On Wednesday, Facebook released data on its performance in the first quarter of 2014, and the results were very impressive. The social network has succeeded in monetizing its enormous audience, having generated $642 million in profit on $2.5 billion in sales. The expectation is that Facebook profits will amount to 25 cents per share, quite a bit more than the 9 cents per share it generated last year.
McDonald’s, a much larger and older company, reported $6.7 billion in revenue in the first quarter, slightly higher than its revenue from last quarter. Yet its net income fell to $1.2 billion and its profits per share to $1.21, down from $1.26 last quarter. Analysts attribute McDonald’s lackluster performance to a modest decline in U.S. comparable store sales.
I mention Facebook and McDonald’s not just because they are both iconic American brands, but because they represent the contrasting poles of American business. Though both Facebook and McDonald’s are innovative firms operating in a competitive landscape, Facebook is a social media company that lives almost entirely in the cloud. McDonald’s, meanwhile, is the quintessential quick-service restaurant, which, like Wal-Mart, depends on an extensive, expensive and labor-intensive logistical apparatus to meet the needs of its franchises.
This difference helps account for the fact that Facebook had a 102.27 price to earnings ratio in 2013 while McDonald’s had a 17.99 price to earnings ratio that same year. It’s much harder for a brick-and-mortar company like McDonald’s to grow than its code-driven counterpart.
Yet the contrast between Facebook and McDonald’s that interests me most is the difference in how each approaches human capital investment. Facebook is a high-wage employer. Its workers pay relatively high taxes and get relatively little in benefits. You might think of them as net contributors to America’s public coffers.