4 ms·

That’s a lot smaller than I expected, means they’re spending a lot of money on something

owenversteeg 6y ago
This isn't intended as personal criticism of your comment, but I've noticed that people with minimal experience in business often overestimate margins and don't entirely understand what they mean. A 37% margin is crazy high and truly exceptional; there are only a handful of businesses that profitable at scale. When you hear a 30%+ margin, think of businesses like Mastercard, that collect a percentage of most transactions that its 1B+ members conduct. Apple also has notoriously high margins for what they do, and theirs are at 18%. Most of the businesses people interact with in their daily life have low or even negative profit margins: Walmart 3%, restaurants ~2%, Uber -35%. All the storefronts are owned by commercial real estate groups (margins usually ~4%), gas stations are ~2%, travel, car dealerships, airlines etc are all very low margin. My personal gut feeling, when I see those very high margins, is that's it's a clear cut case of capitalism not working right. Occasionally margins are high because of innovation and the position is deserved, but not in most cases. Visa and Mastercard have long been in the top handful of most profitable businesses in the world, making basically all their money on interchange. As a result, if you want to accept payments in America, you're eating around 2.5% of the transaction cost right off the bat. You might think okay, but they provide something in return, right? Fraud protection and security and support and all these important things - what would we do without them, without paying that 2.5% tax? Turns out we'd do fine. The EU capped interchange for debit cards at 0.2% in 2015 and things have worked perfectly fine ever since. Other high margin businesses are clearly not benefitting the world (e.x. Philip Morris.) Patent trolls and Verisign are both fabulously profitable, and they add zero value. And even if you like those businesses, there's an even more compelling case for regulating away Elsevier in its entirety.
- saagarjha 6y ago
  I believe Apple's margins have been a fairly consistent 38% for the last few years at least.
  - owenversteeg 6y ago
    I should have clarified - I was referring to net margin, not gross, as net margin is what you'd discuss in this context. While gross margin is useful in some industries, it isn't useful for many companies discussed on HN, and you can't compare gross margins across industries. When people say "Walmart has a thin profit margin", they're not referring to Walmart's ~25% gross margin, they're referring to their ~3% net margin. (Apple's net margin is ~18%, gross margin ~38%) If you're looking deeper into a business's financials, gross margin can be a useful metric, but for the layman gross margins are usually used for misleading purposes. For example, gross margins can be easily Tweeted to make the point that "this evil business is making money hand over fist by selling xyz", or to indicate that a business is doing better than it actually is (Uber and WeWork, for example, have positive gross margins.) If you want to know the number representing how much Walmart paid for that chair vs how much you paid, you want to know the "markup". Markup is the difference between the cost of something and the price it is sold for. Confusingly enough, this is represented in different ways in different industries: some represent it as a fixed amount, some as a percentage of the total cost, and some as a percentage of the selling price. If you buy widgets for $4 and sell them for $8, your markup is $4: either (8-4)/8 = 50% of selling price, or (8-4)/4 = 100% of cost. Markup as a percentage of cost can range from several hundreds of percent (luxury goods) to ~15% (grocery stores.) Restaurants usually mark up food around 60% and drinks around 75%-400% (markup 300% of cost = $6 beer that cost $1.50.) "Keystone" pricing is when the markup is equal to the cost (meaning the ring on sale for $10k cost them $5k) - and is common in many industries including the jewelry industry, although fancier jewelers charge far more and budget sources charge less. Car dealerships, funny enough, have a lower markup than people might expect, between 2 and 5% of cost for economy base-model cars and 15% for high end cars. You can add in a few more % when you start to additional features to the car. (Dealerships these days often make most of their money through financing, service, accessories, warranties, and selling used cars.) It's very interesting to see historically high markups evaporating with direct-to-consumer sites like Aliexpress. But I've rambled enough in this comment already :)
pessimizer 6y ago
Executive salaries.
- marcinzm 6y ago
  Do stock buy backs count as profits or are they taken out before that calculation?
dagw 6y ago
Elsevier have a lot of businesses and services outside of journal publishing that they no doubt sink a lot of money into. I'm guessing they also see the writing on the wall for their old business model and are funneling a lot of cash into trying to find new, more future proof, revenue streams

