Cochlear Crashes, Firmus IPO Drama, Self Driving vs Flying, Batteries Step Up, Uber x Expedia, Ghost Buses and the Experience Economy

23:58Like if you can be the smaller fool, that's a great position to be. Well, what we've seen, I suspect, which you're right with what you're saying. Like the worst bit of news for these shareholders is that the bubble just got a bit more detergent poured into it so it could get bigger, right, with all of the results that came out in the US during the week. And so like Iron is going bananas and presumably CoreWeave is going bananas as well would be my guess. and this is not the end of the bubble. This is just kind of another injection of detergent to make the bubble even bigger. And so now is absolutely the time you should be able to get out.

24:37I think they should adjust this ASAP and get the hell out of this and sell it to the next party ASAP because, yeah, you're right, there's no better time than now. Coreweave's actually up off its lows more. It's more like 65 % up. So coreweave's having a bigger bounce than iron, which is incredible. So yeah, you can't get out now with these guys massively up off their lows. I just can't see this happening. Yeah. What about Sharon AI? That's an Australian business listed on NASDAQ trying to also list on the ASX. That did get out. That is out. And I think they are. I thought they did confirm the ASX listing.

25:11What are they over the last few little while, however long you're looking at? How long is the bounce? They're 65 %? A few weeks? Since about March, April. Right. It's basically the Iran war. So Sharon AI. So Suron's a much, much smaller business. You can't really compare. So that listed at, came on at, I think it was pretty recent, right? Yeah, it was recent. In the early 20s. I think it's doubled. So it came on around the time the CoreWeave and Iron were at lows, and it's kind of doubled since then. So it's been a pretty good result, but a much smaller business. It's like a billion Aussie market cap.

25:46I don't really know what they are, but I certainly know Iron, and I know CoreWeave, and they're NeoClouds. Iron certainly is a neocloud, i.e., you know, they're just there to produce tokens effectively for hyperscalers. I will tell you this theory I've got. Tell me what you think about this theory about Australia. So basically Australia is a hole in the ground for other countries to turn into good stuff, right? We agree with that. Largely that's the business model that we run. Hole in the ground and hole in the ocean for gas. Yeah. And so, like, there's a big country and so wherever you dig a hole, probably you can sell something to China that comes out of that hole or someone else, right?

26:24And that's a good business model in a sense because, like, it seems like there's almost an endless amount of rocks that you can go and sell to someone. And now we say, and like, I'm not very supportive of that business model. Although, as I've said to you before, like, I'm supportive of mining. I think, you know, probably Australians don't get enough of a share of digging up our country. But like, that's the business that lets us go and drink$6.50 coffees because people are selling rocks to China. But basically, we now think that we're going to be very smart and join the tech age and have tertiary industry by building these data centers, and that's going to bring us into the AI era.

27:02But when I look at that, what I think is that we've just found new rocks to mine because all that we're building with these data centers is token production as an input to AI models. We're not – there's no AI, great AI models here. I mean, Canva says they've trained their own model, and so that's impressive if that's true. Good. But we are not one of the top five AI models in the world coming out of Australia. Once again, we're just producing the rocks that go into other people's good stuff. It was actually worse than the rocks. We're giving power that would be used by Australians. We're giving that power too cheaply to international investors and international data users.

27:44So it's much worse than rocks that will just be sitting in the ground. This is power that's already being generated. So as we know with firmists, they jumped the queue in Tassie. There's a bunch of other both industrial users, commercial users, and essentially data center users who wanted this power. And somehow these firmists got – this has been the biggest coup that Ollie and Tim have sought is being able to get ahead of the queue in Tasmania when there's a million other people who want this power and these guys are getting it. But don't you agree, like, this is not sophisticated tertiary industry like making cars or making important parts.

28:17This is a real estate play. It's a real estate play with cheap power. Once again, we're just exporting. Like, all right, we've done a bit more processing than we do to the rocks, which just go onto a ship as rocks. But like we're basically just exporting the underlying inputs for other people's high value added businesses. Also what we're seeing is in the US, haven't had me here yet, but there's massive backlash against data centers and AI in general. Understandably so, if you've got your power bill going up and then the data center guys are saying, oh, we'll reduce power bills and blah, blah, blah, and that may or may not happen.

28:53But the moment we're seeing power bills go up because data centers are hogging power and we're potentially risking blackouts and you've got idiots like the Victorian government saying we want data centers here as in it's all good. There's going to be inevitably a massive populist backlash against these things to just basically turn resources of taxpayers into profits for a small number of people. And that's just not sustainable. So in the US, 29 municipalities, local municipalities have passed ordinances to ban data centers in their municipality. One state is now looking at passing that legislation.

29:31There is about to be a huge fight on jurisdiction in the US regarding who can and can't make decisions on this. There is no doubt that there is a growing backlash in the US against data centres in people's jurisdiction. And the reason that this is happening is because it's a democracy. And as we've discussed many times before, politicians predominantly care about getting elected or staying elected and the voters do not want to have these things in their backyard sucking their power. How politics works to a large degree is big business slash lobbyists get in the ears of politicians and get favorable treatment that could be through tax benefits, through licensing, through whatever it is because politicians have a lot of power to divert resources to rich people and that generally happens to a point where it starts really impacting the population but that point is often quite far away and we see and in for the left of the for the left it's usually unions and we've seen that in victoria so we've seen a huge hundreds of billion dollars diverted to useless infrastructure projects like the big build or include specifically the big build that's purely just a unions you have wrought to unions who are getting a cut of that probably 20 or 30 billion what the right side of policy historically does is does that for that for that corporate donors so in this case could be data centers could be data could be hyperscales whoever it is so eventually you push it too far and you get too greedy and people start realizing oh actually hold on this doesn't actually work for me why am i giving why am i paying double for power so someone else can make money and then you get the point where politicians go actually maybe we do have to switch this over well what do you think would happen in australia if the local lga what's that stand for local government area yeah i think so if the local government like the lga where they want to build a data center basically said we're not providing planning approval for building data centres in our municipality, I mean, that would be an interesting jurisdictional fight, right?

31:27I mean, that's going to go up to whatever state planning authority there is. But the truth is that that state planning authority is overseen by the state government who wants to be re-elected. I think that that is, I think there is some inevitability to that playing out at some point soon in Australia. I wouldn't want to die. If I'm a Tasmanian resident, I wouldn't want to be underwriting Thermos' data centre in London. It just makes absolutely no sense. The beautiful thing about Tasmania is that 100 % of the energy generation is hydroelectric. Like when people talk about renewables, like Tasmania really has nailed renewable energy in a way that very few other places can because of their ability to access hydro.

32:04They actually export some of that into the grid, I think, don't they? They do. It's up there with Canada, which is British Columbia is excellent for that. And China is actually now very good at renewables. And so if Firmist runs a sales pitch that says like, we're a data center provider that runs on 100 % renewable energy. That is their pitch. That will be true, right? Well, their pitch is also like we're better at cooling stuff, you know? Yeah. But basically, that will be true. But the bit of it that's problematic in the, what's it called, like the fine print is that we didn't go and generate any new renewable energy for our data center.

32:37We just sucked the hell out of Tasmania's renewable energy. Totally. Yeah, that's the rot. They just jumped the queue. Other people want that power. They're not the only ones who say, oh, I want green power. There's hundreds of people who want this green power. Absolutely. Somebody's going to solve the mystery of how they jump the queue eventually. And if that happens before they invert a commerce list, then they definitely won't. Anyway, there's lots to play out here. It's super interesting. Well done to Sarah and the Street Talk team for, again, breaking the news earlier. They do an amazing job.

33:05Did you see there was the mooted acquisition of Expedia by Uber early or late last year? That didn't happen, but the next best thing kind of happened. And Uber and Expedia announced last week that Uber will now be incorporating Expedia's API into their system. And Uber One members get 10 % back in Uber credits on every booking made via that sort of hotels platform that they're launching, plus 20 % off a selection of hotels, which I think is probably a bit of a furphy. CEO Dara Khosrowshahi, who's really sort of the next generation Tim Cook and also sits on Expedia's boards. It's a bit conflicted there.

