High Margin Industries

Example: Craiglist

I’d wager that most people are familiar with Craigslist and how it works from a fundamental level. Still, I think few appreciate just how enormously profitable this business is, from both a profit margin and absolute dollars perspective. Craigslist is privately owned* and pretty secretive, so there’s unfortunately not a lot of publicly available financial disclosure. That said, there are enough data points out there to put together a rough picture of what is happening behind the scenes:

  • It is conservatively estimated that in 2016, Craigslist realized ~$700mm of revenue, with net margins of around 80%. That is an insane statistic. I’d challenge you to find another business that operates at that scale with those kinds of margins. Go ahead; I’ll wait.
  • Craigslist purportedly operates with about 50 employees. Total. Most McDonald’s franchises probably have a larger headcount.
  • Craigslist is the leading classifieds service in almost every category – real estate, cars, jobs, even dates. It has been so utterly dominant in classifieds that back in 2004, eBay bought a ~30% stake in Craigslist from a former employee, just to try to understand the business model and emulate its success. 11 years later, they admitted defeat and sold the stake back to Craigslist. As of Aug 2018, it is the 16th most visited site in the United States.
  • Craigslist doesn’t even really try to earn money. In a 2006 investor conference, CEO Jim Buckmaster famously said that he’s not at all interested in maximizing profits, rather trying to create a good experience for buyers and sellers and help them connect. In fact, Craigslist doesn’t charge a dime for the vast majority of listings on the site, leading a lot of people to think that the site is non-profit mistakenly.

As an investor, it’s frankly hard to believe that such remarkable business could exist in the form that it does, given the competitive pressures in today’s eCommerce ecosystem. But I guess that’s just to show the enormous value that a well-designed and customer-centric product can create. Add to that a lean cost structure and some powerful network effects, and you have yourself what’s likely the best business in the world. Yeah, I said it.

* Oh yeah, lest you had the bright idea to invest in Craigslist, sorry to say that there’s no practical way to do so. Virtually no shares trade in the secondary market, as Craigslist has a policy of buying back shares from employees when they leave. And the founder/owner has publicly said that he’ll never take the company public or sell his equity stake. Guess we’ll have to settle for the likes of Facebook and Amazon.

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