Life360 Deep Dive, Dorsey’s Block Shambles, Kyle & Jackie Implode, OpenAI Raise in Doubt, Grand Prix and World’s Most Valuable Sporting Franchises.

22:28The Golden State Warriors. Oh, you know what? They're an outlier, right? Because they're from San Francisco. Yeah, exactly. And they're a bit of an outlier, and it's because they've performed so well that they're worth so much. So basically you just go for American football and basketball teams from the biggest markets, and those are the teams that are worth the most. Give you one more guess, H. So you've got one, two, three. So it goes Dallas, Golden State Warriors, LA Rams, New York Jets, then LA Lakers, and then New York Knicks. So three of the top six of basketball. Well, the Raiders moved to LA, didn't they?

22:59So they should be on there somewhere. LA Raiders are about 14. Okay, so did you want me to do a top 10 one? And you've got – someone said the Patriots, right? Yep. That's number seven. Then you've got San Francisco 49ers, number eight. So the Patriots are also a bit of an outlier because that's Boston, which is not a huge market. But they've just been – they were so good for so long. Yeah, exactly. Then you've got Philly Eagles. Oh, I was about to say that. Number nine. Oh, I'm surprised they're so high. Number 10. If you can get number 10,$100. $100. Give us – What am I going to do with that?

23:31$100. I can buy 50 books from the two – So Yankees are number 11, by the way. I think you said Yankees. They're number 11. Yeah. There's two... Number 10. By the way, there's four basketball, two baseball, one the Liga, and the rest are NFL. The Dodgers? No, there's two. They're not on there. Oh, no, Dodgers are. Oh, no, Dodgers aren't. Dodgers aren't. No, Dodgers are. Sorry, Dodgers are 18. They're 18. They're not that high. Yeah, not that high. So we haven't got number 10. Yeah, 10's the, I think, pretty hard one. It's hard? Yeah. So I'll give you a few others that aren't. This is mysterious number 10.

24:07There's New York Jets, Raiders talked about, Washington Commanders, Florida Marlins, a couple of symbols I don't know. And then there's this one at number 10, which I'm shocked at. Why are you shocked? Just because I'm surprised they're this high. Can you give us football or baseball? It's football. It's football. I'm giving you so many clues, I'm not giving you a hundred bucks now, What football team have we forgotten? 50 bucks? 50 bucks. We've said all of the LA and New York teams. Atlanta? Chicago Bears? No, you both won your guesses. Cincinnati Bengals. Oh, I'm blind shocked by that as well.

24:37I agree. Let's move on. You've got something for me out here. My son started university. Congratulations. Thank you. And I've learned some things. Doing IT or something? Yeah, tech commerce. Right. And I've learned some things about university that will not surprise you. You know who's also started university? Just to steal your thunder really? Well, probably another 40 ,000 people. My wife started university. Really? That is impressive. Still a thunder of my family. Sorry, back to your story. No, no, you talk about whatever you like. I'm done. and so there's some things I've learned about university that you're probably not going to surprise you but they might infuriate you well I'll give you some more ammunition so the first thing is that um at the university that he has is at you can choose the logo of that university that you want to have on your like I don't know identity right and so the logos are a plain blue background, three different kinds of indigenous backgrounds, and a pride-based background.

25:38That's all you can choose. There's no Australian flag background. There's nothing to do with Australia. I'm supposed not a Hamas flag you can choose. Well, I was very disappointed to see that, to be honest. Or an Iranian flag, given these universities. And then he said, you know when you've got O-Week and you've got all these different clubs set up? So there's a club you might have heard of called the Socialist Alternative. I don't know what it's the alternative to. Sanity, maybe, could be the alternative to. Prosperity, happiness. Well, they've apparently been banned from setting up in the official area of LAWIC as of 2014.

26:14So hang on a second. Let's not get excited. So they can't set up in the particular... So what do these socialist alternative believe in? Everything that is inconsistent with Australian values. That would be my summary, right? Like, basically. And I know that sounds extreme for me to say, but it is true. Like everything that they would say would be inconsistent with enlightenment. You call it the scum of the earth. That's an insult to scum. And so this is what they do. This is what my son told me. I can't verify this, but he said, this is what he was told. They're not allowed in the official area.

26:43So they set up like right next to the official area. They look official. He said the only people that were actively coming over to me to try to get me to set up with the Greens and the socialist alternative. I'm hesitant to say this, but he said the Greens were actually very polite and respectful when I said no. Yeah. The Socialist Alternative were not. They kept hassling him. And he said, like, someone told him that the Socialist Alternative, they've got this approach to being at university, which is try and do the smallest number of permissible credits every year. They're going to be there for two years.

27:18So you can maximise the amount of time you're at university. Suck you off a tax paid teat. And what do you think the main flag is or the main concept is that the socialist alternative pushes at O-Week? Not the hammer and sickle? Nope. It's not. It's got to be the Palestinian flag. Yes, Free Palestine. That is what the socialist alternative is, Free Palestine. And he basically said they're the most capitalist because they're selling 100 different bits of paraphernalia, which is consistent. You know when I went to these Free Palestine protests, there were basically a market stall set up there. You could buy t-shirts, key rings, everything.

27:54It was actually a whole, the most commercial situation. That was probably Jews owning the stall, in fairness. I mean, I would open that stall. Yeah, so would I. I mean, I wasn't shocked by that, but it is very disappointing that that stuff is still going on. I'd be shocked if it wasn't. I said to him, do you feel unsafe? He didn't feel unsafe or anything like that, right? But like, I mean, this is just the kind of stuff that continues to go on at these universities and no one really worries about it unless you've got a kid there that's part of it. But I don't know. I found that whole thing very disappointing, to be honest with you.

28:25Can I move on to some business stuff? Oh, before you go into business stuff, he also said to me, Mark Carney is in Australia, the Canadian Prime Minister. Yes, of course. You should get Mark Carney on the pod. I want the other guy. What would you have said, if I would have said I got Mark Carney for the pod? I would have rather had the other guy who lost to him. Yes. Would you have had him on the pod, Mark Carney? Probably. So I think Mark Carney is everything that the Western world doesn't need right now. A technocrat, I think is how you define him. This is the guy that got up at Davos and made this speech about leadership, et cetera.

28:59And I presume he thinks that what the Western world needs for leadership is Facebook posts, because Davos is just a Facebook post, basically, right, for rich people. And he recently has said, it's very important that we get rid of the Iranian regime, but I'm completely opposed to the war that gets rid of the Iranian regime because I think it might be a breach of international law. Yeah. And so... Of course, Iran doesn't love international... Not a huge respect of international law when you're funding terrorists to attack music festivals. I mean, this international law... I'm all in favour of international law.

29:30But how's international law... Firstly, this war has been going on for a while. It didn't start two days ago. It started in 1979. And how's international law gone so far in stopping the spread of Iranian terror globally and killing their own people. So we're all with the answer. Not great, right? Like maybe whatever they think the law is, let's figure out if that's really the law. So I would have loved to have him on here and I would have loved to give him some, sort of turn into like a very combative hard talk interview. I'm not sure he'd be on our pod, sadly. Well, I think he prefers the elbow relationship, which is just mutual love and admiration.

30:08Probably got an Abit Chatfield or something like that. That's probably more his saying. Abit Chatfield, exactly. So let's go to business stuff. So you see, this is actually a couple of weeks ago, but there's an update to the story this week. In my view, anyway, the world's most overrated CEO shows also one of the world's most callous CEOs, with Jack Dorsey telling the world that almost half of Bloch's 10 ,000 team members would soon be fired. I just want to say a point of order. You say the world's most overrated CEO, but that is because your hierarchy is, whoever I'm talking about now is always number one.