This isn't intended as personal criticism of your comment, but I've noticed that people with minimal experience in business often overestimate margins and don't entirely understand what they mean. A 37% margin is crazy high and truly exceptional; there are only a handful of businesses that profitable at scale. When you hear a 30%+ margin, think of businesses like Mastercard, that collect a percentage of most transactions that its 1B+ members conduct. Apple also has notoriously high margins for what they do, and theirs are at 18%. Most of the businesses people interact with in their daily life have low or even negative profit margins: Walmart 3%, restaurants ~2%, Uber -35%. All the storefronts are owned by commercial real estate groups (margins usually ~4%), gas stations are ~2%, travel, car dealerships, airlines etc are all very low margin. My personal gut feeling, when I see those very high margins, is that's it's a clear cut case of capitalism not working right. Occasionally margins are high because of innovation and the position is deserved, but not in most cases. Visa and Mastercard have long been in the top handful of most profitable businesses in the world, making basically all their money on interchange. As a result, if you want to accept payments in America, you're eating around 2.5% of the transaction cost right off the bat. You might think okay, but they provide something in return, right? Fraud protection and security and support and all these important things - what would we do without them, without paying that 2.5% tax? Turns out we'd do fine. The EU capped interchange for debit cards at 0.2% in 2015 and things have worked perfectly fine ever since. Other high margin businesses are clearly not benefitting the world (e.x. Philip Morris.) Patent trolls and Verisign are both fabulously profitable, and they add zero value. And even if you like those businesses, there's an even more compelling case for regulating away Elsevier in its entirety.

saagarjha 6y ago
I believe Apple's margins have been a fairly consistent 38% for the last few years at least.
- owenversteeg 6y ago
  I should have clarified - I was referring to net margin, not gross, as net margin is what you'd discuss in this context. While gross margin is useful in some industries, it isn't useful for many companies discussed on HN, and you can't compare gross margins across industries. When people say "Walmart has a thin profit margin", they're not referring to Walmart's ~25% gross margin, they're referring to their ~3% net margin. (Apple's net margin is ~18%, gross margin ~38%) If you're looking deeper into a business's financials, gross margin can be a useful metric, but for the layman gross margins are usually used for misleading purposes. For example, gross margins can be easily Tweeted to make the point that "this evil business is making money hand over fist by selling xyz", or to indicate that a business is doing better than it actually is (Uber and WeWork, for example, have positive gross margins.) If you want to know the number representing how much Walmart paid for that chair vs how much you paid, you want to know the "markup". Markup is the difference between the cost of something and the price it is sold for. Confusingly enough, this is represented in different ways in different industries: some represent it as a fixed amount, some as a percentage of the total cost, and some as a percentage of the selling price. If you buy widgets for $4 and sell them for $8, your markup is $4: either (8-4)/8 = 50% of selling price, or (8-4)/4 = 100% of cost. Markup as a percentage of cost can range from several hundreds of percent (luxury goods) to ~15% (grocery stores.) Restaurants usually mark up food around 60% and drinks around 75%-400% (markup 300% of cost = $6 beer that cost $1.50.) "Keystone" pricing is when the markup is equal to the cost (meaning the ring on sale for $10k cost them $5k) - and is common in many industries including the jewelry industry, although fancier jewelers charge far more and budget sources charge less. Car dealerships, funny enough, have a lower markup than people might expect, between 2 and 5% of cost for economy base-model cars and 15% for high end cars. You can add in a few more % when you start to additional features to the car. (Dealerships these days often make most of their money through financing, service, accessories, warranties, and selling used cars.) It's very interesting to see historically high markups evaporating with direct-to-consumer sites like Aliexpress. But I've rambled enough in this comment already :)

pessimizer 6y ago

Executive salaries.

marcinzm 6y ago
Do stock buy backs count as profits or are they taken out before that calculation?

dagw 6y ago

Elsevier have a lot of businesses and services outside of journal publishing that they no doubt sink a lot of money into. I'm guessing they also see the writing on the wall for their old business model and are funneling a lot of cash into trying to find new, more future proof, revenue streams