AI Boom Keeps Booming, Deep Dive into Australia’s Secret $6b Business, Pokémon Cards, Board Games and Founders Behaving Badly

22:34And you go in there. People in those stores, like it's just like, you're right, it's a continuation of that story about the games business that I just discussed. Like can you imagine, like if Mike or I were working in a store, like in an electronic, in an EB game store, Can you imagine how excited we would be to talk to every customer? You totally should do that. And so... You should open your own EB games, which is not really games now. It's just Pokemon cards. Yeah, well, the problem is all the games are downloads now. But that is the point. I mean, it probably alienates 90 % of the audience of this podcast.

23:07But basically, there was one moment in this movie where one of the people specifically said, I made this decision in my life that I wasn't going to focus on professional ambition and making as much money as I could. I was just going to focus on wanting to be around my kids and having an enjoyable life. And then I got into games. I don't think that resonates anyway. I know, but the thing is, let's be honest, a lot of the audience is like us, which is we're pretty keen on making money. We maybe are not that keen on spending it, to be honest. That might be a bit different, but I don't really. There's nothing I like to buy.

23:42There's nothing you like to buy. But we like building businesses and making money. And when I talk to people in business, a lot of the conversation is about the mechanics of making money. But there's this whole other world that we're probably going to be much happier in, which is just be around the things that you love most and how do you turn your hobby into a job? And you probably are not going to make that much money by doing that, but you're going to have a happy life. But the flip side of that story is, to be honest, back to realities, you can't afford a house, so you're going to be renting somewhere and probably it's going to be very expensive and the cost of living is going to hurt you every day.

24:21And you do see in this movie that people do not have a lot of money and they are under financial pressure. And so there is that trade-off. It's hard to know what to do, but I definitely think there is something beautiful when you walk into somewhere and you can just feel that the person that's serving you or that owns the store, there's nothing that they are more passionate about than that thing that you are in there to engage with. Every time I go to my mum's house, around the corner of my mum's house, and every time I go there, he always wants to go to the car so i say every second week we can go uh and when one time i was like a sunday afternoon and there was like tables there and people were playing like there's a pokemon game right you play the cards amazing i love that 20 people in there playing this game they were all like it was and they're all like really it wasn't like you know when you play monopoly it comes to blows sometimes like they're also playing so nicely together it was come to blows it was like a girl's birthday party versus a boy's birthday party you know like an eight-year-old girl but eight-year-old boys are like throwing stuff at each other and girls are sitting there nicely and eating really nicely and this was like the girl's birthday party in there was you played this game like it yeah i used to play it a lot as a kid and what is this guy what is it like trump's or something how does it work no like just each pokemon has the cards have like abilities that do a certain amount of damage and you're trying to take as much it's a fighting game yeah it's a battle game it's supposed to simulate the video games which is my son plays it online like the card that card game but you know like it's online we've got a pokemon board game that William plays with Leslie Ann.

25:47I imagine it's similar-ish to that, but maybe not exactly the same. It's basically a turn-based combat game. That's what it is. There's all ages as well. There's kids there and adults there. My overarching view on all of this is that actually all of this stuff is fundamentally important because there's this loneliness pandemic, especially in the Western world. Epidemic or pandemic? I'd call it a pandemic. Epidemic is a particular issue located in a particular region or within a particular group and a pandemic means it spans everything right and so i think it's a pandemic like everyone is affected by this it's like it's like at epidemic proportions in let's say um men in rural australia are especially badly affected in western it is but it's worse it's worse when you get out of the cities actually as it happens i know but it's worse in australia but but it's terrible it's terrible everywhere okay and so then you've got this whole disaster going on with loneliness and then you've got this world which is just find people that you can have fun with and yeah don't worry about anything else like just and what i i love most about this is like you know we're in a world where because of the internet everyone can find other people that share their interests and nobody has to be lonely right no matter what you're into yeah people are more lonely than i know it's it's it's very it's very sad.

27:11Scott Galloway, he's probably not an expert. Someone said to me Adam speaks about Prof G at least once every two episodes. I said I think it's every episode. Probably once every two. This is his. He's about to release a book. Actually, I'd love to get him on to talk about the book, but we'll try. He's written a book about the issues with young men that young men face. We see every person who's assassinating people or taking a machete out, they're young men they're young lonely men it's not never a woman never a female it's never an old man it's always a young lonely guy well there's this great quote and then we can move on from this so there's this great quote in this movie where they say someone says is there any point what's the point of all of these games and the person says well that's i get asked that question all the time and this is how i think about it if you're in utopia where all of your problems are solved what is there to do the only thing there is to do is to play games yeah and so if this is the that they're doing in utopia, maybe it's the most important thing to be doing on earth.

28:13I thought it was a great answer to that question. When I was a kid, I used to, often like mum would go to work and I'd be there by myself and my cousin had, he spent a game called Stock Market. It was a great game. Yep. It was basically moving up and down based on nothing but like totally randomly. You could be, there's like four big companies. General Mills was one. It was a very bad lesson in stock market investing. Yeah, but it was a great game. Yeah. And there's another one called Polo Economy. I don't know if you've played that. Of course. great game. I played that with Michael Borski now.

28:40Did you? Yeah, we played that all the time. I loved that game. My cousin had both these games. He had lots of great games. And I used to go in there and play two different players by myself because I had no one to play with. I think I've done that before. This is pre-video Atari, but pre-pop video games. So I would just go and play for hours. And now my kids, it's impossible to get them to do anything by themselves such as the world we live in. They're so used to overstimulation. So the company that makes this wingspan game their revenue is like between 15 and 25 mil usd a year profitable i don't think they reveal a profit private company i was reading about it they've got a thousand shares the guy that um founded owns 901 of them and like i looked at this and i'm like you know these are like these niche industries so the wingspan founder gets a royalty is that what happens yeah she gets a royalty yeah um like publishers they're book publishers exactly it's But the thing like books, board games of the ilk that we're talking about, the game designer's name is front and centre.

29:43And like in video games, you know, Sid Meir, his name was always on. It was Charles Darrow or something. Was he? Monopoly, was it Charles Darrow? But his name is not on the box. I thought it is somewhere. But all of these other games, like the name of. It was Charles Darrow, by the way. But his name's not on the box. I don't think so. It just says Monopoly. and now it's this crazy monopoly like The Sims monopoly Star Wars now it's just a franchise but all of these like deep thinking games the creator is on the box because you kind of know how good a game it's going to be based on people following these creators like Civilization had Sid Meier's name on it by the way they used his name like long after he'd sold the franchise it's still called that is he even alive still?

30:24he's alive you can read his heroine memoirs you can read them They're good. Of course you read them. Is there any more book you would like to reference in Myers' memoirs? But I think these are these businesses, because often people reach out to me, as they probably do to you, asking for some business advice. And a lot of these businesses are businesses that are not suitable for venture funding, not suitable for IPO. They're just really good businesses. And the answer is keep doing what you love and milking these businesses and go take the profits and put them into other investments. and I think that publishing these board games, like this is one of those industries, whereas video games publishing has, like it's aggregated up into very large businesses now.

31:07We saw EA just got bought out for$55 billion, but the board game publishing industry still has a lot of niche players in it, making 10, 15, 20 or 5 mil and like profitable and like just churning away. It's like an interesting industry. Needless to say, I want to go in and consolidate. I did think to myself though I do want to allocate some money and seed fund some indie video games and indie board games because I just think it will be a fun part of my life you know I think so what do you reckon I did last night what did you do last night I'm not sure you will not get this right but how would I ever get it right on any night you might you could say I went to a football game like that's a reasonable chance is that what you would do do you go to footy games yeah well not during off season but yeah That's true.

31:55The season's over. Anyway, like it's... You say, a kid's sports. Played video games? No, did not. Watched a movie? No. Watched Netflix? I left the house and did something. You left the house. That would be unusual for me. Mike, can you have a guess what I did last night? Went to a restaurant? It's actually very close to here. Did you... Within a kilometre of here. Went to the casino? No. That was a good guess. Went bowling or something? No, can I go bowling a bit? Do you? Not a bit. Like once a month. Do you? That's pretty frequent, actually. Oh, my gosh. Without kids, we never go. Is it in the realm of bowling?

32:27I used to be in a bowling competition, a league. Like the Pin Pals. You know the Pin Pals from The Simpsons? Yeah, that's Homer's. Exactly. Anyway, I didn't have one of those special things and I wasn't great. It's something you would not expect me to do. Yeah, well then go to a bar or drink. That's also a good guess, but no. What is it? Tell us. I went to the theatre. I'm a thespian now. As in the live theatre. The live theatre. What did you see? I saw Rebecca. Have you seen Rebecca? No. I've never heard of it. I know some people called Rebecca. I went with Hannah and Darren Chalice, who are our executive search firm, who do some work with the Melbourne Theatre Company.

