Large-cap Information Technology Services company Fidelity National Information Services is down -5.9% during this afternoon's trading session, while the S&P 500 moved 0.58%. With last year's reported gross margins at 40.12%, you might be wondering if today's drop is an opportunity to pick up shares of a profitable company at a discount.
Gross margins give insight into the basic economics of the company' product line and its pricing power in the target market, yet it's essential to balance this with a review of Fidelity National Information Services's operating margins. Operating margins take into account the company's fixed overhead costs, in addition to the cost of revenue used to calculate gross margins.
Is Fidelity National Information Services plagued with bloated overhead expenses that are eating away at an otherwise profitable business? Or is the company currently unprofitable because it is in a growth phase? A combined analysis of both gross and operating margins can help answer these questions, so that you understand what kind of business you are investing in.
| Date Reported | Revenue (k) | Cost of Revenue (k) | Gross Margin | YoY Growth |
|---|---|---|---|---|
| 2022-12-31 | $14,228,000 | $32,817,000 | 40.12% | 1.42% |
| 2021-12-31 | $13,133,000 | $15,205,000 | 39.56% | 14.93% |
| 2020-12-31 | $12,213,000 | $14,400,000 | 34.42% | -10.06% |
| 2019-12-31 | $9,727,000 | $10,808,000 | 38.27% | 8.05% |
| 2018-12-31 | $8,058,000 | $7,624,000 | 35.42% | n/a |
Since Fidelity National Information Services's cost of revenue is growing at an average 39% per year, while its total revenues have a 12.43% growth rate, the only explanation for the widening margins is that the company is increasing its prices. Since prices cannot be increased indefinitely, Fidelity National Information Services's gross margin growth will eventually slow unless it can get its cost of revenue under control.
| Date Reported | Revenue (k) | Operating Expenses (k) | Operating Margin | YoY Growth |
|---|---|---|---|---|
| 2022-12-31 | $14,228,000 | $23,944,000 | -113.29% | -1510.83% |
| 2021-12-31 | $13,133,000 | $6,296,000 | 8.03% | 77.65% |
| 2020-12-31 | $12,213,000 | $6,061,000 | 4.52% | -54.62% |
| 2019-12-31 | $9,727,000 | $4,269,000 | 9.96% | -44.94% |
| 2018-12-31 | $8,058,000 | $2,118,000 | 18.09% | n/a |
The table above tells us that, on average, Fidelity National Information Services has not been profitable over the last four years, which should be a warning sign to prospective investors. Indeed, the company's operating margins are sinking at rate of -306.55%
