Traditionally technology companies in general and software in particular, and recently SaaS companies enjoyed very high gross margin. This high gross margin allowed them to invest heavily on R&D and S&M, and of course high profits, thus these companies enjoyed healthy multiples, etc.With the cloud, I thought margins would come under squeeze but mostly it resulted in HW and SI's margin coming under squeeze but not Software and SaaS.What will drive SW/ SaaS margins to come down? Why should SW enjoy high 80's margin?
Software companies are likely to be high margin because the investment they have in production is tiny compared to a manufacturing company.The cost of producing software code can be significant investment and their major asset. Otherwise, they may or may not own computers and office equipment.Their income is mostly from sale of services or software. Cost of goods sold is usually tiny.Compare that with the cost of building an auto plant.I recall looking over the 10k of H&R Block some years ago. To meet the financial ratio tests often used for manufacturing companies they owned a huge portfolio of bonds. Mostly their offices were leased. All they owned was software and office supplies.People talk about the huge cash accumulation at companies like Apple and Microsoft. You may imagine they too own large bond portfolios.
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |