Midjourney/prompt: "A vintage, academic-style illustration of various cogs, without any surrounding machine parts. The cogs should be depicted in an empty background, focusing solely on their intricate designs and details. The image should be in cross-hatching style..." Image via Lucas Crespo.

COGS: How I Bankrupted MoviePass

An intuitive explainer for how to lose money and win anyway

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Rodrigo Braz over 1 year ago

Thank you for the article. I was confused, though. The article talks about Galaxy being a better business because COGS are low, but then about companies wanting to make theirs COGS higher because that makes them look better, then looking at the COGS/Sales graph per industry, again talking about higher COGS/Sales ratio being better, but later talking about larger margins (therefore lower COGS) being better.

Evan Armstrong over 1 year ago

@RODRIGOBRAZ unfortunately the confusion is the point. COGS is not a good or bad thing, it is an optionality thing. the lower your COGS/Sales ratio the more flexibility you will have but lots of great companies have high cogs

@leo_8027 over 1 year ago

Enjoyed the article, thanks! I wasn't sure I was totally understanding the implications of this quote (also was clear you didn't mean it as a hard rule per se, but was curious about the reasoning.)

"But generally, the better the long-term outlook and financial performance of a sector, the more expensive assets in said sector will be."

Why does that tend to be the case? Is it just that it suggests that they are fundamentally dealing with something that people value highly, or is there another aspect?

Evan Armstrong over 1 year ago

@leo_8027 asset valuation should be based on the present value of future cash flows. so, if some sector of the economy is going to do better, assets in that sector will be more valuable. For example, software typically enjoys a higher software multiple than media companies because a software companies cash flows are predictable and steady for many years while a media company is in a dying industry with very unpredictable cash flows.