OpenAI a $500b Ponzi? Canva Breaks Hearts, Latrobe Crunched by ASIC, Stubhub IPO, Adir’s Worst Airline and is Australia the Red Tape Capital of the World?

23:33So don't give you – then they make you change your ongoing subscription. They make you cancel one subscription, go to another one, and then when this must happen, people must stuff this up all the time. And instead of just automatically – like we have a – as you know, we've got a subscription product, Lux Plus, and people come to us all the time saying, oh, I don't mean to resubscribe, even though we send them a really clear email saying this is what we're doing. And we'll just immediately flick it back and say, hey, if you don't want it, as long as you didn't use it, if you use it, it's different, but we're not going to charge you something you didn't use.

23:58In this case, the zone, the Russian billionaire or Ukrainian Russian billionaire is intentionally going out of their way to confuse you. And then when you say, oh, you know, I got confused by this, they were absolutely steadfastly refused to give you a cent back, even though you paid twice for the same thing. This is just ridiculous. And it's enough to make me stop subscribing to KO. I still think it's incompetence. But you know what? I'm sure given that half of KO, I think, listens to this podcast, I think you're likely to get a response to this is my guess. So keep us posted on anything you hear.

24:31I'll give you a quiz with one question in it, okay? It's one question. Cool. I've got a quiz after this, a little quiz as well. You're allowed to have one question as well. Not only do I have one question, it's one question with one answer. There's only one answer. And by the way, it might not be the only answer, but it's the only answer I'm accepting, okay? So this makes it a bit trickier, okay? Okay. On my travels, I believe I discovered the single worst quality European non, like take out all the no frills airlines, full service. I discovered the single worst European full service airline. Which airline is that?

25:12British Airways? Nope. This is worse in terms of the seats. I was sitting in a business class seat. Sure. It was an economy seat. on this is two separate planes because I had to do a connection. It was an – one of the flights was three and a half hours. I'm not saying it's economy class seat like I'm disparaging the seat. What I mean is they literally put economy class seats in front of a divider with the same space, three abreast with an aisle down the middle, an A320, with the same space between the seats as economy class and just block the middle seat. But they charge you. Oh, that's BA do that.

25:50BA do that all the time. full business class fares for this. BA do that all the time. Do they? On a three and a half hour flight? Yes, absolutely. And probably charge like 3x what you paid. Well, my award goes to Austrian Airlines. Really? Terrible. Who owns Austrian Airlines? Well, I don't know, but I'll tell you something that did make me feel very happy. This is Schadenfreude at its best appropriate word for Austrian Airlines. It was German, but yeah. While I was being, well, you know, they speak German, the Austrians. You understand that, right? That's their language. There's no German language.

26:26Yeah. Yeah. Well, I felt it for them. If I would have told them I had Schadenfreude, they would have perfectly understood what I was saying. Also, because they're completely fluent in English. But on the tarmac, what airline tail did I see? Lauda Air, an airline bought by Austrian Air. And if you recall, I told you a little story, which is Lauda Air is the only airline in the world that banned me from flying on them. And they banned me from flying because I got too many free upgrades in business class and they never wanted me again. They were very rude to me banning me, which probably was fair enough, but I didn't like the rudeness.

27:01And then they were broke and their carcass was bought by Austrian air and then it plagued Austrian air. And I'm proud of the small role that I played in that sequence of events. So that was dreadful. The Frank Abagnale of Austrian air. Yes, that was absolutely dreadful. So I'm surprised that you say that about British Airways, that they do the same thing. Interesting. British Airways make Qantas look like a private jet, like it's that bad. That's interesting. Well, sitting in front of me on the flight to Israel, the whole area in front of me was Israeli Muslims, like Israeli Arabs. Israeli Arabs, yeah.

27:39Yeah. I had a nice chat with them. They were very funny. So the wife was wearing like a hijab and the husband asked for like if they have halal meals and then immediately after for a drink, he ordered a beer, which obviously you can't have. And I thought I was so happy because I thought, oh good, now I see that these Muslims do as much picking and choosing of whatever bits of the religion they want as the Jews do. I felt an even closer connection to them. That's how I felt about that. Speaking of BA, my head of comms goes, oh, do you want to give a quote on BA about your recent BA flight experience for the BA magazine.

28:19I said, I'm pretty sure they won't want it. So I passed up on that opportunity. The question they should ask you before anything is, did you rate us a 1 or a 10? Because it's not going to be anything in between. And just whoever you gave a 10, they should use your quotes and the ones they'll know better than doing it. I think you should have submitted it anyway, just for the response, the British response. They wouldn't have known how to report. Now, I've got a question for you, an Australian business question. Yeah. Do you know? Okay. I know you've got your quiz coming. I'm trying to delay it as much as possible.

28:51Do you know who, I can't even say this person's name necessarily. Mike, you can play this game as well. You're more of a chance of knowing who this is. Do you know who Blythe Beardsley is? Blythe Beardsley. What if I, you don't know who she is, Adam, right? You've never heard of her. Okay. So what if I told you that she is from the fraternity of Kappa Kappa Gamma at the University of Texas? Does that give you a clue about why I might be talking about this as an Australian business story? This isn't the dance thing that the Royal Street Journal article had. Ooh, I'm very impressed that you know about this.

29:24Can you elaborate? I love the dance thing. Okay, so tell me about this. I saw the article quickly. I didn't dwell on the article, but I get it. My Instagram is filled with these things. Well, you should have dwelled on it because it has an amazing Australian connection. So basically what's happening at these sororities, which are like these clubs for women, like the opposite of fraternities, at these universities, is that they're trying to recruit new freshmen, I guess they're called, when they join, and they want them to join the sorority, so they're doing dances. So Blythe Beardsley does a dance for the Kappa Kappa Gammas at the University of Texas, sticks it on TikTok, and gets 38 million views, immediately gets an agent, starts being an influencer, and then who should grab a hold of her?

30:11the next bit of the story I read in that article is that she's appearing at New York Fashion Week on the runway for none other than Australian business Shopo. That's very impressive. That's very impressive. Jane's got her. I'm happy that Jane's doing New York Fashion Show. I've never met her before, but she seems like a really lovely, great story to me when I read her. I was on a podcast a few months ago, actually. She's got a podcast like us. She basically interviews founders mostly. She's a ripper. She's done her business pretty much the same time as us. So we've had a really sort of concurrent – she's obviously in the fashion product space and we're in the travel space.

30:52So we don't compete in any way. But we've sort of followed each other's journeys with interest. And she's done incredibly – and she owns, I think – I read a couple of interviews with her over some time. And like she's so self-deprecating. Her story is incredible, right? She kind of came – anyway, she talked to her on this podcast. Why don't we get her on to talk? I think she'd be fascinating to talk to. Yeah, I'll get her on to. Because she wasn't – I mean, she said she wasn't really interested in fashion. She kind of did this business because a friend suggested it, and then the friend bailed on her.

31:17And then she was left with it in fashion, and then she failed, and then she decided to – anyway. So I felt actually quite proud being involved in the Australian ecosystem, especially e-commerce ecosystem, to see that this Blythe Beardsley was jumped on metaphorically by Jane at Shopo, and that's part of New York Fashion Week. I thought that was a really great story. I really liked that story. Yeah. Good on her. I'm a rap for Jane. She's a great operator. One more thing before your quiz. One more thing. My quiz dovetails into more substantive stuff, actually. So just a segue to it more. All right.

31:49Well, then I'll say something substantive, which I'm sure you're not going to cover. Although what people didn't hear is - If you read the run sheet, maybe I would be covering. Off air, I actually, the people didn't hear me say, but Mike can attest to this. I said, oh, I assume there wasn't a run sheet for this episode, which turns out to be... I spent a long time on this run sheet. I was slaving away all day yesterday. Well, it's good because that means that you know what we're going to be talking about, which is important. Hopefully, it's not this. So have you been following the StubHub IPO?