33:36Called the announcement a full circle moment. Obviously, Dara was Expedia's CEO for a number of years. Skift, which is one of the main travel publications, said Uber will lose money on every hotel booking made by its highest value members, obviously. They estimated the partnership only represents 0.1 % of Uber's revenue and is purely being used as a customer retention tool for its very successful Uber One membership. Adir, your thoughts on? I've got Uber One, so I don't get it. What do I get as an Uber One member? You get access. You basically get, so you want to buy hotels. It's basically like you're buying Expedia because Expedia is the biggest B2B to C provider.

34:07Getting an Expedia mirror, essentially, and instead of paying$200, you're getting$200 lending$20 back in Uber credit. Yeah, but if I book on, I mean, I don't want to, you know, I encourage everyone to just go and book on luxury escapes, but unfortunately I'm going to talk about hotels.com for a second. Which is also Expedia. So if I book on hotels.com, I get like one free night for every 10 nights that I book. Plus I can get cash back, by the way, of a few percent, 3%, let's say. And so that's a good game. And so I do that all the time. And so why do I want to get 10 % back in Uber credits as opposed to 10 % back in a hotel.

34:41It's the same thing, right? Same thing. And so on the one hand, if you're an Uber One member, you can get 10 % back in Uber credits. And on the other hand, if you're just a regular person in the street, you can get 10 % back on hotels.com credits anyway. I mostly wonder why people book through Expedia and not through hotels.com, considering none of the other platforms provide that benefit. And like when I look at the pricing, yes, sometimes booking directly through Expedia can be 10 % cheaper than hotels.com. So that kind of evens out. But often they have the same pricing because they're just trying to target the less clued-in customer, basically.

35:16And so, I don't know. You seem more excited about this than I do. Like, maybe. But, like, I already get it. I'm not excited. I think it's smart for Mooba. And by the way, when everyone says these, when they run these ads, save 30 % on hotels with whatever. Like, you see Rocked run these ads as well, you know, or save 30 % on cashback. Like they're basically just pitching you the core value proposition of the business, not an extra 30 % or something. That's the value proposition of the business. And so whatever the cheapest that Hotels.com or Expedia can sell a hotel at, that's what they're selling at.

35:49Like it's a competitive commoditized industry. You think there's a lot of brand loyalty in this industry or not? To OTAs and online travel agents. I think Booking's done an amazing job with both the brand and their Genius program. What do I get for Genius? What is that going to give me? Discount. Discount. like between zero and 20 % off. Very similar, but real discounts. They're good discounts. And we do the same thing with Lux Plus. We actually even get bigger discounts than that. It's a full paid membership. But I think everybody's been trying to build switching costs because that's clearly what an online retailer lacks because we can build brand, you build scale, you can build corner resource, but switching costs is the big one.

36:26And this is just another way for Uber to build switching costs. So you're not using Lyft, you're not using DoorDash. I'm in the Uber ecosystem. I use Uber Eats, obviously, and this is just another way to lock people. Obviously, I won't use this because we have much better rates. Well, you don't pay for a hotel, do you? I've never heard you paying for a hotel. I pay for hotels. Do you? I often pay for hotels. You pay with your good looks and article writing or points. Sometimes I'll write articles and we'll obviously get a comp state because we're reviewing the hotel. But often I'll use points and often I'll pay cash on the luxuryscapes.com website, of course.

36:59I'm shocked to hear that. Well, I think what's the most amazing thing about this whole hotel booking industry is that it's a completely commoditized product and the biggest providers are making tons of money in profits, right? Booking.com is hugely profitable. And so - Booking is very profitable. How in the hell does that happen? Because Jeff Bezos has this famous quote, your margin is my opportunity. And so there's all this margin. Booking.com, this is how I think about it. Essentially, if they are, I'll say hotels.com. So if Hotels.com are giving 10 % back basically as a free night, all right, it's not real.

37:34It's maybe 6%, 5 % because a lot of people are not claiming it, right? So that burns. But just bear with me. If they're doing 10 % and they're doing 3 % and sometimes 5 % on cash back and the cashback provider is getting some as well, it means they've got to be making more than 15 % comms on selling a hotel. And merchant fee, 3 % merchant fee. And merchant fee. Okay. So what are they making? 25 % comms or something, commission on selling the hotel? Booking probably would average around that. Okay. Speed is a little bit less. So I'm not trying to erode your margin because I think you should make 100 % and the hotel should get nothing if you book through Luxury Escapes because your customer is so good and, you know, whatever.

38:08And my loyalty is to Luxury Escapes because I just want to book through you and I get no gratitude from you whatsoever. It's just a losing mission to seek your approval. I get nothing from it. Okay, let's just put that on the record. Pretty sure. Aren't you a platinum member of Luxury Escapes getting you some amazing free inclusions there? The show for transfers, free upgrades. It's true. Free lounge access. But you also gave me this voucher code that gives me another. this and I don't even use it because I want you to make some money off me no no gratitude okay but the crazy thing is this booking.com like how the hell are they still making 25 % comms in a totally commoditized market and my view is it must be that they have built a powerful brand through consistently advertising and people don't go and google or trip advisor or whatever when they're booking a hotel a whole ton of people just go straight to booking.com probably the app on their phone and the customer acquisition cost is essentially zero for that repeat purchase and that is one of the key benefits of brand equity oh it's not zero they've got they do have an incredible brand i think when you when you say why how is the commission so high how is the margin so i'd argue it's not a high margin relative to most other sectors but whatever even say it's 25 what booking has built is massive scale as well like incredible scale and incredible as you say incredible brand trust so when you combine you generally need brand and something to get that alchemy and become a really big business and often brand something and something and booking has certainly brand and scale um they don't and they've probably got a little bit of switching costs as well with with the genius program uh but it's really brand because often what happens you look at meta search and bookings almost never the cheapest expedias almost never the cheapest you've got what's called dodgy we call them dodgy online travel agents and these These are people who get effectively rates that should be offline and put them online effectively illegally, but it's really hard for hotels to stop it.

39:59And you often see these dodgy – and there is a risk you book one of these dodgy OTAs. You might not be able to check in. So there's definitely a risk for customers, and I would never suggest anyone do this. But often booking through its superior brand can charge 10 % or 15 % more than these dodgy OTAs because you just don't know if you're going to be able to check in. But don't you think – my argument here is that if we say brand is driving pricing power and it's driving reduced acquisition cost, you've just said, yeah, it probably does drive a bit of pricing power. They can charge a bit more.

40:26And by me just coming back to hotels.com and not Googling, and I don't only go to hotels.com. Actually, I probably check five different ones, to be honest. But like by me going back there, like that's a zero acquisition cost that they're paying on my booking. And so they're getting real benefits of brand building, I suppose. But don't forget, booking is the number one spender on Google globally. Oh, is that right? They spend a huge amount on marketing. And Expedia spends a huge amount. Both these businesses spend about half their revenue on marketing, give or take. So they do have to spend a lot to not only acquire customers, actually we acquire customers.

41:01So yes, the reason why booking is such a better business than Expedia is its brand is so much better. And it's got a great switching cost as well with Genius. But if Hotels.com dropped their 10 nights, get one free, I would just stop using them. So they definitely are paying for me as a customer. Absolutely. That's the retention cost. Yeah, and I also try and use American Express because, you know, they have that stuff that they give you. If you're a Platinum. If you're a Platinum. They used to give you like a... But you're usually paying more. Usually you can't complete room. You pay a bit more.

41:30It doesn't matter for you because you're staying in a suite anyway, but for Mike and myself, we're staying in the lead room. I've seen the rooms that you stay in. The video can't even fit the whole room in when you're staying in a room. It's a 15-minute walkthrough tour. It's like a real estate review when you show me a video of where you're staying. And so - When I'm paying that much smaller rooms, I can assure you. So Amex also does this like stay three nights, pay two, stay four. Yeah, but that's diminished, by the way, on those platforms. Like that's gone, there's like that almost never exists anymore.

42:01Oh, really? I've got rid of it. They usually give you breakfast and a credit. They still give you all that. But listen, I'm there for the stay four, pay for three, let's be honest. And so I like that. And upgrades. In Japan, they're big on it. respecting the upgrades in the US hit and miss. But I think it is just my overarching view is this. You're very smart for playing in a space where you're not just commoditized, where you're actually doing deals that are different to what's on every other platform. And it does shock me that an ultra-commoditized, I mean, this is a lesson in the power of brand, that an ultra-commoditized category can spend so much time and energy and money building a brand that they're able to maintain pricing power and reduce their acquisition cost and be hugely profitable in such a commoditized industry.

