively making our lives harder at every opportunity.

BobbyTables2• 8 months ago

I also feel similarly when I was finishing grad school.

I learned advanced engineering topics only to find that the “hot” areas were social media and cell phones.

Not sure what, but always assumed there would be better uses of such an education.

I was largely mistaken.

candiddevmike• 8 months ago

All of the money is mostly tied up in safe bets for boomers. You don't see capital chasing big bets because folks would rather get their 4-7%+ "guaranteed" than risk it on a startup.

There's probably some meta commentary on the global risk climate in general since COVID here.

toomuchtodo• 8 months ago

Longer life expectancy has led to stagnation due to those older in power and owning wealth to have reduced risk appetite for investment and innovation, leading to maintaining the status quo and their quality of life for the balance of life remaining. They are stealing from the future through the demand for profits today.

Peter G. Peterson wrote about this in Gray Dawn 25 years ago, Scott Galloway talks about it today.

https://openlibrary.org/books/OL385129M/Gray_dawn

https://www.ted.com/talks/scott_galloway_how_the_us_is_destr...

jldugger• 8 months ago

the bottom 7 lowest-margin industries ... (CRISPR, gene therapy, hydrogen fuel cell, genomics and mRNA therapeutics) arguably have some of the greatest potential to improve quality of life and help the planet.

Critically, all the revenue for things you mention have yet to materialize, so they will show up in this naive analysis as losers. What they really represent is _opportunity_. Some may materialize but others have been around for decades and it turns out the "application for profit" step is much harder than anticipated.

margin (profit) is inversely correlated with value to humanity.

You say this like it's a bad thing, but arguably the most valuable things to humanity are food, water, and shelter. These are simultaneously so important and so cheap that they embody the term "commodity," and that's a good thing! A _ton_ of human ingenuity from every society and culture has been applied to making these things better and cheaper and more plentiful. The same thing is happening to solar power (mostly for geopolitical reasons), which is conspicuously not on either of your lists.

Shelter is the one bit in the hierarchy of needs that got weird. Since it's not a consumable, there's incentive to treat it as an investment. In theory there's nothing wrong with that, but the incentives combined with local politics can become toxic. So many voters in the US own real estate (with leverage!) that everyone agrees by default that prices must never go down. That leads to a trap where politics revolve around housing prices never falling.

tshaddox• 8 months ago

This is maybe the first dataset I've seen that clearly illustrates how margin (profit) is inversely correlated with value to humanity.

Of course, this pretty closely matches the basic Econ 101 explanations of competition and free markets. The entire goal of competition is to reduce prices, specifically to get the market price of a good to trend down towards the marginal cost. The thing that's supposed to be good for society isn't that some people get very rich by selling things at high profit margins, but rather that the stuff we want is available at the lowest feasible price.

hiAndrewQuinn• 8 months ago

I was about to say "Wait, you want to live in the world where gene therapy is as heavily marked up as toll roads?" in the same spirit as this. Low profit margin is the good outcome, not the bad outcome.

takinola2• 8 months ago

Other than Ports, the top 7 highest-margin industries (stock/crypto exchanges, stock exchanges, banks, toll road operators, financial services and asset management) are in financialization and rent-seeking, basically acting as middlemen that use other people's money to extract wealth.

OK, I'll bite. This is a very ungenerous take. Entities that aggregate and provide capital create enormous real human value. In fact, I would argue that most of the improvement in modern life that we all take for granted is because capital markets are available and accessible at scale. Where does the biotech company working on the new gene therapy get the billions it takes to develop and bring that drug to market? Where does the aircraft leasing company get the money to pony up for aircraft at hundreds of millions a pop?

I think it is fair to argue about whether the financial services use their position fairly/wisely/etc but it is unfair to dismiss the industry as "middlement using other people's money to extract wealth".

boramalper• 8 months ago

See: Mortgages are a manufactured product (2022) by Patrick McKenzie (patio11)

https://www.bitsaboutmoney.com/archive/mortgages-are-a-manuf...

Swenrekcah3• 8 months ago

These entities facilitate value creation yes, but they do not create much value and certainly not in proportion to the profits they extract.

I have met people who sincerely seem to believe that if an entity makes money then it must be societally useful because otherwise the market would not reward them with profits.

This seems to me like a self-help belief for people in these lucrative but ultimately not very meaningful positions.

versteegen2• 8 months ago

Obviously the financial sector provide a lot of value, but they also extract a LOT of value and probably even worse employ a LOT of the smartest people (I recall the rebalancing of Iceland's economy after its banks failed), and couldn't we get nearly the same benefits with far less of the global economy being dedicated to financial services and trading (which neither I nor it seems the OECD categorise under "services")?

