Nvidia Worries, Xero Disappoints Again, Droneshield Nightmare Gets Worse, Tesla, Defund the ABC and Adir's Awesome Quiz

22:46I'm thinking wishful thinking there. You know, I'll tell you what you have to do to fix the ABC. There's a unicorn outside as well. You have to pay people much more money to work for the ABC as a start, and then you'll get better people working for the ABC who are not ideologues. BBC, ABC, they're sure we'll need it. So during the end of the Gassar War, they wrote an article. They did a radio interview, and on that radio interview, they interviewed a guy, and the guy basically said, the reason Hamas doesn't return hostages' bodies is because Israel's bombed everything, and it's Israel's fault.

23:13They're all under the rubble. Wasn't rapped about that. Had some factual problems. So I went to their website. I looked at their charter. I quoted what parts of their charter were wrong. I wrote to them. What do you think they said? They replied? Yeah, they replied. They said, we disagree. So that was the end of that. But now I do know a more interesting thing about it. It's got to be. You just got to shut it. So what about this about the ABC? This is a much more interesting topic. So did you see about Glenn McGrath and his issues with the ABC? Glenn McGrath with his Bet365 sponsorship. So the ABC's got this rule, apparently, which is if you have any connection to sports betting, you cannot commentate sports on the ABC.

23:52Now, you might like sports betting. You might hate it. Look, I don't love sports betting. I find it much less bad than pokies. pokies is a thousand times but who is the ABC like this is legal it's legal sports betting is legal and you could say if you're you're not allowed to talk about companies on the ABC right you're not allowed to advocate for betting you can't talk about odds you could do all of those things I'm sure you agree with this who the hell is the ABC to decide I don't think this thing should exist forget about like you're looking at the the fingernail being the wrong colour I'm saying this whole body the body should be cremated are we wrong about this Mike not the cremation but like that you that you ever because you're you're i mean you're definitely a different generation to me and adam we're not going to go into that again but like so you think that glenn mcgrath being associated with bet 360 should preclude him for commentating sport on the abc or not i think that the abc has some level of responsibility to promote um like i think that gambling is is fundamentally a bad thing it causes like it's a huge problem in our society so So the ABC being government funded maybe needs to stand by an anti-gambling message.

24:58And even though it's illegal, like, is it unethical? That same government encourages gambling by getting tax dollars from it. Yeah. Okay. You're right. Yeah. How about, let me ask you some questions about this. Let's say I accept that. Yeah. How about people associated with alcohol companies? Yeah. I mean, it's a slippery slope. I know what you mean. It's a thin end of the wedge, as the US Minister would say. And to be fair, I would say that that is probably, it's performative. I think it's them ticking a box and saying look what we're doing but do I think they should with alcohol? Yes, I think they should as well but it's all pretty performative.

25:31Where should we keep fast food? Yeah, you're right. Where do we stop? Where do we stop? Yeah, you're right. ABC is much happier for someone to support Hamas than support a betting company. Well, I think it would be mandatory to support Hamas but like, so I think that the problem with my issue with this is not that the starting point is bad it is that some things it's easy to know what's right or wrong. It seems harder in this day and age, but it still to me seems pretty easy. But then you get into this world, which is all of these things are legal. So they're good enough to let people do them, which I support.

26:03I don't really like laws for the sake of laws. And so all these things are legal. We just want to make moral judgments about them. No, I agree. And even tobacco, which is the most extreme one, it's still legal. And in fact, they've put the prices up so much, it's created wars, right? But I'm sure that if you were associated with the tobacco company, there is no way you could commentate sport, even though the two are now unrelated. Yeah. And so I think people need to cool their heels on the moral judgment. I would happily see gambling banned. I've got no issue with that, but I agree with you. Who are the ABC to tell people what's right and wrong?

26:34Yeah. I think that's absolutely correct. Okay, one more before I show you the book, all right? I've got one more quick thing. This is one for Mike. Yep. So my son said to me he got a notice about how much money I've spent on our Steam account over the last decade. buying video games. Decade. That's a lot of data. It's got to be in the millions. Yeah. And so what do you think it is, Mike? What's the number? Well, knowing you, when you can afford it. When you can afford it. Let's say, let's honestly say$100 ,000. $100 ,000. I think I could have bought a game studio for$100 ,000. What do you say?

27:12I would say$100 ,000 as well. All right. So you're going to be shocked by this. Yeah. You're saying$1 ,000 ,000? $1 ,000 ,000 USD. No. Oh, well, okay. Yep, 1 ,000 USD. No way. Because the thing is, I buy a lot of indie games. They're pretty cheap. I also, in fairness, like I do have a subscription to something for$15 a month, which will give me a humble bundle. You know that? I do that too. So I don't actually pretty much ever buy games anymore. So that bundle gives you unlimited games, basically? No, no, it's a humble bundle. Like I've got, I'm grandfathered because I've been doing it for 20 years, 15 years.

27:40Basically every, you pay$15 and every month, not only do you get eight free games. Indie games? Not any. like eight particular ones. I'm sure Age of Empires was on there in the 90s or something. And so, but no, but like usually every couple of months, there's one or two games that are great that I get off there. Plus. Grand Theft Auto wouldn't be on there, presumably. GTA 5 would have been on there at some point. GTA was on PlayStation. Yeah. When the new Grand Theft Auto comes out, will it be on there? No, but it'll be on there in three years or something, right? It's like the old weeklies at the old video store.

28:15Exactly. That's exactly what it is. You haven't counted that figure in the 1 ,000 US data, right? Correct. But that figure is... That's 700 bucks a year. Because that would be about two grand. No, no, no. It's$15 a month. A month? I'll do it a week. It's$180. So you can add another 1 ,800 AUD to that. So it's about$3 ,000. Yeah, but the point is... It's about$3 million your time spent playing these. That's right. Or like a trillion dollars. Because the thing is... You're a musk. The thing is, everyone is focused on these platforms, like these streaming platforms, and I get bills on my credit card, and it's like, oh, this is Paramount+.

28:52I'm like, I don't even watch these things. How the hell am I subscribed to four different things? Kids, right? But I was shocked at how efficient the dollar to time of entertainment ratio is for playing video games versus streaming services. So once again, I highly encourage everybody to go away from watching passive, boring entertainment on streaming platforms and get some agency and entertain yourself whilst you're doing something. It is interesting that you bring that up because there has been such a big shift recently in gaming to subscription gaming, which is essentially what Humble Bundle kind of is.

29:30Same as PlayStation Plus and I think Xbox has one as well. So like I never buy a new game. I'll just get whatever's free that month. I'll choose one of them and I'll make that the game I play. Yeah, very, very. Well, that's Microsoft's whole business model is shifting towards a subscription model, which, you know, because they think it's sticky, right? Like once they get you on there and you're already paying, you're going to use it because you're already paying for it. It's good value. I still buy games off Steam, like outright, but the thing is I've got a wish list of like 55 games. I just wait for them to go and sell.

30:01It's so ridiculous. Some of them literally cost$11, and it's like, oh, wait for it for half price sale. Come on, what's your next point? It's not like me to criticise the Alan Andrews government, obviously. All right, go on. Highly unlike. I know my listeners are a bit shocked by this. Actually, there was a great event on the weekend. Victoria probably had something to do with – Visit Victoria is actually a really good organisation. They do some good work. They were defunded ridiculously by the government last year. I had a bit of press around it. They actually got the funding back, but they lost a year of funding.

30:32This is potentially a result of that. But Visit Victoria, shockingly, you're not talking your own book for a change because you're mostly outbound from Australia. Yeah, we get a little bit of help from these guys, but it's immaterial. So when you say I think Visit Victoria is great, and usually I can take you at face value with a travel comment, right? Because you've got no vested interest really. Very minor. It's tiny. Immaterial vested interest. That's mostly true. I like them. I like them. And I think these tourism bodies do a great job, especially the state ones. Tourism Australia had its challenges.

31:04Especially when Scomo was running it. He was running Tourism Australia terribly. My chairman, Andrew McAvoy, was probably the best ever CEO of Tourism Australia, but sadly, Scomo, not quite so good. But anyway, so they had a really great event on the weekend. Do you know what it was? Mike, do you know what it was? It bought 23 ,000, actually probably about 15 ,000 participants and probably 60 ,000 people. Is this the bagpipe thing? The ACDC thing? No. So ACDC and bagpipes? I don't really know those things went together. Those go together? There was an ACDC most bagpipes ever. It was almost the opposite of that.

31:42Whatever it is, Mike's thing is more fascinating. So can we just clear this up? So these people were ACDC fans. I think it was a world record attempt. Playing ACDC songs. The solo bagpipe in Long Way to the Top. Oh my God. So, I mean, that is. It was at Fed Square, I think. How many people were there? I don't know. Every time I become totally full on with the human race, something like that happens and I'm like, oh, I love people. I love people. It was only 374 people. So not quite. This was 23 ,000 competitors. That level of exaggeration is completely appropriate for this podcast. So this was 23 ,000 participants.