30:39But you, let's not forget Sam Altman. Do you have to see above Sam Altman as most overhead CEO? I think people don't rate Sam Altman. As a CEO? Yeah. Oh, interesting. Especially now. We'll get to Sam later on. The 4 ,000 block staff. We should say Sam Altman, the CEO of OpenAI. OpenAI. The 4 ,000 block staff are being ostensibly fired due to AI, but the more plausible explanation is that most of these workers who work remotely, of course, should simply have never been hired in the first place. Block's annual income has barely moved year on year, with the company reporting operating profit of$1.7 billion, up from$1.4 billion the prior year and revenue was relatively flat at$24 billion.

31:15Block shareholders, of course, love the cutthroat move, sending shares surging 28 % in a single session. But before you pull out the champagne, Block remains one of the worst performing NASDAQ businesses in recent years. Its share price has slumped from$180 in 2022 to$70 in February and it bounced to$91 since the termination announcement. Its market cap is$37 billion, which what do you reckon that was very close to in number? I reckon that might be what they paid, Similar to what they paid for Afterpay? Exactly. Is that right? Basically, they offered Afterpay originally, but it was a share-based thing.

31:43So the Afterpay amount dropped to$17 billion at the time, and now it's worth about$8 or$9 billion. Do the Afterpay founders still have any stock of block? We don't know, right? My understanding is they sold most, if not all. Obviously, Nick still works. He's actually reporting to Jack, super senior, and running the whole sales organization. But pretty through Anthony Eisen's on the board, but I'm pretty sure Ant would have sold his shares. He's pretty smart. I think both would have sold most of their shares by now. Dorsey, of course, was a great champ. live remote work is now sacking most of his remote workforce in one of the all-time great bait and switches.

32:12Coincidentally, last week, the Wall Street Journal noted that landing a remote job in 26 is only slightly less competitive than cracking an NBA roster. And just like making professional basketball team, there are basically two ways to do it, be an all-star or an affordable alternative. Meanwhile, the AFR also had a great headline last week, breaking the story that Afterpay staff went from surfing retreat to dole queue in just two days. Afterpay insiders told the go far under the condition of anonymity that almost half the Australian workforce has been acts with whole teams within legal design product engineering wiped out.

32:42Staff and investors say the cuts have been AI washed. This is a term used last month by, of course, your friend Sam Altman to describe companies positioning layoffs as AI driven efficiencies rather than over hiring and mismanagement. Adee, what's your thoughts on this mess? This might not be an easy question to answer ironically but in a business question but do they make money block or not? Yes they do. Profitable. I said 1.5 billion I think they make. NPAT. Yeah I think that's NPAT. Okay and free cash of course because they pay in stock. It's a profitable business. Does it grow? No you said it doesn't grow.

33:20It's growing a bit it's not zero growth but it's not it's not breakneck growth. So I just want to say a few things that struck me about this story other than you take people to the beach and then you fire them two days later. So what that shows is nobody was planning this three months ago because that beach camp, that is not going to happen if you're planning this three months ago. So this is a recent decision. It wasn't within those two days, but it was recent enough that it had already been planned and they didn't want to exit, right? Yeah, last two months. Yeah. And so what I think about this is another.

33:54So these are my thoughts. That's one thought. The second thought is, so you go to work in this company that apparently cares so much about culture, and then you discover that 40 % plus, 50 % of your workforce is going to be fired. One in two chances, it's you. And the way you find out about that is via an ASX release. Twitter originally, I think. Twitter. Well, that's kind of fitting in a way, but given he started Twitter, it doesn't own him anymore. Allegedly, there's a bit of argument on who actually started it. Well, let's say he was early CEO and there early. Yeah, he's very early. And so however you find out about it, it is not through company channels.

34:34Yeah. So that's terrible. Yeah. So whatever culture existed there is now dead. Yeah. Because of that one move. And then we get on to, is it in any way possible, based on the tools available in the world of AI today, that you could get rid of, what, 4 ,000 of your 9 ,000 staff? 10 ,000, yeah. 10 ,000, using the AI tools available today. And the answer would be not if you actually need those functions performed. Well, yes, if those people weren't doing anything. That's what I'm saying. Not if you need those functions performed, right? Because if I've got 1 ,000 developers and I need the function of 1 ,000 developers, I can augment them with AI.

35:13The truth is I can probably reduce the number by 10 % or something. But I can't fire 40 % of my workforce with the AI tools that are available today. And so I completely agree. like it is absolutely AI washing. There's also no time frame, is there? It's like, oh, maybe it was two years or something. I think it's less than that. I don't know. It's over next year, I think. Is it? Yeah. So I'm not sure it will happen. I think basically the market is excited because you've got a business doing what revenue, did you say? 24 billion revenue. So it's a big business. So you've got a$24 billion revenue.

35:45And obviously you've got Cash App and it's got Original Square Legacy Terminal business. Yeah. And so they're doing 5 % profit margins at$24 billion, and you're sitting there as an investor, and it's not growing, or growing a bit. Minimally, yeah. And you're thinking, well, this is scaled. Like it ain't getting any bigger, or not much. And so if it's not making money now, when's it ever going to make? And so it should be make money. And so it should be making the terminal profit margins now. Whatever margins you think this business is eventually capable of making, eventually is today. And so I think the market loves it, because presumably a substantial amount of the$22.5 billion of expense it has each year is these 4 ,000 people.

36:27And so I think that is effectively what the market is responding to just to increase in margins. I mean, presumably, if you think about what 4 ,000 people cost, I mean, it's north of half a billion dollars. Yeah. Way north. Yeah, and these guys be on 300, 400, like 300 grand a year probably. Could be$2 billion. Yeah. And so they're basically going to at least double their profitability based on this decision. I think that's what investors are excited about. What PE is it trading on? What earnings multiple? It's about a billion dollars, I think. About a billion dollars in costs they're potentially taking out.

36:59But there's going to be some significant short-term charges, though, don't forget, because there's redundancy. He's giving 20 weeks plus one week per service, so you're up for probably... But you know what happens. It's probably 500 million bucks in costs. But you know what happens with that. Next year, there's a line called adjusted NPAT. Yep, yep. And that's adjusted out. Yeah, I get it. And then your multiple is going to be the adjusted impact multiple. And so what's the current market cap? Did you say$37 billion? It's P multiple. It's 20 or something. It's about 18 to 20, yeah. So if you imagine that 18 to 20.

37:30That's forward multiple. Yeah, so that's going to drop to 12 if they wipe out these expenses. Yeah. So that starts to look pretty attractive. And that's why the price jumped. I mean, it's a pretty straightforward process. I think it shows how bad a CEO. Remember, Elon Musk bought Twitter. and yeah, it's always done some stuff that's not great at Twitter. He's probably got money back with his XAI stuff but he cut like 90 % of the workforce so this guy, remember Dak Dawsey last year blocked Mr's Earnings and Joe Asson wrote about this, Mr's Earnings Target because it had a$68 million party. Like this guy is just a horrendously bad CEO should not be running this business.