32:21Is that on your run sheet? I always put on the run sheet, but I didn't quite make the cut. Oh, can we please talk about that? Because I cannot believe I'm going to say something very Schwab-esque in this remark. I'm, I am going to, I, what's happening? What's happening? What's happening? What is going on? Adam is just, did you drop your microphone? Adam has, for all those at home, Adam has dropped his keyboard on the floor mid recording. I said, I'm going to say something, I said, I'm going to say something sure-based. And he's basically just collapsed in shock. Then I'm going to channel them with my comments.

33:07Yeah, but Adir, then you just started laughing. Someone has to give a running commentary of what's going on. So various keys have snapped off Adam's keyboard. This is a peek behind the curtain of this show. I think we're nearly back at running capacity here, I think. The level of professionalism that you've brought to this podcast, Mike, is really something amazing, I have to say. Unbelievable. All right. So this is what I'm going to say about the StubHub business. That business is rubbish. Like, I mean, from what I've seen, if you correct me if the numbers are wrong, but like it's been around for 20 plus years.

33:52It does something like 800 mil of revenue and still doesn't make any profit and I think never has made any profit. How long do you have to wait to make any money as a business like that, making$800 million of revenue. And then they IPO. I hear this story and I'm like, they're not going to get to an IPO even in this market. How are they going to get to an IPO? And they get to an IPO and what happens to their IPO? Predictably, it completely tanks. Well, you say predictably. It's all relative. Had they priced the IPO at$6 billion, not$8 billion, it wouldn't have tanked. So it's just a pricing thing.

34:24So I'm not sure you can link the quality of the business with stock performance day one because the stock performance is based on what they – Well, I'm linking it because they say this business, you think I'm wrong about this business or you think if they would have sold it for like$15, the stock would have done well. I don't mean a$15 share price. You could be wrong about the business. I mean a$15 enterprise value. Your mates at Alassian don't make any money and they've been going for 20 years and it's worth$45 million. Come on. So I'll be starting with them, not Paul StubHub. You know, StubHub is an amazing story.

34:59I'm not going to go into the whole story, but obviously the guy that was running it did incredible things to end up to get his business back and to be the CEO of it, including buying. It was owned by eBay, wasn't it? Yeah, it was owned by eBay, but he basically got chucked out of StubHub. And then he went and did via GoGo. And then he bought back StubHub for$4 billion, almost entirely with debt, which is one of the problems now. But so I think, I actually think, oh, I wonder if I'm wrong about all the negative things I've just said about this business. Hang on. Keep this in. I was pretty sure it did terribly, this business.

35:36If we have to keep in, Adam dropping the keyboard, then we should keep this in just to be fair. Hang on, I'm not wrong. So they didn't have revenue of$800 million. They raised$800 million for an$8.6 billion valuation. Their revenue is almost$2 billion. So actually, they're a really big business. Actually, so just to correct you, they actually do make money. They don't make a huge amount of money. But before tax, they make$40 million on about$1.7 billion top line. They got$1.6 billion in it. Oh, no, no. So I'm right about that. So that was their first – I think that was their first profitability.

36:20They're barely profitable. They're profitable because of your most beloved thing. No, they made more money last year. They made it$87 million the year before. All right. Well, I think you'll find they're only profitable because of your favorite thing, which is large amounts of stock being used to pay. Although that won't affect their profits, right? That will affect their cash. No, because I'm looking at Gap, and Gap includes this. So I don't think it's stock-based. Only non-Gap. It's only Atlassian's creative accounting that – All right. So correct me. Correct me, because I'm happy to be wrong about this.

36:51They're making – You can still say it's overvalued. If it's making$40 million and valued at$6 billion, and it's still obviously pretty top here, but it does make money. So hang on, they're making$2 billion of income, circa 1.7 or 1.8 or something. They're raising 800 mil and I'm wrong that they make no money, but they make a very small amount of money after 25 years in business. Okay, so I was slightly too harsh on them, but directionally, I haven't changed my view of this business. Like if you've been around for 25 years and you're generating$2 billion of revenue and you're only seeing really a marginal amount of that money flow through to profitability, I always want to know, what's your IPO story?

37:35Like, why is now the time to IPO? I mean, I know why they had to IPO. It's because of the debt burden that they incurred, right? But like, what is your story in this IPO? Yeah, you're right. They're a bit profitable, not a bit loss-making, but it doesn't matter. At what point do you say, don't worry, you should buy shares in us. We're going to rock it. We're just at the very beginning. Their revenue is already huge. They've had so long to get this right. What possible pitch could have interested you in buying shares in this IPO? I think let's look at powers. What powers does this business have?

38:13And I think it's got a few powers. Let's explain what Stop Hub does. So it's a bit like our good friends at Tixle, who's a similar Australian, but I think Tixle does a few actually better things in StubHub and they're a great growing business. But look what StubHub does is if you bought a ticket to a concert or a ticket to a sporting event and you can't go anymore, it gives you a marketplace to legally sell those tickets and it gives buyers who couldn't get tickets a marketplace to legally buy it. So instead of having to sort of buy a scalp ticket, which is just messy and dodgy and prices all over the place.

38:45It's a much more, call it, clean, legal way to do all this stuff. But now – And there was a period where it wasn't legal. I think it is legal now. But now they're trying to – because, you know,$2 billion of revenue, they have to have a better revenue story considering they don't make any money on it. And you're going to say, yeah, they make$40 million. Okay, who cares? You know, what I learned from this is it's dangerous to channel my inner Adam Schwab because I'll get worked up and get something wrong. But I wasn't far off directionally. And the thing is, they're now trying to move into, well, like I said, I think they're a terrible business because they make no money after 25 years and$800 million of revenue.

39:20I don't think it's terrible. I think it's a decent business. I think if you look at the actual, forget the profit for now. Look at the direction and what it could. This is a marketplace that has really strong brand. It's got great scale. All right. Brand agree. Scale agree. Yes. Agreed. Agreed. So when you build a marketplace, once you build out your technology, obviously your costs don't keep scaling, but your revenue should keep scaling. So I think as long as they're growing top line and they're maintaining costs, this business should become more and more profitable. So I don't have – as long as there's growth there and just having a look at what it grew.

39:52They've only got 23 and 24 numbers in the prospectus, which is obviously not super recent. But it grew like 25 – actually, it has 22 as well. So it went from a billion to 1.4 to 1.8. So that's growing just under 40 % annually. That's a really strong growth. What was the profit at 1 billion? What was the profit at 1 billion revenue? So it lost$240 million at the billion dollars revenue. Then it made 85 last year, and then it made 37. In 2020, they had this really big income from income tax. I'm not sure what the hell happened there, but ignore that. So lost a bunch at a billion, made money at 1.4, and then made less money last year.

40:36I'm sure there's a reason for that. At 1.8. Okay. But this is my - 2023 numbers are great. That's 85 million profit on 1.4 billion. That's a decent business. That's net profit. That's not - It's profitable tax. That's not some sort of debauchered EBITDA number. Hang on. 1.4 bill of revenue, 85 mil of after-tax profit. it. So what's that? 6 %? 7 %? Well over 40 rule of 40. What did they grow? 40%. Okay. Well, you're cheating because you're just giving them rule of 40 based on the growth, which I think is good. Well, that's what you always do. What are you talking about is cheating. Every dodgy business, you go, oh, it's zero.

41:18Oh, it's good on rule of 40. It's a dodgy growth that it's spending marketing money on. How can you defend a marketplace business that is doing 1.8 bill of revenue and barely generating any profits. How can you defend that in a marketplace business? Because it's scaling and will continue to scale. Like, obviously, I don't know what happened last year, but... Well, I've got bad news for you. It's hitting the sides of its TAM because it's now diversifying into trying to sell like not like resale tickets, but I don't know what the term is, but like first sale tickets. Yeah. What's wrong with that?