32:26This was probably 60 ,000 people all spending money. Great for Victoria. are huge for the economy and even better, it's a really great event in terms of what it's promoting. Were they from outside Victoria? There was Victorian participants and it came from Australia. It was a national championship or something. It wasn't to do with cars, right? Nothing to do with cars. It was fitness related. Fitness related. Exactly what you want. CrossFit. A fun run? CrossFit. I think my daughter does it. A ballet? Swim dancing? That's your sign. Not miles away though. You're getting closer. Gymnastics. Closer.

32:56Getting really close. Trampolining. A little bit further. what's closer to what's closer to gymnastics than gymnastics very close aerobics so close pilates further colder colder I feel like the listeners are just reading a clue Dallas Cowboys cheerleading cheerleading there's a national cheerleading championships in Melbourne this week this weekend 23 ,000 well I could not support that more wholeheartedly so good like it's it's such an amazing event that and there's people it was at Jeff Share wholesome family entertainment wholesome like it was just and what some of these like my daughter's young what some of the good teams do it's actually incredible how good they are they're doing like flips off five metres and it was all human power anyway amazing event fantastic for Victoria bringing literally millions of dollars of tourism dollars Halloween cheerleading make Australia great again yeah so so what's the what's Victorian gone and done we've lost it to the Gold Coast back at the Gold Coast well the Gold Coast is a lot better in fairness but this is actually a better event because we've got a better facility for it so congratulations Jacinta Allen you've stuffed something else up like she's got the reverse minus touch more than anyone in the history of politics her and Dan and what's worse so while they're losing this great event they're spending 100 million dollars plus on the Grand Prix and guess what they've done for the Grand Prix now so you know I've complained about road closures about the Grand Prix yeah they've increased the road closures I love the Grand Prix just to yeah because you get money from it so you're as conflicted as buddy Dan you're Dan the Chinese no not just because I get money from it but also because I get money from it it's 99 % because you get money from it so there used to be about two weeks of road closure, which was annoying, and probably another month of restricted.

34:32Yeah. And now, it's now basically two months of restricted access and a month of road closure. I'm going to come around. There's like a million people, probably 100 ,000 people a day, a million people a week get inconvenienced by this. Only a couple hundred thousand people go to this ridiculous event for fat cat cigar chomping champagne swirming people like you. You won't see. I get invited all the time. I hate it. You won't see. I know, but you'll get invited to the bit where there are fat cats. But if you go to the regular people, it's like just normal people having fun, not just fat cats. A car whizzed past you.

35:02I know. Well, you know, I'm not going to sell you the sport, but I'll tell you what I am going to do, though. I'm going to bribe your council, which won't be hard. It'll just mean, what do I say? I'm not going to use gas for two weeks or something. And I'm going to get them to put a roadblock, just your street, both ends, permanently. They probably would. Permanently, 12 months a year. I don't want to hear about this anymore. This is not a council. This is a state government. This is not about the council. What I love is you enjoy the cheerleading stuff, but you can't bring yourself to just say I went to this great event for Visit Victoria.

35:28It has to be some criticism of the Victorian government. They actually did. I thought they've done something right. I'm on your side. They've stuffed it up now. I'm on your side. They should take the George Costanza approach. Everything, Jacinta, everything, every idea you have, do the opposite. SRL, opposite. I totally agree with that. Losing events, opposite. Grand Prix, opposite. On the positive side of the SRL, on the positive side of the SRL, we are taking the rest of the country down with us. That's true. Do they have to fund it now even more so? Do you see that? Victoria, Victoria, the sinkhole of Australia.

35:55Literally, I'm a fucking... The Labor government, literally, I think we've got it. The Labor government essentially is the political arm of the CFMEU. Let's not joke. The reason why I do this SRL on this ridiculous big deal... You know why I brought a book to talk about? Yeah. The reason I do all this ridiculous stuff is because they've got to fund money to the CFMEU. That's the reason why the house has doubled in price. Yeah. Well, you'll be happy to see that the house price boom has regenerated. My house costs have doubled, I should say. Oh, your house costs. Well, but the house price boom is back.

36:22You'd be happy about that, wouldn't you? Oh, yeah, great. It's on the run sheet as well, number one. On the run sheet. All right. Here's the book of – now, I do have to do a pretty massive disclaimer before I talk about this book and the quiz, okay? So this book is not available anywhere. You cannot purchase this book except – How do you get it? Well, how do you think? Stole it? Well, I wouldn't say you can't purchase it. I don't mean the only alternative is to steal it, although in Victoria that would be a legitimate way to acquire it. No. How would I get it? You found it in an option. Of course.

36:51That's the way to go. In Victoria, including? In Victoria. And not only that, it was a half-price book sale at the op shop. And I literally said to the op shop, please do not give me$1 off this book. Was it what? It was$2. So anyway, I paid the full$2. You'll be happy to know. So the reason I think... Where was this op shop? I can't remember which op shop I bought this from. Oh, no, I do because it was on a half-price sale. I think this was in Malvern. So quiz for you. What percentage of your time do you spend in op shops? 50, 75 or 100? I go there with my daughter and it's actually very good quality time I would highly recommend op shops.

37:24They're a great arbitrage. Amazing arbitrage. Well, that's one way to think about them. My way to think about them is, once again, you can put it in the bucket of wholesome family fun, but they are pretty busy on a... Well, a lot of them are closed on a Sunday because of Christian values. Yes, of course. But they are pretty busy on a Saturday. Yeah. And I find them, they're a lot of fun. My father-in-law loves an op shop. They're a lot of fun. Most things I wouldn't buy from an op shop, but toys and books. Toys go through the wash for a long cycle. and books, they have to be in very good condition.

37:54The best books are in op shops. Honestly, they're amazing books. So this book, though, I think it might be unavailable because the person who it's written about committed some pretty terrible crimes recently. He's like in his 80s. Ron Brealey? Yes. I cannot believe that you have nailed that on one clue. That is unbelievable. There aren't that many people. End the podcast. This is the last episode. and so obviously his like I think he had like abusive child porn on his computer like a hundred thousand you can say anything about this guy because he could not argue defamation the content was abusive pedophilia he wasn't a pedophile he was just looking at abusive pedophilic content well there are it may be not completely shocking when you read his memoirs it's actually a biography but like we should so I want to say in no way obviously do I condone any of that behaviour and I read the book because it's a fascinating book about a period of time he was a big big swinging dick in the 80s well he was very we're going to do a little quiz but he was very he was very successful but he was not a type A personality at all yeah he's quite reserved yeah he was an unusual character and I think and there's a link to something on the run sheet with him do you know what the link to the run sheet is how would I know that that would involve reading the run sheet so what's happening in corporate Australia at the moment that is relevant to Ron Brealey by one degree of separation?

39:23The only guy I know that's still in corporate Australia that was related to him is Gary Weiss. Exactly and what's Gary Weiss doing at the moment? Part of a takeover of Webjet Oh that's right Webjet yes I'm sure you'll get to that so anyway now we've done the disclaimer about we don't support Ron Brealey and I thought you were going to abuse him because like defamation you'd have to say was damage to reputation right? You could say anything about him, right? You could say anything because you can't damage his reputation. He's quite old now. He's really in his 80s, right? He's in his late 80s. So, this is the book, literally unavailable for purchase, called Brearley by Yvonne Van Dongen.

39:55He was much younger here, wasn't he? Well, everyone was much younger at one point, weren't they? He looks probably in his late 40s, maybe, here. Yeah. The man behind the corporate legend. Adam dismissed a great joke. So, he doesn't listen to me anyway. No, you can, when you listen back to the podcast, I want to hear the joke now No it's too late The moment's passed So you ready for the quiz? 1990 Yeah 1990 Did you give me this book Or did you show me And talk to me And take me back Well the thing is this You're a bit of a risky recipient It's just that one tatter book I've given you Don't you currently have One of my books?

40:29I hate the long pause After that question Do I? What do I have? I'm pretty sure you do I don't think I have any of them I'll have it back Re-listen to a previous episode And find the last book I gave you Oh the Rich Grundy book You used to love that What if I don't have that book? That's right That's in 20 different op shops was that book I started reading that book no no that's what I gave to you because I bought you your own copy you bought me a copy yeah I started reading the rich running book it was okay how long does it take you to read books I read so many things this book is 260 pages I read like 10 papers a day I just got no time to read anything else or publications read faster quick question is there a book that you do think is the most common book in an op shop yes that's a good question no just like is there a book that is I think Da Vinci Code stands out to me Yeah, well, listen, the true answer to that question is, like, the old classics are the most common books.

41:17Pigs at the Trough. Really? Pigs at the Trough. Listen, if it makes you feel better, I gave my copy of Pigs at the Trough to an op shop. That's why you feel better. No, I didn't. I would never do that. I would never do that. I suppose you read that every month. I do, every day. So the old books, like, the classics are the most common. Then you get books like, you know, The Happiest Man on Earth, Eddie Jacku's book. I think if you've sold a lot of copies, and then I think there are some where I noticed that there's some books that appear in every store, and I suspect it's like the publisher's got too many copies of the book and they just dump them on the options.