38:03Well this is the Silicon Valley attitude towards startup building, right? It's just what it is. And so I think - He used to, he worked from Africa for like a year. Yeah, I don't know about that. At least he was running Twitter and Block. Yeah. well i don't know what to say about that yeah it's off to him i guess um but i think what's happened here is that someone's woken up and said we better make some money we and the only way to do that is to cut a lot of cost what's amazing is with 22.5 billion dollars of expenses so little of it seems to be staff expenses yeah so what the hell is everything else terminal costs or something or or maybe is that 22 billion dollars of revenue total transaction no no it's too low to BTTV.

38:42That's very high. Much too low. Yeah. What are all their expenses? The irony of this timing is obviously got Jacinta Allen, the world's worst leader of any sort, trying to urgently push through to try and save her skin and get herself elected. Two days compulsory work from home in Victoria, one of the most appalling policies I've ever seen in my life. At the same time, Jack Dorsey's sacking mostly 4 ,000 remote workers who were stupid enough to fall for his garbage that we're going to embrace this. Well, they've got five-day compulsory not working from home, basically. But can you think of the stupidity of Victoria?

39:13Are you going to lose? Businesses won't start in Victoria or ship jobs anywhere else, but we'll ship jobs offshore, ship jobs to Sydney and Brisbane. This is going to be an absolute death knell for this state if she's successful in this. And it's the ultimate bait and switch. You vote for me and you can get, well, it's not even before the election, but look at what I'm doing for you guys. I'm letting you work from home. It's like a doctor prescribing someone McDonald's for the rest of their life. So working from home two days a week leads to not working five days a week. It just leads to unemployment.

39:46Absolutely. Because if you're going to do remote, you might as well do remote somewhere cheaper. Yeah, totally. And this is sort of the AI thing. If I don't see you, if I'm a boss and I'm not seeing someone ever come in, one of these people, they could be working crazy hard and doing lots of stuff, but I'm not seeing you. So when I'm going to cut 40 % of workforce, I'm going to cut a deer who's coming in every day and here at 7am. am I going to cut Mike who works from home five days a week? It's going to be Mike. We know that you shouldn't be bad though. I mean, I would support cutting you over me.

40:15But I will say, we know that this is a hypothetical because I'm not going to be anywhere at 7. I should have reversed the roles, but yeah. You'll fire me for not being here and I'll be like, I don't think I work for you, do I? That was, you know, that was the classic, you know, Ari Emanuel, who is the... Ari Gold. Ari Gold, but the agent, right? The super famous super agent and owns UFC and all sorts of stuff. So when he left his agency to start his own one, apparently the founder of the agency rang him at home and was blasting the hell out of him and he was going to sue you and had this little...

40:53And apparently all Ari Emanuel said was, I don't work for you anymore, so stop yelling at me. That's a good line, right? That is a good power play. Great line. So we move to OpenAI, which had another big week. So Ed Zitron, I actually sent you this. Ed Zitron is a great blogger who wrote a stinging piece last week and he covered a lot of AI bubble fraud. But his comments on OpenAI were especially insightful. He noted that OpenAI claimed, obviously we talked about this last week, it's big raising. It claimed it's raising$100 million at a billion dollar valuation from memory, of which$35 billion comes from Amazon, of which a big chunk of it's contingent on AGI or an IPO.

41:28But as we obviously discussed last week, OpenAI appears to not have got any of this cash yet. All it got was commitments from SoftBank and NVIDIA, as well as obviously Amazon, who may or may not have committed to$30 billion each to be paid in installments. NVIDIA's 10A, which is obviously its filing in the US, claim that there is no assurance that we will enter into an investment and partnership with OpenAI or that a transaction will be completed. SoftBank - I mean, that engenders confidence. Yeah. SoftBank said, the following investment is expected to be financed initially through abridged loans or other financing arrangements from major financial institutions and subsequently be replaced over time through utilisation of existing assets and other financing measures.

42:02Payments will allegedly commence in April. So it's got to get the money first. Zitron also demolished OpenAI's burn rate claims, noting that for every$2.5 billion in revenue, OpenAI spent$6.7 billion in training costs or$2.68 per$1 of revenue. Well, that's the big problem, right? The big problem is, like exhibit A on fundamentally unworkable economics is how much actual processing costs there is once you factor in chips, et cetera, in actually delivering the services that people are paying for. And you would think that's a big enough problem because it's hard to see how that's ever going to be economic at these prices.

42:41But there's actually a much bigger problem than that, which is no matter how much revenue you deliver selling your services, there's some multiple of that expenditure behind the scenes to train up the next models. And it doesn't include$23 billion spent on training. Yes, exactly. So I reckon there's 28, and I'm not sure that training costs off the balance sheet or not, but Ed said $28.6 billion in burn for just the back half of 2025. And if things couldn't get any worse, well, it just did get worse. So you saw last week that there's a big fight between the Trump administration, Anthropic, Anthropic refused, inverted commas, to help the administration.

43:16Like on Monday, it's, we're not going to ever use Anthropic for anything to do with the US government. And on Wednesday, they used Anthropic for the attack on Iran. Anthropic wouldn't let them do, basically, spy on American citizens and do other stuff. seems reasonable and Sam Altman came and said we'll do it I'm sure he will which you can argue there's merit there but they didn't sit well with the American population so OpenAI has been the dominant consumer app and Claude's now ahead of it on the app chart so the one thing it had going for it was the number one consumer app Claude was catching it or Claude was smashing it for enterprise obviously Claude Coe is doing really well so now you've got OpenAI which you've got some very good people who work in there's some guns who work in OpenAI but you've got a leader who's completely lost the plot like Sam Altman is just unemployable Well, there is an important rule about creating a bubble.

44:00If you're going to create a bubble, you have to sell before it bursts. And I think that might have been a bit lost on Sam Altman because I don't think he's sold down any stock, has he? Not that I know of. Has he even got any stock? Because remember he didn't have any. Remember he famously went to Congress and said, I don't know, I just get paid to sell it. I'm doing it out of the goodness of my heart. Yeah. It's hard to this whole… That's not plausible. Part of the whole corporatization thing. Remember, it was a not-for-profit. And part of that, he was getting 6 % or 7 % of it or whatever. But at this stage, which is obviously a pretty significant amount of money, $70 billion or whatever.

44:28He seems to be doing all right to me somehow. Well, he's had previous businesses. He had a bunch of investments while he was running iCombinator, which is why part of the reason he left iCombinator is he said nobody else can have investments in these businesses, and he went and had investments. So he's not known as Scam Maltman for nothing. If AI is to survive, this guy's got to go and get someone else in who's much more capable. But you know, this whole AI world, we've discussed this over and over and over again. Pick a company that's involved in AI. Their economics can't work in the real world.

44:55I think Anthropics economics are getting to the point where that could be usable. Yes, maybe they're the exception. Because they're an enterprise business and selling to companies. And I take the hyperscalers out of this as well. Like Microsoft fine, Google fine. Well, they're fine for other reasons. Yeah, that's right. Because they're not reliant on this. Yeah. This is a brief hallucination. I'll wind back there. Like what Google did, or what Facebook did with Meta. I realized it was crazy, wound it back, market loved him. I suspect the hyperscalers, this is obviously, this is$685 billion in capex this year.

45:21But that gets wound back significantly. So that's why NVIDIA is not sustainable. Yeah. Because NVIDIA is 65 mil. It's all NVIDIA's revenue. Yeah, that's that. And the data centres, well, that's farcical. Yeah. That's absolutely farcical. Yeah. So they're not viable long-term. And they might really, like the ones that survive will reinvent themselves, et cetera. What, the data centres or the alarms? Yeah, the data centres. We'll still make data centres. It's just these crazy growth projections and the economics behind them. And we went through IRON. IRON's doing little, putting little banners up in Sydney now.

