Episode 55: Breville's $5B Bonanza, Seek Struggles Without Visionary Founders while REA Dominates, Crimson Rises, Rich Founders and is MILKRUN the Best Customer Experience in Australia?
The guys dissect the rise of Breville, dig into Seek's woes, the remarkable business model of realestate.com, the bizarre Crimson Education hits a billion, and the world's most successful founders.
The Contrarians catchup
Adir’s week was “an unusual batch of activities with an extreme tennis addiction, back to GTA 5, and then watching the South Park movie.” He also read the Australian Electoral Act, which you can listen in to find out why.
Mike let us know that the creators of South Park, Trey Parker and Matt Stone, signed a deal with ViacomCBS Inc. in 2021 that pays them more than $900M over six years - one of the richest deals in TV history.
Adir also attended the Pacific Airshow Gold Coast. He once took one of Catapult’s founders to an air show in San Diego, assuming he would find it amazing, but he thought it was the most boring thing of his life.
Adam attended the Stripe Tour Sydney event and caught up with Larry Diamond, Co-founder and US Chairman of Zip, and Co-founder and CEO of Stripe, Patrick Collison who asked the inspiring question: “What are we doing wrong and how can we fix it?”
The top four founder-led businesses by valuation (unofficially shared by Adam, which left off Airbnb and Berkshire Hathaway and got hazier the longer the conversation went on):
Nvidia
Meta
Salesforce
Stripe
Three podcasts that were recommended: Revisionist History, Acquired, and This American Life.
If you loved last week’s episode with Eight Sleep founder, Matteo Franceschetti and want to try it for yourself, use the discount code ‘Contrarians200’ to get $200 off your order.
Is MILKRUN the Best Customer Experience in Australia?
Adam did a MILKRUN order of 12 items that arrived within 11 minutes and was left wondering if he was living next door to their warehouse.
Adam: “The range has gotten bigger, the pricing is actually pretty good. I jumped on and didn’t know what I needed so one thing became like 10 things. I actually don't know physically how these guys can do it. This is just an incredible customer experience that is unrivaled in any other business.”
Breville's $5B Bonanza
The Breville Group group has been one of the best performers on the ASX in the past decade, with its share price rocketing from $5 in 2016 to $33, giving the high-end kitchen and cooking appliances brand a $4.8B market cap.
Shares have almost doubled in price since June on the back of solid, but largely unexceptional, financial results. But, EBIT grew 8% and they now do more than half of business in the US, up from 20% five years ago.
Adir: “One of the biggest shifts, and one of the most remarkable things about this business is that a tiny percentage of their overall sales is from selling other people's stuff. This is a business that is almost entirely what I call an owned-brand business, where almost all of its sales are stuff that it has designed and it makes and it puts its brands on. And the difference between that and selling other people's stuff is like a 37% gross margin versus a 27% gross margin selling other people's stuff.”
Adam: “This business is more richly valued than Apple and Microsoft. And this is a business that its Australian business went backwards by 10%, inflation adjusted. It's a business that's done very well. But it's not a business firing on all cylinders. It's a legacy market.”
Adir: “There are only two ways that ‘brand’ actually helps a business. The first way is it allows you to charge more money for the same product. And the second way is it reduces your customer acquisition costs. And I don't know if the second one is at all true on this. And the first one, the question is, if this thing had a different brand on the front of it, how much less could it charge?”
Crimson Education and the whole world being rigged
If you’re not familiar with Crimson Education, they enable students in Australia to gain admission to top universities in the US and UK and are now worth $1B. Around 5% of incoming Ivy League students have passed through Crimson’s training, as well as assisting with over 40K offers to top 50 universities.
Adam: “I don't love it. You can argue that the same thing happens in private schools everywhere and you have to send your kid to a private school in Australia to get them into uni. And the numbers clearly support that. But this is a next level on that. This is for people who presumably already go to private schools who pay an extra $60K USD, it’s a lot of money. To get into Harvard is a significant advantage that somebody who doesn't have 100 grand simply can’t get.”
Adir: “I don't want to sound like Donald Trump, but you know the whole world is rigged, right? Like the whole system is rigged. This idea of meritocracy and this idea that anyone, no matter where you're born, has the same opportunity. Like, it's all nonsense, right? The whole system is rigged. It's not rigged 100%, but maybe it's rigged 30%.”
Seek Struggles Without Visionary Founders while REA Dominates
Seek announced sales dropped 6% for FY24, with slightly higher operating expenses, which led to a 14% drop in profit. Since former Commonwealth Bank Group CEO Ian Narev replaced co-founder Andrew Bassat in July 2021, Seek shares have slumped 30%.
Adir: “I've always thought about Seek like this. There's three bits to it. There's the Australian business, which at one point was a virtual monopoly and now is less so. There's the international employment businesses and then there's this investment package. And when I look at the business today, the takeaway I have is that, yes, they've taken these writedowns on the investment side of their business. But if you look at the market cap of Seek, do you think that investment businesses has any contribution to the overall valuation of Seek, like it seems like it's being valued at close to zero.”
Meanwhile, two other monster Australian marketplace businesses, REA and carsales, are both up around 4x in the time that Seek has largely been flat.
Five other stories worth following:
Nestlé ousted its CEO of eight years, Mark Schneider, last week and announced longtime Nestlé leader Laurent Freixe as his successor. The company gave Schneider 24 hours of notice before the news went public.
Zoom launched Zoom Docs, allowing free users to share documents with up to 10 others. Like everything else these days, it’s got an AI companion that can summarise and generate text.
NASA will be keeping its two astronauts in Space until February, saying the journey back aboard Boeing’s Starliner is too risky. The pilots, who have been stranded at the International Space Station since June, will catch a ride in 2025 with SpaceX.
Pavel Durov, messaging app Telegram’s billionaire founder, was arrested outside of Paris on Saturday on charges related to unmoderated criminal activity taking place on the app.
Apple is reportedly unveiling new iPhones, watches, and AirPods as part of a product launch on Sept. 10. The iPhone 16 will be available on Sept. 20.