April 17, 2008

Big Numbers

Google just released their 1Q08 financials today, and the news is good - if you're a stockholder, which is probably rare at $449.54 a share.

One thing I find hard to believe is the way that some industries (ok, it seems like software mostly), have profits that are a huge percentage of their revenue. 30% of Google's revenue was profit last quarter - translates to roughly an OR (Operating Ratio = Operating Expenses / Revenue) of 70. Blizzard Entertainment (admittedly a subsidiary of Activision-Blizzard), though not public, supposedly operates around 42? Which is insane, but makes sense when you look at WoW's subscriber numbers.

This differs entirely from the freight industry. We pretty much shoot for as low a number between 100 and 89 as we can get (hopefully at least sub-96 or so, that's what we need to be able to recapitalize periodically). Of course, with the current recession, we were one of the first industries to take the hit (consumer slowdown = less need to refresh inventory), and we'll be one of the first to see the rise back. Just don't ask us when: by the time we notice it, it'll probably be in full swing.


Brian Sullivan said...

It's the other way around for me. The software industry profit margins don't surprise me, but the idea of a business that has margins that hardly ever break out of the single digits is astounding to me. Certainly not the kind of business one would want to start, given that those margins are for a company that is fully mature and that has the ability to measure its costs well.