45:52Did you see that? Oh, really? Yeah, like then they said, you're going to do a data centre in Sydney. No, we're not committing to that. We're just putting like posters. Yeah. That's interesting. And so... Iron was down 8 % last night. So Iron had a... Since when did we feature on the pod? It would have been... Three weeks ago, four weeks ago. Yeah, it's... Hasn't had a good run. Yeah, it's probably... It's actually not hugely... Oh no, we did it just before it dropped off a lot, didn't we? So it's down about 25%. Yeah, well, you know, the other 75's coming. Yeah. And off its peak, it's down. It's almost 50 % down off its peak.

46:24So that's in three and a half months. And the other bit that nobody talks about, I don't know if anyone has ever spoken to you about this, but all of this work that companies have done where they're using these agentic AI as part of their services that they provide, every time there's a model update, a whole lot of prompting works differently. And so there is a ton of work to be done every time there's a model update. And so that is a lot of headcount work as well, right? And like, oh, we'll eventually get AI to do that work. Really? Well, what about when their model gets up? Like, it's just a circular argument.

47:01So I think when you look at AI today, there is no part of this stack that economically, I think that would be a great investment to buy. What's the least bad part of this stack? NVIDIA is still going to be here after the AI crash. Yeah, oh, for sure. But the question is, at what price? Yeah, well, the thing is, they're on a low multiple of an enormously high revenue number, profit number. Which is all based on this CapEx spending. Which is all based on hyperscalers spending money with them. And it's either hyperscalers spending directly or hyperscalers giving money to middlemen like Iron to spend indirectly.

47:37Or NVIDIA giving money to CoreWeave. NVIDIA's giving money to CoreWeave directly. So that's probably my bigger problem is how much of the spending on NVIDIA chips is driven by NVIDIA money. And so that's my bigger issue on that. Yeah. And so I don't think that's the place I'd put my money. But what's the tallest dwarf here? I'm trying to think. Look, is there anyone good? I think you might be right that Anthropic is looking like it's going to have the most utility over the long term with all of this. I think if you forced me to put money into anyone involved in AI, I'd still go for the hyperscalers to put money into.

48:13But then you say that's cheating. Yeah, because they're quite amazing franchises. I'm trying to cheat because there's no good answer. No, but I don't know. I'm not letting you choose our hyperscalers. It's got to be AI-owned deep businesses. I mean, I think I'd get cancelled by that question to begin with. Who's going to cancelled? Sam Altman? I don't know. If Sam Altman could have cancelled, you'd already be cancelled a long time ago. There's no good. There's no good. I don't know what to say to you. Like, what's the best bit of what's going on or the least bad bit? I'm saying nothing's good.

48:43Economically, you mean? Yeah, economically. I think... Well, it can't be call-wave. I'll tell you what. It can't be call-wave and iron. No, I'll tell you what I think it might be. It might be, I said this like months ago, go and find whoever's making the cooling systems for data centers. They might be the best option. TSMC? That's not pure AI, obviously. Well, you probably are going to tell me I was cheating if I chose TSMC because they make chips for everyone, not just AI. Yeah, that's true. Maybe the RAM, the memory providers. Yeah, the memory providers are killing it. They're running out of memory.

49:17although you know there's a problem you know there's a I don't know if you saw this but the South Korean stock exchange fell 14 % in one day because of their entire memory industry COPEC is something it's called isn't it yeah it's a whole I don't know what it's called yeah the whole memory industry is completely reliant on exports of oil coming through the Persian Gulf it's all exported oil and whatever gas basically that's coming through to run that whole industry but I think it rebounded the next day it's so volatile everything's so volatile it's crazy so memory it's really the last stories of a bubble here.

49:47This is what happens. I think you're right. I think those, because you know, the thing is, when your feet are not on solid ground, you bounce up and down a lot because there's nothing really underneath you. Yeah. And with these prices, a lot of these companies have got nothing tangible on which to base these prices. And so it's all sentiment driven and human beings are very emotional. And very, and so the sentiment swings. A lot of these traders are index funds now and this is, it's just algorithmic driven trades. It's not even active fund managers taking a call. So it's even more volatile. So I'll double down on my previous comments with AI, which is I would be looking to take a bet on the other side of AI.

50:26And so now that's probably a whole lot of software businesses that have been pummeled by this threat of AI. Just pick the best SaaS businesses you can buy. I always say SAP would be one of them. I think lots of marketplaces as well have been like the REI is the car. Marketplaces. By the way, just on REI, we had some great listener feedback directly to me. when I was saying I can't see REA being challenged by AI and this listener made a really great point Chris made a great point that what what LMs could do is to skip REA and go and collect listings straight from agents so I top the prompt I'm looking for a house in Ellett Park go to Marshall White and go to all the other agents and come up with the 15 listings that are within this price range so that's that's the threat to REA which is somewhat possible maybe the same person tried the same sales pitch to me privately because I had something similar.

51:17My answer to that was as follows. The agent does not care about paying REA because they pass it on to the customer. What the agent wants is the fastest sale possible and maybe a secondary interest is the price. I think the issue there is demand side leaving REA. So agents will use REA while there's still demand via REA. But if people are using LLMs to find, because LLMs are better, the caveat is LLMs have got to be better experience than REA. I'm not sure they will, That would mean, yeah, I think I still feel like an LLM trying to surface what houses should I look like as a standalone prompt will not be as good as an REA incorporating that LLM functionality into its core platform.

52:00I think someone did say to me another pitch though, which is car sales. So at the moment, if I look at an ad on car sales and I make an inquiry to a buyer, it costs that buyer like more than$100 just to get my email. And so if I'm a dealer, I would rather not pay that money. I hate paying that money as a dealer. And so I think in the car industry, there's much more of an incentive for one side of the marketplace to try to shift off the marketplace. for the supply side than in the real estate industry. Yeah, because they're paying in a rather than area who just passed on. Yeah, that's a good point.

52:34So I think that's more concerning. I've got a feeling Car Group does have different models in different countries. They've got a big Korean business and they've got a big Brazilian business, big US business now. I think each business is different. I think that's the Australian model, the cost per lead, but I think the Korean model is a different model again. So I'm not sure that's true across all their assets, but it's definitely true for Australia. Yeah. Mike wanted us to talk about something, but he's shy. He doesn't want to say it. He did. Mike, why don't you introduce this? Personally, I'd also be very quiet after that quiz performance.

53:03Mike's actually left. I have to bring him back. I would love to hear some of your thoughts on what insight you might have on one of the biggest media news stories of the week, which is the Kyle and Jackie O radio show breakdown. Bust up. Yeah. So just to quickly explain. So a couple of weeks ago, Kyle and Jackie O, who are the wealthiest radio shock jocks in Australia. They got a 10-year,$200 million deal, I think about 18 months ago now. Shockingly, there was a big fight on air. It felt like Kyle is going to be a pretty crude guy, but he didn't actually seem that unreasonable with what he said, although it was a bit hurtful towards Jackie.

53:45Anyway, Jackie has refused to come back since. ARN, who owns, obviously, the Kiss FM network, has gone to Kyle and said, you've breached your contract. Give us reasons why you haven't. Otherwise, we're going to end this massive$100 million deal to you. And that's sort of in purgatory at the moment. So this is playing out in the courts, one suspects. It's important to note maybe that Jackie O has withdrawn from the show with the comment, I can no longer work with Kyle Sanderlands. Yeah, Mr. Kyle Sanderlands. Mr. Kyle Sanderlands, apologies. But I just think it's interesting to hear your guys' thoughts from a business perspective.