42:49I'd argue there's a lot of commoditized industries that have similar dynamics. Look at the food industry, how food brands, like so these food brands manufacture generic as well. Who's that? Milk, for example. So the same company that makes Woolworths Milk makes whatever, A2 or whatever it is, yet they get a massive premium. They're not that profitable, those businesses though. They're a bit profitable. Mostly what's profitable is a percentage. Well, booking's only profitable because it's so big, but as a percentage, it's actually not overly profitable. Yeah, okay, well, that's a good point. That's a good point.

43:17The margins aren't great. Can I just move on just quickly? And something I never really think about this, but public transport, we talked a lot about free public transport, which actually support it in Victoria, and I think Tassie's doing it as well. But I was driving, my daughter does cheerleading in Fisherman's Bend, and it's quite Fisherman's Bend. For those who aren't from Melbourne, Fisherman's Bend is sort of where the ports are. It's kind of unusual. You sort of pass the Westgate Bridge, under the Westgate Bridge essentially. And it's basically, there's some commercial stuff there. There's nothing really there.

43:45There's basically some building sites, but no one lives there and very few people work there. Then I keep seeing these buses. So when I pick my daughter up at 6 o 'clock or 7 o 'clock, I see these buses, like multiple buses in this place where there's no one and multiple routes. There's 237, 235. And I see these buses and I saw three buses basically all within sort of a minute of each other last week. And I had a look in two buses. there was not a single person near the bus because what would there be? Because literally there's no one who lives here and there's no one who works here at this time.

44:16So I thought, what the hell's going on? So I had a quick look and there's two routes that go here and the buses run every eight to 10 minutes. It's extraordinary. The cost of running, I did a quick bit of searching. The cost of running these routes is about three to four million bucks a year. So the Victorian government, effectively bankrupt Victorian government or close to bankrupt Victorian government, they can't afford to do anything, can't afford to pay teachers, who's kind of put by nurses, is running buses to this place where no one lives and no one works, night time, with no one on them, and spending$10 million.

44:44God knows how often this is happening, but this is just such a symbolism of the unbelievable waste and fraud that exists in this government. It's probably because the bus unions wanted to employ people or something like that, but there's no justification for these bus routes running at all, yet they're spending millions and millions of dollars every year on it. I hear you. I hear you. I don't have much to add to that except I'm not surprised by anything. This is like late-stage bubble of the government. That's what happens, right? So suck out every last cent while you're still in power. That's what I think about that.

45:17Can I talk about a couple of kind of exciting things, actually? We talk a lot about the energy transition, and we had Steve on a couple of weeks ago, and he was understandably negative about it. AFR reported last week the cost of generating electricity across Australia's east coast actually fell by 12 % in the first three months of this year. as record levels of wind and solar and exponential growth of massive grid batteries shrank the role of gas in the grid. Renewable sources such as wind, solar, batteries and hydro produced 47 % of Australia's power in the first quarter with share of electricity generated by coal and gas falling to record lows.

45:49Replacing expensive gas generators is rapidly growing a fleet of huge batteries which are soaking up cheap power powered obviously by rooftops during the day and wind farms and they can discharge during the evening. The amount of power discharged by batteries in the first quarter was three times more than the same period in 2025, which is pretty incredible growth, which was driven by more than a doubling of the amount of battery power that's joined the grid. Average price of generating power was$73 per megawatt, down 12%, as I've said. So Adil, we talk a lot about the transition, but it feels like it's kind of happening in the background.

46:19People are buying batteries, and I'm looking at getting a battery for when we finish our house. So you've got solar improving, the efficacy of solar improving. You've got efficacy of batteries improving a lot, and we'll talk about that more in a second. are we coming close to solving this energy issue just with literally batteries in people's houses having a massive impact on on energy usage well i think what i look i've looked into this quite a bit those batteries are expensive like 20k a battery or something absolutely and you get a government read but government spent three billion dollars on these batteries right i mean of course how would the government not spend money on something and so um it's like like i just want to just say this bluntly.

46:56Your decision to buy a battery cannot possibly be shaped by the government giving you a rebate, can it? No, but it certainly helped. Essentially, the size of battery that I'm looking at, you can get a bigger one or a smaller one essentially. Eventually, you're looking at the financial payback. I've got to pay 50 grand or 100 grand for this battery. If it saves me 15 grand a year, that's a seven-year payback period. But if it was a 12-year payback period, which maybe it is without the grant, I wouldn't get it. So it definitely would impact my decision on certainly the size and possibly getting one full stop.

47:24So you're very opposed to government grants that don't benefit you, but much more supportive of government grants that benefit you. No, but even – I haven't bought this battery yet. I'm supportive of battery – I'm absolutely supportive of battery and solar grants if it means we can have much reduced reliance on other much less efficient power. The fact that you have to – you can generate power on site, not lose all that power in transmission is actually significant. So I think there are other reasons to buy batteries, which is that maybe you think I'm paranoid in saying this, but actually with all of the way that the energy transition is being handled, plus this data center talk, there is some risk about electricity security over the course of the next five to 10 years.

48:11And I think being self-sufficient and having battery power in your house means you don't face that particular risk. I think I've always felt this way about the clean energy transition. Anyone that doesn't want clean energy I think is crazy because if you go outside where they're burning lots of coal or lots of petrol, diesel, oil-based energy, like it sucks. Like it's polluted and it doesn't feel good and it's not nice. And so I just like a world that feels nice. And if we don't burn that stuff, it feels nicer. And then the question is, how do you get across to a world where you're burning less of that stuff?

48:49And the other thing that's important to me is the lights stay on while we make that transition. I think that's important. And I also like air conditioning. So I want those things to work while we move to renewables. And I think the main problem I've always had in Australia and globally is that it moved from a science and technology-based discussion to a religion. And, like, you had two opposed religions. Absolutely. And all of a sudden, once you have religion and you have the ultimate truth and you know the truth and there's only one truth and the other side is heresy. And so I think that's been fundamentally the problem.

49:24But overall, I agree with you. There has been a rapid transition to renewable energy, especially solar, as a consequence of home solar. The flip side is this, though, and maybe I'll make these two points on it. One is, as you said, like it's 47%, and it's tripled in the last year. That's amazing. but obviously there are times where there is just too much electricity and that is especially on sunny days during the day and in fact if you go on the right electricity plan and you have an electric car as you do you might know that you can actually charge that car for free for a few hours during the day if you go on the right plan because if you try to put your energy into the grid at those times you'll actually be charged money for putting your energy into the grid It's like a negative cost.

50:09And the flip side is obviously that when times are not optimal for wind and solar in particular, then like, yes, it's battery discharging time, but no one is able to necessarily meet the demands of the country when it's cloudy or at night or when there's no wind. And I think that's like where we're at at the moment. And it feels to me. Where it works is batteries, obviously. You need batteries to get slightly better. and as they are, and we'll talk about some battery developments in a second, and solar panels become slightly more facious, as they have been. So I'm… But before we say that, yes, I agree, but then we say, hang on a second, we can't divorce this conversation.

50:51It's like a beautiful melding together of this discussion. The whole world now wants AI, and AI is the most energy-intensive activity from an electrical perspective that like the most sudden jolt in increased demand for energy that we've faced and there is no possibility that we are going to be able to roll out the data centers that are required in the next three years using renewable energy it's just not possible like we can't increase that quickly and so like the country has got to make this tricky decision which is do you want to do the continued pathway to renewables or do you want to host data centers and I don't think it can do both basically.

51:33I think you're right. I think the beauty – so I'm slightly sceptical of the climate change doomists but I'm highly in favour of solar and battery. Part of the reason – and the beauty of batteries and other things is you can't get a blackout because you can – so you're not going to have – you're stuck in a lift or fridge, your freezer go off because you've got this backup power. Well, it's hard to get a blackout. Like you'd have to have wiring problems, for example, to get a blackout. You can't get it by a lack of blackout. And a lack of generation is not going to, in the short term, give you a blackout.