41:49What's wrong with that? You might've noticed there's a few competitors in that space. Live Nation, heard of them? Sure, but that's just new product-led growth. But there's nothing wrong with increasing your product range. So sell fresh and sell resale. It just adds more scale. I don't have an issue with that at all. I think you're unfairly anti these poor guys. Just try to list$10 billion and getting slammed by you if you're not making enough profit. You know what my main lament is about this conversation? I had this written down to talk about two weeks ago, but then we got sidetracked to all this other stuff.

42:23We couldn't talk about it. And then I would have said, nah, you'll see on the IPO, it's going to do terribly. And it did terribly at the IPO. Yeah, but she didn't make price it too high. I don't think you can say an IPO price is reflective of a business because that's reflective on how greedy the banks were or how non-greedy they were. And this is actually non-greedy because usually banks are underpriced. Well, they didn't do it deliberately. They thought this is what they could get people to pay. Remember, the great myth of IPOs, and I've said this before, I'll say it again, is everybody celebrates, oh, the shares popped from$1 to$4.

42:57How great an IPO is this? And so say an IPO remains flat. They go, this is a terrible IPO. The opposite is the case. If you're a vendor of the business, the last thing you want is an IPO pop because, I mean, you've undersold what you're selling the shares for. So it's just such a myth. And the reason this myth is created is because investment banks want to give their clients the pop. Remember, who's the client? It's the investor. It's not the person selling the shares, as you've talked about a few weeks ago. investment bank's major client is the source of capital, not the company itself. That's why this whole media construct is around, oh, it's terrible the shares dropped.

43:32I think I can name you Facebook is a classic case. Facebook shares dropped 30 % after IPO. Is that a bad business? All right. They dropped 25 % in one week since the IPO, StubHub. So you can tell me, are you going to buy these shares now? Is this a buy for you? I'm not saying it's a buy. I'm just not like shouting for the rooftops, is the worst company I've ever seen. No, you wanted them to have$6 billion of market cap. Guess what? They got$6 billion of market cap. Their EV will be higher because they didn't retire all the debt, right? So they'll have some debt in there as well. I don't know how much they've got.

44:02It could be a couple of billion dollars. I don't know, but I suspect it is. But I'm even just going to give you a$6 billion. I'll give you a bargain. I'll say, pretend there's no debt. $6 billion. That seems like a bargain for a business that made a grand total of$40 million of earnings. You'll be happy to have that as going along on that, won't you? that's an Adam Schwab special. I'm not saying I'm rushing out. I'm not knocking Mike over to run to my stockbroker's office to buy this share. I'm just saying I'm not as nowhere near as critical as you are. I think this is an interesting business that has a great market position and is actually doing some, I think it's a good utility to people.

44:36Like I love what Tixil is doing as well. I think it's a great utility. If you buy tickets to the constant, you can't use them. And I've used Tixil multiple times and had a great experience. I think it's a great product to use and I think it's good. I think it will continue to grow and get more scale and hopefully repay its valuation. The strangest part of this story for me is how emotionally invested I became in this. Like, I don't really care about this. I was like trying to really convince you that it was a terrible... I mean, I don't think it's a good company and I think it's ridiculously overvalued, but I don't really care, to be honest.

45:07I don't know why I got so worked up about this one. I was so affronted by the fact that, like, now that the IPO window's open, everybody is trying to roll everything in there that they couldn't IPO for the last 25 years. Yeah, that's clever of the guts. I'll tell you something we got right. I say we because I think that this is a team effort, okay? Because we're a team, right? And I know that you love this, you know, being competitive and you tell me when you said X and I said Y, but I will let all of us take credit no matter whose smart comments. Even Mike. Even Mike can take credit for this, right?

45:40So remember we talked about race? Yes. And we talked about the fact that the race CEO, who part of a family that controls the company he came out and was like unbelievably negative about the business in his investicle and i said to you well yeah i think that this feels to me like a family that maybe wants to take it private or increase their ownership well what did they just announce what did they just announce they bought more shares in that yeah huge share buyback in which the family is not participating yeah there you go so that is one way to increase your ownership of a company. So I don't think it's a conspiracy.

46:16I think they believe it's genuinely undervalued. I don't think he was talking it down to facilitate this, but it was so obvious to me where this was going to go. We should have said we're going long on race. Did we say we're going long or not? We didn't say we're going long on race. Well, I think the challenge with the race is they've got that US business that's causing them some grief. I think our Australian franchise is pretty dominant, but it's a US worry with that. Can I move on to my little quiz, which you've delayed for about half an hour? I knew you wouldn't be enthusiastic about that because you knew you couldn't really take full credit for it.

46:48You should have said, yes, I said we should go long on Reese because I wouldn't remember. How would I know? I don't listen to the episodes and I can't remember anything that happened 15 minutes ago. So you should have taken credit for that. No, I think it was a good call. It was a good call. Moving on. So January of AI market share. So call it the chat-chat of this world. This is a good quiz. This is a pretty good quiz. All right. It's a good quiz. So I got this from, I think from Scott from Prof G's newsletter, actually. So this will be an unusual quiz for you because almost certainly the answers are correct.

47:19Well, I don't know. There's actually a bit of conjecture on this. They got this from similar web. So it's actually, there's a bit of conjecture here, but I think these numbers sound pretty reasonable. So 12 months ago, market share of the top five AI interfaces, let's call them. So the chat GPT is obviously number one. Yeah. Large language models, maybe you want to call them. Yeah. Yeah. LLMs. Okay. 12 months ago, so it's 10 to 24, there were five and now there's seven. Can you name the five from 12 months ago? You mean there were five big ones and now there are seven big ones. Is that what you mean?

47:51Yeah, exactly. As in seven that are more than, 1 % is the minimus. And can you name, how close can you get for the market share of each? All right. Well, I know I know why you needed an hour left in the episode for you to run your quiz. It makes more sense now. I think we'll let Mike go first with it. So which do you think is the biggest gen AI? I think OpenAI ChatGPT would definitely be the biggest. I would be certain that that's correct. Let's get the market share. How much of the market do you think that has? There's a reason for this. The reason why I've talked about it, because it's going to dovetail into a chat on OpenAI because it's big in video investment.

48:31I use investment in better commas. I agree. I agree with everything that you're about to say. Go on. What do you think? I'm actually going to go really hard on this. I would say 70%. But do you think it's gone up or down in the last year? Maybe start with that answer. I think it's gone down in the last year. I think it's maybe now at 60 from 70. Well, I agree. It's definitely gone down. I agree with you on that. I'd be shocked if it hasn't gone down. I think it started at 50 and has maybe gone to 35. Well, Adira is completely wrong, and Mike is pretty close, actually. So it was 87 last year. Oh, my gosh.

49:09And now it's 76. It is, like, by far the dominant. I can't believe it's so dominant. GPT is the dominant consumer app, and there are other L &Ms, the more dominant enterprise app. So when you consider sheer volume. So good one, Mike. Number two. Number two. Yeah, okay. Well done, Mike. So you should keep going, Mike. What's number two? I'm actually not sure. Or my mind would go to Claude next. That's what I would go for as well. That would be my guess. Is that right? Is that number two? Everyone's mind would have as well, but we were all wrong, like very wrong. So Claude was number four last year at 2%.

49:44It is now number six at 2%. Oh, okay. So I'm wondering if two would be, they're not counting Gemini, like Google Gemini. Is that in there? They are counting Gemini. Google Gemini has got a separate app though, don't forget. So it's not just integrated with Google. There is a separate Gemini. Yeah, sure. Okay. Is that number two? That is number two. Was number two and remains number two. Can you get the market share though? Well, we should forget about me. Just ask Mike because I've got no idea. Okay. So we were 86 to 76-ish for ChatGPT. So let's go Gemini maybe 12 down to nine. Why do you think it's gone down?