54:17Do you think a deal that to me feels so unreasonable in a radio market that is already struggling, from your knowledge of this world of business, is that a deal that could ever work? Well, I just want to say I know why she was upset because he made fun of her horoscopes. I just had a look at my horoscope for today and it says, I'm a Scorpio. It says, are you? There we go. No wonder we get a lot. I was going to say, clash so badly or work so well together. Take your pick. So you'll like this. This is a terrific day for you, Scorpio. You don't need to hear more. I would also be very upset if somebody, I like that, I'll take that.

54:59So no wonder she was upset. The thing about this deal, when people say this is the worst deal ever, it's hard to know how seriously to take that because it's the media and they all say nasty things about each other and they've all got a mega phone to each other. And it's also easy in hindsight when stuff's happened that's changed in the last eight months. But this is 200 million bucks over 10 years. Yep. That's a lot of money. The market, each one of them over 10 years is going to earn the market cap of the radio company that's paying them. ARN's market cap is like$110 million. It was more at the time.

55:28All right. Well, they just did some wealth transfer to them. Yeah, exactly. And so this was like by far the biggest deal, like by a mile, right? And then they went and they tried to get their value out of this deal by putting them in Melbourne. and that bombed terribly. Yep. Embarrassingly so, you'd have to say. And the people they displaced out of the Melbourne market. Jason and Lauren are very popular. They have done really well. At Nova. I think of all the things that they probably did wrong, this is a caveat, I know Kieran very well, who did the deal, he was CEO of ARN, he's a shareholder in our business.

56:04He's a very good operator, did a great job at that business. And I guess if you're in his position going back a couple of years, the ratings and the revenue are really dependent on these two. They set up the Sydney market. They ran them in the evenings as well. You're probably damned if you do and damned you don't. Exactly. So obviously Kyle and Jackie know this, drove the hardest, clearly drove too hard a bargain, I think. I think they both kind of flew too close to the sun here. But the other thing that went wrong since is the Mad Thing Witches campaign. And they did a really good job. But when you say what went wrong since, that's a campaign to stop advertisers advertising because Kyle is - Offensive.

56:39offensive to say the least and so that was not unpredictable well Coles have been offensive for 18 years in Sydney but I think the Mad Witches was because I don't think Mad Witches was related to launching in Melbourne I think what they got obviously if they thought they'd do better in Melbourne that was clearly they got that wrong they didn't expect the Mad Witches campaign which drained the revenue so if they were bringing in 30 million bucks a year and you go well god if they're bringing in 30 it's going to cost me 20 I lose the 30 I'm still better off. I think the problem was Melbourne went terribly and the Witchers kind of ruined their revenue in Sydney.

57:13So a couple of things that one thing they could have predicted, one thing was a little bit harder. I'm not sure. It was really a damn good idea. But you advertise on radio, I advertise on radio. Would you ever advertise on the Kyle and Jackie O's show? Do you want that with your brand? We have definitely used Jackie. We wouldn't use Kyle. We've used Jackie for live reads before. Yeah, we would. I mean, I wouldn't want to be associated with that brand. Really? Yep. Can I ask, does that mean you can specify who you want to read enough. Yeah, of course. All my live reads, we haven't used them for years.

57:45We're 3RW now in SEM and we're a bit smooth. But we always specify exactly we like Jackie or never have Kyle do a live read for us. It's not right for our brand. But Jackie, I think, still is. Yeah, I agree. But anyway, so I think that was one problem. But the other thing is this. You know, founders of a business, there's lots of falling outs between two founders and it's intolerable for them to keep working together. But there's shares in that business, there's shares in that business, and also there's an asset base. And the problem with this is you have two founders that have a falling out, and the entire asset is them being together.

58:22And so that is why it's different to a business. This deal is actually contingent on them being together. So I think part of the breach is actually, if she doesn't do it, Kyle, I think, doesn't get his money because he needs her to do it. They'll get 20 mil each, and that will be the end of it. 20 mil is a lot of money for$100 million market cap. But I don't think they're getting it on day one and there'll be some continuances. They're going to have to pay them out. Like, if they don't pay out, there's going to be a very long court case because you'd be prepared to spend almost an unlimited amount of money to chase the$90 million left on your contract.

58:53So, you know, the thing is, everyone's side is leaking stuff to the media and the media loves this. They can't get enough of this. There's a bit of shard and fro in there from the media, for sure. Kyle's getting$10 million a year. Let's take him down. And so basically what Kyle's side, I think, leaked to the media is that in the contract they said, we know that Kyle is like a loose cannon. Yeah. And like, so whatever loose cannonry he engages in, that's fine. Like, we'll cover him. Yeah. And so the argument would be, how can, because they've hit him with some kind of breach notice for his conduct.

59:28And the thing is, his argument would be, how can anything that I say be a breach? if you said, you know, I'm a loose cannon and anything is fine. And so I think it will be quite interesting to see this play out. I think his bigger issue is the Kyle and Jackie O show. No Jackie O, no Kyle and Jackie O. That's, I think, their best cause of action. And you know, there was a show before Kyle and Jackie O. Jackie and Ugly Phil? Yes. Yeah, I remember I loved Ugly Phil. And it was the same show, but not as good. It was a Gnesean show. It was back in the late 90s. But it's the same model. Yeah, absolutely.

59:57Kyle was more offensive. Yes, exactly. The other dude was not that rude. he was Phil O 'Neill by the way which is where Jackie O came from exactly exactly there you go so I think it is an interesting story we know nothing about it beyond what other people know about it but from a business point of view if I'm ARN is that the parent ARN's the parent I mean it's a good day for me if I can get rid of him I mean Richard Clannan's the chairman who's obviously a very shrewd business guy so I guess the most interesting part is if you were if you were in Kieron's shoes 18 months ago what would you do would you pay the and Kyle's saying give me the 200 or we walk Kyle and Jackie are saying this do you give them 200 or do you not?

1:00:33It's a really difficult position. It's just easy to answer in retrospect. That's the problem. Retrospect is very easy, but I think at the time I'm making the same call, to be honest. Yeah, it's a tough call to make. Yeah, it's a tough call to make. In retrospect, what you could say is you would have to have seen why they felt so confident that Melbourne was going to work because if Melbourne would have worked, this deal probably would be fine. And the witches issue. They lost a lot of revenue. Yeah. That really made it uneconomic. Yeah. But the thing is... There is talk that Jackie might get her own show.

1:01:06So that's them. Aaron has orchestrated this where Jackie busts up the show, gets out of the contract, they give her her own show for 20 million bucks. Well, that'll be a great outcome for you. That'll be an unbelievable outcome for you. Listen, I have to admit, the first thing I thought when I heard about this happening is that it's a setup. Yeah. But I thought it was a setup for the show because no one listens to them in Melbourne, right? They still are the number one in Sydney, I think. Yeah. And so you're right. Like, it could well still be a setup. Yeah. On that note, we'll go to a super quick break.

1:01:28back with our deep dive in just a moment.

1:01:39And we're back with our deep dive segment brought to you by Terram Capital. They acquire technology companies to grow sustainably over decades. Thank you for selling your business. Adir, who do you go to? Terram Capital. Scott from Terram, the Warren Buffett of Australia. And the AFR reported that barren jewelry analysts have almost halved their price target for family and pet tracking app maker Life360 over doubts about their ability to hit growth targets and broader market fears that customers could even create their own versions with artificial intelligence. The write-down in analyst target price from$50 to$27 per share came after a rollercoaster day for the Life360 stock on Tuesday.