52:04Yeah. It's obviously a bit harder in winter, but certainly in summer, you should be able to fill your – as batteries get slightly better, we're not quite there yet, but I think we're probably within a couple of years, the battery has been the last 12 hours. So you effectively fill the battery during the day, and then you use it throughout the rest of the day, and you're almost paying no power. You see the announcement. I don't know if it's Catl or CATL, the big Chinese battery maker. So it's basically BYD and CATL, the two big battery makers. They've developed a battery now which allows EVs to drive 1 ,500 kilometers on a single charge.

52:33And the challenge is obviously BYD for supremacy in the battery space. But, you know, these companies all lie about – like there's lots of data now that they all lie about how far you can go and charge. Yeah, but you can assume that it's 1 ,500. Maybe it's 1 ,000, but it's better than it was because, yes, they're lying, but they're lying relatively. The latest version of its condensed Quillen battery has a greater range by distance from London to Barcelona and marks the leap from 1 ,000 kilometers in the previous edition. They've also released an upgrade to Shengjing, which can charge from 10 % to 95%, sorry, 10 % to 98 % in six and a half minutes, which previously went from 5 % to 80 % in 15 minutes.

53:10This is basically now to the time it takes to fill up a car with petrol, which is incredible. And BYD is at nine minutes to go to 97%. So they're both making incredible leaps and bounds. Cattle's shares have risen 40 % this year and up 140 % in the last 12 months. The battery technology is actually unbelievable now. It's this paradigm shift. We haven't seen it yet, certainly in Australia, and we haven't come yet. And it still takes me six hours to power Tesla and the like. But we're not far off this battery revolution, it feels like. Well, I think, I mean, like this company is on the radar of investors.

53:45I mean, that's obviously why it's gone up so much. But like lots and lots of people are talking about this company. Lots of Australian investors are talking about this cattle company. I haven't had a good look at it. My guess is it's probably fully priced for the promise that it has, but I do think from a technology point of view, it looks extremely interesting. Can I just move on? I thought this super interesting tweet by a guy called Nahul Hillel, this is a random dude on Twitter, and he said, Yesterday I drove my Tesla 900 miles on full self-driving from Miami to Nashville. I realize there's a genuinely better option.

54:16I fly that route two to three times a month. Flights are never under 400. most times 600, sometimes 800. Add the Uber to and from both airports and parking garage fees. In fact, it delays, cancellation, security, chaos, and the guy next to you hasn't met deodorant yet. On the other hand, I pack healthy snacks, press one button, and the car just goes. I took calls, replied to emails, FaceTime my family, ate without pulling over, did everything I normally do on a travel day, except none of the stuff that makes my travel days miserable. My only concern was going into range and charging. But here's what actually happened.

54:44My bladder needed one extra stop in the car, didn't even suggest. Most charging stops are under five minutes. total cost for the whole trip, less than the Uber to the airport. So this is, I never thought of, like, as you know, I'm the biggest self-driving fan boy in Australia, but I never thought that self-driving would actually compete with the Melbourne-Sydney flight, for example, which is about similar to this. So call it 10 hours. But now you think about it, like you could, and especially cars could change, you could effectively go to sleep in your car when self-driving gets a little bit better, sleep all the way there like a business.

55:18So literally leave at 10 o 'clock at night, get there at 7 o 'clock the next morning, and it costs you next to nothing, and you've got a car in Sydney or Melbourne. It feels – I never thought of this, but it's pretty incredible. Well, I am totally opposed to this guy's post because like what you're saying is at some point in the future can self-driving be as good and reliable as the Sydney Metro and other metros around the world that have no driver. I'm talking – no, this is – it's comparing to flights, not a train. I know, but hang on. I understand what you're saying. But what I'm saying is you have to have self-driving in a car that's equivalent to the level of safety of having no driver today.

56:01Level five. Okay, level five. You call whatever number they call it. Level five. Okay. And so very good. So today are we at level five? I think Waymo's four and Tesla's three. Level three. But there's no driver in Waymo. So someone's trusting them doing something. Yeah. And all reports on Waymo is Waymo is as good as a driver. And would you close your eyes in the back of a Waymo going between Sydney and Melbourne? Absolutely. So the question is, number one, because this guy in his Tesla, the fact that he is whatever he was doing, writing emails, et cetera, this is really not an activity that people should be encouraged to do right now in a self-driving Tesla at its current level of tech.

56:40Do you not agree with that, Adam? No, I disagree. I think you can. You think you can do that? You can't legally do it in Australia, but I think you're fine to do it. I think it's safer than being a driven Uber for sure. So Uber tells you not to do it and it's illegal. Have you seen these Uber drivers who are on the phone, who are doing stuff, who are playing with, trying to get the next fare, all sorts of stuff. Like it's all taxi drivers do that. But like I'm far more nervous in an Uber than I would be in self-driving. But you're not taking an Uber on the drive between Melbourne and Sydney? I think you should be thinking about absolute risk, not relative risk.

57:10I'm going to the airport. I'm using Ubers a lot. When you're on a plane, are you happy to send text messages from your seat without worrying about how the flying is going? Of course you are. In fact, I'd be more worried if you were. You've been happy with autopilot on a plane for 30 years. They've been using autopilot on a plane. I have. And maybe people could even convince me that you don't need a pilot to fly a plane. and the whole thing can be done on autopilot. You don't. The only person who claims you need a pilot are the pilots union because pilots get paid 500 grand a year to be effectively a reassurance to passengers.

57:43They absolutely don't need pilots to file those planes. I feel like nothing that you just said there is correct. So I think like other people, like they don't get paid 500K a year and definitely like domestic pilots do not get paid that. Pilots are 100 % getting paid 500 grand a year. No, no, no. Australian long-haul domestic pilots do not get paid. They're not. Anyway, it's not a very good thing. But also, I think lots of people think you need a pilot in case something goes wrong and they need to intervene. That's one of the reasons that there are still pilots. And so rather than arguing about whether you need pilots, my point is this.

58:17If you're a passenger on a plane, you're no percent worried about checking your email. If you're a passenger in an Uber driving you between Sydney and Melbourne, you think you are nervous about doing it. You don't like that risk. And so, yeah, the relative risk compared to the thing you're not prepared to do might be better. but that's not maybe not still a good enough absolute risk and my point is this like it just surprises me that you would be comfortable paying no attention to the road on an 800 kilometer trip between sydney and melbourne in a self-driving tesla that tesla tells you not to use in that way and the law prohibits you from using in that way forget about the law because you know how slow these laws are to match reality i'm i'll be far more confident driving a FSD Tesla than being in the back of an Uber.

59:03I'd do either. I wouldn't not get an Uber, by the way, but I think there's less risk in a Tesla. And now we move to the next point, which is, do you want to sit in a car for eight hours? I wouldn't want to sit, but if you could lie down, if you could effectively sleep in the car and sleep overnight, and you'd be sleeping anyway, because you can sleep in a car, whatever, like get a seatbelt on. I'd do that. What's wrong with the plane? You can sleep in the car on the way to the airport, then you can sleep on the plane, and then you can sleep in the car from the plane, and then it will take you three hours instead of eight.

59:30If you could say, I can go to Sydney for free effectively because like a Sydney-Melbourne flight, you have to sort of$500 when you factor in getting to the airport and back, if not more. Plus you've got – it's about three and a half to four hours. The best – you can do maybe three and a half with a good run, four hours with a – and it's more if you – I'm pretty close to the airport. I'm only 20 minutes from the airport. So if you're further from the airport, it's longer. So it could take – it probably takes you five – average person five hours to get to Melbourne and Sydney anyway. So it's an extra five hours, but you can actually time it so you're going overnight and sleeping.

59:58because actually the time lost is almost zero and you'd be able to do some. So I think it's actually – and you've got a car up there, which is super helpful. If your argument is overnight, I think that's a better argument. Like I think that holds a lot more water, but I just don't think – the tech is not there today. And so you've got this guy. Where did he post this? He posted this on X. This guy needed some content for X, probably from the tech industry. So he goes and does this content on X. You get very excited by it. But I think like it's early. But if you say to me, do I think the probability of what you just described happening in a decade?