50:22I would think it's gone up. Of course it's gone up because ChatGPT has lost so much market share. So everybody else has grabbed ChatGPT. Yeah, true, true, true. So if you look at the biggest gainer, it is Gemini. So Gemini has gone from 7 to 11. So basically a third of that loss of market share for Gemini has gone straight to Gemini. So Gemini is miles behind, but directionally making ground. Number three. Perplexity is your darling, Adam. Is that where number three lands? Yes. Perplexity is number three. I just want to say I wasted my money with this microphone because I should not be part of this podcast anymore.

50:55Michael's absolutely killing it. From now on, Mike is going to do the quizzes, and I'm just going to trash talk Mike while he's doing the quizzes. I guess then do we go perplexity maybe, I don't know, five to eight? No, it was two to two. So perplexity was 2 % and stayed at 2%. Which is the same as you said Claude is. Yeah. So basically we're running. So now we're getting into a bit of a long tail. Absolutely. My guess is the other ones in the long tail. Although I'm going to say stuff which is probably going to be wrong now, but based on just my total lack of self-confidence as a consequence of this.

51:32Just give you a clue before you start rattling off names. There's one more from last year, and there's three more that are now in this year's to give you a bit more context. That should give you a bit of a clue. So I'm going to say this. Probably I'm going to get this totally wrong. You tell me if you agree, Mike, before Adam answers. We'll see. Because maybe I can drag Mike down with me on a bad answer. We'll see if I can get him on this one. so i think that metas llm llama i think it wasn't at one percent last year i think it was below one percent last year am i right not in either not in either oh well mike didn't get to answer i thought he might have disagreed i could have gotten a point off him but you you ruined it for me okay i'll try and get another point okay all right got that right tick that box all right now we come to what's uh elon musk so i'm called it's probably called x oh that is x i grok grok is the consumer one.

52:22So Mike again, scoring out here on LLMs. All right. So Mike, you think, I'm going to say what I think, and then you say what you think. Sure. I think Grok definitely has at least 1 % this year because it's been jammed into X and kind of force fed. And the question is, you can answer this, Mike. Do you think it had 1 % last year or not? I'm going to say no, because I remember last year Deep Seek was very popular and fatty, and I reckon that might be there. Well, you're both ignoring my clues. So I told you moments ago that there were five last year and seven this year. So Chris Martin doesn't like his clues being ignored.

53:03No, we're trying to say last year. So we don't think Grok was on there last year. We think it's on there this year. Grok is 2 % now. Well done, Mike. You're on a roll on this. Mike said Deep Seek was there last year, and I don't agree. I think Deep Seek was just a fad. The Empire Strikes Back. Deep Seek was not there last year. Oh, okay. You know what? That horrible feeling that you're feeling is my steamroller going over the top of you, okay? Well, I thought you were going to say that's how you feel every time you do one of Adam's quizzes. Oh, my God. At least I've got someone else to share the suffering.

53:34A problem shared is a problem halved. So now we still have to get number five from last year. So we said Google. We said we disregarded Apple. We've talked about Meta. Microsoft? Microsoft. So Copilot is 1 % and Remain to 1%. Copilot, it's like marginally better than Clippy. Remember that thing? That's a bit harsh on Clippy, to be honest. Certainly Copilot and Apple Intelligence are fighting out for the worst products of all time. Copilot. I asked Copilot something. It says, get Copilot to help you with Microsoft Word. So I said to Copilot, okay, do this for me. No problem. It does an okay job.

54:13I say, cool, now put that into my document. Sorry, I'm not integrated to be able to put text into the document that I prompted you out of. Like, what is going on with that? Actually, the question is, like, as bad as Apple and Microsoft's products are, they could be dodging a board here, but we'll get to that in a second. So who's the other two, the other one for this year? Oh, yeah, the other one. Because so new number one was Grok at 2%, and new number two, Mike touched on it, DeepSeek has 4 % now. So it's gone from zero to 4%. So, oh, my gosh. So I'm surprised. I thought DeepSec came and went, but there you go.

54:45It actually hasn't been. No, no, no, no, no. DeepSec's absolutely being used. Obviously, it's China's dominant LLM, I would have thought. So the ones that I – so just to say, before you go on to it, I know what you're going to say, which is you're going to talk about a Ponzi scheme. Yeah. But – A favorite kind of scheme. Yeah, I can read your mind so well by now. But I want to say the ones I use for anyone who cares, which may well be no one, is I use ChatGPT a lot for personal, like as in for business usage and personal usage. And I use Claude and I sometimes use Notebook LM. And apart from that, I also pay for mid-journey and haven't used it for months and just haven't turned it off.

55:28I occasionally use Perplexity. I still do use Google a lot. And so I guess I use Gemini a bit as well. Yeah. I find OpenAI grossly. I use it a bit, but I just find it often gives me the wrong answer. I find complexity much more accurate. It depends. Anyway, we won't go into that whole thing now, but continue now with where you're leading with this with OpenAI because I think this to me was, you know, there are some terrifying things that happen that make you worry about bubbles. We talked about what happened with Larry Ellison's business, Oracle, and how Oracle made all of their price gain on promises of future revenue predominantly coming from OpenAI with money we thought they wouldn't have, but it turns out we might have been wrong potentially because something even more worrying happened.

56:12You recall probably a year ago, open hour was valued at like 180 billion and we both said, this is outrageous. This business loses money. I was especially so like, this is a business that for every dollar it makes, it spends like$1.40. So this is a definition of a very bad business. You've always got huge market share, although market share is dropping, but it's huge, like 76 market share is ridiculous. But nonetheless, it's a business that literally burns cash to make cash, like burns a lot of cash. So we said$180 billion is ridiculous. Then it got a$300 billion valuation. That was from SoftBank.

56:43So you can kind of ignore that valuation because SoftBank is obviously – there's been no Ponzi. SoftBank hasn't loved being involved. We obviously had a couple of incredible investments in Alibaba and what was SoftBank's other great investment? Oh, Arm. So two amazing investments but a few not so good ones. Then we saw last week, OpenAI has been valued at$500 billion. And people go, my God, this is like the most valuable startup on earth and space and SpaceX. Then of course, you looked a little bit deeper and that was money came from NVIDIA, which NVIDIA is pretty decent business, but this is NVIDIA saying, you buy$100 billion of our chips and we'll invest$100 billion in you.

57:23So it's what you call, this is not investment, this is vendor financing. So this is the opposite of investment. And this is exactly what happened in the dot-com bubble when companies like Nortel and Lucent and all these infrastructure businesses were giving heaps of vendor financing to their alleged purchasers, clients, only to find that these clients were completely dodgy and that just went away and all the revenue went away and these businesses essentially all went away. So this feels like literally 99 all over again. It's better than vendor financing because in vendor financing you lend effectively you're lending money to a company to buy stuff from you which they then pay back but this is even better you get equity for your money yeah in this deal right and if you're on nvidia's side of this transaction this is your classic use the balance sheet to drive your profit and loss so nvidia they're not short of cash right they make a lot of cash they have access to a lot of cash so what they do is they go and say we're going to make this equity investment and they hand over a hundred billion dollars of cash i don't know if they had that in the bank they might have had that in the bank by the way i don't know if they did well haven't i don't think they've even handed it over just to be sure like that they may have well that would be even more insane and so that will appear on their balance sheet which i say the balance sheet just to recap it's like what you own and what you owe and so they've now got an extra 100 billion of something they own on the balance sheet.

58:54It's not an expense. They just own it on the balance sheet. But the amazing thing about this is that when OpenAI then goes and buys NVIDIA's chips using that money, that will be income on their profit and loss statement, and it will drive the profitability of the business. And all of these concerns that people had, which is that two unnamed clients account for 36 % of the revenue or something of NVIDIA, One of them is probably OpenAI would be my guess on that, but I might be wrong. Like Amazon could be the big one. Who knows, right? Or they're making their own chips now, right? But the thing is that NVIDIA now doesn't have to worry about OpenAI disappearing as a cornerstone client because they've just got another$100 billion to spend with them.