32:57So you got invited for free? Obviously, I'm not paying for it. I see. And they do a lot of work with theatre and a lot of work with the arts, actually, and fantastic search firm, who we've used for a decade. Do you not go to the theatre, really? Do you think I go to the theatre? Well, I've been a bit. Yeah, but I can see you doing that. My parents took me to musicals for all of my childhood. Oh, musicals. We go to musicals. I'm talking about the spoken word, theatre. music was a go-to all the time I don't go to like opera that's pretty boring ballet boring yeah we gotta like from the renaissance I should have left all that stuff in the renaissance yeah I've talked to Back to the Future on the show we're going to MJ UK so what did you think what's your review I thought it was actually pretty good because I can't listen to this for long I don't really care yeah I thought it was weird didn't have an interval which I found a bit unusual didn't have an interval that would have saved me some candy by the way that would be good news for me the crowd is exactly what we expected at theatre or people like like 80 plus no definitely not 80 plus but not young but like there were some young people as well too sophisticated very sophisticated I don't like that they'd come from Fitzroy or yeah or Arm and Ale or I thought the production was excellent you know these are not businesses no yeah they have to be they have to be externally funded yeah for sure because there are not enough people willing to pay enough money to keep the thing going yeah this was a full house and it was I thought the standard of acting was incredible it was as good as any I've seen in the UK yeah so congratulations to the production Was it a drama?

34:22It was a Hitchcock film about it as well. A thriller. It was a book in 38. I'm never going to see that kind of stuff. It was good. Too stressful. I give it out of five stars, four stars. Were you not stressed? No, I don't get stressed. I said next to Megan who used to work for the Bassets at Seek and now works at Bubble and had a great career. There's enough bad surprises in my life. I don't want to go and see bad surprises at a theater. It was good. I reckon you'd like it actually. I reckon Michael would definitely like it. He's a bit more artistic. Joel, I'm not sure. Do you? There you go, Joel.

34:53Have you seen Rebecca? No. Oh, that's what you guys see. I didn't want to comment on this, but Joel's behind the camera, so you can't see him, but his hair is definitely up high today. It's definitely hit the finger in the light socket kind of look today. Yeah, I'm sorry to start. Yeah. Jimmy Neutron, that's a great call. I'm pretty sure you've got to be a young millennial to get out of that kind of level of hairstyle. For sure. To have that much hair. Can I speak? I've had it over the last few months. I'm also not going to mention any names but I had a few run-ins with various founders and that stuff that is relative to their business or relevant to their business or not and obviously I'm not going to mention the founders but it's been interesting and I've still reflected on this in the last couple of weeks.

35:35Of all the people I think that could have run-ins with people you would not be at the bottom of my list. Larry David style. I actually don't have that many run-ins funnily enough. But in this case I have and one of them has been a long run-in. You know why? This is why you would have run-ins. it would come from a place of good intentions but you would there would be no sugar coating on anything that you would say that would be my guess right minimal sugar yeah it's a little bit there's a veneer of sugar and yeah one lick and the sugar you get through it pretty quickly i think so it's people miss it's people being defensive because they feel insecure about the feedback that you're giving them in all three cases people completely unwilling to take any sort of criticism yeah and and of these founders one has been successful two have not been successful uh oh actually two have been successful and do you feel like the way that you give this criticism i say this seriously yeah do you feel like it's very much constructive criticism like not your that's the intention not you're a moron no it'll never be that but more like um this this like how about this stuff that you're doing is stupid no eventually but not initially so usually it's very polite initially and then after if you're getting ignored for like a year or two years eventually like once you ask someone 50 times and they say continually no you eventually have to start ramping it up because clearly the nice way...

36:48Well, do you have a proverbial dog in these fights or not? I would argue I do. All right. So maybe you invest in them or maybe you're a part of them in some way. Only one case I invested. But it's more the... They're not random people you're just going up to. No, no, these people I've known for many years. Or in some cases, not many years. But it's more the point... Forget the argument. The argument's always irrelevant. But what's interesting is this, as a founder, and you obviously know this better than anyone, having been a founder and invested in founders, it's really... As a founder, you've got to have this degree of cognitive distance you've got to be able to ignore because when you start a business you're disrupting a definitely and we say so people go you're every 98 % of people say your idea is stupid because you're going to fail and you're going to fail and that's because they're not taking the risk they don't want you to succeed and you're disrupting an existing business that has great market share we can maybe put them into one of two buckets they don't understand or they're jealous yeah that's the two buckets that's fair um and that will uh resonate by the way often they're right so in most startups when like 98 % of people say this isn't going to work 98 % of startups don't work yeah like I mean that's kind of the point so that for the 2 % that do work you've had to wade through this mire of criticism and doubt ignore ignore often smart experienced people who are going to who are telling you you're going to fail and dumb people but smart and dumb people no no but they're also everybody who succeeded has had people from that industry who are experienced and smart tell them why it can't succeed yeah and outside and friends and family and everyone so you used to you have to build this sort of teflon that my mum and dad never told me anything wouldn't succeed yeah they're the worst kind of feedback it's a hundred percent positive i can't rely on them for any honest feedback because in their hearts they really believe that i'll be able to make anything work plenty of things have not worked but i know majority has worked i know no matter what goes on in my life i can go to them and they're going to be 100 percent supportive it's actually very lovely yeah it just means i can't rely on them saying something's good to believe that it's good but i actually never like whenever i'm similar i'll i'll almost never believe positive compliments or feedback right i'll assume either somebody's being nice or has an ulterior motive or whatever um so i've got more i think that's often true yeah exactly uh but to think you're a fan you've had to wade through people in australia don't like um honesty as a general ruling like if you go to israel yeah god i mean or china like people People will give you such direct, unsolicited feedback.

39:05And in Australia, I always say the difference between Israel and Australia for me is, funnily enough, since we just made fun of Joel's fantastic looking hair, to be fair, it's about how you... Which also that hair is... It's how you're... Oh, I'm for sure jealous of it. It's obvious that I'm jealous of it. So if you say, if your best friend has a haircut that you don't think looks good, and so in Australia, they'll say to you, what do you think of my haircut? And the answer is always going to be, yeah, it looks great. Like, no one's good. And in Israel, there will be no question. The friend will just say, oh my God, you should not get that haircut again.

39:35That's the difference in the relationships. No one says you've made a bad wedding speech in Australia. That's right. That's impossible. So as a founder, probably the one area where people in Australia are willing to give criticism is when you're founding a business. They tend to be pretty blunt, I think, in that case. Because everyone who's been successful, someone has known them when they're a junior burger and have thought, how's that person ever going to be successful? Or even if you think they are, you don't think you're going to be able to disrupt the big, like, luxury scapes, not going to stop, booking.com, why bother?

40:03And in many cases, you're right, it probably is a waste of time. So you've got to be able to have five, 10, 20 years of ignoring critics and that can be critics who then start working for you. So you build this, again, you build this reality distortion field that, and as Jeff Boissel says, founders are almost always right. So you are almost always right. So you go from this world of being almost always right, or maybe always right, to a different world maybe, or maybe the same world, and then somebody of the same like and the founders I'm talking about at the same level as me or maybe I built a smaller company or maybe a slightly bigger one or whatever but not ridiculously different and they're not used to somebody at their level giving them feedback because people tend not to unless you've had a strong co-founder and in my case I've had Jez as a strong co-founder so I'm used to having sort of equal status and then in Josh remarks I've had a number of and I think this is a great thing very critical co-founders which I think you need and this is why Paul Graham requires you to have a co-founder So people who haven't been challenged for 10, 15, 20 years and have been massively successful or relatively successful and had lots of adulation, as soon as they get any criticism, they just cannot tolerate it.

41:11And this is where we see CEOs, founders who have done incredibly well and then reached the zenith and don't know when it's time to quit or leave or change tack or when. And it's certainly a concern for me as a CEO founder. Because you don't know. No one rings a bell. You've got to be somehow cognizant of this. So one, you're basically saying a founder should not listen to anyone except me. When I come along, usually I'm being facetious. When does that switch? I think, look, the reason that successful people are not giving biting feedback to other successful people is there's not enough upside in it for them, right?

41:48Like if the person that is on the receiving end of feedback takes it, there's no upside for the person giving it other than maybe they just want to help them out yeah and there's a lot of downside right like they'll they could easily hate you after that like they probably will and so there's not a lot of upside the other thing is though i think um when you're running a business and you're very close to things what you often tend to think is even with your board for example like they don't live this every day what the hell do they know and i think one of the benefits that people have if they're intelligent is that they are outside and they're not living and breathing it every day and they do have a different perspective.