1:00:37Because I think it'll have been less than a decade, but like let's go far in a decade. What do I think that probability is? I think it's like it feels to me unless something dramatic happens, it's close to 100%. Like that feels like an almost certainty in the next decade that that sort of thing will be happening. And then the question is this, like how do you feel about airlines? I don't think it's going to overly impact. I think there's other things that are more impactful, the airline stock. Remember, this only applies for pretty much the maximum you do it is probably 1 ,000K. So then it becomes – people are still driving.

1:01:10Melbourne, Sydney. Or Sydney, Brisbane. Okay. The most popular two routes in Australia, Sydney, Melbourne, return, and Sydney, Brisbane. Sydney, Melbourne, now the fourth most popular route in the world, as we've discussed on a previous episode. Sydney, Brisbane also – Number one by revenue, I think. Number one. super popular route, those two. And Melbourne Brisbane is popular. Almost all of the profitability of Australia's domestic airlines. And Sydney Melbourne is 800 kilometres and Sydney Brisbane is similar. And so why are you not worried about airline profitability, Qantas and Virgin? I think it might impact them somewhat, but I think they've got other issues and other tailwinds that are probably more impactful than that, I suspect.

1:01:52But I think it will be impactful in some way. I think it probably expands the market. I agree with that. And also, it's not tomorrow afternoon that this is happening. It's probably - Yeah, we're probably three years away, I reckon. And for mainstream, it could be 10 years away. Like, we don't know. And also, I think you're right about expanding the market. I think it's sooner. If you look at how much it's grown, Waymo, maybe five years, but I'll be shocked if we get to episode 900 and we're doing it from a self-driving car. You think we're going to be doing it from a self-driving car? Why not?

1:02:22I've done it from a Qatar plane. I've been nervous to be in such close proximity to you in doing one of these episodes. Well, two self-driving. We'll be in separate cars. All right, separate cars. I can do that for sure. Oh, you complain about my Wi-Fi connection now. What are you going to do when I'm in a self-driving car? We'll have Starlink on the car probably. Oh, yeah, that's true. Better than this thing. And so I think this is the business for 10 years' time. When you talk about market expansion, like you need one of these self-driving vans that has 10 beds in it. You get 10, like, students.

1:02:51Absolutely. Get them to pay next to nothing. they go to sleep overnight probably they'll just drink all night to be honest but like basically um i think that expanding the tam is actually a pretty interesting thought in this world let's go to a super quick break back with some more stories just in a moment

1:03:20And we're back. Adir. I want to tell you an observation, you know, because I'm always interested to look around and try to understand what's happening in the economy in Australia. And I had an experience that was very interesting and it makes me really believe that there is like a two-speed or a three-speed even economy that's going on in Australia. and there's been a real divergence of the shared economic experience that's going on. So we talk about a two-speed economy when you have people that have capital and interest rates go up and they tend to benefit from rising interest rates and rising asset prices.

1:03:55Then it's like wealthier people and then you have people that are not as wealthy that get hurt by mortgage prices going up and the interest rates and cost of living. And so we know about that. But I want to tell you an experience I had in Sydney in Newtown, which is a pretty cool area near the University of Sydney, full of students and people that would like to see themselves as the newer version of hipsters. But actually I think they're much less cool than they think they are. And so I went into this bar, which is like, you know what a vinyl bar is? It's a bar that plays records? Yeah, but they see themselves as like aficionados of like a, what do you call the word, curated sonic experience in the environment, okay, blah, blah, blah.

1:04:42So that and a sake bar. Now, that's what this place is. It's a sake bar and a vinyl bar in one. And, you know, I don't know if you've noticed this, but Japanese stuff is very popular at the moment in Australia and in the West. In fact, you can call anything Japanese and it's going to do better than if it wasn't Japanese. And so this place is the least Japanese sake bar I've ever been to in my entire life. I don't even think they know anything about sake. But they had a lot of sake. That's the only alcohol I drink is sake pretty much. And so I made a dreadful choice if I was honest about what I chose.

1:05:13So this is a bar where everything on the menu is exorbitantly priced. Now, I don't eat pork. But for example, there's a bar, okay, a bar. There's a pork shoulder kind of semi-main course dish. That's$67. This is a very expensive place. and I'll tell you this about and like the alcohol is expensive everything is expensive and like people that are really trying super hard to be cool I have to say I thought it was one of the most inauthentic places I've been packed packed like you couldn't even get a table it was packed and people I was looking at what people were buying like every bill that people would have received with with two people would have been many hundreds of dollars and you absolutely couldn't get into this place.

1:05:56Now, okay, it's got some good reviews online, which I happen not to agree with, but basically, at least there's a three-speed economy. And the three-speed economy is the rich people that benefit from asset prices going up, the middle people that suffer badly when interest rates go up because of mortgage and cost of living, and then predominantly younger people who I think it seems to me if I had a hypothesis would be they've largely given up on savings and they're just spending the money they've got. And yes, the cost of living is going up, but they're just spending it on experiences and paying rent.

1:06:31And rent might be going up, but rent is not going up as badly as mortgage repayments with interest rates. And like, you know, this is such a, well, bifurcated means splitting in two. I don't know what you call this trifurcated, multifaceted economy that I think it's very hard to get a feel for what is actually going on in the Australian economy. And these singular numerical measures of consumer confidence are deeply misleading about what's going on in the Australian economy. And so if you're trying to sell, like I suspect that businesses, this is my guess, I said this last week, Temple and Webster, they're probably going to have struggle on revenue growth, okay?

1:07:12And I think, like Nick Scully, I think if you're selling those kind of multi-thousands of dollar, largely discretionary purchases that you can put off for a few months, I think they might suffer. But then when you go to expensive restaurants, like they're not suffering a lot of them, although that they're fine. But then you go to luxury brands, they are suffering because I think the people that are buying luxury brands predominantly are not rich people. And so they're feeling the pain. But then you go down and you see what people under the age of like, I don't know, 27 or 28 are buying, especially students.

1:07:42It feels like the spending is continuing as it was previously, if not increasing. And so I just think it's a tricky time to get a handle on which sectors are doing well and doing poorly in the economy currently. It's a really interesting time. Yeah, I 100 % agree with all that. There's clearly a cohort of people who effectively spend what they earn because inflation is just, what we've seen is the standard of living drops significantly. So your fancy Japanese sake place paying$67 for a lamb shoulder, you spend$30 for that. So suddenly you can go have half the size or go half as many times or obviously save less.

1:08:20So we've seen this massive drop in actual – and what essentially a government's meant to do is improve living standards. And what we've seen is the reverse. We've seen government spending all this money crowding out younger people, crowding out younger people from the housing market. So you can't buy houses anymore. And now we've seen this another run of inflation, underlying inflation. forget headline at 5 % because that's impacted by fuel costs. Underlying inflation last week came in at 3.3%. This is well above the target. This is already after everything's gone up 40 % because of COVID and everything else since then.

1:08:50So we've got the RBA asleep at the wheel, allowing prices to skyrocket month on month, and things is getting harder and harder for people. And this is the thin edge of the wedge. It just makes standard living so much worse. Well, the other thing that was interesting I thought when I was walking through Newtown is are there were a lot of people smoking cigarettes. Like that was a surprise to me. Is smoking coming back? Is that what – are they? Like it seems like they are. Well, the illegal stuff. It's illegal. The illegal ones are. They've taxed the normal ones out of existence. I don't even know where people are – what does an illegal cigarette mean?

1:09:25Does it mean it's a fake version of a known brand? What does it mean? I'm not a smoker. I think it's when you – yeah, it's like a no-branded cigarette. I don't think they even have brands on it. And they smuggle the tobacco in or they smuggle the cigarettes in and don't pay the excise on it basically. Yeah, and then you get bombed if you sell it. Well, no, I think you get bombed if you sell it outside the way that like the crime has to operate. Yeah. It has to be fair, the crime. Yeah. So, yeah, and so I was shocked at how much smoking there was, but stuff was really packed. I mean, Yochi was ridiculous.

1:09:55Yochi is such a good business. Ridiculous. Ridiculous. I couldn't believe it. There was another yogurt bar called Yogurt Berry, which I think is an American brand. I might be wrong. That sells the same stuff. It just does not have the vibe that Yochi has. I think Yochi has got – not only does Yochi have a vibe, I think the Yochi product is better. The Yochi – there's one near us called Stay Crumble. I think the Stay Crumble toppings are great. They do a good job with that. I was shocked that they went for that name, Crumble, and spelled it the same way as the American business. Yeah, well, they got sued and had to change the name.