1:02:15The Life360 app is used by almost 100 million people to track family members and pets. The company also owns Tile, which rivals Apple's AirTag business, and is launching a gazette to track pets shortly. Life360 implied it would add between 1.5 and 3.5, which is a big range, users in the first quarter of this year, meaning it will need to average 5 to 6 million in each of the subsequent quarters to reach its guidance of 115 million by the end of the year. By comparison, the company added 3.6 million and 4.3 million users in each quarter of last year. Life360, of course, has been one of the best performing stocks on the ASX, it's both listed on the ASX and, of course, in the US.

1:02:50It rose from$2.50 per share in June 22 to$55 in October and has since dropped back down 62 % to$22 per share with a market cap of a still very hefty$6 billion. Adi, I'm sure you've got some thoughts on this really interesting business. Well, I've got many thoughts about this. Obviously, I took a bit of a look at it. Dove deep. Yeah, maybe. I took a good look at it. The first thing I would say is that the reports that they submit seem to all be US reporting. I don't think they do a traditional ASX-style report. No, I saw the 10K. Yeah, and then there's lots of things I didn't understand. So I looked at their – the way I would generally do this is take a very quick look at their earnings numbers, like at the income statement, and then go and look at their investor presentation and try to understand what they're trying to share with us about the nature of the business.

1:03:47And so one of the confusing things about this business is it's very unclear if they're talking about US dollars or Australian dollars throughout the... Oh, it's US dollars. Including in the investor presentation. Certainly the P &L is US because it says US dollars. Yeah, that's right. I presume your investor presentation matches the... I'm also assuming, but I can tell you, Catapult reports in US dollars. And one of the things that I was quite firm about pretty early on is write in really big letters that all of the numbers are in US dollars because it makes a huge difference. So I feel like when I was reading through this, before we get onto the business, I just want to talk about communication because investor communication is one of the most important things when you're a public company and the higher you go up the ASX indices, and this is obviously an ASX 200 business at six bill, the higher you go, the more important investor communications is and I think that Life360 produced really great investor documentation like presentations when they were a hot stock and when you could just talk about your top line growth.

1:04:54But now when I read their investor presentation, I thought it was really poorly communicating what that business was all about. I thought the Prezo did a decent job of selling their products. I know, but before I got to any financial information about the business, there was 30 pages of product based information a lot of product stuff and it's like investors well I think there's a good reason for that I think they didn't want the financial well I'm not sure about that because you know at various points as I was looking through it I was like well this is actually a really good buy and then I ended up to be oh maybe not for these reasons but like there was so much detail on the product yeah there was a huge detail on the product I felt like no investor that I have spoken to needs that level of detail on the product in the investor presentation and it's just frustrating It almost looked like an IPO wrap more than an investor presentation.

1:05:42Yes, that's right. Or it looked like, I don't know, like a sales pitch to a partner. Yeah. Like about what your product does. Their stuff is really cool. They do some great product stuff. They're super popular. They hire on the app. So all that stuff was relevant. Yes, there was some good data like we're the number one downloaded app in this basket and other apps which category. And competing against like Facebook. No, great. And so I think if what they wanted to do is to – because when you look at an investor presentation, you should never take it at face value. You should think every slide or every narrative that's in there is responding to something that either they think that investors are going to love or that they think investors are going to worry about and they want to allay the concerns.

1:06:29And when you've got 30 pages of product documentation in there, What it says to me is investors have been communicating a concern about the longevity of this product suite and whether it can compete with other players in the market. And that was really brought home to me by, I think it's the very last slide in the investor deck, is like a startup-y kind of presentation of us versus our competitors, which is us, like every box ticked. Competitors, a few box ticked. And by the way, anyone can produce that. I can produce that for any competitor. Everything we've got ticked. No one else is going to have everything we've got.

1:07:06And that felt like a startup deck to me. And it says to me. Not a$6 billion business. Yeah, they're emphasizing to me that investors are worried about whether this product is going to have longevity. I think that could be the case. I think the reason they did it is the product's a cool product. They've got some great results with the product. I think they want to say, don't look over here. Our financials aren't that good. Let's look over there. And I think clearly the market reaction to the financials was highly negative for that reason. Well, let's talk about which part might be negative. Because at the moment, you can present something and the market will just react negatively.

1:07:42They'll find something to hate. It's a tough time to present results. Especially when you're a highly valued business. Sass, you know? And they've got some hardware. Who's got some hardware, though? Well, we'll get to their hardware. Yeah. That's not a good business. It's a tile business. Well, whatever they call it. Whatever they put under their hardware is tile. Yeah, well, we can get to that now. I can tell you in summary, the income from that business exactly matches, or not exactly, but very almost exactly matches the expense related to that hardware. It's a$0 gross profit business. And I think that's because they have to discount it so heavily.

1:08:14You compete against AirTags. Never great to compete against Apple. And so what I understand this product to be, and I might be wrong about this, but it's actually hard to exactly... I know people that use this product, but there's so many iterations of it around the world. I just actually, I don't use it, but my great general counsel, Andrew, uses it. Can you explain what this product is? So I actually went on his app and I got him to take me and give a little guide to us. So basically, it's a really neat app. And he's not paying for it, though, which is really interesting. Yeah, he's being monetized.

1:08:40Yeah, there's ads. But what basically it is, if you find my phone, or like an AirTag, like find my devices, it's like a better version of that. So when I go into my iPhone and to find my, and I can find where my kids are, or I can go and find where any one of their individual devices is. It's a more souped up version of that as it's called. I find my not super accurate always. Like it's super accurate. Sometimes, sometimes not. Like I've definitely had an instance where I've lost my keys and I found it on the middle of a row. That was great, but it's not always accurate though. Because it's dependent on being around other people with devices.

1:09:13I find Live360 is a bit more accurate and the UX is much better. It's a really nice product. Like there's no question. It's not 95 million users. And it's got some most free. And some other stuff that it does in the app as well beyond just five, like you can do check-ins and you can do all, there's something called some circle or something. There's all these things. They've got a bronze, silver, gold tier. Yeah, yeah. Like those tiers I found, like the problem is the free version is so good that the paid version, obviously they monetize their ads, which is great. So it's still a decent, it's like a social network.

1:09:42Which is a recent-ish invention. Yeah, but probably about 18 months ago and they talked it up and I think the ads have clearly done pretty well. Yes, I agree. The product is excellent. Like you can also, like what you pay for is stuff that I wouldn't pay. It's like you can tell if someone's been speeding, if there's an accident. That's right. You basically got some insurance. That's right. Then you basically have insurances. It's basically insurance business is the paid tier. I found a pretty weak offering. I was like, I'm not sure I'd be ever paying for those premium tiers. Like what's the Apple cover business?

1:10:07Like that kind of business? No, it's not even that. It's like you can get like accident cover, like stuff that's not related to Life360, like other kinds of insurance. Monetization of the base. Yeah. Because they say that they have something like - It's more of an affiliate business if anything actually. They said, isn't it something like one-seventh of all US device owners have Life360 on their device? Or some, like, insanely big percentage. I don't think it's quite that high, but it's up there. I think it's 15%. 16%. Oh, no, that's one-seventh. That's a seventh. Yeah, that's right. What's a seventh?

