The Disaster of the Mr. Beast IPO.

well this is quite juicy or should I say

quite Savory Mr Beast is teasing us with

a potential IPO for his chocolate chip

cookies brand feastables as well as

potentially a beast Burger that's right

Beast a burger as well given this tweet

from Mr Beast maybe I should IPO

festivals and Beast burger while they're

relatively small so you guys could share

in the growth feel pretty confident we

can easily 100x the revenue that we're

doing but I don't know if that would

make my life too stressful or not that

of course was met by an outpouring in

support of people blindly saying they

would love to invest in Mr BEAST's food

brands no matter the profitability or

the numbers they want in an equal number

of people shouted at Mr B saying no you

don't want The Regulators in your life

that's too stressful and then of course

you have some other people like well as

long as you do the right thing having

Regulators in your life isn't stressful

just do the right thing

so let's try to break all of this

madness down because there are some very

important things that we have to

understand about the restaurant industry

the ghost kitchen industry and how all

of it works let me give you a very

simple example here Mr Beast tweets that

Beast Burger has shared over 100 million

dollars in Revenue with restaurants

Across America heart face and flattered

face they keep most of the revenue from

the orders they fill for US ah what a

wonderful structure of a tweet to

somewhat mislead the audience now I'm

not trying to bag on Mr Beast here but

I'd like to add some perspective that I

think you might find useful I'm going to

make up a scenario here and then I'm

going to show you real scenarios let's

say that you sell 100 of Mr beef's

burgers and Mr B says Hey in order for

you to license my name you just have to

pay me 10 bucks we'll call it a little

10 royalty fee right right so that's

going to go over to Mr Beast right away

but from this 100 you've got to pay

labor supplies packaging rent all of the

things that would go into the cost of

actually making the burgers right and so

all of these costs let's say with your

operating expenses your Administration

your rent your advertising for your

restaurant everything included ends up

leaving you with about 85

and then you pay Mr Beast his ten

dollars now you're left with five

dollars now you pay taxes to the ah the

ah and the S and maybe you're left with

three dollars for every one hundred

dollars you sell in Revenue now when you

look at Mr B's tweet it looks a little

bit different because here it makes Mr

Beast continue the image of being the

philanthropic Creator he is the giveaway

individual hey you know what the

hard-working restaurants keep mosting

most of the revenue right from the

orders they fill for us that's right but

if there are net margins are terrible

and let's say your licensing fee is ten

dollars you might be making 10 bucks for

every three that they are making because

that after all is the nature of the

restaurant industry most of the cost

goes into actually having the facility

the employees the chefs the uh the

cleanup staff the tables the advertising

for the building everything now the idea

of a ghost kitchen model is really

interesting and it looks really

complicated when you look at it like

this so I'm just going to go ahead and

make this very very simple basically

let's say that you are a restaurant

owner in Los Angeles California and

you've already got Three Chefs a couple

line folks a couple servers you've got a

small all Mexican burrito place but

you've also got grills and you're easily

able to whip up french fries and burgers

so you reach out to Mr Beast and say hey

we'd love to have some more order flow

come in that's great but every ghost

kitchen produces or manufactures or

should I say Cooks the Beast Burger

slightly differently this is potentially

why the reviews for Beast Burger are

somewhat mixed the app has an average

review of about 4.3 out of 5 stars and

when you go to Yelp for individual

locations across the United States you

tend to be a little bit closer to a two

or two and a half star rating there's a

lot of variability in the kind of

product that you're actually getting

that's because individual restaurants

are simply taking oh okay somebody wants

a burger and fries we'll go ahead and

put that into the Mr Beast Burger bag

that they had to pay for we'll use the

burger buns and burger patties that we

had to pay for the restaurant right and

then we'll go ahead and deliver that to

the person and Mr Beast and the Beast

company which might be a partnership

ends up getting his fee off of the top

line revenue not necessarily off of the

profitability of the restaurant the

restaurant could be losing money on

every single burger but the Beast brand

and partnership continue to potentially

make profit now if you IPO that sort of

franchise model what you're really doing

is you're ipoing a McDonald's style of

business model and in this video we're

going to review whether or not that

business model is profitable and then

we'll look at some risk factors so let's

first look at a business that does not

do a lot of this sort of franchise model

because after all a ghost kitchen is

really a style of a franchise you're

really putting the work of the actual

restaurant on somebody else but you're

giving them the packaging The Branding

of Mr Beast you're giving them

everything essentially they need to

succeed but they now have to deliver on

the quality and the purchasing and the

delivering and the Fulfillment of the

customer complaints and and everything

right hey quick interjection if you like

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again most people order through the Mr