1:10:27Yeah. But their gelati just isn't – their yogurt, I should say, just isn't as good – Yochi just has the yogurt that's amazing. And maybe it's because the scale is so great. But what I love about Yochi, this is obviously the Ellis family, I love how they're giving free sparkling water and still water away. So many businesses monetize water. These guys encourage you to get water for free. It's such a long-term, great customer-first business thinking from them. A lot of cafes do that, by the way. A lot of cafes have sparkling and still water. Free sparkling? Yeah, yeah, I've noticed they are. They've got the motor taps, which I'm actually putting in our house, which are what Yochi use, which are fantastic.

1:11:02We have it at work as well, the taps outside our boardroom motor taps. But I think just the – they did it for environmental reasons as well, but it's such a customer-first mentality that I love that thinking. In fact, that Japanese, non-Japanese, sake, non-sake bar that I went to, the first thing they said to me when I walked in is, would you like complimentary still or sparkling water? That was the – by the way, their whole experience went downhill from there. But like that is becoming more common. And so I was thinking about like, what would you want to sell today? Definitely, it was very obvious.

1:11:36I feel like we were dumb not to actually say this on the podcast. It was very obvious that the supermarkets were going to see a bump in their revenue because number one, there's inflation. And number two, people panicked and bought toilet paper from the war in like Iran. And so it was obvious there was going to be a bump in sales in the supermarkets. But like, what do you not want to sell now is the question. And I think like expensive, undifferentiated consumer goods would be a very tough game to be playing in now. But I think anything being sold, experiences to younger people, overpriced experiences to younger people with an air of exclusivity or coolness, I feel like that might be the ultimate thing to be selling now.

1:12:25I think my order would be anything now that is AI related. Like if it's AI related, you can get money unless you're trying to get an$8 billion valuation. If it's AI at risk, no matter how good your business is, you're probably in a bit of a tough moment now to attract investors. If you're in retail, it's going to really separate based on what part of retail you're in. You know me, I always rather be in vertical retail and make my own stuff. but I think the experience economy right now, especially for rich people or young people, that is a good part of the economy to be in right now. It's been good probably for a decade, maybe not mid-COVID, but probably since 2022.

1:13:05It's been great. Obviously, we're in that sector and it's been really resilient. Maybe, but this is the sad reality is that I think the experience economy targeting younger people got stronger at some point when young people lost hope of being able to get on the financial ladder. And that is very sad, right? That is very sad. I agree with that. Let's go to our very favourite deep dive section. Brought to you by our great friends at Terium Capital. They acquire technology companies to grow sustainably over decades. Thinking of selling, give Scott a call at terium.capital.com. And one of Australians, possibly the best market darling we've seen in the last 20 years, Cochlear has shocked investors when it announced just a massive profit downgrade.

1:13:49The Cochlear, as you will know, obviously, I do, but listeners may not know, markets and designs, manufactures, and supplies the Nucleus Cochlear implant. That's obviously its hero product. It also has a hydro-electro-acoustic implant and the Baja bone conduction implant. The business has a remarkable 60 % market share. The business was actually founded back in 1981. Do you know who founded it? Do you remember? I forgot, but I'm familiar with the name. I just can't remember. Dr. Graham Clark, or Professor Graham Clark. That's right. Legend of Australian science. He joined up with Paul Treanor, who had a business called Nucleus Group, and the University of Melbourne to commercialize the cochlear implant.

1:14:27Got a lot of funding from the Australian government, and they launched the cochlear nucleus 22 implant. The first multi-channel cochlear implant and cochlear was formed. I had no idea this was the case. This is a great trivia question. I'm sure listeners play along. which conglomerate bought Cochlear in the 80s? Oh, I don't know that either. I'm totally unfamiliar with that. Led by a very dynamic CEO who did a great job building this. The conglomerate fell apart a bit later on, and now it still exists in other forms. The businesses generally still exist, but the conglomerate itself disintegrated.

1:15:02Was it an 80s flamboyant billionaire conglomerate? No, it wasn't. It was a better conglomerate. It wasn't like a Scasa or a Spolvins or a Bond. Ah. It was a good business that still exists in parts. I've got no idea. Pacific Dunlop. Oh, that is great. They owned the Ansel brand as well, right? Is that correct? Phil Brass. Yeah, so Ansel's still going. Pack Brands is somewhat still going. It actually was, if you look at now, obviously Cochlear has been incredible. So had they been able to keep that together, that would have been an unbelievable business. But obviously the era of conglomerates kind of ended.

1:15:34But Phil obviously did a great job building that business. He was the CEO, right? I think I met him a couple of times. I knew his daughter. He wasn't like an Alan Bond character that put this thing together. He was effectively running the business. No, no, no. This is a hundred years. Dunlop's a hundred-year-old brand. Yeah, and I was skiing with his son, who's a Sandus guy. That was a remarkable acquisition. So obviously the business actually got spun off and listed in 1995 as Cochlear. That's when Pack Brands effectively split up into – They owned Bonds as well, right? Was that right? Pacific Dunlop?

1:16:05Yeah, that was Pack Brands. It was then bought by Private Equity, I forget, CVC maybe. I was a junior lawyer when that happened, and I worked on that prospectus. And now Bonds is for sale again. I think Haynes might own it. It's been handed around. Yeah, they do. They're putting it up for sale now. It's up for sale. So Cochlear's had an unbelievable share price run. It went from$8 in 1999 to$338 in 2024, a lazy 40 bagger, hit$20 billion in market value, being sort of a top 20 Australian business. Since then, unfortunately, it's been somewhat of a disaster. It's dropped 74 % to$92 and down 50 % in the last month alone.

1:16:41And it's basically half the level it was when current CEO, Dick Howe, was appointed back in 2017. Reason for the catastrophic drop was Cochlear announced that it was juicing FY26 underlying net profit guidance from, well, I'll give you the midpoint, from basically 450 to 320. So that's a pretty disastrous downgrade. $25 million of that was due to strengthening AUD because obviously they're a big US business, but also was hit by lower margins due to decreasing scale and$18 to$25 million in higher expense. So basically everything can go wrong, is going wrong in this place. What has been such an unbelievable business for basically four years.

1:17:16In February, the business report net profit of$195 million for the first half and revenue growth of 1%. So it wasn't really growing and was also actually dropping profit then. It's forecast at a midpoint net profit of$130 million now for the second half. This is a drop of 33 % half on half. Very mine underlying net profit was already down 9 % in December half. Anthony McDonald, writing Chanticleer, noted, the way Howard explains that Cochlear's problems stem from its major US business with Cochlear making half its revenue in North America and their customers and doctors struggling financially and choosing not to proceed with implant surgery.

1:17:52And what we have seen is a small reduction, according to Howard. It's not gone to zero or anything like that. It's just not as many as we had anticipated. Analysts have freaked out on this news. Both Sidney Macquarie have dropped their guidance by 50%. So this is a catastrophe for what has been just an absolute bluest of blue-chip Australian businesses for decades. So why are they not – did they provide more color on why doctors are not prescribing in North America? No. Basically no. The announcement had very little – it was like a two-page announcement, minimal data, maybe a paragraph on the forecast, maybe it was three pages and two pages were relevant.

1:18:27So really a paragraph on all this stuff. I got the feeling they don't know, that it's kind of hit them from – This is a business that's just had such a dream run until a couple of years ago. And we saw it with CSL as well, two of Australia's best businesses, just been absolutely hammered. And both US-centric businesses, or CSL's global, but Cochlear, it feels like the US economy, whilst everybody talks about how good it is, they've got even a bigger two-speed economy than us. And if people are putting on, I wouldn't have thought a Cochlear implant is a discretionary purchase, but it sounds like it is.

1:18:57As I was researching this, I mean, there are more than a million people in the US, they say, that would benefit from this cochlear implant? Like we should say cochlear is the market leader, world leader in this category. 60 % market share. Yeah, but not just that. Like they're the tech leader as well. Like this is the product to have. $300 million a year in R &D. This is a big business. There are more than a million people in the US that could have this surgery and would benefit from it. And like 10 % of them have been implanted of qualifying patients. So you'd say like the TAM, the total addressable market, that looks amazing for this business.

