Why Facebook is not worth $ 100bn (or what is a business)

According to expert opinions, an approximate estimate of the value of Facebook after entering the IPO will be $ 100 billion US dollars. The brainchild of Zuckerberg will stand next to such giants as Disney ($ 70 billion), Billiton ($ 72 billion), Amazon ($ 82 billion) and McDonalds ($ 101 billion). All enthusiastically clap their hands and consider the approximate income from the shares in the first year of trading.

Let's temporarily move away from general euphoria, and think about what is happening. Inside, I will tell you a little story and suggest, using open sources of information, a little count. And so that it would not be boring at all, for comparison with Facebook we take one company already mentioned above with approximately the same market capitalization.

McDonalds (ticker MCD) was founded in 1940 by two brothers MacDonald and in small steps gained popularity among the American population. Ray Kroc bought from them this promising network and turned it into one of the greatest franchises that exist today. The company is represented by 26,000 business operators, and in addition to “fast food restaurants” there are 6,000 other types of premises (warehouses, for example). Makdo employs approximately 1.7 million people worldwide. The company sells food at $ 24 billion a year and has $ 5 billion dollars in net profit .

About 3,200 people work on Facebook, and the company generates about $ 1.2 million (dirty) income per employee (total $ 3.8 billion), of which $ 1 billion in net revenue remains. The assets of the company are for the most part represented by intellectual property (aka goodwill), and their value now amounts to the value of all MySpace assets combined, which only a few years ago had a completely different value (now people have lost interest in Myspace, but who cares, right?) .

McDonald's, on the other hand, holds $ 30 billion in cash, factories, newspapers, steamboats , equipment and real estate in the bins, and only 2.5 billion of the same “goodwill” that includes their brand.

Facebook guys are very fond of telling that 800 million people use their services, which I recall the news about how “McDonald” boasted that they served the billionth customer. 27 million people eat on the MKD networks daily , which gives us a figure of 9.85 billion annual customers, generating 4 times more income and profit than those who use Facebook.

Investors discovered the "value" of McDonald's over time, and, in my humble opinion, you can safely put the prefix "just" in front of their value of $ 100 billion, but this is a topic for another article. In the meantime, I will not take your time with unnecessary information.

So.

Think for yourself - when you park at the eatery with a yellow logo, you, in fact, have already decided for yourself to leave your hard-earned five (or so) dollars there, exchanging them for food. And not just food. Food produced, packaged, delivered and prepared by them! They will sell you this very food, and carefully set aside $ 1 dollar in their own pocket. And they will do it 27 million times a day. This is what I understand business!

What is Facebook doing? They are a free service that many, many people already like. They sell your eyes to advertisers at a rate of $ 3 million per day for 800 million pairs of eyes, which is about 0.375 apiece. McDonald's makes 25 times more net profit than those only in income!

Will FB be able to interest 25 times more people with its service than at the moment? Of course! It remains only to colonize other planets and drive another 20 billion people into the Internet. Ok, we’ve dreamed, we’ll ask another question - can Facebook convince advertisers to pay 25 times more for 1 user than they are paying now? Difficult, right? Let's assume that the number of users of a social network has doubled. And suppose that, by some miracle, Facebook increased advertising rates, forcing advertisers to pay companies “only” 12 times more than they are currently paying. In short, 48 cents for people who, in fact, do not even buy anything, and do not give any guarantees that they will buy. So-so alignment, right? Whereas a visitor to McDonald’s will personally bring and transfer the money to the company.

Such are the pies. More precisely, burgers.

Gentlemen of Khabrovsk, I in no way advertise the aforementioned fast food chain. I just tried using the simplest analysis to point out the difference in two businesses, the value of which many (frighteningly many) evaluate identically.

In 1999 (where without an analogy) the exact same blindness to obvious facts caused many to change their place of work from comfortable offices in the company like the one described above, to the place in front of the cashier in the company described above. Obviously, a decade is enough to forget a lot, a lot.