Episode 49: Have the Good Guys Gone Bad, Nike Gets Hammered, Hutchie Beats the Doubters and is this the most Dilutive Capital Raise Ever?
The guys discuss the ACCC's action against The Good Guys, Nike's worst day ever, Sendle's capital raise, Craig Hutchison's win as Sports Entertainment Group sells the Wildcats, and Adir's book club.
The Contrarians catchup
After picking up on a competitor bombing billboard near the Luxury Escapes office and the conversation leading to Glassdoor, Adir had this to say about review sites: “The way I describe review sites is it's plus and minus three standard deviations from the main in terms of experience, and predominantly it's minus three standard deviations because they're the more the angrier people more motivated to review.”
Adir owns nomorons.com, which he nabbed back in the day to start a hotel reviews website.
The guys agree that pretty much everyone who lives in Melbourne is in Europe for the month of the July.
The latest instalment of Adir’s book club: Hey! Listen!: A journey through the golden era of video games (the title is pretty self-explanatory). Adir says he’s read at least a dozen books about the video game industry, with Blood, Sweat, and Pixels: The Triumphant, Turbulent Stories Behind How Video Games Are Made his favourite.
The other book Adir recommended: The Year 1000: What Life Was Like at the Turn of the First Millennium: What Life Was Like at the Turn of the First Millennium: An Englishman's World.
Did you know Amazon sells 50% of all physical books, and 70% of all books (including ebooks)?
The book Adam recommends: Fiasco: The Inside Story of a Wall Street Trader.
The McDonald’s book that’s mentioned: The Magic of McDonald’s: Bring it to Your Business.
The Sendle debacle
Sendle is an Australian virtual courier company providing services for SMB and online retailers. It claims to be the first courier company in Australia to offer fully carbon-neutral services.
While Shippit is raising at $300M, Sendle “has been a disaster”, recently raising capital with an 8x liquidation.
Adir: “Liquidation preference just means you can take your money before anybody else can take the money. So if I put in $1 and I've got an eight times liquidation preference, I can take the first $8 no matter what it sells for, even if my equity is tiny. Yeah. And so if I own 1% of a business and somebody owns 99% and it sells for $8, I get the whole $8.”
Sendle recently said that Australia Post holds an unfair and "entrenched functional monopoly" over Australia's post and parcel delivery market and that it is stifling competition and innovation which leaves less choice for small businesses and consumers.
Have The Good Guys Gone Bad
The ACC is taking action against The Good Guys, alleging the business ran 116 promotions between 2019-2023 which offered customers dodgy store credits. The store credits were often advertised as not expiring, when in fact the majority expired within 7-10 days.
The market didn't really seem too bothered by the claims, with (The Good Guys owners) JB Hi-Fi’s share price rising a dollar during the day, and trading at record all-time highs, up a remarkable 65% this year.
Adir (who was personally victimised by this): “I think the penalty should be they have to go and reissue the vouchers to everyone, and then they should fine them at the value of all of the vouchers until they are forced to pay twice as much they would have otherwise paid, which is probably three times as much because of the gross profit on the voucher value.”
Just blew it
Nike has had a disastrous few weeks after the company announced recent earnings and their shares slumped 20% as a result - the biggest single-day drop since 1983. Shares are now down 59% since Christmas after a series of poor decisions by CEO John Donahoe, whose strategy has been to focus on its D2C business and shun third-party sellers.
Profits have actually increased this year, but sales are down 2%, and pulling out of third-party sellers allowed for competition like On and Hoka to steal market share.
Adam: “And so the market is now realising that John Donohue, an old guy who used to run eBay, now possibly isn't the best person to run Nike. Founder Phil Knight, one of the great entrepreneurs of all time, publicly cited that he’s seen Nike's plans for the future and believes in them. He said ‘I'm optimistic in the future, and John Donohue has my unwavering confidence and full support’, which sounds like he's got a couple of weeks left to go.”
Adir: “This business is not going to succeed through operational leadership. I think this is a creative inspiration business. And I think that’s a bit of the mistake that's been made here.”
Craig Hutchison's win
Friend of The Contrarians, Craig Hutchison, scored a massive coup this week as the publicly-listed Sports Entertainment Group announced it would sell 90% of the National Basketball League’s Perth Wildcats to MT Arena Capital for $40M.
Adir: “I think when you buy a jet, what you have is ‘when I go short distances, I take my car, and when I go longer distances, I take my jet’. You fundamentally lose one of the core experience. It's not like people that drive a car versus catching a bus. Like lots of people don't catch a bus, but pretty much everyone catches planes.”
(You’ll have to listen in to understand how that intro and quote are connected!)
Five other stories worth following:
Adir doesn’t like describing something as “X on steroids”, but the Enhanced Games, which is literally the Olympics on steroids, is in talks to raise $300M. Backed by billionaire Peter Thiel, the competition says it’ll give big cash prizes to athletes who break “clean” records (but just one athlete’s signed up so far).
Tesla CEO Elon Musk confirmed reports the company was delaying its robotaxi reveal, explaining it was because he requested an “important design change to the front.” Tesla shares fell more than 6% immediately following the report, but have since recovered.
Donald Trump announced his running mate, Senator JD Vance, as Republicans kicked off their convention and formally made Trump their nominee. Vance, once a Trump critic, is an ambitious ideologue who relishes the spotlight.
An alarming study out of the University of Waterloo found 67% of respondents believe that ChatGPT is conscious. The majority erroneously also think the chatbot has feelings and memories.
SHRM, America’s top HR lobby, will remove “equity” from its DEI language. Equity, in an HR sense, means seeking a level playing field for workers, but SHRM wants to “ensure no group of workers appears to get preferential treatment”.