42:24They might not be right, but they definitely see it with fresh eyes. And like fresh, I think I'm always interested in what fresh eyes have to say about what I'm doing because they might be wrong and like, but I want to know if they're wrong, I want to understand why they're wrong and they often will be right about some part of what they're saying. And I think it's easy to be defensive when you don't have to be a founder. When you're very close to a business, you've slogged it out every day, you're delivering something to your customer and someone comes and says, that part of it is a bit shitty that's going on.

42:54It's very easy to be defensive about that because it is like a dagger to the heart, right? But I think that external feedback is really important. I've always said this. When I say always, I reckon not for the first 10 years, but then after that I realised this. If I walk into any room with an idea, and I think it's smart, and I walk out of that meeting and we're doing the idea that I walked in with, then that's a disaster. what the hell am I paying all those other people for? I think I always want to walk out of a meeting thinking, thank goodness I walked into that because what I'm walking out with is much better than the idea that I had walking in.

43:31And I think if you have that attitude, which is you're always searching for improving, like, and you're providing free advice. You're not even charging for your advice. I think at the very least, they should say, let me think deeply about what you've said. I might agree or disagree, but let me give you a considered answer to what you've said. And obviously you didn't feel like you got that. I think as a CEO founder or whatever, you almost need to treat it like a page rank. Remember when Google came up with the famous page rank, the way they took the academic approach. The more, so academic paper, the more people who cite it, the better the academic paper.

44:03So that's what Larry Page and Sergi did with page rank. And he said the more people who cite this page, and obviously it's evolved over 25 years since. But that was the, and I think as a leader, you need to, is the comment coming from idea, in which I take it really seriously, or is it coming from some rando on the street who stole my bike last week. Okay, we're not going to hope that one very soon. Well, he could give you some good feedback about locking up your bike. Yeah, sure. And stealing your bike and getting away with it, maybe. But in terms of... I think... So look at who the feedback's coming from.

44:30If it's someone you really trust, then take it really seriously. That's the only... By the way, that's the only type of economic activity that's increased in Jacinda Ellens, Victoria, is crime. Like that guy that stole your bike, like probably he couldn't have done that business five years ago. Amazing. Yeah. I don't think it's recognised in GDP numbers, though. I don't think he's paying tax on it. I definitely don't think it's being taxed. Could I quickly touch on the AI boom because it's pretty hard not to talk about this given it's probably the most important thing happening. So obviously saw yet another week, yet another deal.

44:57So OpenAI did a deal with AMD, obviously the chip manufacturer last week, probably the third biggest chip manufacturer maybe after Intel? Yeah, I think so. Maybe the fourth after ARM, I'm not sure. ARM's bigger, obviously. I think ARM is smaller, but I actually have no idea. Third or fourth biggest. So AMD shares spiked 21 % because it announced a deal that, of course, Of course, OpenAI is buying six gigawatts of chips with money. Of course, it does not currently have. The deal... I don't think it's buying the chips. Like leasing the chips? I think they're getting the chips for free. And in addition to getting the chips for free, they're getting 10 % of AMD's business.

45:34Yeah, they are getting that. So it's like me coming to you and saying, I've got a great deal for you, but tell me if you want to do this deal. I'm going to give you stuff for free. Yeah. And I'm going to give you a piece of my business. I think they are paying for it. I don't think they are. We'll find out in time. But does it matter? They got 10 % of the business and that's now worth$30 billion. Basically, I think it was a pretty, I mean, you might be getting to this, but I think for AMD it was a pretty simple calculation. We want our share price to go up. When we do this deal, however much of the business we give away, 10%, if our share price goes up by 35%, presuming it stays up, that's an economically advantageous deal for our shareholders.

46:13And what did it go up? 35 % or something? Yep. and so like the problem is it's not going to stay up 35 % and open ai like if it plays out is going to end up with 10 % of their business do you think that open ai's main asset at the end of all of this is going to be like the pieces of businesses they were given as part of this it feels very Warner uh time-worn AOL this year right now yeah we had a discussion about where we think we are and I said you know your last you know the story that you did last week which was about that app where you get$30 for giving your, Neon, where you get$30 for giving your, what is it, phone calls for AI.

46:47Yeah, the transcript of your phone calls. And I said to you, that reminds me of the AllAdvantage business. By the way, which I then looked up, it was a pioneer of a lot of pretty amazing things, including, like it is the forerunner to all basically, like spyware on your YouTube. Oh, really? Yeah, because like basically it figured out like what site you were on and it served you ads based on that site. That's pretty impressive actually. Actually, it was at the forefront of a lot of tech. So that was March 1999. The reason that business went broke, in fact, was because it was reliant on online advertising for its income and online advertising completely dried up.

47:23So it wasn't a direct victim of the crash because it never managed to IPO. It basically just got starved of revenue because everybody stopped advertising online. So that was March 1999, the founding of that. And so I feel like that's approximately where we are. You think we're maybe a bit later than March 99? We're much later. I think the crash happened in March 2000 on the back of the… It started March 2000. Yeah, the straw that broke the camel's back was the… It wasn't like one day. It wasn't like 87. It happened over a year. I know, but the straw that broke the camel's back was a Microsoft antitrust that came out of Europe.

47:57That was the straw. Yeah. And so I think both of us would agree that it's likely that there will be a tech crash. I'm going to go broad okay because we always think things are coming sooner than they are yeah that's true in the next 18 months yep there's going to be a tech crash that's a pretty broad range but yeah well but it's not like as in but it might be in three months I don't think it will be I think I think six yeah I think it'll be within the next year but we can go broad and say you should start preparing stuff for the next 18 months there's there well may well I think it's very likely to be some kind of crash and then you look at 99 like what was the smart thing to do there's all of these businesses that were good traditional businesses that were massively undervalued during the dot-com boom and they represented great buying opportunities during the dot-com boom.

48:43Yeah. And we had a little chat. Yeah, but Amazon was worth a fortune. No, Amazon's only great because it went on to great heights. But I mean, you probably could have bought Walmart for nothing during the dot-com boom. Amazon or Walmart? Walmart. Okay. During the boom, not the crash, during the boom, I suspect that Walmart was very lowly valued, right? Yeah. But you could buy it on a very low earnings multiple because all the money was pouring into tech. And so if you had a traditional business that was doing really well, you were trading on low multiples. And when I look a lot of retailers today, good businesses generating free cash, a lot of them are trading on very low multiples.

49:18I think we're seeing a repeat of the same thing where businesses that have no connection to AI - Which has seven essentially, like that's sucked up so much value. It has, but even beyond that, businesses that have no obvious connection to AI or even more broadly to tech are trading on very low multiples unless you're a gold miner or a copper miner. Because copper, everyone thinks copper is going to be because of the electrification, right? And gold, everyone thinks it's worth a fortune, right? Because of the inflation concerns. You see there was a queue outside one of the gold? No. In Pitt Street Mall, there was a queue before it opened, 10 deep, to try and buy gold.

49:53I mean, that's crazy, right? I think we're reaching peak gold for the now anyway. That's run too far. Are we having yet gotten to the point when the Uber driver is telling you what stocks to buy, but I think that's coming. I reckon the Uber driver is talking about gold. Could be. Yeah, it could be. I'm going to ask the next Uber driver what investments he thinks I should make, he or she, and I think... I got a girl Uber driver last week. It was great. Yeah, I think I'll tell you what they... So I think the question... I think now I'm starting to think about what can I buy that's really cheap because it's being overlooked?

50:26Because, well, maybe... I want to start by saying this. There are some very good tech companies that I think will be great companies in the next five or ten years. AI companies? Not AI, tech, that have got software in particular, that have got really good... SaaS companies? Yeah, SaaS companies. Really good revenue growth. Do you only believe the AI disrupting SaaS? No, don't believe it. I think the front-end interface that customers use will transition over time because instead of having structured templates for how you interact with the software, you'll be able to dynamically generate some graphs and tables and data, et cetera.

50:57But I think that's still probably a few years away because people do like structured templates when they use software. But I think SaaS is going to stay huge. And I think these businesses with top line growth that's strong, that's converting, that scale and converting a lot of it to free cash, which I know in my Catapult pitch, but that's because I believe in this, right? I believe that's what makes a good SaaS business. I think they'll be strong. There'll be a whole lot of tech businesses that plummet. The beauty of Catapult is it's hardware. So it's SaaS on hardware. You can't be disrupted because you've got to get the hardware into people.

51:28That's true, but there's also a lot of software involved. I think fundamentally - Oh no, but software's nothing without the hardware is the benefit you guys have. You're so, there's much higher switching costs. We have a lot of video analytics software that just deals with video. But I think, listen, niche software, ultimately we're a niche business, right? Maybe our revenue is 130 USD, okay? It's not a billion USD, so it's still a pretty niche-y kind of business. But I think at the moment, there are lots of businesses on the market that are really high quality non-tech businesses that are undervalued.