1:19:35So one of the reasons that Cochlear says, and they've flagged this themselves, and this is part of their solution to their current problem, is they say there's actually very low awareness amongst patients and doctors that this is an option. And I think, like, they've said this for a while, and I remember that the CO was asked a question, which is why, there's something along the lines of why these cochlear implants are not hot anymore. And his answer was in the area of something like, it was never hot. Like, this has never been a hot category. And I think awareness amongst doctors and patients have always been problematic.

1:20:12The other, obviously, issue is that it's the US and things are expensive. And if your insurer is not paying for it, then you're not going to get this implant. And my guess is that a big chunk of this problem is due to insurers. Like the insurers not paying the full cost to get this done because people are not going to have this paid out of their own pockets. is just going to be very, very expensive for them. And then I would say there's some minor issues, right? Like this is surgery. This is not a hearing aid. Like I don't know, you've obviously seen people that have had these implants. You see it on the outside of their head.

1:20:51Like this is surgery. Some people are scared of surgery. I don't know if you know this as well. I came across this a little while ago. Like I read an article on this maybe three years ago. There's a, I don't know what to call them politically correct. There's a deaf community. The deaf community is really opposed to the, This is not the whole deaf, it's not all deaf people. It's a particular community. And they're really opposed to the idea that being deaf is a disability and treating it and curing it, so to speak. And so I don't know how much of the million plus potential patients that affects, but I remember I read an article.

1:21:29It was quite an interesting article, which was like these two deaf parents had a deaf kid and the deaf kid could be treated with a cochlear implant. And the article was this whole kind of look into how the parents felt about the kid being able to hear when they couldn't hear and whether deafness was perceived as a disability or whether they saw it as this kind of power or differentiator or way of cultural thing. Like it's a very complicated issue. I don't know how much of the deaf population that affects, but I think this is multifaceted. I would say on a business basis. So what's this market cap at the moment?

1:22:06About$6 billion. So there's a business that's got like$700 million of cash and receivables, although they said that they might have to have some write-off because of the war. What are they selling to the Iranian regime? Like why is the war giving them write-offs? Anyway, and then they've got another – they've got$550 million of inventory and like a ton of – I don't know, a few hundred million dollars of property, plant and equipment and$300 million of payables and no debt. Like, yeah, the enterprise value is even lower than the market cap. Much lower, a billion lower. I'd give them credit for inventory there as well because inventory essentially, they're going to sell it.

1:22:42But let's say their enterprise value, which is like the value of the business after you take out. If you pay the cash back to you. Like the key assets and liabilities on the balance sheet, cash-related ones, yeah. So maybe it's$5 or$5.5 billion. And so this is a business. I was looking at the revenue line of this business. Let's call it$2.5 billion as a revenue line. And I'm just going to use round numbers. Like let's say on that$2.5 billion, it makes$300. It made about$400 last year after tax, but it's obviously dropped off. Yeah. So let's say it made$375. That would be a 15 % margin. But like there's an NPAP margins, right, after tax.

1:23:19Yeah, they pay a lot of tax. They pay a lot of tax. Let's pull it back a bit. Maybe they're going to be on a 12 % margin. They make$300-ish, okay,$300,$320. So the economics of this business, I thought they would be higher. but actually I think one of the reasons they're not higher is they spend a ton of money on R &D. About 300 million bucks a year on R &D which is pretty which is pretty incredible. Yeah that's why I say to you like this is the dominant player in the market in terms of the tech and so how do you feel about a business and this business is they said I think it was going to grow circa six percent on a constant currency basis revenue growth and so you've got a business that's going to make 320-odd million dollars, but let's even say 300 mil because they're towards the lower end of the range.

1:24:06They're going to make 300 mil of net profit on two and a half bill or thereabouts of revenue. They're the global leader in the space. They don't have a TAM problem. Maybe they've got an awareness problem, although after 20-plus years, you might say that argument might be wearing a bit thin, but they don't have a TAM issue. Maybe they have an immediately addressable market issue, but not a total market issue. And they're now trading on what, maybe 17, 18 times enterprise value for one of, I would say, one of the world's best medical technology companies, certainly one of the best companies to ever come out of Australia.

1:24:46I mean I feel like what has happened here if we're going to be blunt and what I should have said is my disclaimer which is Alison Deans who's the chair is someone I really really like and have a tremendous amount of respect for and this board is an all-star board of smart people so we should say that about this and I don't say that to try and be nice like this is in no way a dodgy company It's like an A-grade company. But what's happened is that the CEO has basically gone to investors and has essentially committed this sin, I would say. He said to investors, you know how you think we're this really good blue-chip reliable company that you can just trust and it's not going to give you big surprises either way?

1:25:33Well, I hope you're sitting down because surprise, like our profit is going to be like what 35 % lower than you think it's going to be and like people are essentially shell-shocked when news like that comes from a business like this and I think a lot of this share price fall is could be put down to these two factors one is a reaction to that shell shock and saying what the hell can we believe now if you give us this surprise and the second thing is they were a bit of a you know rolled gold you know gilded company that got a premium for being so amazing and reliable and that seems to have evaporated which also happened to csl i think there's been a bit of a re-rating of this we say the broader like health tech industry there's been a re-rating i think this company looks i mean if you say if which which one of warren buffett or charlie munger is you always forget this you got to pay This is Warren.

1:26:33a full price for good quality businesses. That's both. But Charlie was the one who convinced Warren to ignore the cigar puffs, the cigar on the floor, and start investing in better businesses and have better moats. This is in no way a cigar bud. The cigar bud is a diminishing business where you still get to have a few carcinogenic puffs. It's a yellow pages. Okay. But on the flip side, a business that is growing top line 6 % to 8%, trading on mid to high teens enterprise value multiple. That's not a bargain. You can't call that a bargain. But I think a business of this quality trading on these multiples with this much of a competitive moat, I think this might be, you might look at this and say, if ever you wanted to buy a really high quality health tech business, med tech business, This feels like a time to buy it to me.

1:27:29I think you're right. But the CSL thing, I think, has probably weighed on people. I think people have marked down Cochlear because it's proximity to CSL, both Melbourne businesses, biotechs, market darlings that have had issues. So I think that's a really interesting point. I think if you go back to first principles here, we talk about powers a lot. This business has a lot of power. Oh, yeah, that's a good thing to talk about. I like that. Yeah, strong brand. The strongest brand in hearing medtech in the world easily, 6 % market share. You've got excellent scale. So you've clearly got great distribution into doctors in the US especially, but globally as well.

1:28:03You've probably got some cornered resources. I expect there's some pretty strong patents on this stuff. So chuck in cornered resource there. So that's three extremely strong powers that you have. Probably no other powers that are relevant. But to have three powers at play, like I think this is clearly they've got some current issues now. They're spending a lot on R &D. That's the obvious thing. You could probably hack into R &D,$100 million a year, still be the market leader, and you'd significantly increase profit. But even if you don't do that. I want to say one thing to add to that, which is something that's not happening in this industry is – because there is a big number, too, who's called like Med-EL or something like that.

1:28:41They've got like a 25 % share, let's say. But what you're not seeing is aggressive price competition. So that's a good sign for Cochlear, right? Like this is like the brands of these businesses are able to maintain price and power. That's a good sign. This is why I love share market crashes is because it gives, talk about young people being shafted before in other episodes. What you want as a young person is to be able to buy into Cochlear. I'm not saying go and buy Cochlear shares tomorrow. I'm saying you can buy Cochlear shares for 75 % less than you could three months ago. That's an amazing thing.

1:29:15Like whether you do it or you don't buy it, who knows who cares. But I'm no way buying Cochlear at$20 billion, at$6 billion. That's really interesting to me. And it may drop further because clearly there's some stuff happening that the CEO can't explain, which is probably – I think this CEO has been there 10 years. Share price has dropped 50 % under his tenure. He had been loved by the market, but now I think he's probably got to go. So Al's obviously working the board on that. But he's actually not overpaid the CEO, but he's sort of paid$5 million a year for a business this scale is actually pretty reasonable.