41:46All right. So I've got a quiz. You'll love this quiz. We're going to do this fast though, okay? I'm going to skip some questions. Industrial equity was his business, right? Yeah, IELTS. He had quite a few businesses. BIL is the New Zealand business. Yeah, that was his corporate rating business. That's right. So I'm going to ask some questions. I'm actually not an expert on Brealey. That's one guy I haven't done. I'm not only asking you Brealey questions. I'm going to ask you questions about that time period because you're going to love it. You're going to love these questions. I put a lot of effort into this question.

42:09The most effort I've ever put into anything in this podcast. That's incredible. It's a low bar, but yeah. No, it's the lowest bar. Zero. It's more effort than you put into that ridiculous poll. People say to me, that's possibly true. People say to me, how long do you spend on the podcast every week? And I say, there's 10 minutes of edits, so 10 minutes longer than you hear me speaking for. Whenever I say, oh, I do the brunch sheet, and I do something really look good, and doesn't much like that. You can say I do everything. And people go, oh, yeah. They go, yeah, I got that impression. I'm the most honest person about my complete lack of ability and interest in operations.

42:39so ready question there's only like six questions or something all right so this quiz is short so keep it punchy okay so these are questions about the late mid 80s through to probably the early 90s question one which now top 20 asx company was so out of favor in the 1980s that corporate raters like Brearley circled it as a breakup target and owned large chunks of it. It was run terribly. It didn't even make money. BHP? No. Now in the ASX 20. Woolworths? Yes. Got it. Woolworths. It was owned by Sporvins. Adelaide Steams. Yes. Well, I didn't say that. I didn't say Adsteam because we're going to get to that question.

43:20So it's hard to believe that Woolworths was such a dog, but it was a total dog, right? It had this great renaissance in the 90s, essentially. Yes. You'll love this next question. when Lady Fairfax asked Ron Brittley to give her son, Warwick Fairfax, a job. What did Brittley do? I presume he didn't give him a job. And that he didn't, but he did something else. I don't know what he did. He put the mum on the board of his company. He was very enamoured by anything that was establishment. Like he was super anti-establishment and at the same time desperate for the establishment's approval. Do you know what Mary Fairfax's original name was?

43:54What? Mary Wayne. She was Jewish by background. Is that right? This is obviously Warwick's second wife, very controversial in Sydney establishment. Well, I'm talking about Warwick's mum. She was. You mean Warwick's mum? Yeah, sorry. Warwick's senior's wife, because Warwick was a senior and junior. Oh, I see. Was the dad called Warwick as well? That's why I call it Young Warwick. Oh, I see. It was Senior Warwick who was, well, Feverkus was such an amazing franchise, and each generation managed to stuff it up more, and then Young Warwick came in completely. Obviously, there was the cousins who were smart, James B and those guys, but Young Warwick.

44:21It's a great book that Trevor Sykes wrote about Operation Dynasty, I think it was what it was called. it was about the whole you should read that it's a whole fair backstake over if it's in a knock shop I'll buy it from this era it's amazing and young Warrick it's just like you almost couldn't get more incompetent he was in with Laurie Connell well Brearley saw him from a mile away right you'd have to be that smart to realise but he wanted the mum well she's in the establishment I'll put her on the board the point is she wasn't really establishment I know but she married into it just fake establishment yeah this will be an easy question for you which 1980s corporate writer became Australia's first billionaire

44:51I think Holmes of Court was the first billionaire you're right And then what happened to him? He died. At 53. That is a scary thought. Yeah. That is a scary thought. He was under a lot of stress. And then the next billionaire was Packer, I think. I think you're right. Because I remember there was a BIW issue when the Rich List was still in BIW at one stage. And the way it worked is it just said the billionaire. Yeah. And that was Packer. And then everyone else was like two. And he was like double. Remember we talked about this about a year ago. He was like double everyone else. Yes, he was. Okay, you'll love this next question.

45:23I know you're legal. These are your kind of questions. Which big life insurer did really quietly accumulate shares in, helping spark a fight over unlocking value that kind of foreshadowed Australia's demutualisation debates? I thought AMP, but it wasn't public. But he kind of forced this company into demutualisation. It's now owned by a bank. Suncorp? No. I'll tell you what's full name. GIO or something, one of those things? I'll tell you what's full name. Mutual Life and Citizens Company. I don't know. Yeah. So he basically forced - NAD for it, right? Yeah. He forced a demutualization of MLC by raiding them, essentially.

46:00How did he raid a mutual - Read that book. The reason I'm not telling you is it's complicated. And what this guy's real skill was, was being like four steps ahead of anyone else in understanding how to unlock value. And also, fundamentally, he didn't have respect for anything that wasn't the law or any law that wasn't going to be enforced on him or any law that was going to be enforced where the outcome would be fine. Sadly, he also didn't respect other laws later on, which was a problem. Correct, correct. Which brewer did John Elliott end up controlling in the 1980s? Elders, IXL. Yeah, so which brewer?

46:34Elders. I think CUB was the brewer. Oh, CUB, yeah, yeah. And so do you know that Brearley sparked that outcome? So he went and started taking over the pub group and it was his whole kind of rear guard action. And in the end, John Elliott, who was the CEO of that business, he ended up taking the thing over and that was like his corporate vehicle. Do you read the book? This is obviously a hagiography on Brearley. There's a hagiography on John Elliott and the elders. I would not call this a hagiography. It is not that kind to him. Well, the man behind the corporate legend. Okay, so I thought, yeah.

47:04Well, there's a lot of stuff in that book that is quite brutal. Well, the Elliott one was an actual hagiography. It was written like a year before he went under. So it was the worst timing ever. But do you read that? It was almost like, not a picture book, but it was a really weird size book. I didn't. But if you can find that in the op-shop, that's the other place you'll find it. I will. Of course I'll buy that. You'll love it. It's one of the greatest, I don't mean greatest and best written or anything, but just in terms of timing, like incredible timed book. Yeah. Well, do you know where that word hagiography is from?

47:34No. It's an old, I think it's a Latin word. And so it was like stuff that was - I can't believe you know this. Yeah, it was like, it means stuff that was written about saints. So hagio is like a word for saint in Latin, I think. We're nearly done. Oh, this is a good question. part of the Colton and United Breweries. So which brewer, because they sold off that business in pieces, and a famous brewer who was working for the company left that business and started his own brewery and you would have heard of this brewery. It was actually bought by, I think, Lion Nathan and then whoever's bought the Sahi, whoever's bought that.

48:06No, Lion's Lion Omos A now. Some foreign, I don't know actually. Who left Elders? You would not know that he was at the CUB. Some sort of craft. But you would know, yes, he set up almost the first craft brewery. Little Preachers? Nah. Chuck Hahn. Oh, Hahn? So the Hahn Brewery. Oh, really? He left CUB after all of this stuff happened. I actually thought it was old. Yeah, well, it was quite old from the late 80s. I thought Hahn was like 100 years old. I didn't realise. Nah, the guy still works as a brewery. Serious? Yeah. Yeah. That's impressive. So someone bought Channel 10 in 1987, got the heck out of it about two years later for a huge loss.

48:45Frank Lowy. Yep, sure did. Who was the advisor on that transaction? I'm going to say Malcolm. No. Turnbull. Yeah. He may have been involved, but no, he was a packer. No, no, no. Oh, that's true. Who was the advisor? David Gonski. Was he? He left the law, took his hand at corporate advising, did one of the worst deals of all time, instead of went back to the law and did all the other stuff. Well, you know how much is his estimated to have lost in those two years? It was a lot relatively. The late 80s, right? Yeah, it was in the hundreds, right? 450 mil. And then obviously the Canwest came into it.

49:15Izzy Asper took it over. One of the great transactions, which Freehills where Gonski used to work and Gonski Sunworks used to work as well, was advised by Kim Santo, the legendary judge advised Asper getting around the media laws because a foreign company couldn't own, and he made a fortune, Asper. Yeah. Like all the money that Lowry lost, he then made and made up. I think Lowry did it right in the end, but like that was pretty painful, right? Yeah, it was disaster. He talks about that as saying, like, why the hell did I do that? Yeah, it was disaster. you just love every question here so the Port Douglas Mirage was built for 100 mil that's a lot it went into receivership obviously and the Japanese co-owners including Mitsui they bought an evaluation of 400 mil in 1990 from Quintex obviously they paid 400 mil for it an evaluation of 400 that's crazy expensive they already owned half of it it wouldn't be worth that much more now So what did David Mariner pay for it in 2011?

50:13Oh, Mariner bought it. Yeah, and then he sold out and the people he bought it with are still the owners today. What did he pay for it? Like, so it was 400 million, 1990. Fast forward 21 years. What did Mariner pay for it? 300 mil. 35 mil. What? Yep. Because basically no one did any work to it. Yeah, it was pretty bad. Yeah. Yeah. So I'm going to tell you some roles and this is the last question and then I've got two bonus questions for about crises. I'm going to say a role and you tell me whether you think that Ron Brilli held this role. Governor of the Reserve Bank of Australia. As in a director or the governor?