59:38Unless they change their mind and don't give them the cash or whatever happens. There's plenty of reasons why this won't happen or might not happen. Vendor financing often falls through, or in this case, an alleged investment. I don't think it's going to fall through. I think there would have been a term sheet. There would have been a contract. The investment's done. They received equity for it. I think this is a done deal, isn't it? I don't think it's that. I think it's a commitment. I think the investment is we will give you$100 billion over a period of time and you will then give us back that$100 billion to buy stuff.

1:00:10If OpenR just keeps losing money like it is, how can it afford to keep buying stuff? Why would NVIDIA do it? NVIDIA's not going to put$100 billion into a bankrupt business if that business is going to go away because it doesn't want to lose its$100 billion investment. If OpenAI ends up going broke, which we both think could well be the case, if OpenAI ends up going broke, I don't think that moment will come before this all has played out already is my guess. And so yes, the equity might be worth nothing to NVIDIA down the track. And yes, NVIDIA might have to write off this$100 billion down the track and that will affect their profit and loss.

1:00:48But you know what that's going to look like on the profit and loss? It's going to be, this is the number. And then they're going to say abnormal loss on equity investment, write downs,$100 billion. And it will just disappear basically in investors' eyes. In theory, but the problem is when these chickens come home to roost, as we talked about in video a lot, the real, Emilia makes bucket loads of cash now. But the reason why it's multiple is actually not that high, like 30 or whatever. People aren't stupid. People know that a lot of this spending in NVIDIA is this CapEx, one-off, potentially one-off or two-off or three-off CapEx from the big hyperscalers that may not...

1:01:26At the moment, none of these AI LLMs are making any money. So eventually, people might go, open AI. I'm going to stop giving you money to burn. Because Sam Altman, who's... And if you look at who's making it, if you look a step deeper, who's making these decisions to invest all this money in effectively chips, it's people who, probably don't really know. Mark Zuckerberg is investing a heap of money in chips. Mark Zuck's this great network guy. He developed Facebook and bought Instagram and bought WhatsApp. He's a great business guy, but he doesn't really know about LLMs. He doesn't really know about AI.

1:01:57He's fueling a boom. Who else is fueling a boom? Well, Larry Olsen's being the beneficiary of that boom. All these people who are fueling these booms aren't really qualified to fuel the boom is part of the problem. You've got dumb money leading dumb money, creating this massive Ponzi scheme slash bubble that i'll be much more confident in one of these businesses working if somebody can make some money out of all this debacle but nobody can make any money well there will be companies that make heaps of money out of all of this it might just not be any of these companies or it might be one of them or two of them but it won't be the seven yeah i think so because who will make money well the thing is this what what is occurring with generative ai in particular, you use it every day, I'm sure.

1:02:41I use it every day for business. It is so good and so dramatic that I would pay five or 10 times the price to be able to continue using this every day. Well, that's the question. The question is, what would you pay? Well, I would. That's how dramatic it is. Because what am I paying now? Probably$25 a month or something, right? Or 50. I don't even know, right? And so if you say to me, would I pay$500 a month, $250 to$500? There's no doubt about it. I absolutely would, okay? No doubt. Well, you're a very hardcore AI user and know how to use it and get benefit from it. I think the problem is you need everybody to do that.

1:03:16And I'm not sure everybody's going to be doing that because I'm not sure everybody can use it. Every person that's not doing it, I hope they compete with me. Because I will shred them with the embedding of this AI. Like, it's not a cure-all. It's got lots of problems. There was some new research that came out that found exactly what my suspicions were that I spoke about on the podcast, which is that these hallucinations, i.e. the models lying to you, are not a problem to be overcome, but they're fundamental to the vector-based system that these transformers are using. We're always going to be stuck with these hallucinations.

1:03:51it's just by the way they should be called confabulations not hallucinations but let's not get technical with medical stuff but basically it's obvious that they were not going to go away to me once upon a time you used to be able to talk to the models about what was going on in vector space but now they've shut all of that down largely irrespective of i understand all the weaknesses i mean i don't understand all of them but i get that there are these weaknesses and i understand some of them and i still believe this is so revolutionary it's it's like the industrial revolution again but i don't think it's bigger than the industrial revolution I think it's another industrial revolution.

1:04:24I just think that there will be some companies that make insane amounts of money by having these models and having the best ones, et cetera. But it may not be any of the current companies. That's the thing about it. I think your earlier comment from probably a year ago still remains correct when you said it's like the airline industry. Airlines are revolutionary. They're incredible. But if you add up every airline's profit over entirety, they've lost money. So I think it's a value capture, value creation piece. But there is an Emirates, right, in the airline industry. And there is a – who else makes tons of money in the airline industry?

1:04:58Probably Singapore. If you look at Emirates' lifetime, it loses money. And also, if you factor in the Dubai airport, there's a question on how profitable it is. But yeah, it made a heap of money last year, no question, because we're in the golden age of airline profitability. But I don't know. If you look at that, I'm talking about the industry as a whole over its lifetime when it's shredded cash. Well, listen, you might be right. Obviously, all of this is going to come down to just this point. How quickly are we going to get to a place where the marginal value of an LLM is essentially zero and everybody is producing the same stuff, which is my same view on autonomous vehicles.

1:05:36I've got the same thoughts on that. Now, in the Industrial Revolution, it took a very long time for production to be commoditized. Like Germany, in the rural valley of Germany, like there's an industrial powerhouse, right? Like, and it took centuries for manufacturing to be commoditized and for like Western democracies to lose manufacturing overseas to cheaper countries. And so the question is, how long until it happens here with this stuff? Well, I think we've seen with DeepSeek not very long because DeepSeek essentially commoditized in some ways arguably better in the space of like a year or two with much less compute.

1:06:16Question is how much less compute, but less compute. I would not be buying shares in OpenAI for like whatever price, certainly not 500 billion. But when it was 150 bill, after we said, my God, this is insane. It's the beginning of a bubble, et cetera. We both said, but this is now turned into a religion, the AI religion, and you can't short a religion. And so the music's playing. You've got to keep dancing. And it's not surprising that this trajectory has continued. I think what happened with Oracle was a flashing red light. It doesn't take one flashing red light to create a crash. Yeah. But you line up enough of them and then the wrong moment happens and there's a crash.

1:06:56I think we can put this open AI investment by NVIDIA as another red light. Yeah. We'll go to a super quick break. We'll be back in a few moments.

1:07:15And we're back. And did you see the big scoop last week in the AFR about Canva, Australia's corporate darling? What, that they don't file their stuff on time? Well, there's that. I think you can put this in the say-it-on-so file, but did you see that the AFR reported that Canva's local financial accounts for 21-22, in addition to being three years late, showed that it was in the red between 2019 and 22. In 2022, which is obviously three years ago now, Canberra reported a$222 million loss while revenue rose 60 % to almost a billion dollars. The revelation appeared to contradict what Cliff said, or Canberra's co-founder, obviously Cliff Obrecht, on the 20BC podcast where he claimed the company was both cashflow positive and profitable to Jason Lemkin.

1:07:58A Canberra spokesperson and said the business had been profitable on an operating free cash flow basis for the past nine years. And while our statutory financials show accounting losses due to non-cash expenses like stock-based comp, this is common among high growth tech companies to use these programs to attract and retain top talent. Adir, why is Camper breaking my heart like this? Well, I don't think it should break your heart. I think this is a non-story. Basically, when they talk about the profitability of the business back then. I think they just get rid of the stock-based compensation and they say we're profitable on a cash basis.

