Why You Should Favor Companies With Increasing Organic Demand/ Operating Leverage

Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.

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When evaluating a company’s near- to medium-term growth potential and its ability to increase profits, one powerful indicator is increasing organic demand for its products and services.

Companies that grow their revenue, user base, and engagement metrics without significantly increasing expenses like Selling, General & Administrative (S,G&A) are often on a path to sustainable profitability.

Signs of Increasing Organic Demand for a Company's Products/ Services

Organic demand refers to growth driven by the strength of the product or service itself, rather than heavy marketing or promotional spending. It’s a sign that users are actively seeking out the company’s offerings because they fulfill a genuine need.

Here’s how to spot it:

1. Selling General & Administrative (S,G&A) expenses are Decreasing (or growing at a slower rate), yet:

   • Revenue continues to grow steadily.

   • User numbers are increasing.

   • Website traffic and Google search trends are trending upwards.

   
   

This signals that the company is operating more efficiently while its products or services resonate with customers.

Examples of Companies Thriving on Organic Demand

Spotify

Since 2022, Spotify has:

• reduced its S,G&A expenses [1]

• while continuing to grow its revenue [2]

• monthly active users (MAU), and paid subscribers [3].

This efficiency stems from Spotify’s ability to attract users organically through

• personalized recommendations,

• its strong brand presence, and

• high customer satisfaction.

Instead of overspending on marketing, Spotify relies on its product's excellence to drive adoption, showcasing its potential for sustained profitability.

Meta

Meta (formerly Facebook) follows a similar trend. Despite reducing S,G&A expenses, the company continues to see growth Revenue and growth in user bases [1, 2].

This balance of organic growth with strategic investment is a strong indicator of its increased profitability trajectory.

Semrush

Similarly Semrush appears to display traits of reaching operational efficiency & increased in organic demand as their

• Revenue Growth is increasing faster than their SG&A expenses,

• while users count [1] and google search trend [2] are also increasing at a healthy rate.

Alternative method to evaluate, obtain the S&M and G&A margin

A more detailed approach would be to evaluate the percentage of the S&M & G&A (margins) out of the Revenue along the years.

If the Revenue is still growing steadily, while the S&M & G&A margins are decreasing, this is also a sign of organic demand.

For example: although Netflix's SG&A expenses are still on increasing trend since 2018 till 2025,

their S&M margin (% out of Revenue) has been on a decreasing trend has been reducing throughout the same period, whole the Revenue is increasing

and their total paid no. of subscribers have increased throughout the period too indicating a sign of organic demand for their products.

Why This Matters for Investors

A company’s ability to grow organically while keeping expenses under control reflects:

1. Operational Efficiency: The company is optimizing its resources and cutting unnecessary costs.

2. Strong Product-Market Fit: Its offerings are well-loved and sought out by users naturally.

3. Profitability Potential: Less reliance on heavy Selling & Marketing means a greater portion of revenue can be directed to the bottom line.

When paired with steady or increasing R&D expenses, this becomes an even stronger signal. It shows that the company is not only improving efficiency but also investing in future innovation to maintain its competitive edge.

What to Look for in Your Next Investment

When screening companies for your portfolio, look for:

• Decreasing or stable S,G&A expenses.

• Increasing user metrics, revenue, and engagement trends.

• Continued investment in R&D to fuel future growth.

Companies like Spotify and Meta exemplify this balance, making them strong candidates for investors looking for long-term winners.

By adding this to your investment checklist, you can identify businesses that are not just cutting costs but thriving due to genuine demand.

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