Profit margins, what's a respectable number?

[Andrew]

I was reading about Microsoft's first fiscal quarter for this year. Their margin at the bottom line was 31%!

I would be curious to hear what others think is a respectable margin after everything. Google is around 27%, Yahoo 12% (2006), GE 11%, Dell 6%, PG 13%, Wal-Mart 3.5%

So is the software business that good or are they charging too much for their products?

[haha]

...So is the software business that good or are they charging too much for their products?

just spend one year of developement time and dupe that same software for the next 4 years. MS commands over 90% of the OS market after a while it's just pure profit. How about Intel? over 50%. Nvidia somewhere around 40%. Oh...the oil refiners...that's gotta be the highest. How much have they paid the mother nature for a barrel of crude?

[RickBullotta]

I was reading about Microsoft's first fiscal quarter for this year. Their margin at the bottom line was 31%!

I would be curious to hear what others think is a respectable margin after everything. Google is around 27%, Yahoo 12% (2006), GE 11%, Dell 6%, PG 13%, Wal-Mart 3.5%

So is the software business that good or are they charging too much for their products?

That's an interesting discussion, Andrew. Everytime someone complains about Exxon's profits, I have to remind them that in terms of profit *margin*, they're way, way down the list. Hey, I'm no fan of big oil, that's for sure, but it isn't an argument that holds water.

Consumer products companies generally double the margins of oil, and software companies generally triple them. The companies that sell sugared water or just water (Pepsi, Coca Cola) do 20+% for Chrissake!

And look what you're paying for a gallon of Starbucks coffee...

[bluyork]

Microsoft is an exceptional case, having defined a market a couple of decades ago, and establishing a wide, somewhat captive market base. To them, new sales are like renewals, what with MS systems being the uncontested choice of consumer and business customers. In Exxon-Mobil's case (also no fan of big energy, but realize that we need it), R&D, exploration costs are staggering. On the other hand, they've been getting a free ride on royalties from the USG for some time.

I think that well-run businesses in full operation should be able to meet net margins in the 15-25% range, with many exceptions, including commodities and government contracting shops. Startups are a different story as we know.

[haha]

...Everytime someone complains about Exxon's profits, I have to remind them that in terms of profit *margin*, they're way, way down the list. Hey, I'm no fan of big oil, that's for sure, but it isn't an argument that holds water...

Sure...one could argue many ways. Operating income...yeah if a CEO gets paid 400 million USD and the company earns 400 million...sure that's 0% profit margin. If the $$$ increase at pump is justified and truely reflects the cost...where did the profit come from...hmmm... profit = revenue - cost

[Andrew]

just spend one year of developement time and dupe that same software for the next 4 years. MS commands over 90% of the OS market after a while it's just pure profit. How about Intel? over 50%. Nvidia somewhere around 40%. Oh...the oil refiners...that's gotta be the highest. How much have they paid the mother nature for a barrel of crude?
I show Intel at 14% for 2006. 50% GM at bottom line would be nuts! I want to be in that business.

[Andrew]

I think that well-run businesses in full operation should be able to meet net margins in the 15-25% range, with many exceptions, including commodities and government contracting shops. Startups are a different story as we know.

Startups are brutal and I am starting to think that building a company from scratch is one of the hardest things to do. At the same time I think it is important to think about the question I first posed to evaluate an early business model to know if it really is a good business. Bill Gates has build one hell of a business.

[mille162]

Analysis should be affected by size and age of the company too. If the company is new, in a new market, or still has room for growth, the profit should be spent on growing the business, not on posting big returns for investors. If they're at a stage of growth where they're ramping up for an IPO, companies will do things to skew those numbers and get a better opening price, so again, the profit margin isn't a good indicator of a companies health.

As a general rule of thumb, 10% growth is a healthy average, obviously if it's a $5mill company, higher growth can be expected than a $50mill company or a $500mill company.

To really evaluate a companies profit margin, you need to look at the whole picture, you can't really assign a "good" and "bad" number.

[dparent]

Just curious, is this a maserati web site or cnbc ????

[Andrew]

A Maserati site but the Driver's Lounge is anything goes, so CNBC for this thread.