1:08:33That's what they said. I think that's what the case was. And in 2025, it's so long ago, 2020. Three years ago, yeah. We don't know what they're doing in 2025. But if he says that they're profitable at an NPAT level, it's probably true or profitable for tax level. It's probably true. Well, I thought it would have been. I've been a massive canver bull for many years. I remain so, but it's highly disappointing that they go, oh, we're profitable on a cash back. That's not profit. That's your non-gap debauchery. You're a good enough business to not have to say stuff that isn't true, is my point. Yeah, I know.

1:09:11But, you know, in Pat, without going into a whole discussion here, I'm so hesitant to say this because I feel like you're going to brutalize me and it possibly has some validity, but I'm just going to say this, okay? NPAT for tech businesses can be deeply problematic for a variety of reasons. One reason is because some acquisitions are treated in a particular kind of way and parts of them flow through to, and that's what's happened to cattle. And so I think, let me ask you this question. If today they were making a small amount of NPAT and a large amount of free cash, Because you talk about the – then would you still feel good about them?

1:09:55And then I'll make another comment. Would you still feel good if that was the case today? My issue is I thought this company was differentiated from Elastion. And Elastion says, we make profit, we make profit. Look at our profit. Oh, the profit is our definition of profit, which excludes one of our biggest expenses. In my view, it remains, you can't say you're profitable and ignore a bunch of employment-related costs is the point. To your point on acquisition, I'm much more sympathetic to acquisition-related capital stuff. That's different. But you can't just say, oh, I'm going to ignore 50 % of my employment costs.

1:10:25I'm profitable. Look over there. That's not profitable. It's just a lie is the problem. And they don't need to lie. It's a good enough business without it. As always, I say to you, there's some stock-based comp I accept. And for reasons that we won't go into again, because we always talk about this. So just to clarify, I'm fine with stock-based comp. Just don't ignore it. No, I know. You want to report it. I get it. But let me tell you something that I think that you're overlooking, which to me might be a much bigger issue if you're using cash as your measure, and that is this. if you sell 12-month subscriptions, then a significant chunk of cash, if you're being paid up front, is unearned revenue for services you still have to deliver in the future.

1:11:12I'll be much more critical about that in the cash number. I'm less critical. Than worrying about where the stock-based compensation's in there. You're less critical. No, I'm less critical of that. Because that's presumably growing AAR. So I'm not that concerned about that issue. It's a timing thing. All right. But you know, a rapidly growing business, that collects money up front for services that has to deliver in future is creating an ever-increasing liability. And so, at some point, it's going to slow down. And so, to me, I'm much more interested in how much of that free cash flow should actually be backed out as revenue in advance.

1:11:48I'm not adverse to that, but I'm more concerned about just ignoring a bunch. Like, this is where we've had this debate many times. You should have got, on one side, One issue is stock-based comp and the other one is Australian businesses that legally, remember this is obviously non-GAAP versus GAAP, but in Australia, you're allowed to capitalize a portion of your expenses if it's related to building an asset essentially. And Canva clearly will be able to capitalize legally a bunch of their employee expenses. So I actually don't have an issue with them capitalizing a quarter or 20 % or whatever it is of their employee expenses.

1:12:21If that can be ring-fenced to building a software asset and that software asset's sort of is able to scale. So it's like building a factory. I've got no issue with that. I do have an issue with the form of payment being the differentiator. I'd rather that what they're building be the differentiator than the form. So it may not be the same and maybe that profit is really genuine because they're claiming a bunch of capex, which I think is potentially justifiable. What I don't like is saying, simply because I choose to pay you by giving stock, I can ignore that. That is what I don't like. So, okay.

1:12:54Look, I don't disagree with anything you're saying, but I think like they're a great business and like they'll be fine and I don't really care about this stuff I think it's a bit of a non-story but I like that you know what maybe you should just take this away no one is going to be different everyone is going to use whatever everyone else is using to make themselves look as good as possible that is just what is going to happen well especially if they're been backed by VCs because that means they're in a world where this is the nature of reporting. And so I wouldn't, but this is my follow-up minor question in all of this.

1:13:27Why have you got no comment about the fact that it seems like you just don't have to submit ASIC returns if you don't like it? Like Canva's late. You know, White Fox, I read they were super late as well and didn't submit for agents. They're a huge business. The fashion business, massively profitable. Well, Gina Reinhart famously doesn't and pays like a$50 fine or something like that, which is pretty funny. What is the point of having these regulations if everyone just ignores them, right? If everyone just ignores them. Well, the reason why you need to file reports is because once you become – well, this is in the view of the Australian government who created the laws is if you're a potential creditor of these businesses, you want to – so let's say I'm providing a service to this business.

1:14:08I'm a whatever, small business. I want to know that – make sure this business can repay me. So, and this is another problem in that unlike in the UK, you can download any financial report from any company for free in seconds. In Australia, you've got to pay like 60 bucks, which is just another classic Australia red tape reward of just adding unnecessary cost into the system. But so, Australia's got this system, but at least you can access their financials. But you can't access financials that haven't been lodged. So, ASIC just not caring about business and not lodging is a real problem. Like it's highly problematic that, oh yeah, we don't care if our biggest businesses don't lodge anything because you know what?

1:14:41they're big businesses and we can't be bothered. It seems to be the edict. Yeah, I think that's going to change presumably. I think there's a new chairman of Essex coming in, isn't there? Yeah, or Joe Longo's resigned. There's two ways to do it. You can either find someone like$20 million, which I'm actually not highly against, or you can put their directors in jail. Either of those things, we'll fix it tomorrow. All right. Well, that is, I don't even know how to respond to that. Well, only someone$75 is not going to fix it. All right. Well, I think there are almost$20 million between$75 and$20 million.

1:15:14And I definitely don't think you should put someone in jail for not filing. You know what's going to happen after this segment? This podcast is going to appear on the podcast in the comedy section after that recommendation by you. Well, if you're a small business and your business goes bankrupt because a big business went under and you could never check their financials because they haven't lodged. And like, you can always argue that you never lent to that business, but like people could be losing their livelihoods as a result of this. And not for Canva because Canva's a great business, but like it can be a problem if people aren't lodging.

1:15:48But what you've just described will probably get caught under insolvent trading anyway, right? Like it doesn't just happen overnight. So listen, I think that there should be more severe penalties for this. I think, you know what you could say? I'll give you something that's reasonable that you could say. You could say if you're a director that submits late, if you do it twice, you can't be a company director. You get suspended from being a company director for some number of years. That might be a happy, you know, that's a pretty bad stick. And I think that might be the appropriate kind of stick for late lodgement.

1:16:25And$20 million. Or maybe a percentage of revenue. Because obviously if you're a small business, you can't pay$20 million. Small businesses don't have to lodge in the same way. You have to have revenue of 50 mil, right, to lodge or something like that. Yes. If you're a$50 million business, you can't pay 20, obviously. Maybe it should be a million. Enough to make you just not submit is my point. It's got to be a very painful blow. Otherwise, you can't blame these companies for not submitting because there's no ramification for it. Of course, it's not their fault. It's the government's fault for not enforcing these rules.

1:16:57Speaking of disastrous results, did you see Meyer's net profit announcement last week? has there ever been a more predictable result than this Maya result? Well, I'm not sure it was you or I or both of us who said this would happen. So, Olivia Wirth, who has been given the biggest hospital handle of all time, poor Olivia had to front shareholders to report that Maya's net profit slumped by 30 % to$36 million. This is underlying, by the way. There was stuff below the line. Through a combination of a calamitous distribution center rollout and an even more disastrous acquisition of Premier Investments' stud clothing businesses.

1:17:33My share price, which hit$1.26 last November on the back of Olivia's appointment and the mooted loyalty push, has seen its share price crunched back down to 46 cents. It's now worth$800 million. Incredibly, Myer was forced to take a$200 million write-off on its $1.1 billion purchase of the apparel businesses. I think this was because it was linked to Premier's share price, which has fallen. So that wasn't a sort of performance-related write-off. It was a sort of compensation-related write-off, but nonetheless, it didn't look good. Sales were notionally up 30%. When you look on like for like, which is stripping out the new acquisitions, shares were basically, sales were basically flat, so well below inflation.

