McDonald’s has a higher profit margin than Tesla, Apple or Netflix
Restaurants are notorious for their low profit margins. but McDonald’s(NYSE: MCD)the world’s largest restaurant chain is surprisingly one of the most profitable businesses. In fact, the profit margin is Tesla(NASDAQ: TSLA), apple(NASDAQ: AAPL)and Netflix(NASDAQ: NFLX).
It is necessary to clarify that profits can be measured from multiple angles. But one of the best ways to measure profits is Operating margin. This metric excludes taxes that may swing violently every year that are not related to normal business operations, and focuses solely on the profits the business generates.
On February 10th, McDonald’s reported its final financial results for 2024. During that year, the company’s stellar operating margin was 45%. It’s the best in the world. And, as the chart below shows, it’s far better than the sales margins of companies like Tesla, Apple, and Netflix.
Assuming the core business is burgers and fries, it appears that McDonald’s is earning an operating profit of $45 for every $100 on sale. This suggests that the food is incredibly high. But if you assume that food sales are McDonald’s central business, you’re wrong.
McDonald’s has better or better operating profit margins than the most profitable tech companies, as it is not the food business itself. And, as I explain, it’s really interesting for investors.
At the time of this writing, I am still waiting for McDonald’s to submit his annual report. This includes more detailed finances than what you normally report to investors. So, for illustrative purposes, we ask you to mention the 2023 figures. In 2023, McDonald’s generated $25.5 billion in total revenue. Of this, it generated $15.4 billion (over 60% of total revenue) from franchise restaurants (serials run by independent third parties).
The majority of McDonald’s franchise revenue comes from particularly surprising sources. After all, the company owns many properties that it rents to the franchise. It generated $9.8 billion in rental revenue in 2023.
McDonald had more than $27 billion in property at the end of 2023 when he saw the properties he owned and on the land he owned. This brings McDonald’s largest real estate portfolio Restaurant Company In the world. And this dynamic goes a long way in explaining why it has a very high operating margin compared to other restaurant chains.
In other words, McDonald’s primarily offers third-party franchisees the opportunity to run their restaurant business. The company offers franchisees brands, systems and even buildings. The franchisee sells classic burgers and fries. This is a much lower margin business. However, the parent company is earning royalties and rental income, which is a very high margin that even software companies are jealous.
McDonald’s hopes to see further improvements in its operating margins in 2025. And even a modest improvement can result in a significant increase in operating profit, given how big the business is.
Another interesting thing to consider is that McDonald’s has around 43,000 restaurant locations today, but expects to exceed 50,000 in 2027. This has grown by 16% in just three years, making a lot of sense for businesses of this size. And most growth comes from franchisees, so expect a respectable increase in high margin revenue streams.
Given how big and expensive this business can be, I consider McDonald’s stock to be one of the safest investments someone can make. In other words, I think there’s a low chance of losing money in the long term. Given the size of a McDonald’s, I don’t think it’s necessarily the best potential. But it’s still worth holding and worth watching in case the price falls into a particularly attractive rating.
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John Kurst There is no position in any of the stocks mentioned. Motley Fool has been working and recommending Apple, Netflix and Tesla. To Motley’s fool Disclosure Policy.