Beast app and that is why Mr Beast and

the company that's working with Mr Beast

get their revenue split right okay fine

so what do you have here well this is

cheesecake this is one extreme of the

restaurant model where you actually have

a business that does not franchise now

what's really interesting about that is

if you go to the Cheesecake Factory and

you and your family spend one hundred

dollars on food at the Cheesecake

Factory how much money do you think the

Cheesecake Factory actually makes

remember in my Mr Beast made up example

I said maybe the restaurant brings three

dollars to the bottom line after

everything well let's take a look at

this red revenues of

784 million dollars in the three months

ending in September and net income of oh

dear lord negative The Cheesecake

Factory actually lost money okay fine

then well let's go to the

nine months ending in September because

they were profitable there so we could

actually see hopefully some

profitability right so the Cheesecake

Factory made 46 million four hundred and

twenty one dollars if I divide that by

how much money the company sold in terms

of product Revenue right how many times

did they sell you that miso salmon right

rice lunch portion so good well 2.4

billion dollars worth and if I divide

those two into each other you get

1.92 that means for every 100 of product

that cheesecake sells you they only keep

1.92 the restaurant business is very

very unprofitable let's look at another

business and this one happens to do

burgers this is Red Robin gourmet

burgers hey I happen to have worked for

that company before they barely have any

any kind of franchise Revenue because

most restaurants are corporate owned in

the three months ending in October or

ending October 2nd they had 282 million

dollars of Revenue if we look at their

net income oh oh dear oh they also lost

uh 12 million dollars that quarter oh

dear actually they not only lost 12

million that quarter but they lost money

last year they lost money in the nine

months ending this year they lost money

in the nine months and

okay uh Red Robin's actually not making

any money selling hamburgers okay let's

go to a different company like

McDonald's ah what do we have here so

take a look at this

McDonald's is an interesting one

they make the bulk of their net income

from

franchise restaurants see in company

owned restaurants they have a gross

margin of only 16 which means basically

if you go 100 you go down to 16 percent

before you actually start spending money

on like your corporate offices and your

advertising and stuff and that would

bring your net even lower so if they

were only a corporate owned restaurant

chain McDonald's would probably be in

the same boat as cheesecake or Red Robin

in other words negative in fact if I

subtract out their franchising revenue

and franchising costs they'd be negative

300 million dollars of income okay so

the restaurant business itself not very

profitable but McDonald's isn't negative

because they have the franchise model

which has an 83 percent gross margin

because of the McDonald's brand in other

words the individual franchise owners

the individual restaurants are the ones

who get screwed it's the franchise model

that's profitable that's where the money

is made in fact look at this the net

income for McDonald's is nearly 2

billion dollars on revenues of just

under six billion dollars that is thirty

three percent net income why folks

because they use the franchise model

they don't run the kitchens they don't

make the food they don't deal with the

customer complaints the fear of spitting

the food they don't deal with the

returns they don't deal with all of the

garbage that goes into Running a

Restaurant running and owning a

restaurant is a terrible terrible

business model

but Mr Beast could actually be onto

something with an IPO of Beast burgers

or feastables because guess what and I

don't know this about feastable but I

know this about Mr uh at least Beast

burger and I'm assuming it about

feastable they aren't actually making

the food they're selling you the brand

they're selling order flow to

restaurants and that is actually a

profitable business model now Mr Beast

claims that at one point he made about

three million dollars from Beast Burger

in 2021 and as you can see here this

Forbes article suggests that three

million dollars of profit for Mr Beast

and probably his well actually says his

stake generated about three million

dollars in 2021 represents just four

percent of the company's sales that year

that's Honestly though actually pretty

dang good because think about it none of

the stress of running the restaurants

and you're taking four percent to the

bottom some line potentially as the

franchise fee although I expect the

franchise fee is probably closer to 10

percent and maybe Mr Beast takes four

percent and the other people who operate

the app and everything takes six percent

so really all Mr Beast has to do is

throw his brand on hamburgers made by

other restaurants and an app made by an

outsourced company and boom you have a

revenue stream for Beast Burger now if

Beast Burger were to IPO you would

expect that that would be a partnership

between the brand that made the app

Beast burger and Mr Beast and so you

would have an ownership in that

franchise model that franchise model if

they can keep their reviews up which

right now are kind of mixed could rival

a McDonald's in the future however you

have a little bit of a risk factor the

big lines come to in and out because

they keep prices low the average cost of

a Mr Beast Burger is between nine to

eleven dollars whereas the average price

of a McDonald's Big Mac in the United

States is 4.65 less than half of the

price so there's definitely a lot of

competition in this space and there's

also a risk that what happens if people

multiple times try Beast burger and

local restaurants are either doing the

orders wrong or people don't like the

quality of the ghost kitchens that were

chosen and then they don't come back I

hate to say it but I've got a

seven-year-old and a five-year-old that

love Mr Beast they watch his videos I'm

a big supporter of them watching Mr B's

videos and I'll watch Mr B's videos with

my kids in bed or on the couch whatever

we've tried Beast Burger a few times and

we personally wouldn't try it again but

could the IPO of Mr BEAST's Beast Burger

be wildly successful

maybe not in this market because I

wouldn't recommend anybody IPO anything

really in this sort of Market but could

it potentially be successful against a

McDonald's

absolutely the franchise model is where

it is at and so I'm a big fan of this