50:46A director. I think he was. He wasn't. Oh, okay. Chairman of the Bank of New Zealand. Yes, he was. He was certainly that. Yeah. Head of the New Zealand Stock Exchange. No, he wasn't. He wasn't. Chair of Air New Zealand. Could have been. Wasn't. Okay. Running the largest company on the New Zealand Stock Exchange. Yes, I think he was. He was the largest company. That's right, right? BIL. That was his New Zealand parent company. Yeah. Running an ASX 20 company. No. It was. I think it was. It got to number 16 or something on the ASX. New Zealand's richest man. Yes, he would have been. So this is the way I wanted to finish this.

51:20Oh, because he became a stranger? No. He basically, this is the one thing he did that was completely ethical. Everyone was churning out bonus options to themselves during this period, a la Drone Shield. Yeah. But much more egregious. More egregious than Drone Shield? Much more egregious. How is that possible? Because they just did whatever they wanted. That's what Drone Shield did. This was like the fun times, right? Like business is so boring today. These were the fun times of business. How could it get worse than Drone Shield? I think that they were just - They dumped shares before it dropped 60 % the next week.

51:53Well, yeah. Well, they might have been connected to that drop. But the thing is, really, he only started off owning 15 % of his business and he never issued more shares to himself. So by the end of it, he owned like three or 4 % of his company. And that was it. That was all he earned. Yeah, I'm shocked to that. I'm going to give you two rapid questions. So what was his wealth at the height? I reckon he might have been worth a couple of hundred mil. Oh, back then there's a lot. I know, but he wasn't anywhere. Like he wouldn't have even been in the richest 50 Australians. A hundred in the 80s would have been for sure.

52:23This would be like late 90s. Late 90s? Yeah, because that's like - Well, the rich list in the late 90s only needed 75. Yeah, he would have been on the rich list. Yeah. But nowhere near where - Like all these other people that we spoke about, Holmes Accord, Skace, They were towards the top of these lists, right? Yeah, Scase was briefly a billion, I think. Yeah, and so... Do you remember the story about Scase, how our teacher, Jock Nelson, who was our economics teacher, also taught Scase? Yes, I do remember he taught Scase. And Jock, obviously the shrewd... To be clear, I did not have time to study economics in high school.

52:51I was doing sciences. The wily old fox, Jock, was on to Scase pretty early when he was a student and said, you're never going to amount to anything and put it in his report. And somehow, I don't know, the story... The legend is someone found that report and when Scase became the richest man in Australia, they put it on his front, on his door. Oh, that's fantastic. All right, two questions about Victoria to finish with, about this era. What was the name of the Geelong-based building society? Pyramid. Yes, that collapsed. And how much in 1990 did that cost the Australian taxpayer? That brought the Victorian labour government down, really.

53:22It did. It probably would have cost – I read a book about that one, actually, Tri-Continental and Pyramid and all that stuff. Because it had an investment bank, this weird merchant bank as part of it. Called Farrow Group. Yeah, or Bill Farrow. $500 million? 900 million Australian dollars in 1990 and lastly you kind of alluded to this what was the name of the merchant banking arm of the State Bank of Victoria Tri-Continental and what happened to the State Bank of Victoria it went bust and then Commonwealth Bank took it over yes so basically the last Labour government that was as bad as this Labour government this is worse well they bankrupted the State Bank of Victoria it's not simple if we had a state bank these guys would have bankrupt there's nothing left to bankrupt that's also true That was a fun quiz.

54:06There you go. And you know what was amazing about that quiz? One is I read it before I actually put it together. So that means I read it before I read it to you. So unexpected for you. And two, all of the answers are probably correct. That was a great quiz. Kudos to you. Quick one for me. I did a tour of a business you're very closely associated with last week. Do you know what that was? I saw the images. I saw your photo, didn't I? So it's a bad question. Daily Bloom. So I saw Courtney did a great presentation at Daily Bloom. It's a beautiful morning. How incredible is she, like, in front of people?

54:38Oh, so good. We've got a lot of new listeners, obviously. So go back to our archives and listen to our interview with Courtney. But I reckon, I'm trying to think best female entrepreneurs in Australia, and I have her number three on the list. Do you? Of all time. Well, firstly, I'm shocked by that because I've never heard you have, like, a number one or a last in the world on anything. So that's amazing. I saw an interview with Janine Ellis. I think it was in the Fin Review. Way better than Janine. You know what? Janine Ellis basically in that interview said 98 % of the success is hard work and whatever.

55:11I'm like, I don't, maybe. They don't go to Yochi, but like. Listen, luck is like maybe. I don't know what percent it is, but there is no massive success without it, right? Who were your one and two? Joe Horgan, number one. Mecca. Okay. Yeah. I think it's hard to argue with that. I walked past the Mecca store yesterday. I was in the city. Mecca was actually going pretty well yesterday. and that store was like teeming with people. And it's massive. Like it's like a department store. Which maker store was it? The big one in Pertury. In the city, okay. Okay, number one, we agree. Number two is my friend Carolyn Creswell.

55:44I think she's incredible. I don't know enough about it, but it's hard for me to disagree with that. This is a multi-hundred million dollar business. I know, and it's such a well-known brand, right? Yeah, and she owns 100 % of it. It's like Joe and Pino. You're not going to put Melanie Perkins on your list? Mel's incredible, but she sort of shared it with... Yeah, I guess you say Mel. Mel would be number one if he's pure value created. but yeah but that's with there's two other these are I'm talking about basically soul both or I'll show you with Pete but certainly Carolyn and Courtney and you and CJ have been around the hoop as well but really Courtney has solo built that business in many ways there are a lot of in the world of I don't know e-commerce let's call it there are a lot of amazing female founders you know like I'm obviously Jane Lou's very good so you know the business Sheet Society that's Hayley Worley that's a great business as well she co-founded with her husband.

56:31There's a lot of husband and wife teams. Nala, which is a new underwear business, is a husband and wife team. So there's a lot of husband and wife teams in e-commerce where the women are at least equal partners with the men. Obviously, Courtney is sole founder. But it's definitely, if you look at business in general, women, compared to their representation at the top of business more broadly, are overrepresented in anything to do with the internet and e-commerce. Yeah, yeah. And I didn't realise just how – I knew how big the business was revenue-wise. And so it must be – I don't know if you can talk about it, but it must be approaching 100 mil valuation.

57:07It can't be that far off this. If I talk about how big it is, then Courtney will murder me. And so I was trying to think about whether she might do something less than that, but I feel doubtful about it. And so it's a great business. And, like, honestly, she's terrific and terrific to deal with. She's such an impressive presenter and such an impressive operation. And she's so, like you are so across this business, she's so across that business. Like it's, yeah, she's very impressive. Yeah. So maybe, maybe number four in putting Mel number one, just some value creation, but certainly up there in the top five.

57:38We'll go to a super quick break, back with some really big stories off the run sheet soon.

57:53And we're back. And the world's most valuable company idea? Well, it's NVIDIA. You don't have to say the world's most valuable company. You can say the company worth more than the whole S &P Industrials index. And about 50 different exchanges around the world combined. Insane, right? Insane. Obviously announced record sales and amazing guidance last week. Briefly soothing jitters about an artificial intelligence bubble, although those jitters came back about five hours later. But sales in the October quarter hit $57 billion US as the demand for it's obviously black world trips continues to surge.

58:25This is up 62 % year on year which is actually unbelievable. This growth accelerated. This is the biggest business in the world and it's accelerating. What did I call this business? A religion. That's why you can't short a religion. You can't. And the company even increases guidance for the next quarter. Espanic sales will hit 65 billion. After the announcement Nvidia shares let 5 % to 185 but it has fallen back to 175 as general pessimism has set back in. And whilst it's 14 % off its all time high it's gone up 35 % in six months and 1300 % in five years. And the market is as jittery as hell right now.

58:58Like I've, I mean, Bitcoin's off 25%. And like, I've watched, you know, I've watched Catapult fall on the back of, I was going to say off no news, but on the back of good news. Well, I think you were so frothy that, like we were talking not long ago, you hit a billion and then you hit 2.5 billion. I think like, I think basically the people have been panicking. I said to a room of investors, I actually think now in the market is the time when active fund managers can differentiate themselves and make so-called alpha because if you follow everyone else in the room and panic, basically it's these corrections where you sow the seeds.

59:36I don't want to pay full price. I want to get something on half price. I'm on full price. Interestingly, two weeks ago, Massa, who you know I've been critical of, has had a couple of big wins, but a lot of big losses. He sold his entire$6 billion stake in NVIDIA and diverted to OpenAI of all places. I think he got it half right. he's basically just gone downstream because yeah like a heap of nvidia is being funded by open ai so he said otherwise open i was funded by nvidia well it's circular yeah funding itself yeah open ai we don't it doesn't matter who funds that because they're just burning out of their cash and so you just need endless cash yeah but nvidia is getting real money from open ai yeah and so So it's an interesting decision, isn't it, to go from the ultra-profitable recipient of the boom to the hugely loss-making spender in the boom.