52:00Now, like Westpharmers is non-tech and it's certainly not undervalued. It's overvalued, yeah. But there are... Great business, but overvalued. If you hunt, especially in the US, because there's a lot of neglected stocks in the US, you find genuine bargains. And then the other thing I've been trying to think about is... Or even if you look at our friends at Kogan who are trading on like a forward multiple of like six times EBITDA. Right. It's almost unbelievable. Exactly. So I think a lot of retail businesses are quite cheap. The UJB, which is not cheap, I'd say probably fairly priced. Yeah, because you pay for JB, right?

52:30You pay for their long business for three decades. But then I've been thinking about this. So you can try and short AI, but that's a fool's errand. No, I don't think it's shorting AI. But then I was thinking, what are the, you know I said to you, like all advantage. I'd love to short open AI. Well, you can't short them. You can't physically short it. But I don't think you can, you can't short them because if it is 18 months away, this is going to quintuple in value over the next 18 months. 18 months. I'm not talking about 2 trillion. You don't think so? I think the sky's the limit for that. We're already in the soft bank here.

53:01No, but we're in OpenAI. OpenAI is a religion. You agree with that or not? That's a religion now. When you're getting 10 % of a company as part of a deal to use their chips, which I think are not being paid for. I'm talking about consumer. You're talking about, yeah, it's a religion in terms of this sort of high-flying Max 7 stuff. I think that OpenAI now, people are pouring into it at the altar of AI is going to change the world and this is the number one AI business that we can invest in. I've listened to a lot of podcasts. You hear on the, like, consumer, enterprise take-up of AI is not growing like people think it's going to grow.

53:37I don't know if you've, how familiar you are with religion, but facts are not a great way to refute religions. Like, the true believers do not say, oh, there haven't been any miracles in the last 2 ,000 years. You've got me on that one. Like, that's not what goes on. so I think OpenAI is a religion and you can't short it I think there's more interesting things to think about like the reason I said all advantages that didn't die directly from the crash it died from the knock on effects of the crash yeah we'll not be able to raise money presumably and their clients going bust and yeah their clients going bust and so the question it's like remember Time Warner Time Warner did the merger with AOL and AOL was doing all these ridiculous deals without exactly what OpenAI was without funding their clients so I'll lend you 100 million bucks you invest 100 million bucks in AOL ads so look they had all this revenue yeah then when all these when all these guys started going bust suddenly aol well hold on we're going to roll this stuff off and go to revenue totally and so i think the trick i'm trying to think about now i don't have the answer yet but what who are what are the second order disasters like not the not the companies that crash nor tells the lucid yeah like all of the who's going to lose the all their customers basically as a result of this crash and they're the companies that's right that was the infrastructure play that's who you're short i think even at media which clearly is a great business and has been a great business for four decades that's now involved in this insanity they're involved in all these deals now they're buying open air they're doing all this stuff so it's and i thought jensen was actually pretty good the way he explained so the ai stack and you've got power you've got chips you've got data centers yep you've got llms and you've got kind of the next the application layer on top of the llm so this is the five layers and all five layers have to work in tandem yeah and it feels like they're just getting completely out so you've got the nvidia is obviously that gpu level and that's i think relatively strong for now but all those other layers have some real issues there well i think um i i totally agree with you on that but i also think this so what's gonna plummet like i think data centers are going to have problems but it's too obvious like you can't that's already they've already i mean you can't you can't short those but like i think you can you definitely can show that well the problem is you can't you might not be able to hold on because I keep saying to you, if it's 12 to 18, any short you have to hold on.

55:45And so then I think about this. 1 % of your portfolio, 2 % of your portfolio max. If AI stops buying stuff, who gets it cheaper? And then I thought, so these Nvidia chips, I want to buy a new graphics card to play video games. It's very expensive. It's hard to get the chips because they're all being gobbled by Nvidia. Maybe everybody, I don't know, it's not a very big market, but maybe everybody that sells machines for gaming, maybe all of a sudden and the cars will come down dramatically in price and they will have a boom in demand. And also game sellers themselves will boom because it's cheaper to buy.

56:17It's possible. And so I don't know if that's the answer, but this is how I'm trying to think about things. Like if AI stops buying, who will be the beneficiaries of AI no longer gobbling up? What are they buying? Chips? Bandwidth in data centers? Electricity. Electricity. Like who are going to be the beneficiaries of this? And that's how I think about it. I doubt you'll. Acquired's dropped their third Google episode. And it's been a horrible series. I don't think I've listened to any of them. Yeah. I bounce around. I mean, it's not a great pitch considering we're doing this podcast, but I bounce around between podcasts a lot.

56:48I have like seven or eight podcasts and listen to them religiously. And it's really a history of AI, basically. So I think you'd love it. I think you all love it. There's one story within a story that I think you got you two especially live. Do we agree that Google is going to be a winner in this war? Well, it already has. It's already tripled. Market count has tripled in the last few years. No, but I mean, if you run forward five years and AI really is a thing, yeah, Do we agree that Google is going to be one of the winners? Well, Google was the original AI. This is what they say in the episode.

57:13Google was the original AI business. And the only reason OpenAI started was, I won't ruin the podcast for you, but it was really sort of a relation to a Google thing and Elon started it because so we're going to Google. But listen to my question. Do you think, what year is it? 2025. So do you think in, that's not a great sign, is it? Do you think in 2030, if Gen AI has lived up to, I don't know, 80 % of a type, 50 % of a type, and you say, who have been the huge beneficiaries of this AI boom? You agree that Google is a winner, not a loser. Winner, yes. Okay, I agree. And they already have been a winner.

57:51Because we were talking quite a bit at one point about they're losing their search stuff, which is true. They're probably going to lose a chunk of their monopoly. You know my view on that? My view on search, my view on AI is it doesn't impact shopping as much as it impacts everything else. I think it's much more important for other stuff. Except it might drive a whole lot of agents that help you comparison shop. You can do that now. Like Metasearch has... People aren't doing it. Metasearch has been around for a long time. I know, but talking to an agent, I want to buy a new laptop, talking to a dedicated agent that's been trained on that data, I think that will take some search traffic away.

58:24We'll call Google a winner from the AI, but anyway, keep going. Talk about how OpenAI officially came out of the whole... It's like a woman's scorn. So Elon was so annoyed when Google bought DeepMind. So do you know much about DeepMind? No. It was one of the few great UK tech businesses ever. Right. It was started by three people. One's called… They've got Revolut. That's a UK tech business. Yeah, I mean big, big. Oh, so Revolut's a neobank, essentially. Yeah, it was big. Sure, sure. So it was Demis Hassabis. Do you know Dennis? Demis, who's one of the most famous AI. I mean, you literally don't even know his name.

58:57Well, I can't pronounce it, but yeah. Demis. And Shane Legg and Mustafa Suleiman, who's obviously now at Microsoft, he's founded his own… Mustafa founded Inflection, of course bought by Microsoft. But Demis was probably the main... I don't know any of these businesses. So Demis was the world's second best chess player for a period at under 14s level. Super smart guy. Oh, there's a lot of qualifiers. Second best at under 14s. You'll be super impressed by this. That's still impressive. So Demis, who founded DeepMind, effectively one of the main guys who started the AI boom alongside a few others, but he was one of the really key people.

59:29He did a couple of things before that. Do you know what he did? What was DeepMind? It was the original AI business, really, that Google bought and basically created Google's AI business within Google. But it was, maybe it's a bit too technical of a question, but like, was it using a Transformers? Is that what, it invented the Transformer era of AI? Transformers came out of Google after DeepMind came in. So that was all, there's like, you've got to listen to it, but there's like sort of a dozen people who drove the whole AI thing and three of them are DeepMind and then there was, who was the father of AI?

59:59The Canadian guy, Jeff Hinton. Okay. Oh, yeah. I know that name, yeah. the guys you've been to work with. There's like 12, there's like 10 or 12 of them and they're all kind of, one's at Facebook, a bunch are at Google, a bunch, and then there was, there went this, who co-founded OpenAI with Elon and Sam, Elias Xieva, who's probably one of the most important people. So there's only a dozen people who really, and they're all ridiculously smart. But Demis I found really interesting. He did some business, I remember I read about this guy at one stage. Did he do a travel business or something before?

1:00:32No, he did a couple of businesses that you, one we talked about on the show. Yeah. I actually do remember reading this a long time ago. I just can't remember what they are. So he was a game designer before DeepMind. Do you know what games he designed? Syndicate, which we talked about, and Theme Park. My gosh. So the guy who - I do remember reading about this. One of the most important AI people ever was a game designer who designed the two famous games. I thought that was a crazy fact. Yeah. It was Bullfrog, I think that was his. Oh, that's a great, yes. Yeah. That's absolutely correct. That's who did all the theme games.