1:18:10EBIT was down 30%. MPAT, including the equity, was down like 200 and something million. So this was a bit of a disaster on pretty much every front. Like, can this business be salvaged? Is there any hope for this business? Can Olivia save it somehow? I don't think it's going to go broke. Like, I don't think this business will go broke. I think it will survive. By the way, I think David Jones might go broke. Really? I think David Jones has actually been run pretty well. But I think it's precarious. I'm not sure it's going to survive. It's private equity owned, obviously, now. Yeah. I've got my doubts about that.

1:18:42But I don't think Maya's going to go broke. Okay. Listen, my view about this transaction was always pretty simple. If you want to make a bet on Solly Liu succeeding again, then you can bet on this but the first or second year after the transaction i suspect as we were discussing there was going to be some write down or some something it was a high risk right in my view i don't know what percentage he owns but in my view he's running this company okay like it's his business he's wanted for a long time he's got a long history with this thing is his business and so either you believe that he can do something magical with it because he is a guy that has demonstrated a lot of magic in the past, or you don't.

1:19:27But that's the five-year bet that you're making on this. There is no two-year bet on this. You can also buy Premier, right? Because all of these MyShares are being held inside Premier or are they in specie distributed to the investors? I can't remember. Yeah, when we talked about this back and forth, I thought they were still part of Premier, but I could be wrong there. I thought they might have been in specie distributed. So I don't know if you can access this through Premier, but basically just work out. I think Solly knows what he's doing still because he has in the past and I want to be in here for five years or not.

1:19:58But I don't think it's not a one or two year proposition. Yeah. I think, well, Solly's been Australia's greatest retailer. I don't think there's any great question of that. I think if you look at the Lou's private businesses that Peter and Stevie run, they're incredible. So you've got House, you've got AllKinds, you've got all these amazing seed. These are unbelievable businesses that make hundreds of millions of dollars of profit, like phenomenal businesses. I'm not sure. And Solly clearly has a big role in those businesses as well. Like I'm not sure why they're wasting their time on this business that basically has no powers left.

1:20:28A bit of brand, that's basically it. And this has not really been critical. I think department stores around the world have this same issue. It's just a handful that managed to still do well, but it's an incredibly hard business because they've lost all their scale economies. So when you've got sort of unwinding scale economies, they're really hard to run these businesses. So I feel for Olivia because she went from Qantas Loyalty, that incredible money-making machine to this super hard business and had to deal with this solid dumping his dodgy stuff onto my beautifully done uh magnificent transaction from from soli's perspective but well i'm not sure why he's wasting his time on it other than a bit of sort of romance and and sort of revenge i'm not sure why he's wasting his time he's got these unbelievable businesses that make hundreds of millions the businesses that he sold in for equity they're not they weren't dodgy businesses They were the worst brands.

1:21:16Yeah, they were in the premier stable. They were not the jewels, right? They're not dodgy. Everyone knew what they were. Like nobody, no one was surprised. There was no sleight of hand. Everybody knew what they were when they went in there. Everybody knew what they were. Well, the market wasn't that view. Like we held that view, but the rest of the market weren't negative on it. They were saying, oh, these are fine. Myer's got its loyalty. It'll wrap its loyalty around these businesses and turn them around. That was the market prevailing view from pretty much everyone but us. Well, I don't know.

1:21:44It seemed pretty obvious to us. Those businesses went there in return for stock. You know, we can't guess what people like Solly or Brett Blundy are seeing with these businesses and what they want to do. They've often got very smart ideas. I don't know if this is going to work. I mean, Premier has been a great business in terms of returns as a publicly listed business. Like, you got access to Solly's magic as a shareholder. Not in the last whatever, but historically, like, Smiggle has been great. Obviously, it's got problems now. Peter Alexander has been great. It's still great. Verville has been great.

1:22:16It's still great. It's pretty great. He's had a great run with that entity. It pays a great yield, Premier, but SharePrice hasn't really done anything in five years. It peaked a few years ago and it's dropped off. Soli's private businesses are incredible. They're cash machines. They're vertical. They make a heap of money, but the public stuff, I'd be a huge buyer of Stevie and Peter's businesses. They're ridiculous. in a good way. I'm a seller of this public stuff. I think Smiggles finished, it looks like. It's dropping. There's this huge argument he's having with the previous, which is unedifying.

1:22:51The argument is with John Cheston, the previous CEO is now at LaVisa. The only sort of business within that with Premier is kind of Pell Alexander. The only business that's got any sort of real brand equity left or any growth left. Breville's just an investment. You can buy Breville directly. Why would you own it through Premier? You can't. I know, but he is the largest shareholder in that business and has heavy sway over it. Yeah, but he doesn't run it. I'm talking about the business that he runs. No, he doesn't run it. Well, who knows how much he runs it? That's the truth. Breville's been a good business, but even Breville's off its highs.

1:23:23Like, Breville's off, I don't know, 20 % of its highs. It's still done very well. But even Breville, you look at Breville, that's four years of no growth either versus the house business. Like, if you look at Stevie's business, and there was a great article on The Fin a few months ago, like, they're full vertical. They look all like a mini Kmart, what those guys are running with all kinds and house and seed, but like a slightly more upmarket version, but incredible businesses. So I'm super bullish on the private stuff. This is what you can notice if you do this. Maths on this, it's not really maths.

1:23:53All of the best retail businesses that you've just talked about are businesses that sell their own stuff. Also known as direct-to-consumer or what I call owned brand retail. And all of the weak ones that you've talked about are the ones trying to sell other people's stuff. Absolutely. And I think we have very much moved into an age in retail and it's just at the start where the way that distribution works now digitally, the best retail businesses are going to be the ones that are completely vertically integrated from product design all the way through to after sales service. That's my view. Well, that's not exactly what I was saying because I said Smiggle is having – and you said this as well.

1:24:35Smiggle, which does that. Smiggle and Peter Alexander are fully vertical, but Smiggle's struggling and Peter Alexander's kind of holding on, but not – I'm saying the best stuff are the private ones. Peter Alexander's flying. It had great growth. It's not as good as the privately owned brands they have. It's not Seed or AllKinds or House. They're much more profitable businesses. I don't know about that because I actually don't know, but I think Smiggle has got some problems. It's had some problems for a while. It might be fetish. It might not be. Like, time will tell. I think Smiggle is – I was a big Smiggle fan.

1:25:07There's too much competition now. There's always Smiggle light business. Like, Kiki K is now Smiggle. Like, there's always other Smiggle businesses around, like, next door to them in the Chadston. Like, how do you differentiate there? And what's your argument? That they didn't have enough brand equity in order to fight off these replicas, basically? It's got no real powers. Yeah. The brand's minimal. It was a bit of scale, but not really. What else has it got? Really nothing. Yeah. Well, that might be true. I mean, I don't know. Licensing deals, right? Yeah. It's mostly their own. The big one, but I'm not sure it's got huge.

1:25:41It's not massively licensing deals. I'm highly unenthused about. I think Maya's got all sorts of issues. I feel for Olivia because she's got a tough job there. I think Premier struggled. I was much more bullish on Premier a year ago when we talked about it. I was super bullish, if you recall. and I think I'll take an L there because I think I've just got that one. I was just too optimistic about it. Well, I don't know. Things change quickly. It's retail, right? And by the way, let's not forget, retail conditions are pretty bad now. I think good retail businesses do well and bad businesses are struggling.