1:00:27It's an interesting decision. Well, neither – I wouldn't be touching either of these with a poll. Neither of these things make any sense. I mean, NVIDIA is a great company. I was hoping it would do a bit badly, although I do want it to tank the stock market because I want to be able to buy graphics cards for my gaming at a reasonable price. It's a black belt. Like, they're just all chewed up by AI. The whole notion that, there were so many articles that the whole market is dependent on NVIDIA. NVIDIA goes down. The whole thing is so ridiculous. Market sentiment is dependent on the AI boom. I get the sentiment argument, but the whole thing just makes no, think about what NVIDIA is.

1:00:59And that is the only reason it's growing so rapidly is because hyperscalers, we talked about this last week, but I'll reiterate it because it's so important. Hyperscalers are using debt now. Look how much debt Oracle has. Yeah, I agree. Oracle's debt's gone really badly. It's back to below what it's up. Oh, well, it's really falling. Yeah, so it should. It's an over-leveraged... You know, the Magnificent Seven, I think their combined profit is like$700 billion a year. Yeah. And in order to... Think about this. In order to afford their AI spending, and they've got tens of billions or more in the bank, in order to afford their AI spending, they have to issue bonds.

1:01:32Yeah, and at record levels. Even that amount of money, 700 bill a year is not enough to pay for this AI spending. So NVIDIA is the beneficiary of these companies taking out debt to buy these things. They hope one day we'll make the money. And as you said a million years ago, and I completely agreed, they're the beneficiaries of companies using cash. So away from their income statement so it doesn't appear as expenses and capitalising it onto their balance sheet and getting the revenue uplift on their income statement. Yeah. So even before this circular stuff, it was still circular. Yeah. Because now it's like doubly circular.

1:02:05Well, they were just taking advantage, once again, of the unintended consequences of crazy accounting rules. Yeah. But I love how one of our friends, we talk about the Cape Shiller Index a lot, which is effectively an index that Robert Shiller invented the Nobel Prize winner, which basically says one great indicator of a bubble is you look at the last 10 years, earnings inflation adjusted and give it a pay. and it's at record levels. The only time it's been higher. It's not at record levels. The only time it was higher was once in 1999, slightly higher. Yeah, but it has, so it was north of 40, the PE.

1:02:32It came down. Shilla? Yeah, with this recent. Oh, okay. It hit 42 or something. Yeah, but I think it's under 40 now. Yeah, but 44 is the all-time record. That's right. We're not far off it. That's right. And it goes down to 16. Definitely one narrative that exists, which I do agree with, is people say, like the ASX 200, for example, there was a dash to trash and by that it's companies that are cash burning and these cash burning companies ended up in the ASX 200 and in my experience it's tricky for me to talk about this because I'm really not trying to talk my own book with Catapult here but in my experience just now the last few weeks have been general panic about the idea of a dash to trash and now investors are working out oh okay there is a difference between companies that are burning cash companies that are generating cash and I think that that will clean itself out in the next few weeks yeah so we've got the shiller next and what Buffett likes to use is a slightly nuanced one which is comparing the stock market to GDP and that makes sense because the stock market so stocks are effectively the net cash flows of businesses and that has to match and GDP is a flawed metric of course but like the market the cash has the profits have to come from somewhere and if we're saying we think NVIDIA and the Mag7 should be really valuable it means other companies are less valuable so like the money just doesn't get invented the only reason they've got the markets are record highs because more debt's being used to fund it.

1:03:50Take the debt out, market crashes. There's an even stronger argument. Because your argument is basically the market can't grow faster than the market. And so... Wall Street can't go faster than Main Street. And you'd probably have a pretty big argument that says it should grow more slowly because a lot of the economic growth is captured by private businesses. Private equity now, which is the majority of businesses. Private equity, but also private businesses. Like, you know, you talk about businesses like OpenAI, well, it's not value capture, but like a Canva or whatever. These are all private businesses that are not capturing.

1:04:20Private equity funded businesses. Yeah. VC funded businesses. Yeah, VC money. So I - Well, VC's part of private equity. Yes, I completely agree with you about that. And also, the Shiller Index has got some problems now. Basically, he used 10 years because that was an economic cycle. But if you go and pour cash into the top of the funnel endlessly, then the economic cycle blows out for more than 10 years, right? Yeah, true. Well, it's just a relative measure. I wouldn't look at an absolute basis. Purely, how do we compare to other periods? So are we in agreement about NVIDIA that the profits are real but not sustainable?

1:04:51Yes, exactly. It's real profit. It's not drone shill, but it's also got the music out. And that's why its PE has never got that. And everybody knows this. That's why its PE is not 500 like some of the other businesses. But I think that data centres are more overvalued, relatively speaking. Data centres are outrageous. It's ridiculous, right? I know I was listening to it. Maybe it was Equitymates who was saying how these data centres get these... All they are is a building. like there's no competitive advantage of building a box with boxes all of which is somebody else's stuff if I'm thinking what's the absolute sort of epicenter of this whole you talk about open AI but the absolute sort of poster boy of this entire bubble what do you reckon what do you think it is?

1:05:32Australian business oh is it called Firmus? Firmus Firmus AI which is of course run by Oli and I hate people they only talk about him in terms of his prior conviction listen he made a mistake in life he paid the price for it I don't want to dwell on that. And he's paid the price and can't tar someone forever. But this is just outrageous. Yeah, my problem with him is not past crimes. Because he paid the price and everyone deserves a second chance. I mean, it was a financial crime. He didn't go until 15 people. Yeah, exactly. But putting that to the side, yeah, this is. But you know what? You would do this.

1:06:06I would do this. If someone's saying, I'm going to give you$6 billion for nothing, basically. I'll be shocked if this float gets away. I think the problem is these fund managers just cover themselves in shame in these periods. There's some really good ones we know, and your mates at Elwhan, there's some really great fund managers. They won't be touching any of this stuff, but there are clearly people who shouldn't be managing money. You know, obviously this will come to an end. AI will under-deliver. This is how I think about it. This AI revolution, gen AI, let's call it, it's not bigger than the industrial revolution.

1:06:37It might be smaller. We haven't seen what it delivers. It can't be bigger than the industrial revolution. and like we all still have jobs after the industrial revolution. Just different jobs. Yeah, just different jobs. So I think ultimately whatever this delivers, it's going to under deliver and the people you should least believe about what it's going to deliver are the people that are running multi-billion dollar AI businesses. They're the biggest liars. Yeah, of course. And they might not even be knowingly lying. They're just like, they're just - Well, it's self-interest. Yeah, and so, you know, I think unfortunately my view is still in the next year, this is coming to an end.

1:07:11Clean out. I think the most practical use of AI, and as you know, I love self-driving, is AI. And that will probably cause more job disruption than anything because more people drive vehicles than any other job in the US. That's one big thing. And I will say, if you've got structured data, like Catapult obviously is large structured data, but they're the kind of businesses I often work with. Gen AI is pretty amazing for delivering value with structured data. It's pretty amazing. Saving employee costs. Or just, I think it's actually will enable these companies to sell more stuff to customers. I think it's amazing as a coding tool, but not to fire coders, to be more productive with coding.

1:07:50We're about 20 % more productive. Yeah, I mean, I think that most companies today, software businesses, so like you've got software, but you're not just a software. But most software businesses, which are skewed heavily in R &D to software, 25 to 35 % of the code coming out of those businesses, ideally should be initiated by AI, which is almost entirely anthropic and clawed, by the way, not open AI in those businesses. That's what's powering coding revolution inside software businesses. And things seem to go from bad to worse for market darling turned pantomime villain Drone Shield. That's a good description.

1:08:29After CEO Oleg Bornyk sold his entire 50 million stake alongside Chairman Peter James, who offloaded 12 million, and Jethro Marks were uploaded at 4.8. You know, people have finally caught on to what you said on this podcast last week. I know. We talked about it. I know, but you were the first to say it. It was... That they do this every time. Yeah, and I've read about five articles. Yeah. It's clearly... We made an impact. I meant to say that last week. It appears that the investors are fleeing the defence tech stock in droves. Last Thursday, DroneShield abruptly cancelled an investor call scheduled to shore up investor support, ironically.

1:09:00The broker who organised the call, Bell Potter, reaffirmed its forecast that shares are heading to 5.30 this year. Meanwhile, as we record this episode, no, not Drone Shield. As we record this episode, Drone Shield shares have slumped to 168 and they've actually dropped today in a down market. You know, that's still a pretty high PE. It's a multiple of 215. It makes no money, basically. And I think it might be 50 on their cash or something like that. It's a big multiple still. It's 63 or it's more. It's at 65 % collapse in one month. Have you seen a 65 % collapse? I'm going to send that collapse for a non-bankrupt business in my life.

