[HN Gopher] Operating Margins
___________________________________________________________________
Operating Margins
Author : fi-le
Score : 250 points
Date : 2025-11-09 15:46 UTC (5 days ago)
(HTM) web link (fi-le.net)
(TXT) w3m dump (fi-le.net)
| soontimes wrote:
| I like your style - clear, on point, and no attempts to sell me
| anything. It's honestly refreshing to read
| i_am_a_peasant wrote:
| ++1
| NebulaStorm456 wrote:
| There is another aspect to this, "Can the margins scale?"
|
| https://www.bloomberg.com/opinion/newsletters/2025-11-13/bla...
| cies wrote:
| https://archive.is/EdxHn interesting read.
| fi-le wrote:
| Thank you for the kind words.
| tekne wrote:
| This is an excellent article, but the graph is unreadable on
| mobile even with a relatively large screen.
| forgetfulness wrote:
| I did like famous visionary CEO Steve Jobs used to advice, and
| it read well enough
|
| I held my phone sideways
| kqr wrote:
| 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 wrote:
| 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.
| kqr wrote:
| > Guess you hacked the Plot.ly widget?
|
| Paintbrush in Gimp on top of screenshot.
| achairapart wrote:
| 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.
| kqr wrote:
| > 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 wrote:
| 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.
| sokoloff wrote:
| 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.
| cies wrote:
| I stumbled over this sentence in the same way. And drew the
| same conclusion: the author uses "income" to mean "profit"
| sokoloff wrote:
| 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".
| arethuza wrote:
| I think "income" is the standard accounting term in the US
| - in the UK the equivalent is "profit" (e.g. "P/L" vs
| "income statements").
| christophilus wrote:
| I thought revenue was the standard accounting term in the
| US. I think of income as what I get to keep / freely
| reinvest, and revenue as a number that contains all kinds
| of hidden liabilities such as taxes, cost of sales, etc.
| That said, I'm (obviously) not an accountant.
| phrygian wrote:
| The operative word should have been 'operating' income, which
| is revenue - operating expenses - cost of goods sold
| RamblingCTO wrote:
| > 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 wrote:
| 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 wrote:
| I believe that for operating income which would be used to
| calculate operating margin, taxes are not yet deducted.
| kgwgk wrote:
| > 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 wrote:
| 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_xibalba wrote:
| 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.
| PopAlongKid wrote:
| 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.
| jimnotgym wrote:
| 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 wrote:
| 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 wrote:
| It's probably a weighted average, as described earlier in the
| article.
| kqr wrote:
| 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 wrote:
| 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 wrote:
| "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 wrote:
| Conversely, the ones which still exist are biased towards
| industries where that's very hard.
| cluckindan wrote:
| 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 wrote:
| Margins are also high based on brand. But software by
| definition should be a high marginal profit business.
| scott_w wrote:
| 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 wrote:
| A slightly cheaper iPhone is already in the market (android).
| In theory Apple shouldn't be able to maintain these high
| margins.
| scott_w wrote:
| Well yes, that was my point ;-)
| Vaslo wrote:
| 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 wrote:
| 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 wrote:
| 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 wrote:
| It skews the other way just as often in my experience. That
| large clump at 10% has some wildly profitable businesses in it.
| PopAlongKid wrote:
| 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".
| jimnotgym wrote:
| If you were "profitable but no cash flow" then you must
| have non-cash _additions_ to your profit, not deductions.
|
| A classic example of 'profit but no cashflow' might be
| where you made a profit but spent a lot of money on stock
| that you haven't sold yet. Or you made a lot of sales that
| you are yet to be paid for.
|
| In the PE world it is just as likely that you made a profit
| before interest and tax, but you paid it all in interest.
| You would then have an operating profit but no cashflow due
| to a cash item. It could still make it a good business to
| own, if you didn't need the debt, or wanted to have the
| interest paid to you.
|
| Maybe you made a profit but paid it all in dividends to a
| holding company. Then you have a profit but no cash flow
| due to _cash items that don 't affect the p&l_.
| PopAlongKid wrote:
| You're right about non-cash additions. I was confusing
| this with an enterprise showing a _loss_ (especially for
| tax purposes) despite a positive cash flow. The classic
| example would be residential real estate, where
| depreciation can cause a net loss despite the landlord
| receiving enough rent to pay mortgage /property
| tax/maintenance. This is why in the U.S. there are rules
| that limit current deductions on the tax return for
| passive losses.