1:29:45Do you think a CEO can survive this kind of thing? No, I don't think so. You can't survive. Because of the tenure that he's had? Well, combination. If you're a CEO and came in and this happened, you can blame the previous administration, fine, but he can't blame anyone else. He's been there 10 years. So clearly it's on him. They had a great run with the currency. So with the Australian dollar dropping over really the last 15 years, that has helped them. And if you look at their profit growth year on year till the last 18 months has been incredible. Like it just grew every single year. It just never dropped.

1:30:16So it was such an unbelievable business, such an unbelievable – people just loved it and people overpriced it. And now it's probably, you'd argue, underpriced because the market tends to either overreact or underreact. The market's clearly overreacted. Well, I think the market's overreacted here to the long-term powers of this business. It has bounced about 7 % off the recent lows. So people seem to be thinking maybe it was oversold a little bit. But I love the fact that great Australian or great businesses are now able to be bought on mid-teens multiples rather than 40s, which is what we were seeing.

1:30:46You know, we were pulling our hair out a year ago. Everything was overpriced. And we made this comment, why can't we find anything deep dive into that we'd like? Well, we couldn't because the market was so irrational and so overpriced. And now we see some great businesses maybe on special. I will say a bit of a – I mean, one of the things that blows my mind with Cochlear is that this is seen as a discretionary medical intervention. Now, I understand it's not you're going to die if you don't have it done, right? It's not must-do stuff. But I'm surprised that people are so... that more people that have profound deafness are not more motivated to have it treated.

1:31:28That is a big surprise to me, and it's probably something I underappreciated before I took a closer look at this business. but that just seems to be the reality. And whether marketing can overcome that or not, I don't know. I thought there'd be a bigger just underlying latent demand for restoration of hearing. I'm sure maybe because it's a expensive product, but to me this doesn't sound discretionary at all. If you've got profound hearing loss, I think you want to get it fixed. It behaves like a discretionary medical procedure though. Yeah. I know. It's just surprising. This is not plastic surgery.

1:32:00This is not elective plastic surgery. This is really fixing a disability and there's controversy over that, but I would 100 % get this if there was a need and I'm shocked that it's not, that there would be such discretion in this purchase. I'm highly bullish on this business long-term. Well, I want to tell you the long-term bear case on this, okay? Well, I'm not sure if I believe this, But it is an alternative therapy bear case. And the alternative therapy is it is possible in a decade's time that there will be a gene therapy that restores hearing that won't require medical devices. Now, that's a real risk to this business.

1:32:48That's a risk to a huge number of medical businesses, though. Certainly not this, and it's not been... Yes. Well, the thing is this. once things go badly suddenly people roll out all of the risks of the business and this is one of them now if you said to me and i should i just want to caveat like um obviously i can understand when i read about this what they're talking about but i have not read about this very deeply and extensively it would really surprise me if there was a gene therapy that displaced like that could even threaten to displace cochlea in the next five years like this is not their immediate problem Their immediate problem is people are not buying their devices the way that you and I and they think, expect that they would.

1:33:29And the Australian dollar hurt them a bit as well, and the other stuff I think is largely noise, okay? There's some stuff about European hospital blah, blah, and the war in Iran. But, like, I think fundamentally the currency screwed them a bit. All right, well, that's life. That's cyclical. That's 25 mil, though. They dropped 130. Yeah, that's right. And it's cyclical anyway, right? Currencies go up, currencies go down. and like they'd also, they'd probably have some natural hedging as well, right? Because they have a lot of costs in US dollars. They collect payment in US dollars. No, they actually said for every cent that they lose five million bucks or something.

1:33:59So there is a direct impact on it. Oh, okay. So they don't have a natural. Well, maybe they should be hedged then, I guess, if that's the case. Like I think about more serious hedging for that. But like, yeah, like Catapult has some natural hedging, right? We collect USD, but also we have a lot of expenses in USD. And so, but I think like fundamentally, they've had a bit of pain on the currency, but Americans do not seem to be buying restorative hearing surgery in the way that we would all expect them to. And the question now is, can that problem be overcome? I think this is a beautiful business to be involved in because every single customer, which I would call a patient, that you convince to buy your product is someone that can hear after they buy your product, which to me is like a beautiful thing.

1:34:48So like I really love everything about this business and I think it will like unless something else happens, this will look like a moment of opportunity to get into this stock. Yeah, I think the challenge is the CEO gave a pretty bad explanation to what's wrong, couldn't really describe what the problem was and threw the kitchen sink at it. It's exchange rate, it's revenues barely growing, it's expenses up, it's Iran, it's Europe. Like could he have come up with any more excuses, this guy? He's obviously had a dream run for nine years, eight years, and now suddenly he's in the hot seat and he's just not handling it very well.

1:35:23Well, interesting you say he threw the kitchen sink at it, but if you would have said he threw the bathroom sink at it, then I would have said this reminds me a lot of the Reese update that the CEO gave, which is, oh, we did really badly and don't think it's temporary. The sky is actually falling for a while and reese got pummeled i haven't checked it for a while but it did rebound after that pummeling yeah it actually almost at one point it almost got back all its pummeling so it dropped from 16 so it dropped from 17 to sort of 10 then it went back up to 16 so it got basically all the back it's dropped off to sort of 14 now so but reese you're right reese clearly is performing a lot better than the market thought it had it bounced back almost almost to what it was so almost doubled and so maybe dig has taken the same approach which is let's just tell all the bad news and there can be nothing left to say and i can ride this out and the price will bounce back i think well i think the difference between dig and and the wilson's is the wilson's control race they can kind of say what they want and they've built for 40s of credibility well the difference is if the price keeps going down on race the wilson's get a win because they can probably privatize the business.

1:36:34Whereas if the price keeps going down for Dig, Dig is probably on seek.com.au, right? So - Yeah. Yeah. Well, speaking of seek.com.au, you can buy Seek and Cochlear for roughly the same. Seek's a little bit cheaper, but basically the same market value, but basically the same EV both these businesses have, which is pretty amazing. Seek's not a bad business. No one's saying Seek's a bad business by any stretch, but I think it makes about half of what Cochlear makes and doesn't have the powers that Cochlear has clearly. It's not a global leader in a very deep tech sophisticated category. Absolutely.

1:37:11So you look at Cochlear versus what else you can buy. It feels like it's getting to the point where you're getting a really great quality asset for a pretty fair price, but you haven't seen for decades. But you know what active investors would say? They would say, what's going to be the FOMO catalyst that drives this share price up so that when I have to report to the market to my investors in one month time or three months time I can record a gain on having bought Cochlear because that is a lot of what the pressure that active investors are under now and the answer is there's no obvious catalyst other than it being oversold.

1:37:46I don't think there's a quick turnaround to the problems that this company is facing but I think if you're a real investor, what I mean by that is you look at companies and you say, it might not be value, right? Maybe you think this is actually not cheap, but I think fundamentally it's a really good business. And I believe in the five-year story of this company. I think that is potentially an opportunity with this business. What you believe is there's a margin of safety between what the market's saying, what Mr. Markets saying this business is worth, and what the intrinsic value, which is the present value of its future cash flows.

1:38:17So if you discount back all the dividends, this business will eventually pay over its lifetime. I feel that it's – and ultimately, great investors do what's unpopular. Speculators do what's popular. So, you'll jump on the next hot thing and jump on copper stocks and lithium stocks and whatever's hot now. But investors buy stuff like this, stuff that's unpopular, that's unloved, that has great competitive advantage. That's a classic Warren Buffett investment play. Well, you know, I always tell you, it deals with rules for making money. Believe something no one else believes, bet on it very heavily, and be right.

1:38:50That's it. That's all you have to do. And then you'll make lots of money, right? And so I think Cochlear might - And probably be patient is probably the fourth thing you have to have. Because we look at Microsoft now, and that business is flying, but people forget, you would never forget something like this, but people would forget. It had 10 years of going nowhere, Microsoft, and you had to go and march through the desert for 10 years in order to get to the promised land. and so sometimes these really high quality businesses do have an extended period of time of being unloved yeah on that note great episode as always idea thank you mike for for sitting in uh we'll see everybody on saturday of course for our ask us anything episode don't forget to catch us on youtube if you want to see ideas biceps in in person they are looking magnificent as always uh we will see everybody on saturday thanks for listening