1:09:36Well, another way of saying it, look, I agree, but we can also say, have you seen a company that falls 30 % in one day based on something that management does that's unrelated to the business performance, right? Exactly. Mostly, despite the calamity, drone shield is up 125 % year on year, implying it's still got a long way to fall. Well, you know, when we called to short that stock a long time ago, about six months ago, I reckon, my reason for shorting it was not this my reason was just to to remind you um that one whenever i read articles in the wall street journal or the new york times about fighting drones they were never mentioned and then i spoke to all my israeli friends are involved in drones and fighting no one had ever heard of them yeah and i thought it just just doesn't feel like this australian business that no one's heard of my theory was my theory is an australian business can't be dominant in this space yeah i agree like the australian thing but also you see what's happening now like once once you lose momentum like this and now the articles are coming out they can't compete on their product yeah all of the money's for r &d because the product's no good like now what's now it's all coming out i've softened my view on the fan the ceo and board you've softened i've hardened well So you should say why you've hardened.

1:10:56Just because I think they... Because you hate the whole thing about it, right? Okay, tell you why I've softened. I've got some stuff that you'll enjoy in a minute. Let me tell you why I've softened. And you can shoot this down. Yeah. So I think this completely betrays shareholders. I haven't softened on that. Yeah. I think they should, like... You were softish last week on them. Maybe we're just playing devil's advocate there, but... Yeah, well, I think... As I re-listen to the episode of my run. I feel like continuing a CEO might be untenable now. Oh, 100 % untenable. He cannot continue in this role.

1:11:24And the guy that ran the US, I mean, he was tied to the train tracks pretty quickly. But I'm not sure it was his fault. I think ultimately a CEO slash chair needs to take responsibility. Well, these two have to go. They're dead men walking. All three of them have to go. I think they are genuinely shocked by this response. And I'll tell you why. You know, we said they did it every time. Yeah. And I think they were just thinking, of course, we'll just do it again now, right? I don't disagree with that. That doesn't soften me, though. That just makes it delusional as hell or stupid. When I first heard this story, I was like, this was all this malevolent, sneaky kind of thing, and they pumped up the share price to lie to shareholders.

1:12:05But now when I've thought about it more closely, I don't think they necessarily did any of that. I think they went into this just thinking, yeah, we're not giving this a second thought. It'll be fine. We do it every year, and it doesn't affect the share price. And I don't think they understood. I did last. No, it did affect the share price last time. All right, but not to this extent. I don't think they understood. that a$5 million sell-down is not the same as a$50 million sell-down. And so I genuinely think they were shocked by the market's response to this. It doesn't suffer my view of what has to happen as a result of it, but I don't think they went in this deliberately trying to trick investors because they never hit it in the past and they didn't hide it this time.

1:12:44I'm not suggesting anybody try to trick anyone. They just didn't care. They were willfully ignorant to what would happen as a result of them selling and diluting shareholders and taking all this cash out of the business. I think they should have thought about it much. They should have thought about the consequences much harder. I've got issues about the fact that, you know, when they sell more than 10 % in their own charter, it says they have to get legal advice. Who pays the lawyers? Yeah, but also the legal advice would have been you're in a trading window, and so that's fine. And, you know, they say that they didn't collude to do this, and I was dubious, but I actually think if you're doing it every year at the same time in the same way, you might not need to talk about it before it happens.

1:13:21I find that hard to believe anyway. But the AFR reported that the company said it was unaware that three men were selling shares. Well, that's ridiculous. They are the company. Yeah, yeah. The chairman and the CEO, who else is in the company? If the CEO of Catapult wants to sell shares, I have to sign off on it. If I want to sell shares, the board has to sign off on it. But who's the company? They are the company. In fairness, there aren't many directors of this company. Yeah. You know what I found more curious? So one of them, there was a case. I've softened on, I'm going to use legal terms on you.

1:13:51I've softened on the mens rea, but not the actus rea. No, I think there was a mens rea there. Just for listeners, mens rea is the mental element of murder and actus rea is the actual physical stabbing of somebody. So I don't think it was a premeditated shaft, the shareholder, but it doesn't soften the act itself. Well, it depends. These guys' murder operandi is how to enrich themselves as much as possible. Like the fact whether shareholders get sharp or not is kind of incidental. I did look at the - Okay, they certainly didn't intend to dump the share price, that's for sure. I did look at the dollar value of these performance options that were issued to the non-executive chairman.

1:14:25The early. And it was like in 2023 or something, it was$1.8 million worth. Now that might be retrospectively valued based on the rise. They were like 20 to 40 cents. The problem is, I think they got granted them when the share price - The share price was up and down a lot around then. I think maybe the share price was 30 cents. By the time they got them, it was already basically in the money. That was the problem. We talked about that last week. Here's another interesting fact. There was one KPI that attached to these options. Do you know what the KPI was? Well, I thought revenue was the KPI. It was.

1:14:53It was a really dumb KPI. Well, smart for them, dumb for shareholders. The KPI was$200 million revenue or cash receipts in a 12-month period. That's right? I mean, how's that for perverse incentives? So, it was ridiculous. but let's put the ridiculousness aside and it was done to maximise the profits of the executive. But I looked at the drone shield announcements and calculated it myself. So I looked at, so one caveat is they don't actually, they haven't announced last quarter's revenue. So I'm sort of flying a bit blind here. But if I look at the, there was effectively a nine month period ending 30 September.

1:15:31They had cash receipts of 138, 138 million for nine months. Three months the prior year was$26 million. That equals$164. So they must have had a huge jump. No, that's the last 12 months. So the cash receipts was$164. Oh, I see what you mean. So if they hit it, they had to hit it on... I should also add, all those cash receipts, that wasn't profit. The profit of the business was basically$7 million. When you factor in the share-based compensation, they've lost$11 million. So they're losing money now. You're looking at cash receipts, and you're talking about all different kinds of profit measures, but their KPI was revenue.

1:16:05Or cash receipts. Or cash. Oh, is that right? So they didn't hit it on cash. So hang on. So if a company signs a five-year contract and pays it all up front in cash, do you think that qualifies for hitting the target? Well, they didn't make it on cash receipts anyway, but yeah, possibly. So they lost money. They lost 11 million bucks. So this is money losing business after share-based payments. Obviously, this is based on cash. So this is operating profit, I should say. Yeah, I get it. So the question is, did they hit it on revenue? and the business didn't announce revenue, but to hit it, they would have to do$72 million revenue in the last quarter.

1:16:37In the September quarter. In the September quarter. To hit this revenue target, they would do more than$100 million revenue in September quarter because they did less than that for the nine months prevailing. I see. And also what you're saying, if I'm getting this right, is that they received and sold performance options based on a$200 million revenue number before reporting that, whether or not that 200 revenue. It got audited by a small HLB manager, a small auditor. And so that means that no investor, so this argument that investors should have known, if what you're saying is right, no investor could have known that those options were going to be triggered because they didn't see the revenue number.

1:17:18And they haven't hit on cash receipts. How confident are you with this assessment? Well, the cash, I've counted the cash. I looked through the, there's only two, you have two announcements, like summed up the numbers. If you look at revenues for this business, historically actually track cash receipts pretty closely. Is it definitely 200 mil, the target? Yeah, no, that's the target. So I'm assuming that what they have to claim here is that revenues hit the 200 mil. They didn't hit on cash receipts, they must have hit on revenue. When does their fiscal year end? What month? June? I think it's June.

1:17:44It is possible they did$120 million in revenue in the last quarter. But then the question is, how are they recognising this revenue? Because revenue, there's revenue, there's revenue, right? Like if it's not cash, you can recognise, we've seen a litany of companies get undone for this revenue recognition issue you recognize revenue and then a year later it's no longer it's derecognized there's there's all sorts of issues with revenue it's accounting so it's not cash it's interesting that your concern about this is different to mine like i agree with everything that you're saying as a concern but my view on this is even if they made the 200 mil like triggering the options and then selling the shares before any shareholder could possibly have known that they reached that target.

1:18:26That, to me, is the single biggest issue, because don't you think that's a disclosure issue to the market? They still haven't disclosed it. We still don't know what the revenue was last quarter. Because part of the argument that floated around, which I'm not sure they said, but maybe somebody else, because they haven't commented on this, right? They haven't said anything. I understand why they're shell-shocked by this response if they didn't expect it. But part of the argument is, well, we've done it all in the past year. as shareholders should have known by now, but you can't know if you didn't know whether the numbers were hit.

1:18:52Yeah, and we still don't know. Like, it wouldn't surprise me at all if suddenly there's a revenue change and suddenly they do recognise some revenue. This is a company that historically has, the revenue and cash, operator cash, have matched. Suddenly we're now saying that cash is 77 and revenue is 120. Like, that's a big divergence on what they've done historically. Have you seen the last quarter's cash? Yes, they reported cash. That's how I know they haven't hit the cash target. I see because the cash was 160 odd million for the last 12 months it's easy to calculate so maybe that further emphasises my point which is this argument of you should have known if the cash and revenue were close in the past and now they're not close like that even further emphasises my point of how could the poor retail sucker know that this was about to happen I've got zero sympathy for retail investors who lost their pants here like you should have listened to the pod six months ago you would have known you're assured the business has not gone long so anyone who listens has listened to equity and mates not listened to contrarians I love how your answer of any problem is, well, you should have listened to the pod.