|
| So I would think the "other way" from profitable/no cash
| flow is loss/with cash flow.
| mbesto wrote:
| 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".
| alexpotato wrote:
| 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 wrote:
| > 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 wrote:
| Shouldn't you include the ad costs in your margin calculation?
| alexpotato wrote:
| Yeah, the 4% is really Gross Margin (although COGS here is
| effectively zero).
| therealdeal2020 wrote:
| 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 wrote:
| Reinvestments in the business factor into a different ratio.
| This only factors operating expenses.
| projektfu wrote:
| 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 wrote:
| 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 wrote:
| 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 wrote:
| 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
| cs702 wrote:
| 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.
| baxtr wrote:
| Do you mind sharing a link of your linking for (a)? Thank you
| coatmatter wrote:
| https://www.berkshirehathaway.com/letters/letters.html
| jimnotgym wrote:
| 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.
| itake wrote:
| Isnt thay accounted for in the revenue - profit equation?
|
| The cost of capital is expressed in their balance sheet as
| expenses or depreciation. Pay back loans, investors, etc
| are all considered when calculating profit.
| redwood wrote:
| In theory but that's where the accounting games come in:
| how you choose to capitalize the expenses over what time
| horizon and how you recognize the returns are extremely
| relevant. While you might point out that there are
| commonly accepted accounting principles, you'll also note
| that people use all kinds of different approaches for
| different types of businesses were where they argue the
| commonly accepted model is not quite the right fit the
| shape of the business
| cs702 wrote:
| 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 wrote:
| Can I just say that your blog's design is so beautiful and
| readable? Do you mind sharing how you built it?
| lbotos wrote:
| right click -> inspect
|
| HTML looks pretty handwritten (lack of crazy css classes and
| simple structure)
|
| <link rel="stylesheet" href="https://fi-le.net/css/tufte.css">
|
| They are using tufte.css https://edwardtufte.github.io/tufte-
| css/
| graerg wrote:
| Part of it is this tufte.css:
| https://edwardtufte.github.io/tufte-css/
| fi-le wrote:
| Thank you! As the other commenters already figured out, I
| manually write HTML and use tufte.css with some minor
| customizations.
| infecto wrote:
| 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 wrote:
| 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 wrote:
| 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 wrote:
| > 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 wrote:
| 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.
| jimnotgym wrote:
| 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 wrote:
| 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 wrote:
| 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 wrote:
| 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 wrote:
| 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.
| ..
| chad_c wrote:
| So that's where the South Park Epsiode name comes from.
| Holy cow.
| jldugger wrote:
| > 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 wrote:
| > 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 wrote:
| 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.
| tomjakubowski wrote:
| You seem to be in agreement with the top-level poster,
| then. "Margin is inversely correlated with value to
| humanity" corresponds to "low margin is the good outcome",
| presuming that you see value to humanity as the good
| outcome.
| takinola wrote:
| > 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 wrote:
| See: _Mortgages are a manufactured product_ (2022) by Patrick
| McKenzie (patio11)
|
| https://www.bitsaboutmoney.com/archive/mortgages-are-a-
| manuf...
| KK7NIL wrote:
| What point are you trying to make?
|
| That article could be reduced to one phrase: "banks off-
| load mortgage risk by selling that debt to investors". But
| that doesn't drive clicks or strike the fear of
| corporations into your soul.
| Swenrekcah wrote:
| 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.
| takinola wrote:
| The Mafia makes (made?) a ton of profit but are a net
| negative on society. The better heuristic may be to
| consider what would be lost if the industry did not exist.
| Anything beyond subsistence agriculture would probably be
| impossible without financialization. There's a reason you
| had banks even in the middle ages when the average person
| was poor.
| spongebobstoes wrote:
| > 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 wrote:
| > 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 wrote:
| >> 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 wrote:
| > 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 wrote:
| 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.
| TeeMassive wrote:
| It's sad to see that the highest operating margins are not
| industries that produce actual value but financialized slop
| makers.
| next_xibalba wrote:
| 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 wrote:
| 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...
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