Episode 38: Bluey's Billions, Tesla's Tough Times, Atlassian Gets Profitable and the death of Diamonds
The guys discuss how the ABC missed the chance to make billions, Tesla's profit woes and Elon asks for more money, Atlassian's profit comeback and share slump, and the case for fake diamonds.
Diamonds are forever?
The biggest news story this week is the proposed BHP takeover of Anglo American, which could turn out to be the biggest Australian takeover in history. It’s a 40B all-stock offer contingent on Anglo American selling two divisions of their business, which currently account for around a third of their revenue. It’s a big bet on renewable energy and the future of copper mines.
Did you know Anglo American owns 85% of De Beers, the diamond company that basically invented wedding/engagement rings? Adam and Adir think this was one of the greatest marketing and positioning moves in history and talk about the increasing quality of artificial diamonds and whether we’re nearing the end of real diamonds.
An alternative headline for this section could be “The importance of narratives in business” - a great listen!
Atlassian outlasting the negative sentiment
Australia’s tech darling, Atlassian, reported revenue is up 30% year-on-year, and they continue to move more into subscription- and server-based revenue territory. Co-founder Scott Farquhar has also resigned and moved into a Director role, which may correlate with a 10% drop in the company’s share price last week. They also reported a $12M profit last quarter off $1B of revenue.
How much do you think their share price is down in the last three months? Adir guessed 30%, but he was wrong, because it’s actually 29.81%, according to Adam.
Here are Adir’s requirements for reinvesting profits in a SaaS business:
You need to have really good unit economics, really high gross margins, and really high contribution margins.
You need to be growing revenue strongly.
You need to have low churn.
U.S. Federal Trade Commission banning non-competes
Bad news for investment bankers who traditionally get paid six months to do nothing while they change jobs: the US is “banning non-competes across the country in order to promote competition, protect the freedom of workers in changing jobs, increase innovation, and foster the creation of new businesses.”
As Adir states, non-compete agreements are very different in the US, where a cafe worker is often forced to agree they won’t work at another cafe for two years within 25 miles once they leave their current employer.
The best way to do a non-compete, in Adir’s opinion, is with senior executives who have detailed information about how your business is competitively differentiated, and pay them for the time they’re not competing (i.e. gardening leave).
Adam: “I’m less bothered about how senior they are. If someone wants to leave I generally don’t mind if they leave, unless it’s a really direct competitor. But the thing that I don't like is when I take clients. They’ve built a relationship because of us and gained confidential information. Or if they take co-workers.”
Adir: “If you leave and go to a competitor, I don't hate you as an individual, but I feel like you're on the side of the enemy now.
Amazingly, Luxury Escapes has had 20 boomerang employees - people who have left and come back. Would love to see this as a more commonly used employee engagement metric!
Australia’s Favourite Family
Last year, Bluey was the second-most streamed TV show in the world, and easily the number one kids program with 44B minutes streamed. First place with 58B minutes streamed was Suits, featuring Meghan, Duchess of Sussex.
The Bluey brand is now worth $2B and the show’s creator, Joe Brumm, has written every single episode since he came up with Bluey in 2010. Prior to this, he was also a writer for Charlie and Lola and Peppa Pig. [Adir loves Charlie and Lola because of the strong sibling role models, but feels less affinity with pigs and other speaking barnyard animals, which made me laugh out loud as I wrote this.]
It’s unclear exactly how much wealth Brumm has made from the show, but some estimate 10M, though the guys expect it’s a lot more than that.
But the big news here is how ABC missed the chance to secure the worldwide commercial rights to Bluey, and it's vague on how this happened. The ABC and BBC Studios co-commissioned Bluey, with the ABC taking Australian broadcast rights and the BBC taking the global commercial rights. Bluey has become the BBC’s biggest commercial success ever and they now generate £1.63B commercially, whereas only $30M of ABC’s revenue came from commercial activity.
Adir says “It could be a totally innocent situation where nobody was at fault commercially, but surely this is a question that should be asked, and the answer should be in the public domain. We own the ABC, we pay for it, and we should know how they missed the biggest deal in history”.
Adam thinks Brumm “is a guy who should be recognised as one of the greatest entrepreneurs in Australia at the moment”, and Adir thinks “he should be next year's Australian of the year”.
The ups and downs of Tesla and its CEO
Last week, Tesla announced that revenue fell by 9% to US $21.3B, short of analyst expectations of 22B. To make matters worse, earnings have dropped by 55% to only $1.1B for the quarter.
Tesla shares rallied 10% on the back of Elon Musk doing what he does best - previewing a ride-hailing app that integrate Tesla products, further AI investments, and the potential return of a more affordable RV. Despite the slight pop, Tesla shares remain 45% down since Christmas.
Adir says “it's amazing they made more than $1 billion in the quarter. I know it was down, but if you go back to the very start, this crazy idea. He actually has built a company that makes billions of dollars a year of profit”.
Tesla was essentially the first consumer car business and had huge margins, was the first car manufacturer to have its own showrooms, it was beautifully integrated from the start, but it’s no surprise that competition was coming, despite the fandom it’s created.
And as Adir says, “you can't short religion”.
What follows is a fascinating discussion on Elon’s income, and whether the US and China are going forwards or backwards. Words won’t do it justice.
Five other stories worth following:
As discussed, the FTC banned non-compete agreements, but the Chamber of Commerce and groups representing AmEx, JPMorgan, Walmart, and other corporations sued to block the rule. The FTC says the contracts stifle wage growth by preventing job-hopping.
Apple is no longer China’s favourite smartphone after iPhone sales dropped 19% in Q1. iPhones make up over half of Apple’s revenue and China is the company’s third-biggest market, but they’ve been impacted by the rise of local companies, Huawei and Honor.
The guys have had a few chats about Amazon’s customer service and now the company has announced that ~60% of Prime orders placed in Q1 in the top 60 US metro areas arrived the same or next day, up from ~50% in Q2 of 2023. The speed is thanks to the company’s 55+ 100k-square-foot same-day delivery sites.
Things change quickly at Tesla! Shortly after the podcast was recorded, Tesla shares were up 12% in pre-market trading after the company passed China’s data security requirements. The approval would remove restrictions from the carmaker’s Full Self-Driving software.
Taylor Swift fever has died down somewhat since her Australian tour, but she keeps breaking records - her songs are now the top 14 of Billboard’s Hot 100, and with her new album debuting at the top of Billboard’s chart, Swift is now tied with Jay-Z for the second-most No. 1 albums, behind only the Beatles.