1:01:01Yeah. So that was, it's definitely worth listening to the episode. It was just to understand AI and the twists and the characters involved and Elon was right. They're too long in these episodes. If I listen to those three episodes it's eight hours or something probably. It's 12 hours. It's over a month. You listen to over a month. I don't know. Obviously in between our episodes. When am I going to listen to that? When I'm walking. I'm making a lot of phone calls when I'm walking. Yeah, we'll stop making phone calls. The advantage on Brighton Beach is that you basically don't get reception. My TPG is doing alright on Brighton Beach.

1:01:26Yeah. We'll come for a super quick break back with a deep dive. Before we go to a break can I just raise an issue? Oh, you can. invested in my microphone recently. I have been. Because you've made a lot of complaints about the quality of my microphone. I could offend you, your family, you wouldn't mind. I offend your microphone and you go nuts and be honest with my microphone. So I thought, you know, we had some microphone issues. As in you? Yeah, well, we're a team. We're a team. Don't tie me with your microphone issues. when I do something good we're a team. Yeah, of course. Victory has many fathers here.

1:01:57Microphone fathers are definitely an orphan. And so, the microphone broke. I told you this great story about how I got it with this. The microphone breaking was user error, don't forget. You should have unplugged the... I agree with you. I'm not making excuses for it. I took responsibility. I'm in the baggage. It was me plus baggage handlers that caused the problem. I think just you. I planted the seeds and they reaped the damage. I always remove that. Mark, do you remove your connector from your microphones? Yeah. Thank you. Well, now I will too. Well, we've all got to learn at some point, right?

1:02:27And so I get this microphone. You put your seatbelt on when you... I raved about this microphone. alright I didn't quite get the settings right it sounded good when we were recording user error compounding user error Mike you agree it sounded good when we were recording it did sound good when we were recording and then it turns out that in production it had problems it's funny because you actually raved so much about how good the episode was I had to cut out a lot of the start of the show it was like a quiet episode I feel like the wheels might have fallen off in production on that episode but um I think Mike's speaking defamation lawyer as we speak and then I fixed it I changed the gain and stuff and I thought it sounded amazing uh well that was before you bothered turning up to the recording we fixed it and then I thought it sounded amazing and then I get a message from you on our whatsapp chat with Mike and you were like very emotionally invested in how hopeless the microphone was I was making a bit of a heart and then I ended up listening to 40 minutes of the episode which almost killed me and it sounded fine.

1:03:31The last episode was fine. It was the first one that was... So many people said, what's going on with Adir's microphone? Is there something wrong with Adir? His microphone sounds shocking. My whole thread, my whole WhatsApp then was Adir's microphone versus is there something wrong with Adir? They are two very different and conversations of very different lengths. No one cares about you. They just care about the microphone. Well, that would be my dream. All right, so we can agree that my travel microphone is okay. I thought we I thought you were getting a new microphone no I think we alright we'll take this offline Mike's the expert here I think it's okay we can get by this doesn't make sides that's not a compliment no it's not that's as negative as Mike will ever be no that's Mike sitting on the fence that's basically Mike saying this is the worst thing I've ever heard that's Mike saying I don't know which way this conversation's gonna go you know how in General the Jedi and Luke's burning Darth Vader's helmet we gotta do the same thing with his microphone I should've just let us go to the ad we will go to the ad right now back in just a few moments and you can definitely coc sells exists.

1:04:30And we are back. And you may notice we sound a little bit different to before the ad break because we're actually reconvening a little bit after our first session because it was just such a fun session. So it's great to be back. And we've had a lot of listeners reach out and they love our deep dive section. Obviously, they love ideas, analysis and us going really deep into a business. So we're going to do this, try and do this a lot more often. and thank you for, we actually put, I put a call out to listeners for suggestions and we got some amazing suggestions. This was one of them. We do have a lot to go through.

1:05:02So keep them coming. And just because you haven't talked about your suggestion yet, doesn't mean we won't get to it, but we love hearing about companies we haven't actually heard of. And we hadn't heard of this one till we deep dived ourselves. And I dear, had you heard of Codan Technology, C-O-D-A-N, before this? I had kind of come across it at one point and had a bit of a look at it, but I wouldn't say I was very familiar with it at all. So Coden is a South Australian business that's basically been completely ignored by the mainstream tech press, which kind of explains why I hadn't heard of it at all and you hadn't heard much of it.

1:05:35It actually has been one of the best performers on the ASX in the last couple of years. In November 22, the business is trading at$4 a share. It then hit$19 a share during the COVID mania of 2021. Adir, do you know what it's currently trading at? No idea. Zero idea. So it's now trading at$33 a share. So it's nine, it was 8X'd in the last two years. And its market value is now$6 billion. So that's a remarkable couple of years. It is crazy that there is a tech company on the ASX worth$6 billion. That's what you say, 8X in the last - 9X or 8.5X, sorry. And no one writes about it and no one talks about it.

1:06:23It's bizarre. Given how much they talk about Life360 and Zip and all these businesses that aren't as valuable as the - life for 60 years now. Let me give you a quick bit of history in this business, just for a couple of minutes. The business was founded way back in 1959 by three friends from the University of Adelaide, Alistair Wood, Ian Wall, and Jeff Bettison. It was originally called Electronics Instruments and Lighting Company, and it was renamed Coden back in 1970. It listed in ASX in 2003 and started producing military technology in 2006. It then acquired a business called MindLab. Do you know what that does over here?

1:06:58I mean, I can guess it's got something to do with analyzing mining samples? Well, you'd be kind of wrong because it's actually a metal detector business. It makes metal detectors. Oh, yeah. See, they've got a metal detector business. Yeah, that's that business. There's really two sort of divisions. So there's the mine lab metal detecting treasure hunting business. Also, I think military can use it as well for landmines. But the main part of the business is it sells mission-critical radio communications used by military, law enforcement, merchant services, NGOs, and commercial organizations. So products include, you know, high-frequency radio.

1:07:31You know what we used to use when you were a kid, those sort of walkie-talkies, but the commercial versions of a walkie-talkie, really? Right. I'm not very familiar with this world at all, to be honest. Yeah, well, neither was I. It's got a brand. Its main brand, I think, is Domo Tactical Communications called DTC. And there's a brand called Zetron, which I bought about four years ago. So that's kind of two businesses. The annual report, which came out a month or so ago, noted that DTT delivered an exceptionally strong result in FY25, underpinned by obviously growing global defense expenditure, which we all know about, particularly in unmanned systems.

1:08:04So DTT's compact, lightweight, and power-efficient solutions remain well-suited to mission-critical cases where size, weight, and power are critical to operational performance. DTC, which is the Domo Tactical Comms business, delivered$100 million in revenue during FY25, more than double the prior year's result. In total, CDA saw its comms revenue grow 26 % to$413 million, because that includes the DTC and Zetron businesses. And metal detection businesses, the metal detection business grew 16 % to$255 million and saw its profit margins fatten from 35 % to 39%. What do you reckon this business does EBITDA margin, Adir?

1:08:41What is its EBITDA margin? My guess would be, I reckon it's got great margins. It's going to start with a two. Is that right? Yep, exactly right. 27 % EBITDA margin. Oh, gosh, that's even higher than I was expecting. I was like, maybe it can get to 22, 23. There you go. Well, it gets better because the EBIT margin is 22%. So that's after everything. It's after depreciation and all that kind of stuff. So the business reported EBIT of$146 million up from$114 million and had NPAT of$104 million up from$66 million. And they had$5 million in merger costs. So you can sort of add that on. So what was the top line revenue growth percentage?

1:09:20Did you say that? Maybe I missed it. Well, I split into two sections. So the sort of comms business, which is kind of a crown jewel, grew 26%. And the metal detectors grew 16%. And so, but they're not the same size. So it's going to skew towards, it's yes, the growth rate is skewing towards the faster growing business. So the growth rate probably has a two in it as well. Yeah. So revenue from ordinary activities, which is obviously everything, grew 22 % for FY25. Profit up tax grew 27%. So they're obviously slightly widening the jaws. And this is partly just obviously scale and partly because they increase their margin by sort of 10%, more than 10%.

1:10:00So depending on what you want to use, like basically you said their EBITDA margin is 22%. Their revenue growth is 22%. So EBITDA was 27 and EBITDA was 22. Yeah. So whatever of that number you want to use, this business is running at 40 % to 45 % on a rule of 40, split roughly between growth rate and profitability percentage, which is pretty interesting. It sounds like it's a business that just does capital sales, right? There's no subscription component to this business. I would have thought there's a pretty strong degree of repeat buyers, though, without being subscription, but it sounds like it's a market leader.

