3 ms·
A focus on margins irrespective of industry leads to incorrect analysis. For example, look at Comcast, a company that truly operates as a monopoly/duopoly in mo
by runako 4y ago
A focus on margins irrespective of industry leads to incorrect analysis. For example, look at Comcast, a company that truly operates as a monopoly/duopoly in most of its markets. It has an operating margin of 7.6%.
On the other hand, Exxon Mobil has an operating margin of nearly 20% despite selling an undifferentiated commodity in a market with many well-capitalized competitors. (They are not the only one: ConocoPhillips also sports an operating margin in the range of 20%.)
The particulars of a market often drive margins more than does the competition.
- iudqnolq 4y agoThat's why the person you're replying to didn't look at margins irrespective of industry. They compared Microsoft to Apple.
- syrrim 4y agoApple sells hardware and software/services, Microsoft sells primarily software and software services (surface aside). Hardware is the business of buying materials, improving them, and selling them at a premium. Software is the business of developing software, then selling it to as many people as you can. Software naturally lends itself to high margins. Hardware less so.
- eigenvalue 4y agoCapital intensive businesses like Comcast with lots of plant and equipment tend to have lower operating margins because of all the D&A.
- runako 4y agoThis is one reason why operating margin alone doesn't speak to the competitive nature of the market in which a company competes. Other reasons include current position in a cyclical business cycle, quality of management, corporate history (e.g. accumulated debt), etc. Also note that the oil companies I mentioned have higher margins than Comcast, and they operate businesses that are also capital intensive with lots of plant and equipment. They operate in more competitive markets than Comcast, and yet they have higher operating margins. Different markets produce different results.