1:26:14A few are doing well. It's tough times for retail. We've just had another heat of inflation which is not going to help. It's going to put prices up. It's going to stop rate cuts. It's not a great time for retail. We've still got rates at almost generational lows, let's not forget. The RBA took rates down 75 % unnecessarily. Now we're seeing inflation, but this is what happens. I know, but the thing is, the thing about rate cuts, in my view, and what they do for consumer spending is less about speed and more about acceleration. And what I mean by that is that the absolute number that it's traveling at is less important than the direction and magnitude of change.

1:26:52And now that change is not going to be down. And I think that's going to have a very negative effect on consumer sentiment. We've got one more story because this is a big story in the financial press all week in Australia. the Latrobe Financial debacle with ASIC launching a, placing a stop order on the private equity owned giant. So just to clarify, Latrobe Financial is effectively a non-bank lender slash private credit business. It's really big. They do a lot of consumer marketing, sponsor Collingwood Footy Club. It's run by a guy called Chris Andrews, who I went to uni with actually, who's done really well.

1:27:23So I'm at Brookfield, the big Canadian private equity firm. So they paid 1.6 billion just three years ago, buying it from Blackstone. They were trying to flog it off for$2.5 billion, which would be a pretty good return. Brookfield, of course, has had an annus horribilis because the member of the health scope business that owns basically is in receivership now. So, it's been a disaster for the old Canadians. They're trying to get a win here by flogging it off for$2.5. That clearly won't be happening now after this debacle. So, ASIC put a stop order, which means you basically can't invest in their funds.

1:27:53And basically, it was a really technical thing. The Trobe effectively has a market, especially an IM in the market, they had this thing called a TMD, which is a part of this sort of IM. It's really sort of technical. They basically said, ASIC basically made it change one or two words from 25. They basically said, instead of having 50 % of your cash in this business, you can have 25. It was a really almost meaningless sort of thing that they settled on. But what it's done is ASIC's pretty much destroyed this brand or not destroyed it, but cause a huge impact to Latrobe brand. Like these financial businesses, banks or non-banks trade on trust.

1:28:30And when you lose trust of depositors, you have what's called a famous run on the bank. So ASICs almost caused a run on the bank here. It hasn't officially and maybe Latrobe can get back to what it was, but it's hard to imagine you've got conservative boomers who want their money to be safe. They put in places like Latrobe to get an extra couple of 3 % on the cash rate, but you're not going to get 3%. You're not going to worry. You're not going to want to put 3 % if you've got a significant risk of losing your capital. So this was huge. And ASIC actually admitted the shock action was intended to make an example out of the trobe.

1:29:03So what are your views on what ASIC did here? What are your views on will a trobe sort of survive this or how in terms of in its current form? Well, I've got a few views. I'll say my views quickly on this. One, with ASIC. ASIC should be cautious about the long-term damage it does to businesses and not do it unless they feel it's absolutely necessary. Like, for example, here, the Latrobe website was taken down. I think Latrobe did that. Latrobe did that. Yeah, well, I think they blamed ASIC for it and then ASIC said it wasn't us that told them to take it down. So there was confusion around that.

1:29:36So I think ASIC needs to be cautious. But the bigger issue is there seems to be something problematic going on in private credit because, you know, the biggest player is metrics. and I keep reading stuff. I don't know much about this space, but like I keep reading stuff about them and I keep hearing stuff about people I know in private credit having issues. And it seems like it's been relatively unregulated and there have been retail investors providing capital into these businesses like Latrobe because you don't have to be a wholesale investor to put money in, right? It's regular people. And so it looks like there's a bit of a, some serious risks in private credits.

1:30:18But the bigger issue this raises for me is this ongoing issue I've got. So I just said to you, you don't have to be a wholesale investor to invest in these products. In fact, I would say some of these products have names that make them look way too much like banks. Like their accounts sound like - They call it a term investment. They call it term investment to make it sound like a term deposit. Yeah, Mark, if you were looking for a term deposit and something was called a term investment, Would it be obvious to you that these were two totally different things? No, absolutely not. I mean – And you see advertising everywhere.

1:30:50You think these guys look like a bank. Yeah. You think they're a bank. And so I think – And they're not. They're absolutely not a bank. So that's one issue. But my other issue is this. I keep coming back to this point. We've got this group of people and we call them wholesale investors. And we say we're going to let them invest in these things because they're riskier and we need some measure of sophistication. and taking aside whether it's the right measure or not, we need some measure of sophistication because only people that are sophisticated should be allowed to invest in these things. And a lot of these so-called things are actually the best investments, like venture capital investment.

1:31:23You have to be a sophisticated investor to invest in venture capital. However, these other investments - Private equity. Yeah, private equity. But these investments, like putting your money into something which is private credit and looks like a bank and there can be a hold on being able to access your capital, which one of them, I can't remember who's got that one, but there's a hold on one of them where you can't access your capital. Like this is totally fine apparently for retail investors. Was that the old Merix where the Metrix bought? I think. I think so. I think so. I can't remember, but like basically I just cannot understand this idea that says we're going to allocate this group of investments and not let regular people get access to them because they're too so-called risky.

1:32:07but a lot of them are these great opportunities. But there's this other group of stuff where we're going to let them invest and there's no evidence that this other group is any less risky. And in fact, I think often it's a bit shady in the way that it operates. I just hate the whole idea of restricting regular people and treating them like dummies and not letting them invest in a whole series of good asset classes. Yeah, I think you've made that point a lot. And I don't think anybody disagrees with that. I think the problem here that I'm generally a fan of ASIC getting involved when there's something wrong.

1:32:39There's been many companies I've talked about on this pod, and I won't name them now, but I think ASIC absolutely should have got involved with and should have stopped doing a bunch of stuff. I just don't know why they've chosen this specific instance and made such a massive issue of it. I think they could have done it in a way that was less damaging. So it creates a bunch of reasons. One, it possibly destroys Latrobe, right there or wrongly, which I think it was way too harsh. well it destroys the brand uh it doesn't destroy the brand it causes problems look to be honest with you people that weren't invested in latrobe i don't think this will have a lasting effect people that are invested obviously will have a lasting effect is my view yeah and will you keep putting money in these businesses rely on yeah fun flows in you don't get that they're gone so we'll see what i'll be very surprised clearly the valuation's been smashed what it ends up at who knows but so i think asic is terrified about private credit that's my guess i think asic is terrified i think the problem is they say in doing this there's two problems one they cause this massive issue there's one player that it probably is far from the worst so then there's there's that and the second issue is now people going on asics hasn't had a go at person abc we they must be okay so by doing this they create this sort of false insecurity on other private credit providers that may or may not be true.

1:34:01And ASIC can't be the cop on the beat and policing every single one really closely because they don't have the resources. So I think it creates two issues here that neither rich are good. Whilst I agree in principle, ASIC should be much stricter on all his private credit stuff. The way they've gone about it, I think is really wrong. I agree with that. Fundamentally, if you're going to let retail investors invest in financial products, they have to be regulated. I hate to say that. I don't love regulation, but that's the bottom line. This is largely unregulated. It's going to end up regulated. Yeah, I think we agree on that.

1:34:34I think on that note, I've got to jump off. I've got to jump on a plane. You will probably on some other plane tomorrow in your round-the-world Jules Verne-style trip. Jules Verne, that's like 40 ,000 leagues under the sea or something. I'm not going under the sea. You know what? If I end up in 40 ,000 leagues under the sea or 20 ,000, or I don't even know what it is, that's going to be bad news. I'm not supposed to be there. I was thinking around the world in 80 days, not 40 ,000 leagues under the sea or whatever it's called. What's that? That's not Jules Verne. That's whoever else is. No, it's Jules Verne.

1:35:02Yeah. Is it? Yeah. Is it? Oh, I know nothing. This has been a horrible podcast for me. End this torture immediately. End this torture. On that note, thank you, Mike, for getting up so early. It's been a pretty early record for us here and a pretty late record for you. Thanks for staying up so late. We will see everybody on Saturday, of course, for our Ask Us Anything episode. Thank you for listening.

1:35:29Thank you.