1:19:51I should have. I should have bought Catapult shares and they would have been billionaires by now and they'd have been losing their pants on drone shield. You'll be unsurprised to know I agree with all of your sentiment on the pod. But this stinks real bad. Yeah. They actually announced, as one of the announcements, as part of the announcement, is we got audited by HLB Manjard and they've even admitted to not disclosing it. The fact that it was independently ordered or whatever, by someone who they pay. Who are reputable though. Who gets paid by the business. And auditors can only do so much. Even honest auditors are hamstrung by the information provided to them.

1:20:25You're right. They could be incredibly honest, but not being... So it's... This thing has scandal written all over it. Like I can't see these guys being around. And there's more to come. I've got some interesting stuff in the next few weeks, which I'll break over the next few weeks. But... You know, we can say this with certainty. This kind of stuff only happens in a bubble. Yeah. that's a fact. Yeah. I thought the bubbles, by the way, I thought the 80s when I read that book was so much more exciting. Like, all of the dodginess was there. All the dodginess is here now. Yeah, the characters were more fun and like what they were building, all right, you can hate Skace for being a crook.

1:21:04No, I don't hate Skace at all. But he built Mirages, right? They're still there. Channel 7, like real stuff. Like the stuff that was built, like he did the Brisbane Bears. Like that was his team, right? That was remarkable. He built Carrara. So I think the thing that's boring about this is the people that make all the money today in this era of the information age, they're the boring people that go and build businesses, like, that just manage information. Like, it's so boring compared to that era. Yeah, I agree. We'll jump to a quick, super quick break. Be back with our deep dive shortly. Hey, guys.

1:21:36Producer Mike here. Just with a quick note after recording while I'm in the edit. after the episode was recorded Adam and Adir did a little bit more digging on this story and they will update you next week but it does appear that the business didn't hit the 200 million dollar target in revenue or operating cash flow again we'll touch on it a little bit more in next week's episode thanks and we'll be right back

1:22:09and we're back of course we're back with our mna deep dive brought by terram capital this isn't this is just a deep dive on on zero and we'll talk to scott from terram capital next week so of course terram acquire technology companies to grow sustainably over decades thinking of selling discuss how the team at Terem.capital.com slash contrarians can work for you. So as you know, zero has become a muse of mine idea in the last few months. So I think we said short zero about three months ago and it's down about 32 % since then. So I think we've nailed yet another one. Pretty soon we are going to have a fund.

1:22:46I mean, I say that a bit tongue in cheek because I'm allowed to say it seriously. But like, can you, I mean - You've got to jail. Can you imagine? You and Ron really sharing a cell at this point. Thanks. He's out. Can you imagine how well this fund would have done? Yeah, we've actually got some data. I've got to look it up. In the next few weeks, let's bring some data. The challenge we have with a short fund is you get it right in the long term. In the short term, you can be wrong. We haven't been very wrong on the short term. We've got one or two. Well, DroneShield hit us for a while. That's now gone back.

1:23:14So Xero's share price rose continue. It's down 32 % in the last six months since we shone the spotlight on it. Of course, one of Australia's very highest paid CEOs, Sakinda Singh-Cassidy, who announced that operating revenue grew 20 % for the half year. Ebert grew 22 % to$214 million, all sounding pretty good so far. But it was a very confusing set of financials. I'm not sure if you - Before you say those, I want to say this. You mentioned the pay. Have you seen there's been some really high quality votes against remuneration reports? Oh, it's been some - It's 75 % plus. It's like three strikes in one vote, right?

1:23:49Or even Reece, which is exactly an amazing company. He voted a huge vote like Britt Blundy at LaVisa. Oh, LaVisa got a vote. It was a 75 % vote against the last dude's pay packet. He's not even there anymore. He was paying a lot, that guy. He was, but he's not even there anymore. He was the highest paid CEO in Australia. He was a kid that came along. Next DC? Yeah, Frank Craig. It was another, I don't know, 75 % against or something. Yeah, so you're right. So 48 point, basically 49 % of votes were cast against the report, which is a huge slap in the face for St. Cassidy and David Thode, who, until this point, had been a complete clean skin, but is not so clean at the moment.

1:24:26It was a very confusing set of financials because it was impacted by the Melio acquisition, which is the Israeli payroll firm that they bought to expand in the US. So operating income dropped from$176 million to$137 million. This obviously includes CapEx, capitalised pay. Zero's EBITDA margin dropped from$31.4 to$29.4. The business incurred acquisition costs of$51 million as part of Melio, but it had a$77 million profit based on revaluation of acquisition financing, which was just weird. So I sort of X all that stuff out of everything. Can you believe it costs$51 million to do this? That's crazy.

1:25:01Who the hell is getting that money? That is insane. What do you pay for your acquisitions? Well, like nothing near that percentage. I mean, forget about the percentage. Like the thing is, let's say you're in business and you sell a business and you sell it for$10 million. So maybe the person selling it is going to want 3%. they make 300k. That's fine. You can't, if you're going to do a billion dollar acquisition, you can't pay 3%. Yeah. It's like when you buy a house, you don't pay the same percentage for a billion dollars. Yeah, and so$51 million in transaction fees, like, I just, it just seems crazy.

1:25:33This is a company that's losing the plot. I don't think there's any other explanation for it. They're losing the plot with Execrem, they're losing the plot with acquisition. Anyway, if you look at underlying EBITDA, so I ignored the, of course, they didn't disclose, they disclosed, they didn't announce it, but you could work it out pretty easily. underlying EBITDA ignoring the one off Miller Impact so the 77 the 51 EBITDA was only up 12 % yeah that's shocking yeah and they gloat this rule of 40 bullshit rule of 40 number that's just make believe because they're ignoring all this they ignore share all this stuff that's relevant it's a very this is a very un-zero like number zero has been a great grower over the last 15 years first half last year ended up 65 % second half saw a 53 % jump total subscribers were only up 10 % so it's getting a bit of expansion revenue on that but it's not really growing subscribers and we talk about the business having really high switching costs which is one of the best things about it and it still has really low churn so let's not be too critical but it's churns gone from 0.88 in 2022 to 1.09 which is pretty significant this is per month um depends why they're churning because you know like this is an australian and new zealand business and market conditions have been hard, especially in Victoria and in New Zealand, and they might have lost customers who have gone broke.

1:26:47Well, you'd be wrong there because churn in Australia is not so bad. It's gone up. So annualised churn for the business is 10 % to 13%, but churn globally, which is that big white hope, which is what this ridiculous valuation, that was 17%. Yeah, that's not great. So this is way higher. So people gave it a try and got off it, basically, it sounds like. Yeah. By the way, I still think 10 % is high. Like when we report catapult churn, it's generally, I think last year was 3.8 % or something. And this year was - You got exceptionally low churn. This year it was 4.9, but it was only 4.9 because we had to get rid of the Russians.

1:27:18So it was probably about the same 3.8, 3.9 as it was last year. Plus Russian is involuntary churn, let's call it. I don't think about you and SAP. I think 10 % churn. Remember, there's probably most of those businesses going under. They're small businesses, right? Yeah, they're going under. And you guys work with elite sporting clubs who almost never go under. So I don't think we're critical of that, but we can be critical of this. This is a business that is only growing customers 10%, is barely growing EBITDA. There's very little expansion revenue. There's churn coming. Obviously there's churn, there's net growth, but this is a business that's not making much N-PAT at all.

1:27:55If you look at N-PAT, it's tiny. So it's total operating revenue for six months ending 30 September, so it's a weird year end. Well, it's the same as us because it's focused on the American market. Which they would love to have. 1.2 million 1.2 billion operating revenue and then they got cogs of 137 so gross profit of 1.06 up to 1985 I know this is very unpopular to say that software businesses should make money but like if you're a software business with 1.2 bill of rev for the half what profit you think you should make on that 1.2 bill? Oh you're the expert on this but I thought 25 % margin I mean at least 250 mil right at that size and so what profit did they report on that?

1:28:35Net profit of$134 million for the half. That's net after everything. Yeah. And so how much amortisation was in there? Can you see? Or am I getting too detailed? $120 million in amortisation. Okay. And how much was their cap X? $195. Okay. So really what's going on here is the net profit is like a trailing indicator because they're spending more money today on research and development and capitalising it than they did in the past. Yeah. And so this net profit is really capturing their past expenditure on R &D. Totally. Because we're seeing this. $75 million is a big gap on a business that made.

1:29:11The$134 million is impacted by the$50 million and some other stuff. But if we take the$134 million, and there's tax in there, but we take the$134 million, that's gospel. That's the bottom line. I mean, they're definitely not making much more than a 10 % NPAT margin. Once you do all of the normalisations and this, like the true… More like 5 %? Well, no, because you're going to put all of these, like the$51 million they paid for the transaction, and that will offset this extra 75 mil. No, there's 77 million in this revaluation thing that gave them 25 million bonus. Oh, that was a positive. Yeah, it was a positive.