For example according to the OECD [1] 25% of Luxembourg's GDP (excluding interest and trading profits [2]) and 10% of employment is due to financial services! For comparison, for the UK and USA it's 8.8% and 8.3% of GDP.

In particular it's hard to me to see how market trading activity that provides a price for equities to the second, instead of say holding auctions every hour (which would probably greatly reduce profits for day traders and HFT), helps any drug development or aircraft leasing company to raise money. Financing deals don't happen on the market, and if market price is involved, typically something like the last month's average daily closing price is used.

We might call middlemen parasitic if they extract more value than they provide, but as you say, without finance the global economy wouldn't function. Let's instead consider the marginal utility of more of the economy being dedicated to finance. I'm convinced it's negative.

[1] https://www.oecd.org/en/publications/2025/04/oecd-economic-s...

[2] Quote from [1]:

In the national accounts, financial services output is measured as the sum of financial intermediation services indirectly measured (FISIM) and fees, for instance on account keeping, credit cards, brokerage, financial advice and asset management. ... Trading profits and other interest income, for instance on bonds and derivative products, are excluded from the national account measure of financial services output.

James_K4• 8 months ago

Banks do not provide capital. When I buy 50 tons of steel, no bank has sold it to me. The smelters and miners have provided that capital. Banks allocate capital. It is management, not provision.

With that in mind, there are two types of productive financial work: actuarial services and accounting. Actuaries act as the managers of society's resources, ensuring that net profit is made and risk well distributed, and accountants determine what those resources are. It is clear that many of the people in finance are not qualified to provide either of these services and simply leach profit out of the rest of the economy.

Notice that neither of these rely on capital markets and speculation. Speculators have been repeatedly proven to be horrible managers, performing worse than random chance. History is clear on this: if left to their own devices, speculators will destroy the economy. Only by means of strict regulation can they be forced into doing the productive actuarial and accounting work for which they are hypothetically employed. Yet for some reason, we still allow these people to operate without oversight in many cases and to extract massive profit beyond the value of their work.

spongebobstoes• 8 months ago

crypto exchanges, stock exchanges, banks, toll road operators, financial services and asset management

While these are bogeymen, they do provide clear services that people need.

Banks should be obvious. A toll road is the worst offender in the list, it's tough to justify the eternal regressive tax.

The rest falls into financial markets. A steelman argument here could be that those services all make the power of compound interest broadly available. It's maybe the only exponential power available to average people.

I think there's a good argument that financial markets are a big reason that people can ever retire.

antisthenes• 8 months ago

I think there's a good argument that financial markets are a big reason that people can ever retire.

There isn't. The reason people can finally retire in the 20th and 21st centuries is due to extreme exploitation of fossil fuels and using multiples of stored energy to make goods, which would normally be unavailable compared to the energy budget coming from the Sun in a given year.

You can argue in some way that the financial markets made this wealth easily accessible to the average joe through a 401k, but it could have been just as easily allocated using a different not-for-profit mechanism.

phkahler• 8 months ago

> This is maybe the first dataset I've seen that clearly illustrates how margin (profit) is inversely correlated with value to humanity.

9th from the bottom is EV charging. You might think that's going to improve quality of life, but the reality is these are companies trying to be middle men in a commodity market. They want to profit from delivering electricity to locations along the highway. It's kind of stupid because most people can charge at home overnight and be good for the next day or three. OTOH if you're going on a long trip you'll want to plan stops at these places but since you're planning you can check prices too.

alexashka• 8 months ago

Sometimes it feels like everything that I care about most has been marginalized and commodified to the point of financial inviability

Every day is a new chance to re-examine what you most care about and make some surprising discoveries.

Or not :)

didibus• 8 months ago

Why doesn't competition drive their margins to be smaller? That's what I'm curious about.

Article says Unit Economies or regulatory monopoly, but I'd be interested in something that goes deeper, specifically around financial services.

pinkmuffinere• 8 months ago

stock exchanges, banks, toll road operators, financial services and asset management are in … rent-seeking.

This is an absolutely insane take. If you truly believe it, then I propose two tests:

1. You should start a business that provides the same services without rent seeking. If they’re really these low-value things that are just charging high prices, then you should be able to setup very attractive alternatives, make a ton of money yourself, and improve the world in a big way.

