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McDonalds vs. Facebook - Toss me a BigMac
McDonalds vs. Facebook - Toss me a BigMac.
(Taken from Phil's This is the End - But for Who?)
A day late and a point short on the S&P.
Our senior index finished the day at 1,358.04, just 0.96 under our 10% line at 1,359. Oddly enough, it never crossed the line that we had predicted would be the top of this run in April of 2009. It's a simple 2% overshoot of the 100% run from the S&P bottom at 666.
If the S&P can get over the line and hold it - we will be THRILLED to redraw our Big Chart. But, if not, this is just the blow-off top of the range, reeling in suckers ahead of the big reversal that no one could have possibly seen coming (except this guy but he's 100 yrs. and just got divorced, so he's bound to be in a bad mood).
Is there anyone born SINCE radio still willing to be bearish? As David Fry's chart shows, since December 19, it's been tough to be a bear. This is what it was like in 1999, when the experienced market players would be well-hedged and missing the rally while some kid who works for him quits because he bet his student loan money on Yahoo and drives a Porsche.
Sure, 9 months later the Porsche was repossessed and the kid was flipping burgers but WE WANT TO BE THAT KID - IT'S FUN TO BE THAT KID - until it isn't again. The funny thing is, we only gave those dot com companies Millions when they IPO'd - now we give out Billions because, of course, this time is different, it's a new paradigm, this changes everything, you have to understand the new metrics, sock puppets rule....
McDonald's was founded in 1940 by two brothers named McDonald. Ray Krok bought the chain from them and created the World's greatest franchise which now has over 26,000 franchise operations and over 6,000 company stores employing about 1.7M people worldwide, selling $24Bn worth of food a year with a $5Bn net profit. Facebook has 3,200 people but it generates $1.2M in revenues per employee ($3.8Bn) and drops $1Bn to the bottom line. Facebook's assets are mainly IP and those are about as valuable as MySpace's assets now that people have lost interest. McDonald's has $30Bn of cash, plants, equipment and real estate and only $2.5Bn of "Goodwill," which includes its brand name.
Facebook likes to say it has 800M users and I remember when McDonalds first rolled its sign into the 1,000,000,000 range. Now 27M people a day eat there, 9.85Bn people a year - enough for every man woman and child on earth and clearly, the MCD customers are generating 4 times the revenue of the Facebook customers and 5 times the profits.
McDonalds' value was discovered over time and it's actually short-changing MCD to say it is "only" worth $100Bn as people forget that CMG, the new "hot" chain was spun out of MCD and now has $2Bn of sales of its own, with $200M in profits - perhaps not as good as MCD but it gets a phenomenal $12Bn valuation (2.5x MCD's p/e ratio) because it's new and exciting and this time is different. It's a new paradigm which changes everything and you need to understand the new metrics. I hear it is getting a sock puppet (they already have the happy cartoon pigs getting brutally slaughtered).
Think about it, when you steer your car to a McDonald's, you have made an affirmative decision to take $5 of your hard-earned money and exchange it for food. Not just any food - its food! It sells you food and drops $1 to the bottom line and does that 27M times a day - THAT'S A BUSINESS!!! What does Facebook do? It's free, so of course people like it - it sells advertisers your eyeballs at a rate of $3M per day for 800M eyeballs, which is 0.375 per eyeball. MCD makes 25 times more per customer than Facebook does in profits alone!
Will Facebook get 25 times more customers? Not unless we colonize other planets (Newt says the Moon is nice) as that's 20Bn people on Facebook. Will Facebook be able to convince advertisers to pay them 25 times more for each current customers or - let's say it doubles the number of customers and gets advertisers to pay "just" 12x more per customer. 48 cents each for people who are not even buying anything directly sounds steep especially when MCD, for a FACT, makes $1 from each of its customers and that's a Dollar that the customers carry in AND HAND RIGHT TO IT! Wow, it's just like we learned about way back in business school...
Of course my BUS101 teacher had long hair in a pony tail so what did he know? I had this same conversation with people in 1999 about Yahoo and many other dot com companies and boy oh boy was I proven wrong - for about 6 months. I've been wrong calling a top in this rally for over a month now. To this moment, I'm still too cautious because - as I keep reminding our members - we can make 20% or so anytime we want to with our Buy/Writes in a bull market but, as I explained last night: If you lose 20% you have 80% and then even if you make 20% back, you only have 96% whereas if the market drops 20% and you are hedged and don't lose, then you can afford to buy 125% of the stocks that you liked when they were 20% higher (using our same hedges to protect against an additional 20% drop) and, when those come back 20%, you have 150% of your original money.