1:29:42Oh, I thought that was a negative. No, no, it was a 25 million positive. So it's not 100 million of positive stuff. So they're making 5 % to 10%, let's call it. They're making like 3 % last half. On this level of revenue. And so what do we think about that? I mean, that's not great. Is this a business worth$20 billion? Even after the fact that the share price has dropped a third since we told you to not invest in it. so we actually picked the peak probably within a month i reckon so i think so close to picking this page so at the time you and i had this discussion where we were a bit talking across purposes where you were saying i think the acquisition is terrible and ridiculous and i was saying i don't disagree with you but there's not a zero percent chance of it succeeding non-zero it could be close to zero there's never a zero yeah and there would and i said that i think if this is just an australian new zealand business there's a zero chance that it can maintain this valuation multiple and that's that's where we left that and so i said when you're put in this position as a chairman which you said i wouldn't take the chairman job but when you're putting this you've got to do something to try and make shareholders happy and so i think the saddest thing about this story is that they've done this very very very risky acquisition yeah and it still hasn't kept the share price up yeah and so i'll put this aren't totally stupid well i'll put this i'll put zero into the atlassian bucket which is totally this is a it's not as it's not as good a business as Atlassian, but this is a very good business.

1:31:04They're very similar businesses. Yeah, but Xero can't expand overseas. That's their problem. They're doing really badly. Atlassian has always been international. Yeah, that's right. And so Xero - That's actually a really good question. They keep failing to expand overseas. No, Atlassian's a bit of a business. Oh, Atlassian is a global business. Atlassian loses money, though, don't forget. They're growing about the same space. Well, we put them in - Yeah, but Atlassian is much larger in revenue. Yep. And so we put them in the same bucket. Well, I do. I'm sure you will, which is - this is a really good business.

1:31:31Atlassian, almost a great business. Not great, but very, very good. Could be great if we were running it. I think it would be that. Well, I don't think it would be a great business, but I think it would be making a lot of money. Yeah. And so I think Xero and Atlassian, the road forward for them is to say, once you pass a billion dollars of revenue, make lots of money. Yeah. And I think that Xero needs to figure out - These guys, two billion. That's in the half, don't forget. This is two billion annualized. Yeah, I know. I'm saying even one billion. Once you pass a billion, I'm picking a pretty big number, okay?

1:31:57Yeah. We can say one billion USD if it makes you happier. They're both past that as well. Once you pass that and you're a software business, make lots of money. And that doesn't mean stop growing. Xero has to make lots of money and also grow beyond Australia and New Zealand. Atlassian has to make lots of money and also try and grow beyond just revenue expansion, which they have had some success in doing. It's so straightforward to me. Businesses of this size need to be, software businesses, need to be making 25 % profit margins. It just shows that, like both Atlassian and I love your comparison both Atlassian and Zero have these great legacy franchises they're both about 20 years old they're about similar eras actually and both are doing everything they can to stuff it up like it's again it's the Costanza of running a business now like you can just like let this business churn out cash like they're both they've got great franchises they're trying to turn into something that's not it's like trying to create these glory days when they've got legacy assets that sadly are probably where these guys aren't going to build, they're not going to Microsoft second or third act it.

1:33:00They just don't have the DNA. Because nobody wants to be Telstra because Telstra is so uncool, right? But Telstra, it just churns out cash. And so they don't want to be those things. And so what happens is everybody wants to stay sexy. And the way you stay sexy is with growth. And so they go and mortgage today for the hope of growth tomorrow. And if you get it wrong, all you end up with is a worse house with a bigger mortgage. I think that's the problem that they run by trying these approaches. Well, as much as I hate this, because I've always been a fan of David Thodey, but this has been a complete...

1:33:31You should be a fan of him. Well, I'm not anymore after this incident. I think maybe in retrospect, this wasn't the right chairmanship for him to take. Was that? And it was the fact that every move they've done has been wrong. Hiring Sir Kinders has been a bad move. The Amelia acquisition has been a bad move. Paying her the highest amount on the ASAC is a bad move. There's not that many decisions you need to make, as you know, running these businesses. Don't buy overpriced stuff. Don't pay your executives too much. Hire the right executive. That's your job as a chairman. But we don't know. Fail, fail, fail.

1:33:59Well, we don't. So this is where you and I continue to disagree. I think they've gone down a path, which is let's make a massive bet on US growth. It's not going to be bet the farm. They're not going to send the business broke. But like if it's - Destroy shareholder values. Yeah, well - They've already done that. Yeah, but so arguably, this is my whole point. Arguably, if they would have just said, we're going to keep growing in Australia and New Zealand, this could be worth a$10 billion. I think this goes down to$5 billion Well hang on a second, let's think about this So let's say they're doing what, 2.5 bill of REV And let's say they can do 25 % NPAT That's 625 mil Let's say they're growing 10 % What would you pay for a 2.5 bill REV 625 mil NPAT Growing at Growing at 10 % You'll pay more than 5 bill for it for sure Yeah but it's not doing that So I think that can be a$10 billion business It's a software business as well, 25 % margins.

1:34:53Yeah, it can be a$10 billion business, but not with these guys running it. Yeah, so I think this is what I'm saying to you. Like, if you run this and gave up on global expansion, then you'd be running a 10-bill, maybe 15-bill business max. Yep. They've plummeted and they're still at 20. But they're going to plummet more. I know, but my point is, nobody was prepared to say, we're happy to accept a valuation of$10 or$15 billion when the valuation was like 30. That's the problem they've got. I know, but if you're going to take the role of chairman, you've got two options. Tell, on day one, you say to shareholders, thanks for making me chairman.

1:35:28By the way, I'm going to halve the value by running it for cash. Hope you vote, hope you re-elect me. It's the equivalent of like you see someone's wife or husband or girlfriend or boyfriend like cheating on them. Do you tell them or do you not? Do we tell the shareholders, you know, we're not really a$25 billion business. We're really a$10 billion business. I'm going to just keep lying to you because I don't want to make you feel bad. Well, the answer to that question is I don't get involved. and that is what I'm saying about the decision to be chair of this business. This business got itself into a tricky problem with valuation and the best move was to stay away.

1:35:57And whoever got there had to go and roll the dice pretty significantly, right? And the way you roll the dice is you say, I'm going to find someone that I think is amazing, pay them whatever they want and make a huge bet. And we don't know if this bet is going to pay off for the next three years. I don't think it will. You definitely don't think it will, but that is what they've done. It's a clear rationale. I just think it's not going to work I can think the rationale whilst I wouldn't do it myself I can see what you're saying thank God I got there after four episodes of zero but also the execution's wrong like they've executed they've chosen the wrong person to do it and with the wrong acquisition yeah with the wrong metrics yeah so I agree like if you were going to make a huge bet on the US or overseas yeah go in by Sage or something like that which is in your wheelhouse UK was a much better market for them we agree on that instead they bought a very overvalued Israeli business where I think you could hear the Hebrew cheers when the transaction happened, right?

1:36:50Absolutely. Yeah, I agree with you on that. And then we had a great episode of this. It was one of my favourite episodes in a long time. They're all not great. It's like Sophie's Choice. It's because of the quality of quiz. It was your quiz. You weren't used to that quality of quiz. Well, I'm flying Qantas today. I'm off to New Zealand for a day and given there's no Wi-Fi, I have to read this Brilly book because there's nothing else to do. I don't even... By the way, you're since about talking about flying Qantas. No one put you on the spot, but you know I don't even go into the lounges anymore.

1:37:13Really? Because nobody gives me this chairman's lounge. Can you believe no one's giving me this chairman's lounge? Aren't you best mates with a chairman? Literally. I can't ask. Well, I'm not best mates with him, but you can't ask for these things. And so, you know, it's a lot of podcast subscribers. Exactly. Hopefully John lifts his game and gives you a long-awaited CCO membership. Or Virgin. Who's the CEO of Virgin now? They're swapped CEOs. Dave Emerson's the... I think he's well regarded. He's done a pretty good job. He'll be much better regarded if he gives me access to his Beyond Lounge.

1:37:41But that doesn't help you internationally. That's true. Well, yeah, but like the thing with - You're private jets don't really - You don't even say terminal. The thing internationally is that the Qantas first lounge, which is also usable for Emirates first. Yeah, and Qatar. Is it? Yep. One world. Right, because Emirates is the weirdest relationship with Qantas. No, Qatar's got the weirdest - Qatar and Qantas hate each other. Well, maybe everyone's got weird relationships because Qatar's in one world, but they hate each other. Emirates isn't in one world, but - Emirates is nothing. Emirates is the partnership with Qantas.

1:38:11Yeah, and so you don't need this. like Chairman's Lounge for flying internationally because there is no Chairman's Lounge. It's the first lounge. It's the same. If you're flying first class, it's fine. If you're not flying first class, you've got a problem. Or if you're platinum. Platinum, you're fine. Yeah, there's no difference between... That's right, but only domestically and so domestically, I'm just doing what everybody else does which is go to a cafe. Yep. We talked about it a few weeks ago. By the way, it's a lot quieter. Yeah. No, totally. Yeah. Great episode. Thank you, Mike. Thank you, I dear.

1:38:36We'll be back next week in person with a very special guest and see everybody next week. I'll see everybody on Saturday for our Ask Us Anything episode.