1. What does it sell, and to whom?
Start with the customer, not the product. A company that sells to consumers lives and dies by brand and retail reach. One that sells to businesses depends on long sales cycles, contracts and support teams. One that sells to other technology companies, such as a chip designer or a cloud provider, is tied to its customers' own fortunes.
Many large companies do all three. That is why the next question matters.
2. How does the money arrive?
| Model | How it works | What to watch |
|---|---|---|
| Product sales | Customer pays once for a device or a licence | Upgrade cycles, pricing power, inventory |
| Subscription | Customer pays every month or year | Renewal rates, churn, price changes |
| Usage-based | Customer pays for what they consume, such as cloud compute | Customer growth and how much each one uses |
| Advertising | Users get the service free; advertisers pay for attention | Ad market health, privacy rules, user engagement |
| Platform fees | A cut of transactions made by others on the platform | Developer relations, regulation of app stores and marketplaces |
| Licensing and royalties | Others pay to use patents, designs or software | Contract renewals, legal disputes |
Subscription and usage revenue is usually described as recurring. Recurring revenue is easier to forecast, which is one reason software companies talk about it so much.
3. Which segments matter?
Listed companies split their results into reporting segments, groups of businesses that management reviews separately. The segment table in the annual report shows where revenue and operating income come from. Two things to look for:
- Concentration. Is one segment most of the business? If so, the company's story is really that segment's story.
- Mix shift. Is a faster-growing or higher-margin segment becoming a bigger share over the years?
Segment names and groupings change from time to time, so compare like with like when you read older reports.
4. What protects it?
A moat is anything that makes it hard for a competitor to take customers away. Common ones in tech:
- Network effects. The product gets more useful as more people use it, as with marketplaces and messaging.
- Switching costs. Moving away means retraining staff, rewriting code or losing data.
- Ecosystems. Hardware, software and services that work best together.
- Scale and process know-how. Manufacturing advanced chips needs huge investment and years of learning.
- Developer platforms. Tools and libraries that programmers already know and rely on.
Moats can erode. A new computing platform, a regulation or a change in what customers need can make an old advantage matter less.
5. Who does it depend on?
Tech companies are tightly linked. A phone maker depends on chip suppliers; a chip designer depends on a foundry; a cloud provider depends on chip designers and power supplies. Annual reports list major risks, including reliance on single suppliers or a small number of customers. Read that section: it is one of the most honest parts of the document.
A one-page checklist
- Who is the customer: consumer, business or another tech company?
- Which revenue models does it use, and which is largest?
- What are its reporting segments, and how has the mix changed?
- What is its moat, and what could weaken it?
- Which suppliers, customers or regulators could hurt it most?
See the framework applied in our profiles of Microsoft, Apple, NVIDIA and TSMC, and look up unfamiliar terms in the glossary.