1:10:42How many metal detectors do you have? Oh, forget me. Let's talk about the – I think the main value in this business is the community, the radios. You've got to buy another 10 next year and the year after because they're the market leader by the looks of it. Yeah. I mean, this business is good. Like, it's very – it's growing fast. It's a high-margin business. It's keeping a lot of its profit. I wonder if it's keeping cash. It probably is keeping cash would be my guess. Operating cash flow,$146 million up from$106 million. So it's spitting out cash. So it's producing tons of cash. They do. That said, before you get too excited,$50 million in product development, capitalized product development.

1:11:25So take that$50 and another$5. So take off$55. Hang on. That doesn't affect cash. No, that's cash they paid. That goes under financing cash, but – sorry, it goes under investing cash, but take it off. Oh, as in – I see what you're saying. So you're saying they threw off 150 mil of operating cash flow, but take off what they actually paid their staff, and maybe you're down to 100. No, not so much staff. This is more – oh, yeah, I guess you call it staff. Yeah, staff and intangible. So, yeah, 55, so down to – you're down to about 90. Okay, so that's pretty great. I also took a quick look. So they spend 10 % of their revenue on research and development, on engineering, let's call it.

1:12:09Like, I mean, that's not at the high end. That's actually kind of at the low end of spend. Maybe they feel like they've reached a point where it's scalable. But it seems like, you know, what can you say about engineering without knowing much about the products? what you can say is it's a business that continues to grow year after year at a pretty decent clip for a company with this revenue line. I mean, 22 % growth at 600 mil of revenue. That's very impressive. It's a very impressive growth. Incredible growth. Yeah. And they're not doing it by discounting hard because they've got these great margins that they're running in the business.

1:12:48Well, the margins are expanding. So they're actually putting up their prices. So it's the opposite of discounting. There's some tailwinds. Obviously, since Trump came in, he's really leveraging more military spend globally, certainly from US allies. So this is the golden age of military defense contracting companies. So they're in the right spot for sure. So what I can see is that they've made a whole lot of acquisitions since 2021. So So you said this Domo Communications, actually, they bought that in May 2021, so post-COVID. And then that was$108 million, that transaction, which is like… Yeah, and it seems to be great value.

1:13:27Yeah. Well, I agree. Like it would have been a lot of money when they bought it in 2021, but they're now worth, what do you say,$8 billion or something? $6 billion markup. $6 billion. So that's worked out well. They were worth, what,$700 million not long ago. Yeah, so that would have been a lot. That would have been a big purchase,$108 million. They've basically spent$240 million on acquisitions. I wonder what happened in this business. I mean, there's two turning points in this business by the looks of it. One turning point is post-COVID, a business that's 50 years old decided to accelerate its growth, or it's even more than 50 years old, right?

1:14:06What did you say? The 50s, right? It's close to 55. No, 1970. Sorry, you're right. 1959. Yeah, so more than 60 years old. you get to the end of COVID and suddenly it's making acquisitions and transforming its whole business operation. And so something would have driven that, maybe a new CEO, something probably had to change post-COVID. And then the other thing that changed is that the market suddenly woke up to how great this company is. Can you imagine how undervalued it was before this run-up? Yeah, exactly. And so this is what I keep saying time and time again, which is value creation for shareholders is non-linear.

1:14:45And you go through this long period of time where inside the business value is being created, but it's not being reflected by like market cap and the shareholders are not getting the value that's being created in terms of their ability to liquidate their stock for that value. And then all of a sudden the market takes a look and says, okay, now we believe this or they just did something that caught everyone's attention. and suddenly the dam will burst and the stock will go on a run. And it's not just a run based on what they're doing now. In this case, I suspect it's the same. It's a run based on the last few years where the market cap hasn't kept up with the value that's been created in the business.

1:15:27I'd almost call this the Adam has been proven wrong twice stock for two reasons. One, if you recall where we talked about DroneShield, well, initially six months ago and then again probably a month ago. And Drone Shield obviously is a different business, very different. They're both broadly defense type, military type businesses, but Drone Shield's very different to Coden, obviously. But the one thing I said about, one thing that made me sort of doubt, and Drone Shield's been on an incredible tear, but the one thing that I doubt about Drone Shield was how could an Australian business in military technology, if we don't fight that many wars, how can we be market leaders in military technologies?

1:16:02Like now Drone Shield's proven me wrong. Now these guys have proven me wrong because that's two market leaders we've got i think he called drone shield a market leader now and now coden is also a global leader in defense that's that's adam being proven wrong once and well drone shield is a weird thing because drone shield is now starting to get into the territory that pro medicus is in where the founder it's not the founder the ceo just has to tweet saying yeah i woke up in a good mood this morning and 300 mil is going to get added to the market cap of the business right so i and so it might end up being like a 10 20 billion dollar company right but um i think we're in the euphoria phase of drone shield very much so at the moment so you might not be wrong yeah i don't know i think this though doesn't feel like an implausible company to come out of australia no but it's still defense not implausible and i guess the other area where you could say adam's been wrong is i'm highly skeptical of highly acquisitive businesses.

1:17:05I just, I much prefer organic growth. And these guys have been very acquisitive. Again, proving me wrong. The whole notion that 89 % of acquisitions go wrong. And in fairness, these guys did, you'd call them, not bolt-ons, but very in their wheelhouse acquisitions, which are much more likely to see than other acquisitions. But they've still, so they've done defense and they've been acquisitive. Both those things would naturally turn me off investing in a business. and they've gone bang 8X. It's a very weird thing. So I'm looking at their investor presentation. They listed on the ASX in 2003. So it's not – it's more than 20 years.

1:17:42I mean, you know, probably didn't have to do that maths for you in fairness. And so – but like in 2008 they bought MindLab. Yeah. And then in 2021 they bought this Coda business. Coden, yeah, is that what it's called? Sorry, the DTC business. Domo Tactical Communications. Yeah, Domo. And so I can't see the full breakdown of revenue by the brands, but it seems like pretty much this is a business that predominantly comprises Domo and MindLab as its primary drivers of revenue, which means – and if that's the case, and I can't see if it's the case, but if that's the case, then a business that was founded in 1959 and he's doing$600 million of revenue, has only owned the two core businesses that it has since 2008 and 2021.

1:18:37Like what in the hell was it selling from 1959 to 2008? I think it was radios as well, but I think this radio business has exploded, pardon the pun, in the last few years. It feels like they just bought this Domo business at the perfect time. It's been a masterclass in almost like Anakin Skywalker or Darth Vader. It's completely changed the business. the original business almost ceases to exist and this new business under the same name is just been incredible so you know they've also got this other business called Zetron I mean the names of these businesses yeah like it sounds like it's from like it's some kind of video game from the 1980s and so this Zetron business which I can't work out if it accounts for much revenue it might be part of the other which is tiny i can't really work it out in the org chart this zetron business like sits off to the side so like it's under coden but it's like not the dtc business and not the code and communications business and mine lab is a separate subsidiary owned by coden like there's coding there's coden and it owns coding communications and mine lab and then under coding communications is DTC and Zetron.

1:19:53And so I think Zetron is very small. I think Zetron's very similar. It's critical communications technology. Same thing. It does like 911. Oh, no, I think so. The difference is I think it does more the, you know, when you call AAA or 911 and you get like a dispatch, I think they do more the dispatch type technology. So I think it's a little bit different. Maybe the Optus should be getting in touch with them or something, right? Yeah, possibly, possibly. Oh, yeah. So they've got, they call it command and control software solutions. I don't really know what that means. But like, I don't think it matters for the purposes of this conversation.

1:20:31So what's its, what, and by the way, I mean, obviously that business was acquired as well. Because that's how they seem to get their businesses. Yeah, that was definitely acquired. Yeah, 100%. How much did they pay for that, for the old Zetron business? I don't know how much they paid. I don't know what they paid for. I can tell you. So, yeah, their job's a bit different. So, Coden, I'm pretty sure Coden already did the radio stuff and then it bought Domo, which is essentially the same thing and it became a scale business. So, they made like rugged tactical radio and wireless comms, base stations, repeaters, manpack.

1:21:01It's that stuff like soldiers or NGOs even on the ground in a war zone or in somewhere that's sort of dubious and they can – you've got no mobile phone reception. You can use – well, not before Starlink anyway. If anything, actually, it's strange that these guys aren't under threat from Starlink at all because Starlink effectively allows you to communicate from anywhere. I know, but let me tell you about Starlink and the problem with Starlink. By the way, Zetron was a$49 million purchase at the same time as Domo in May 2021. Yeah. I want to tell you about the problem with Starlink from a military perspective, even though I know it's used in Ukraine.