2. If you don’t have the energy or willingness to start them yourself, you could limit your use of them to the absolute bare necessity. If you believe they extract value, you could probably do better for yourself by using them less.

squirrellous• 8 months ago

Agree with the general point. I’d maybe add that a lot of times it’s the scale of the profit that makes something a net negative for humanity, not the percentage based margin. A lot big tech started small and in the early stages created a ton of positive value, sometimes with a respectable margin, but once they are at billions of market capitalization and starts chasing profits for investors, the positive societal value gets eroded.

AnthonyMouse2• 8 months ago

Meanwhile the bottom 7 lowest-margin industries other than LiDAR and aircraft leasing (CRISPR, gene therapy, hydrogen fuel cell, genomics and mRNA therapeutics) arguably have some of the greatest potential to improve quality of life and help the planet.

You're missing how the calculation works.

Suppose you work in a lab doing genomics etc. You get paid, say, $100,000/year, and you require some equipment which costs another $100,000/year to pay off and which goes to pay the salaries of the people who invented or manufactured it. Then your lab has $210,000/year in revenue, which means $10,000 in profit and a margin of ~5%, which isn't super high.

That's good! It means the people paying for your services aren't paying a huge margin on top of your salary to receive your services so more people can afford it. Or it means you're getting paid $100,000 instead of $60,000, the latter of which would have quintupled the investors' profit but reduced your incentive to do that work, reducing the quality of the people they can attract to do it.

Whereas industries with high net margins are the ones that are the most dysfunctional or captured by incumbents. It's no surprise that all the finance stuff is there at the top since that's the most thoroughly captured industry in the country. But that doesn't mean you want other things to be like that, it means you want those things to be more competitive so the money is going to customers as lower prices or workers as higher wages instead of going to fat cats as higher margins.

ghiculescu2• 8 months ago

This is true. But there’s another side to it too, which is that if the industry was more profitable it would (probably) attract more investment, specifically in the form of new companies.

TeeMassive• 8 months ago

It's sad to see that the highest operating margins are not industries that produce actual value but financialized slop makers.

next_xibalba2• 8 months ago

Generally "income" refers to net income, which, then invalidates "divide a company's income by its revenue, and you get the operating margin". Perhaps the author means to say "operating income". In any event, operating profit and even net income don't give you a good approximation of cash (unless you're doing cash accounting, which no real company is doing) because they include non-cash charges such as depreciation and amortization.

nostrademons• 8 months ago

So this article is conflating the 3 different types of margins [1], and that's at least partially responsible for the results it gets. It talks about operating margins, but the definition that it gives is actually the definition for net margins, net income / revenue. Operating margins uses operating income, which excludes interest, taxes, and capital expenses. There's also gross margins, which are basically the value you add over cost of inputs divided by your revenue, not counting salaries, marketing, customer acquisition, or any of the other stuff you have to do to get from raw materials to products in customers' hands.

The article found that the highest margins are in ports, financial services, toll roads, etc. with certain key (but not all) software, AI, and semiconductors having good margins. But this is a logical consequence of the definition of margin they chose. These are all very capital-intensive businesses: it takes a huge amount of money to build a port, or a fab, or a search engine, or a road, or to start up a bank or insurance company. The financing cost of building these capital improvements, as well as the depreciation on them, is explicitly excluded from the definition of "margin" that the article chose.

Note also that this explains why certain semiconductor and tech companies have high margins but many are very low-margin. If you are TSMC or Intel, you own your own fabs. You spend tens of billions of dollars to construct them, and the financing cost of those investments is explicitly excluded from the definition of "margin" chosen by the article. But if you are a random ASIC manufacturer, you pay TSMC to fabricate your chips, and those payments are included in Cost of Goods Sold and excluded from your gross margin, let alone your operating margin. Likewise, if you are Google, Amazon, or Microsoft, you're making huge capital investments in datacenters. But if you're a random SaaS, your cloud computing costs are included in COGS, they become revenue for the cloud provider, and so your operating margins look much worse.

I'd be much more interested in seeing the analysis re-run with net margins.

[1] https://www.investopedia.com/ask/answers/102714/whats-differ...

purplepatrick• 8 months ago

Thank you! I was just about to rant about this and decided to scroll to see if anyone had already called this out.

The article is quite embarrassing - it’s ok if you don’t know how P&L statement and balance sheet work, but writing an entire blog post without ever feeling the need to verify basic terminology is either very lazy or very ignorant…

tringuyen_cse• 8 months ago

I'm suprised that pharmaceuticals having quite low margin compared to other industries. This report shares an opposite story (https://pmc.ncbi.nlm.nih.gov/articles/PMC7054843/), but maybe because the numbers are not very recent (10 years ago)

Operating Margins

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