1:10:38It's free. 14.28%. So, yeah. And I think they're similar. In Australia, it's 14, 15 % as well. So Australia, US, by far that big. And the UK is a little bit behind. That's one of the problems, by the way. Yeah. Because, yeah, like, Like you're basically already at 15 % of the US market. Like what have you got to go? And so you'll correct me on some numbers with this because I don't have numbers in front of me. But when I was looking at this business, this is how I started off thinking about it because there's all sorts of pieces flying around and when they report and then they report. It's really messy.

1:11:09Well, this is the problem. Communication is a problem for this business. They've got this operating cash flow number. Did you go and look at like the gap reconciliation of operating cash flow? There's a million line items in there. Yeah, I hate it. Including share-based compensation costs. Yeah, absolutely. So I just put that in the rubbish bin, that operating cash flow. And I wanted to try and hang on to a number that I could use as a baseline. You can't use NPAT. There's a couple of massive issues with operating cash flow. So one is 55 million bucks in stock-based comp. That's right. Which is significant.

1:11:37Well, it's not, if you look carefully, it's not 55 million stock-based comp. It's they had to pay$55 million net as a consequence of the stock-based compensation. So they're putting that back in. Yeah, gotcha. The big one, they had$118 million. And by the way, the reason they had to pay that is because the share price rocketed so much, presumably. One thing they talked about in the preso, in the shareholder letter, is this big$100 million plus EBITDA or whatever it was. Yes. Adjusted EBITDA. $118 million was deferred taxes, which they put in there. Take out the taxes. So look at it. They're always different.

1:12:15like some reports flying around, which is super messy. So what you're saying is, which I agreed, it's hard to pick a number to say, how's this business doing? I'll give you the number. Yeah. I'll give you the number, I think is the number. I'll go from the top. So you've got, look at their revenue. They've got mostly subscription revenue, which is great, obviously. So their revenue was like 600 mil or something, is that right? In US, 489. It's a clear, it's a clear year. 500 mil. 369 million that was subscription. Great. There's people upgrading those tiers. There's a cost there, obviously. 50 or something was hardware?

1:12:4450 hardware, 68 other. I presume that's advertising. That's ads, yeah. Pretty profitable. And I was impressed by the growth of subscriptions. It was like 33 % or something? Subscription was up from$277 to$369. So 33%. And so keep that number in mind. It's part of the problem. 30 % growth, yeah. So if you look at GP, it went from$280 to$380. So decent growth. Problem is their expenses also went up a lot. So expenses went up from$287 to$362. So they had$100 million in extra GP. had$75 million in extra cost. So it's not that great a profit result. So a loss of$8 million to a profit of$18. So one way to think about these businesses is to say, what percentage did the revenue go up by?

1:13:29And then what percentage did certain expenses go up by? And so the revenue went up by, what, 32 % or something like that? Yeah, 32%. 33%. And so if you start looking at marketing, like marketing went up by the same percentage. A little bit less. a little bit less but like they're not really 27 % they're not really leveraging much out of a marketing benefit and I think that general and administrative expenses or whatever they call it their other costs they scaled out their costs a lot better the other cost G &A R &D which is obviously well that doesn't go up much at all that was only up like 13 % and their G &A was up 22 % or something because you know what I try to work out consistently is I try to say they made a certain amount of extra revenue this year how much do they keep as profit?

1:14:15Whatever that means, pick a number as profit. And so the problem with the communication with this pack is I couldn't work out what number should be the profit number in all of this. I think you use the 18. The income from operations of 18 million. Call it 19 million. I think that's the best number to use because otherwise there's interest income of 13 million which I talked about in the prezzo as well. Can't be talking about that. So you think they're adjusted EBITDA of what was their number? I'm not talking about EBITDA, I'm talking about actual income. before tax of$18 million. Okay, but what I'm asking is they have an adjusted EBITDA number on their income statement of like$90 million or$100 million.

1:14:52Yeah, because that's got the tax benefit in there. That's got the tax benefit. So you think I should use$18 million? I think you should use$19 million and last year it was$8 million. So we went from$8 million to$19 million. So they kept$11 million. They kept$27 million. No, sorry, negative$8 million. Negative$8 million to$19 million. They kept$27 million of$118 million. So we can say like 25 % or something like that, roughly. 23%, yeah. And so what do I think about keeping 23 %? I think at a business of this scale, it's big, that's too low. It's not horrific, but it's not great. It's too low. That is not the overall margin of the business.

1:15:24That is the margin of incremental revenue. And so to me, that should be, I don't know, 30, 35, 50 would be amazing, but it shouldn't be in the low 20s. That's problematic. and that in a business that's growing like this, that to me shows either you've got some cost control issues or you've got scalability problems. The marketing thing is a real issue. Yes, yes, I think that's right. And so when I looked at this, because you can't figure out that number, you can't figure out what I want to know with a business of this size is when am I going to be able to figure out the valuation as a multiple of some form of earnings?

1:16:03Because I don't want to use revenue multiple. Revenue multiple is just a proxy when there's no earnings. But this is doing$500 million and it's growing 20 % a year. This year it grew 33%. When am I going to get to an earnings number that I can do a multiple of? 19 million is real earnings. I can't do 5 billion or 6 billion. That's the problem. And it's not fair because the number is so low. So what I was trying to figure out... When can it get to a genuine number? That I can use as actually a baseline to say what multiple am I paying? because it's not fair with this low number, okay? And so before we get - Well, my issue is like, I think it's how much revenue they need to get to, inverted commas, decent number.

1:16:43It's a lot because they're just not that profitable. And so the positives about this business are the product seems to be really popular. Great product, yeah. And they're growing at a fast rate. And Apple hasn't for some reason copied it. Like they could, like it wouldn't be hard. Other people copy it. Like it's not exactly that novel. It's just a bit of software. And so I'm much less worried about this ridiculous argument that says two people in a basement are going to copy something with, you know, vibe coding and compete. Yeah. Because that's rubbish. But Apple, Samsung, that's more of a worry for this business.

1:17:22Well, I'm actually not worried about Apple. They've had 10 years to copy this business. They haven't. I think. Because if you're Apple, maybe you're saying, like, what's there? There's enough revenue to make a difference. And so I look at this and I'm like, 33 % top line growth, that's bloody good. And people love this product. And so maybe I can figure out a way to get to a, I thought it was a five bill valuation, you said six, but whatever it is, maybe I can figure out a way to get there. And so after I look through 35 pages of product information, I can finally get to some financials. And after I look at some pretty messy layouts in financials, frankly, and some gap accounting reconciliation that I couldn't follow, then I finally get to their guidance for next year.

1:18:06And so I went from thinking this might be cheap to thinking, oh, I see what people might be worried about. And so when this was reported in the media, this is what was reported by the reason that the share price did badly. AI, vibe coding junk. So forget about that. And the other one was - Growth issues. User growth issues was the main one that people - Oh, was it? User growth issues. So I didn't care about that because they've got so many users they should be able to monetize them and they're growing at 33 % a year, but we'll come back. They're really monetizing as much as they can. Well, I was hopeful in the ads monetization.

1:18:38I think I might be right about that, by the way. But the other thing that was reported is, oh, they're not really making much money on hardware anymore. I literally couldn't care less about that. Hardware is irrelevant. It's inconsequential. It's 50 million, they make no money on it, and it's just the way to... So I don't care about any of that, but let's look at the guidance. And have you looked at their guidance for next year? That was my problem. My problem is that the bits of this business that you want to grow is the subscription part of the business and the ads now the ads part that's and and you want subscribers to grow now subscribers grew 20 they say subscribers are going to grow 20 again next year i'm okay with that like that 20 growth drove 33 revenue growth there's some expansion revenue in there yeah but that's they only increased their prices by six percent or something like i'm fine with that like 20 subscriber growth that's fine with me and their ad revenue, it's growing by more than 100 % next year.

