Operating Margins

Original Article ↗ Hacker News Discussion ↗

Article reception & presentation

  • Many readers praise the article’s clarity and lack of sales pitch.
  • Several complain the interactive margin graph is unusable on mobile; others share a static image and note the data is also in a table.
  • The blog’s Tufte-inspired design is widely liked, though one person criticizes line justification on mobile.

Definitions: income, profit, and types of margin

  • A major thread debates the opening phrase “divide a company’s income by its revenue.”
  • Multiple commenters argue “income” is ambiguous and often interpreted as revenue; they say “operating income” or “operating profit” would be clearer.
  • Detailed explanations distinguish:
    • Revenue, gross margin/profit, operating income, net income, and EBITDA.
  • Several insist the article conflates gross, operating, and net margins, leading to confusion.

Methodology concerns & data oddities

  • One commenter flags a country row (South Africa) where median margin is ~29% but average ~82% with sample size 7; this seems impossible unless the calculation is weighted or includes extreme values.
  • Others suggest it may be a weighted mean or affected by non‑operating income.

Limits of operating margin as a metric

  • Multiple participants stress that operating margin omits interest, taxes, and capital structure, and must be read alongside cash flow.
  • Examples are given of companies that are “profitable” on paper but cash‑starved, or conversely show accounting losses with positive cash flow.
  • Several argue capital intensity and return on invested capital are at least as important as margins.

Margins, competition, and moats

  • The “your margin is my opportunity” idea is discussed: high‑margin sectors attract disruption unless protected by regulation, network effects, or large upfront capital (e.g., payments networks, fabs).
  • Some push back, citing entrenched players like Apple or regulated/approval-heavy industries where disruption is extremely hard.

Sector‑specific and social observations

  • SaaS is lauded as an exceptionally attractive, high‑margin, easy‑to-analyze business model.
  • Affiliate marketing and other low‑margin models are described as brutally hard once ad spend and conversion are included.
  • Several note that high‑margin industries in the dataset skew toward finance, tolls, and exchanges, while low‑margin ones include advanced biotech and clean tech, prompting a long debate over:
    • Whether high‑margin finance is mostly rent‑seeking or essential capital allocation.
    • Whether low margins in socially valuable sectors are a “problem” or actually reflect competitive, affordable pricing.