Commentary

Is Facebook Worth as Much as McDonald's?

There are many remarkable facts surrounding Facebook’s upcoming initial public offering, which the Wall Street Journal reports could get underway (at least with the filing of preliminary paperwork) as early as this week. For example, the fact that a $10 billion stock offering might value the social network at $75 billion -- and that this might even be considered a tad low. But one piece of trivia struck me as especially interesting: valuing Facebook at $100 billion, as seems to be the general consensus, would make it the same size as McDonald’s.

 

Is the world’s largest social network really worth as much as the world’s largest fast food chain?  Of course, this question is to some degree comparing apples and oranges. But these apples and oranges happen to have some common attributes and quantifiers, including audience size/customer base, revenue, frequency of visits, and so on -- so I intend to compare them, darn it.

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First up is customer base. McDonald’s serves some 27 million customers per day here in the U.S., and around 68 million per day globally. Meanwhile roughly half of Facebook’s 800 million members check in on an average day. So in terms of daily user base, Facebook is the clear winner with around 400 million daily visitors.

 

What about revenue? In 2011, McDonald’s took in $27 billion in revenue, including $6.8 billion in the fourth quarter. Meanwhile Facebook’s total revenues probably reached $4.27 billion in 2011, according to eMarketer. Divided by the number of daily users, that comes to annual revenues of $397 per daily customer for McDonald’s, and $10.68 per daily visitor for Facebook.

 

In terms of monetizing its customer base, it’s no surprise that McDonald’s is way ahead of Facebook, since it sells food that people actually pay for, versus simply showing them advertising. But then there’s the question of revenue growth trends -- and here Facebook is clearly more dynamic, at least in proportional terms.

 

Facebook’s total ad revenues have increased from $738 million in 2009 to their present level, equaling 478% growth in two years, and are forecast to reach $5.78 billion in 2012, for 35% growth in 2011-2012. McDonald’s also saw revenues grow, and actually beat Facebook in absolute dollar terms, climbing from $22.74 billion in 2009 to $27 billion in 2011, for an 18.7% increase in two years.

 

So is Facebook, the burgeoning online social network, worth as much as McDonald’s, the mature fast food empire?  I guess that ultimately depends on whether you think Facebook can match (or exceed) McDonald’s revenues in the long term. What do you think? Will Facebook be raking in $27 billion a year a decade from now?  Who can tell? All I know is I’m craving a Big Mac.

2 comments about "Is Facebook Worth as Much as McDonald's?".
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  1. Jay Davis from --------, January 30, 2012 at 1:09 p.m.

    You identify one of the keys to valuing FB -- diminishing growth. It's pretty easy to see that the high flying days of triple digit growth in subscribers and page views are behind them. 35% for 2011-->2012? So, maybe 20% for 2012-->2013? And so on...? This for a biz model that basically sells media like a newspaper site (with better targeting).

    The whisper is that they'll show $1.5B in operating profit. That's definitely not $100B valuation kind of money. Their growth on that will be minimal since (in addition to the growth mentioned above) most of us know that NO ONE clicks on their ads. And I think this very website has reported that sales for merchants on their ecomm platform were disappointing at best this holiday season. Max value for FB until they figure it out and create some real money-making products/services? -- $50B, and that's generously factoring in an acceptable level of tech sector IPO hysteria -- probably should be more like $30B.

  2. Jesus Grana from Independent, January 30, 2012 at 1:13 p.m.

    You nail the "just" of the answer right at the end: "ultimately depends on whether you think Facebook can match (or exceed) McDonald's revenue in the long term." Successful investing will always be a function of how well you are able to project the present value of expected future cash flow - what we seem to have lost in the digital age is the ability to account for the increased risk that comes from rapid technology change and lowered barriers of entry in most, if not all, cases. In the absence of physical assets valuation (such as prime real estate in McD's case) all you have left is the ability to project "People assets" (mostly measured as part of sustainable Intellectual capital) and we all know this is the most volatile and unpredictable "asset" yet.

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