1:19:32That's great revenue. I'm all in favor of that. The problem is that number one, you get this big slowing of subscription revenue from north of 30 % to 20s. And so I don't like that at all. That makes me much more nervous than anything else. Like, does that mean the way you should think about this business is it's past its peak for subscriber revenue growth. So that's worrying. But it's still high, right? It's still a high 20s, I think, they forecast. They forecast a revenue growth of 25 % to 27%. Yeah. And this year was like 32 % or something like that, the subscriber revenue growth. Went from 277 to 369.

1:20:12So yeah. And so that's slowing. So I don't love that. But my bigger issue is, if you look at their adjusted EBITDA number for next year in that guidance, it's like, what was it? 128 to 138. And so the problem is that that is not growing anywhere near fast enough. I don't know what the base EBITDA number was because there's so many different numbers here. Well, that's called adjusted EBITDA, that number that they've forecast, isn't it? Isn't that what they've written? I actually don't trust these guys as a problem. Just look at the number. I think it's called adjusted EBITDA. But I don't know what their current adjusted EBITDA is.

1:20:49You do because it's in their income statement. They've got a number for adjusted EBITDA. and I think you'll find it was in the somewhere between 90 and 100 million dollars and so when I did the calculation of how much of this really strong revenue growth driven by a bit of a slowing in subscriber growth but a massive jump in advertising revenue how much of that revenue is going to flow through even to this adjusted EBITDA number it was only 25 percent and again like that's my fundamental issue my fundamental issue is this business does not seem to have been able to crank and in fact I think they've got diminishing margins they haven't been able to crank an increase in the marginal flow through of incremental revenue they claim 93 million so the way they got there is the income of 150 well that very conveniently there's the income tax thing they took off they added 56 million in stock so just take the 93 and don't argue with what it is as a base right because it could be junk whatever but very conveniently the midpoint of 128 and 138 is 133 which is very nice to subtract 93 off that it makes 40 right?

1:21:53So let's say they go and do 150 of revenue which is 30 % growth and they keep 30 of that let's call it 32 so now they've done 50 of real profit would you give them I mean you might give them 40 times on that? Before tax? Well whatever your 18 was they're now 50. That 40 times sounds too generous. 40 times EBIT? 40 times EBIT on a 30 % grower it's keeping a lot of incremental, 30 % incremental. I could maybe give it 40 on that. 30 to 40. You're being very generous. 30 to 40. What's any more bucks today? No, I'll tell you why. Because it's - You made it to Grand Prix with swilling champagne again.

1:22:31Well, the thing is, it's got a high growth rate and it's now keeping 30 plus percent of incremental revenue flowing through. So I like, but even if you gave it 30 times, I'd probably give it more, but 30 times, that's one and a half bill. Remember - That's next year though. We're at 30 times, 18 now. But remember that's USD. USP and so I think that if it does deliver that next year I think the value could be no the value is in AUD and so I think what you'll find is this we're going to say this and then I'm going to say this so enthusiastically sorry the value is down to 4.8 billion 5 billion so that's what I thought so 5 bill AUD and so I'm going to say something and I'm going to say it so enthusiastically but actually it's going to be a destruction of the current share price.

1:23:18But I think if they got to that 50 mil of EBIT, you can see a$2 billion AUD valuation. I'd pay 40 times EBIT for this business. The problem with that is that's a 60 % drop on their current share price. And that's been very generous. And that's based on hitting a number next year that they don't think they're going to hit. And let's not forget, we're back to the share price it was a year ago. It's not as if it's like crashed to 2010 levels. It had this sort of ridiculously frothy year. It's kind of gone back to where it was a year ago. it still feels crazy expensive. Like this could drop another, this could easily drop another 80 % and not be that cheap.

1:23:53Yeah. So this is why I'm so always so heavily focused on incremental profit, on the incremental revenue. I think it's super important. I think in this case it's super important. Because for businesses that are scaling and like Catapult is like, I don't know, one third the size of this revenue base. So like, you know, a bit more, let's say. You're 200 something million, right? USD. I think last, because I can't tell you because we're reporting in a little while. But let's say not like where I'm going to just say a third to keep it very broad, okay? Like I would say we are not fully scaled, but at 500 mil of revenue USD, I would hope we're achieving like the kind of margins we think we can achieve long term while still growing.

1:24:34That would be my expectation. And so when I look at this business, I thought this business was going to do that. Once upon a time, I was like Catapult could be like a Life 360. and now I compare them and I'm like I'm not sure I have these hard eyes for Life360 at all anymore you know two real red flags for me red flag number one is the marketing costs really going up and 27 % versus 33 % so I hate the fact that and this is the Temple and Webster argument we made last week or two weeks ago that like we want to see a business scaling out of that marketing costs not growing marketing costs to grow revenue at the same sort of level and the second one is these guys just not being honest with their financials the way there are like multiple different sets of financials well we can say not being clear because I'm not sure it's dishonest I'm really not.

1:25:12I'm not saying that's a borderline dishonest, I think. They certainly haven't been upfront. Definitely, though, what we can say is that - They talk about his EBITDA number, which is ridiculous. They talk about the stock-based stuff. I shouldn't have to go through 35 pages of a presentation to get to real numbers, right? That's the biggest issue. Next year, they talk about that 130 EBITDA number, which is just a ridiculous number. There's too much stuff here that makes it really hard to know what the hell's going on. It feels like they're trying to obfuscate the numbers. Well, I'm really not sure that's deliberate.

1:25:42What's the share price now in actual dollars? $22 a share now. Okay, so my big question to you is, so the number that we've just said is the equivalent to$9. That's 40%. I said maybe this could stretch to two bill. That would be$9. And so it doesn't have to go all the way there. But would you be bold enough to short this stock at$22? I would absolutely short this stock. 100 % I would short this stock. All right, so I agree with you. I would also short this stock. It was like a very easy short. Yeah, I would also. The only thing that would cause doubt on this short is if they can deliver a bumper year of growth next year without scaling marketing.

1:26:19If they do another one of these, then it's a really obvious short. But I think it's a short now just because it's expensive. I just want to correct you that you don't think that because I just gave you a$50 million EBIT number up from 18, like our EBIT number, and that's how we got the two bill. And they would need to do that in order to get there. I agree. So I think you could definitely short 25 % off this pretty easily. Yeah. And you can possibly short 50 % off this stock. Or 75. Which 35 is not a stretch. You could, but I think at 50 I'd be getting antsy. But by the way, that's still two and a half bill AUD.

1:26:54That's still ASX 200. Like, we're not talking about a stock that's going to die. Yeah. It makes money and it's growing. I was so excited. Next week we got a - Still a good business, just overpriced. So for goodness sake, next week, can we find a business that we can say, yeah, this is a great buy? Because I thought this was going to be it when you suggested this. And for about half of my analysis, I still thought it was going to be it. You really think I was just something to buy? And then I saw that the adjusted EBITDA had a few things in it and the operating cash. There's some good value stuff out there, actually.

1:27:25I'm sure we can find a few things that actually is good value out there for our diehard listeners who love hearing the positive stories. On that note, thank you to Mike and Joel for sitting through this. Thank you, I dear. We will see everybody next week for some more analysis and thought-provoking arguments. Thank you, everyone.