A person chasing a rally has to be right two and half times to catch up to a patient, well-hedged player who is right once. This is why Warren Buffet likes cash (and he did just cash out some major positions) - he plays for the long-run. While we all want to be the kid who gets rich quick and drives away in the Porsche - it's also nice to be the guy who retires with money and gets to relax sipping lemonade on the porch.
Have a nice weekend,
- Phil
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Bravo Phil, this is excellent. I'm a top-down guy and I understood every word. Thanks.
Seriously about that "rich kid" and "Porche" thing -- I'd be entirely satisfied just to be the love captive for a weekend in the custody of Shakira, Jessica Alba and Rose McGowan.
Is that really too much to ask for???
I don't do Facebook so I don't give a shit.
Just wait until the Big Companies run up imaginary profits based on avoided losses for the year.
Porsche were little snack dogs to a properly run V8 back in the day. Even if you had to wear sway bars to the fat American ass to keep it on the curves.
Certain models of Audi is to my taste. Just think to go and you are gone.
Worth more than BHP?
Pur-leeze
Like I've said before, I have never used facebook or twitter, and I'm damn proud of that! (Part of the other 6.1 billion or so that have yet to be assimilated)
FACEBOOK BY DOUCHEBAGS FOR DOUCHEBAGS, EXCLUSIVELY.
(THE BEST PEOPLE I KNOW REFUSE TO HAVE FB ACCOUNTS.)
Here's to ya, bud! Sorry we seem to be in the minority. So be it.
my girlfriend cancelled hers recently (unsolicited) and several of my dear friends shitcanned theirs over the last 6months or so........the minority....big macs and whoppers notwithstanding....
The CIA funding at the origin of Facebook -
The CIA's Google pumped the CIA's Facebook, just like it pumps the CIA's Wikipedia ...
« ... funding into Facebook ($US12.7 million) came from venture capital firm Accel Partners. Its manager James Breyer ... served on the board ... of In-Q-Tel, a venture capital firm established by the Central Intelligence Agency in 1999. One of the company's key areas of expertise are in "data mining technologies". »
http://adventofdeception.com/facebook-ciacover-nwo-agenda/
Quite funny - 'satire' but truthful - Onion News Report on the CIA's Facebook project:
http://www.youtube.com/watch?v=cqggW08BWO0
'Ex-Agent: CIA Seed Money Helped Launch Google', retired intelligence agent Robert David Steele interviewed by Paul Joseph Watson, and speaking of the CIA's Dr Rick Steinheiser and his connections with Google:
http://www.infowars.com/articles/bb/google_cia_seed_money_launched_googl...
The CIA's Google at work censoring political journalism about US corruption ...:
Live Photo: Google Inc. Caught Censoring EU Search Results (for USA - CIA)
Google Internet Censorship - Censure d'Internet par Google - Internet censuur door Google
http://www.flickr.com/photos/22325431@N05/6100668211/in/photostream
Yes, it's different this time! Financial Science has finally defeated the Parable by creating a tree that grows money and a grasshopper that dominates the ant through the fear of mutually assured destruction.
Facebook is just a scrap book that connects to other scrap books.
We all know Twitter is the real heartbeat of the internet (and what the governments of the world are afraid of the most).
And with that Civil Disobedience sells his MCD position. Articles like this are what you see near the tops of bull runs.
Time for a MCD breather perhaps?
I too just sold my MCD acquired Oct 1994. MCD is a fine company because it maintains disciplined management down to the store level. This is extremely rare. "Management is the continual rededication to the task at hand." J. Busse. Constrast this with HP, which can't decide what business it even performs.
very interesting read, thank you so much.
Thanks for sharing Phill. Always like reading your articles.
The huge unknown is other revenue streams, like those annoying FB games. If they can get 1/10th of their customers to drop $1/month into those things, they double their profits.
Assuming those games actually entertained you, $1/month would be a good value.
gimme sum pink slime nomnomnom
you should check out the Band "Battles" song video "Gloss Drop" featuring Pink Slime!
2 +2 = 4! Who knew!? No realy your article is good because it's simple and makes sense