1:21:41The problem is its operation depends on one guy's finger and a button. And so, like, it can just be switched off. And whereas these radios, you know, radio waves, it's not well known, but radio waves are just part of the electromagnetic spectrum. They're just a kind of light. They're just a long wavelength light. And so, I mean, unless, I don't know, you're God, you can't turn off light. And so that means that this is going to work in the field in a much more reliable way than relying on some private provider's satellite system. Yep, yep. And possibly safer, maybe less susceptible potentially.

1:22:21I'm certainly no expert on this stuff, but there's clearly a reason why they're doing so well and why revenue is growing so rapidly. And this seems like just an incredible run of acquisitions that they sort of took their smallish radio business and turned it into what appears to be the global leader based out of South Australia. And so what's their multiple at the moment? Well, I think so. If you look at that, they made net profit, so sort of MPAT. They've caught 110, really, because there's merger costs. So they're in 55, 57 per year multiple. See, that's the problem. The problem is, when was that till?

1:23:03like they haven't released their full year results yet, have they? No, they've got 5.25. Yeah, they just did. Four months ago. Yeah. Four months? Oh, yeah, they would have released them in an annual. Yep, yep. So, all right, so they're trading on 50. So this is the problem. This is a great business. How the hell do you pay 55 times earnings for a business growing at 22 % even though it's keeping like, you know, 22 % EBIT margin? I mean, so you lost me at the valuation. But I will say if you divide that valuation by nine, which is roughly seven, like it's like basically, you know what I mean? Like it's basically a PE of seven if you divide it by nine.

1:23:44Like you'd be pretty keen on buying this at a PE of seven. So like. What would you pay? Would you pay 40 times? Well, I definitely would pay 25 times earnings for this business. Of course you pay 25 times because growing at 20, Would you pay$40 ,000 given it's great sector, market leader, obviously strong brand, getting scale, margins up year on year by from 35 % to 39 %? There's a lot of things working in this business's favour. I agree$55 ,000 is toppy. So they pay a dividend. They pay$0.25 as a dividend. So on$8, what's that, 3 % or something, isn't it? So that's pretty good. I don't know. It might not be fully frank because it's hard to know what they get their revenue from, but let's assume it is.

1:24:31So a 3 % fully frank dividend, it's pretty good, right, even at this price. And so a better way of saying it to me would be what would need to be true for me to pay like 40 or 50 times earnings for this business because I don't know this business well enough to make a call on it. And I would need to think that whatever was driving their growth, If I don't have to worry about that for the next three years, and in the next three years, what they're doing with their research and development is the next lot of products that are going to drive the next wave of growth, or you could possibly trust them to acquire their way to continue growth with this track record.

1:25:14And so, I mean, they do have quite a bit of debt. I mean, it doesn't matter with the$800 billion of market cap, but it matters more with the $100 million of earnings. Like they've got$130 million or whatever it is of debt. So it's not inconsequential. I just want to say if I was them, because I see that they pay$5 million of interest or something. If I was them, I'd go and raise some amount of money that was more than$130 million and go and retire that debt, like retain the facility, but retire the debt. Why the hell at this market cap should they be paying$5 million a year in interest? Like that's material for their earnings.

1:25:50So I'd get rid of that for a start. But I think that I'd want to be very, very confident that this kind of 20 % to 25 % growth rate was not under threat for the next three years. And I'd really want to know why. And then I think beyond that, you can trust them. They'll figure out the next wave of good stuff beyond that. But that would be fun. I don't know. I also just would feel sick paying four-year 50 times earnings for a business. But like the truth is like this is a high quality business just based on the quick look that I've had of it now. This is where we're at, where any kind of decent business is getting just an insanely high multiple because there's average business getting high multiple, let alone great businesses.

1:26:32We talk about the technology ones and the great businesses out there getting these crazy high multiples. I think a couple of things maybe in its favor, obviously the sector, you'd think there's going to be some tailwinds continuing in the defense sector. I totally agree with that. So it's probably unlikely that government, and this is obviously mostly selling to governments, I would have thought, effectively armies. I would have thought it's unlikely that governments are spending less rather than more. So that's probably one thing going on. It does appear to be the market leader. It competes against the likes of Motorola and some other businesses, but I think they are the market leader in pretty much everything they do, which I think is why they've done these acquisitions.

1:27:08And the other thing to note is they operate in 150 countries and 85 % of its sales are export sales. So it is a genuine global business run out of Australia. It's not a little sort of Australian backwater. It's a global giant really in this space. So this share price has had a rollercoaster. I just looked at it now. Did you look at the five years of this share price? Well, they had that 2021 COVID boom, like all this tech stuff, and then got smashed. And there's either two things that happened. Either they stayed smashed or they came and ended up higher. And this is in the business that – this is one of those businesses that ended up a lot higher.

1:27:42Yeah, basically it spent almost all of its IPO onwards under$2 and often under$1 until 2017. So when do we say it listed? 2007. So it spent 10 years kind of going nowhere, which is interesting, right? So that's one reason people stopped looking at it because it went nowhere. Like the way investors tend to work, especially institutional investors, is they're not buying a stock unless they think there's some catalyst. Yeah. That means they have to buy it now or they're going to miss out, right? That kind of FOMO, I guess, in a sense. Yeah. And so that went nowhere. Then it starts racing. Then pre-COVID 2020, January 2020, it hits$8.

1:28:30And it's like, what the hell just happened there? It just absolutely rockets, okay? It rockets from like 2000 and – I'm trying to figure out when this is. Basically, all of a sudden, in August 2018, it just starts racing from$3 to$8. Then you have the whole COVID junk, right? And it peaks at$17, let's call it. I think it hit$19. I might have hit$19. In June 2021, it was big. Yeah, yeah. That peaked COVID. Then it collapses back down to$4. Yeah. in November 2022, which was kind of, if you remember November 22, it was a bit of a low point of like, it felt terrible in the world. Wasn't Google like one trillion then?

1:29:17I think, I just remember it collapses. And Elfabet's now 3X since then just as a benchmark. And so if we talk about, you know, forget about COVID. Right before COVID, it's at$8. By September 2023, it's back to$8. And so I think what's effectively happened is once it's passed its low point in November 2022, which is all sentiment driven, people start looking at it and saying, hang on, this might be actually pretty good company. and like a year later, it's gone from$4 to$8. So it's doubled. And then it kind of just keeps going up, goes to$16. And then all of a sudden this year, this is what I mean by nonlinear, like in April of this year, it's sitting at$4 and the market catches on.

1:30:08Something happened in April of this year. I suspect they released their first half results or something like that in April. Oh, that's late though. They should be releasing them in Feb. But something happened in April. You could go back and look at their announcements. Something happened in April. They didn't announce – no, I don't think they announced much in April. This company doesn't announce much. If you look at its ASX announcement, at least its first half in – this company literally announces nothing. You know some companies announce things every week. This announced a bunch – it's basically its first half results in the end of Feb, and then nothing until the end of August.

1:30:41Nothing. Not a single announcement. Well, so something happens at the start of April, and from the 11th of April, on the 11th of April, it's like$16,$14. Well, I remember Liberation Day was what, second or third of April? So it's just after Liberation Day. So then we pass April and we go May, June, July, August, September and now say five and a half months and it goes from$14 to$33 in five and a half months for no obvious reason. And I think all that happened with the full year results is it just maintained the momentum. But that's what I mean. Like this has been up and down, up and down. It's been 10 years going nowhere, this stock.

1:31:2210 years going nowhere. I don't know what the IPO price was, but it looks like it was$1.40. And like in 2008, it was 55 cents. Like this thing went nowhere. And so - Or actually went backwards. Didn't go nowhere. Bit of rate of knots. That's JFC, but yeah. Oh, yeah. Yeah, all right. So I think the narrative on this business is, if you spend 10 years putting the market to sleep, it's hard to wake them up again because over 10 years, like at$1.22, it was 5 % of the market cap of this. So my thing says it's a$6 billion market cap. And so that's 300 mil. So we're in micro cap territory. So if you spend 10 years in micro cap territory, every micro cap fund has looked at you.

1:32:14And they've all formed a view. And that view is not based on one look. It's a 10 years' worth of looking. And so everyone has this view. And that is why it's so hard to move the needle after you do that. And then they finally start succeeding in moving the needle in 2019. And it does. It rockets up to$8. But that was not based on these businesses. That was based on its old businesses. And so they did something in 2019, in mid-2019. maybe it was some results they released or something that doubled their price relatively quickly. And I think they were on a positive trajectory. And then COVID ruined three years of the stock market.

