I’ve been thinking how important gross margin is to the profitability of companies I invest.
TWLO has gross margin of 55%.
Let’s assume down the line they can get up to 60%.
If fixed costs drop to 40%, their operating margin can get to 20%.
Most of the Saas companies I invest in are 80%+ gross margin.
40% fixed costs, that is an operating profit of 40%.
With a 20% higher gross margin, they can be 2x more profitable, so are really worth twice as much per dollar of revenue.
And AYX is over 90%, they could potentially get much higher than 40% operating profit.
Gross margins matter.