1:32:53And then whilst everybody was asleep during COVID, post-COVID, so literally as their share price is peaking, they do something very smart. What do they do? They use some stock to go and buy some good businesses. and so this was that and so i suspect if they bought this in april they would have been raising money circa 18 which is three and a half billion dollars market cap so when we say it was an expensive purchase for them at 100 mil it wasn't at all it was a bloody cheap purchase like they're three billion dollars okay and so and like a minute earlier they weren't worth three billion dollars and so they've gone and bought this stuff as the market's been tanking post-covert they have been using these acquisitions to build a great business and it just took the market because everyone was fixated on COVID it basically took the market from the peak in May 2021 until for at least a year later to catch on to the fact that they bought good stuff and good things were going to happen and then the non-linear growth happened so I think Like this has been a story of a long forgotten business that got people excited about something that we haven't bothered looking at pre-COVID and then use COVID to buy a few great assets that has formed the basis of the business that we have today, which is the same name, Coden, as the one that IPO'd in 2007.

1:34:22But beyond that, it doesn't seem like it's very much the same business at all. What it really is a lesson in is voting machine versus weighing machine. So what you explained was for 10 years, the voting machine said, this is an available business. And eventually - Well, it might not have been a valuable business. It was a different business. Well, the core of it, it sold the same product. It just added a lot of scale. And it used its, you could argue, Verticon was overpriced market cap in 2021 to buy what appeared to be a couple of businesses in the same industry. So it bought Zetron and DMC. Yeah.

1:34:54It became what appears to be the clear global leader. and we've seen that flush out now with higher margin. So it's done this great thing where one of the few times that acquisitions really do work is where you can almost buy a global monopoly, which these guys, if not a monopoly, certainly bought a dominant market share and have been using that and then they got a bit of luck. They had a bit of luck with sort of defense spending, but have been able to, in a period of revenue tailwinds, increase margin. That's pretty exceptional. So now the market's gone. This is a really high profit-making business and it's probably taken a bit too far, But it's very much a voting machine, weighing machine issue.

1:35:30Like if you were sort of looking at this business and saw, hold on, this is a business with a dominant – it was a great brand, great scale. It's a dominant franchise in a business selling to governments essentially. And it's a business that should continue to grow. So like you could have – the writing was on the wall, just nobody wanted to believe it, it looks like. Well, so at the end of fiscal 2015, so 10 years ago, the share price was$1.17. Now, we can't just do a multiple of the current share price because obviously the number of shares has expanded, but it's going to be approximately right because they didn't raise tons of new shares given how expensive the business was when they raised.

1:36:12And so like$1.17 is like roughly 3 % of the current market cap of$6 billion. So$180 million. Okay. And so what does$180 million business in 2015 look like? I'm glad you asked. It looks like this. It looks like a business. It wasn't small. 180 mil market cap had$144 million of revenue. and$13 million of underlying net profit after tax, whatever the hell that means. Oh, no, their net profit after tax was 12.5 mil. So basically, you could buy a 12.5 mil NPAT business. Yeah. 15 times. 15 times at that stage with a 3.5 cent dividend on$1.17. So 3 % dividend. So I finally can say my 3 % dividend. It once did actually have a 3%.

1:37:08I'm finally right. Yeah. And so that business, like I can't really see what the growth rate of the revenue was. Oh, yes, I can. I don't know why I'm saying that. So the growth rate of the revenue was 9 over 132 mil. It grew 9 mil on 132 mil, which is 8 % or something. So it's a slow grower. I'm looking back at this. I can see why people didn't like this business. Basically, in 2013, it had 244 mil of revenue and was on a tear. and then in 2014 it dropped to 132 and it's like impact went from 44 to 9 like basically this was giving people indigestion or like they're puking on a roller coaster and that like that makes investors very nice i can see what went wrong with this business i don't know the reason maybe they sold something some disaster happened who knows but like um but i fundamentally think in my view you can't really compare the business today yeah to the business that was 10 years ago Going back that 10 years, what was its revenue?

1:38:10120, did you say? 144. 140. So its revenue is what? Four and a half times more? So it's bigger, but it's not like magnitudes. It's not magnitudes bigger. So it's four and a half times bigger. And it's what? But its profit was 12 and a half mil. 14 times more valuable? Yeah. And that's because its profit was 12 and a half mil. And now its profit was what? Was it impact? 105 or something? Yes. And so – Eight times the profit. So that's scale better. So that's where it's getting its leverage, right? And obviously the multiples like 4X as well. Yeah, but fundamentally it's increased revenue 4.5X for an 8X increase in NPAT.

1:38:50Like that's the widening of the jaws in the most beautiful way. Like you can't – like if I would see that like over 10 years, you say, well, that's exactly what you dream of, right? Like basically you're just retaining so much of your incremental revenue. Yeah. And this is very Buffett-like investment. Like if it's a business that you kind of want to find as an investor, those great businesses that are subscale as this one was, but you know that as you get more scale, your margins improve, which doesn't always – we talked about childcare centers about a month ago and that's a business that the margins worsen as you get bigger.

1:39:27This is a business where the margins significantly increase as you get bigger. So it's got that really – as you said, you call it the winding of the jaws. it's a real scale benefit. And as an investor, something to really look out for that if you can find that business that's growing its powers, in this case, probably growing its brand and growing its scale economies. If you can get on the, jump on that horse when it's starting to gallop as this one did, you get the multiple expansion and you also get the Jaws expansion. So you get the double banger. You've probably seen that with Catapult as well.

1:39:55You've been through that in the last two years as well where you're growing revenue and you're growing margin and you're growing multiple. So everything's going in your favor. And this business sort of had that, has had that. Yeah, well, looking back at 2015, you're right. Their core business was still a radio communications business, just their own one. And they had already bought MindLab some years before that. So they were running the metal detection business. And then they talk about this thing which we've heard nothing about in 2025, which was our startup technology business, MindTech. And then you have this line, continues to make good progress, albeit at a slower rate than originally hoped.

1:40:31Well, it doesn't seem like we've heard again from that thing. But I might be wrong. Maybe it's in there somewhere. I don't know. Yeah. But definitely, it's an incredible story. And I'm not doing it justice by learning about it on the fly and talking about it. You've done a good job nonetheless. But yeah, it's a pretty remarkable business. What is something else remarkable? So they had a CEO, a guy called Mike Hurd, who was CEO from 1991 2010 so pretty long long tenure yeah then a guy called donald mcgurk came in in 2010 yeah he was the guy in 2015 saw his photo yeah and he he retired in 2022 so it feels like um donald did a lot of the hard work he did those like those two key acquisitions absolutely acquisitions and then elf ianello came in from january 22 and is still in so they've had only three co's in what 40 years odd 40 odd years well more 50 59 like it's more like no the three they had the three this is the three it's been oh i see yeah yeah i don't know who that before then but yeah so obviously this donald mcgurk guy can can take a bow he's done an amazing job absolutely elfs come in and market must love him uh but this is a a great story one that we love to tell uh and thank I can't remember who actually, one of our very smart listeners who told us, but as you know, we have the smartest listeners in Australia and no surprise that they picked up on this.

1:41:59Well, can we agree though, that this is not a buy and not a short? We agree. I think I'm closer to buy than short. Yeah, I'm neither of neither. Like I think, so you said it's run up 8x since its low point in December 2022, but I think a more accurate way to talk about it, not to disparage your way of talking about it, but a more accurate way to talk about it is it was$8 pre-COVID. It had run up to$8 pretty quickly, like in the course of six months. It had gone from$4 to$8. And so it's kind of 4X'd its price pre-COVID. And that price, it reached that price again at the end of fiscal 23. So the way I'd more think about this is since the end of 2023, it's 4X'd and in the last five and a half months, it's doubled.

1:42:51That's when the most of the growth happened. Yeah. So, yeah, I'm not – But you would have bought it – hang on a sec, though. In March 2020 – I'll even take this. In March of this year, when it was trading at$16, and it had been trading there for a while. In fact, it had been trading at like$16 or lower until then. When it was trading at$16, you would have taken one look at this and said, yeah, I'll be buying this on 29 times earnings. Yeah, absolutely. If you're a rule of 40, and they were a rule of 40 then, easily. Yeah. Well, how about you tell me about these things before they go and double in price?

1:43:31Why don't we know about this now? Tell me then we'd say, oh, this will be a strong buy. We're going to pile into this thing. We like this. Not investment advice. But basically, yeah, can't we rewind this podcast back to April 2025 and let's do the episode then? If only, if only. On that note, thank you to our listeners. Thank you to Mike, of course. We will be back on Saturday for our Ask Us Anything episode. As always, it's been great to chat business with you, I dear. That was a great suggestion, this company. I never would have come across them in my life. Me neither. We will see everybody on Saturday.

1:44:07Thank you for listening in.