Episode 61: Qatar Virgin Magic, OpenAI Goes All In, Netflix Dominates, SPC Goes Original, and is Airbnb Done?
The guys chat about Qatar's Virgin Masterclass, OpenAI seeks maximising profit, Netflix's competitive advantage, SPC and Original Juice's original deal, Airbnb's competition, and Crocs newest squeeze.
The Contrarians catchup
After Adir mentioned Melbourne had a pothole problem a few weeks ago and was validated with a Herald Sun article, Adam agrees he’s noticed them everywhere too. (Adir said this is called “observational bias”, but it’s known as the Baader-Meinhof phenomenon, or frequency illusion).
Adam and Adir agree on a dislike for political statues, particularly the one planned for Dan Andrews, a polarising figure in Victoria.
Adir weighs up Airbnb (Instagrammable, expensive, often no shower doors) versus Stayz (better places, didn’t know they still existed) in recounting his recent stay in Marrickville.
In a case of worlds colliding, Adam discusses the much-anticipated (?) collab between Squishmallows and Crocs.
‘Nobody Wants This’ on Netflix is the first funny show Adam has watched since The Office (UK). Adir: “Netflix is basically a cable TV business that doesn't need to use a third party for distribution.”
Qatar Virgin Magic
This week in Australian aviation, Qatar Airways Group announced its intention to acquire 25% minority stake in Virgin Australia. The deal will enable Virgin Australia to launch flights from Brisbane, Melbourne, Perth and Sydney to Doha, connecting seamlessly into Qatar Airways’ global network.
The deal is a wet lease. (A wet lease is a leasing arrangement whereby one airline (the lessor) provides an aircraft, complete crew, maintenance, and insurance (ACMI) to another airline or other type of business acting as a broker of air travel (the lessee), which pays by hours operated.)
Adam: “Qatar tried to get 28 routes about a year ago and now they’ve come back with a much, much better deal than they had. They’ve got the 28 routes they wanted through the wet lease, they’ve got the Australian network, this is such a masterclass from Qatar Airways”.
Iconic Australian Brand Fruit Salad
The Original Juice Company, SPC Global and Nature One Dairy are merging to create a leading Australian food and beverage company
The guys discuss the Original Juice Company - a brand you would’ve seen on many Australian supermarket shelves without probably realising it’s publicly listed (ASX:OJC), vertically integrated, and Jeff Kennett is its Chair (he’ll be stepping aside in the new structure).
Adir: “Their margin is 20%, so when you’re making $50M and only keeping 10 as gross profit, we can put that into the basket labelled ‘we’re going to have problems’. Their marketing spend is less than $1M because it’s all supermarkets, so they just do co-marketing. So we can call this a sub-scale business.”
Another “juice brand” you’d recognise is SPC (Shepparton Preserving Company), which is now called SPC Ardmona and is Australia’s largest producer of packed fruit and vegetables. The company was formed in 2002, when the historic SPC (established in 1917) and Ardmona Cannery (begun in 1921) joined forces.
Adir: “I don't think people are buying their product anymore. It’s syrupy fruit in a can.”
The merger is worth $342M and the deal will give SPC Global a 69.2% stake in the merged entity and create a business with revenue of more than $400M and EBITDA of more than $29M in FY25.
OpenAI Now Very Much For Profit
Last week, OpenAI announced the largest private capital raise in history. Its $6B raise values the company at US $157B, making it the “second most valuable private company in the world” (although it’s debatable whether it’s behind SpaceX and ByteDance).
OpenAI is forecasting $3.7B in revenue this year (incredible) but will lose $5B (more incredible), mostly in computing costs. (Adam mentioned their team is tiny, but they’ve grown from 770 employees in November 2023 to over 3600 today).
If you’re wondering why the podcast is called The Contrarians, listen to the differing views on whether Elon Musk was shafted by OpenAI after investing $45M as part of its founding.
Adir: “My biggest issue is there was a point where I thought, ‘oh God, maybe human beings, when faced with the ability to generate awesome power and awesome amounts of money will, for the first time, actually do the right thing here’. That's what I thought with OpenAI. And so the fact that this has transitioned to ‘how do we make as much money as possible’ and let's just pretend we never really had this high ground is a disgrace.”
Listener questions
My business partner and I have been approached with offers to buy our company recently. We haven’t gone through valuations so we're not completely sure what we're worth. Is there a simple way we can calculate this without getting an external party into audit, and are there any caveats we should be aware of for an all-cash deal like this?
Adir: “The first question is easy to answer, which is ‘can we do it ourselves?’ Nobody knows less about what a company’s worth than a company valuer. You can get external advice, but paying someone to come in and value your company. That’s a disaster.
“If you're a founder, what you're facing here is this battle between fear and greed. The greed is money, money, money. I want to get my hands on money and stuff. The fear is maybe I'm giving something up that's worth much more in the future that I'm getting for tonight. My general view is, in most cases, when someone's writing checks, you should be taking them.”
[Plus so many more fascinating, and tangible, insights!]
The second question is below, but you’ll have to listen to the podcast to hear the answer to a self-imposed restriction on the length of this newsletter.
Second listener question: “For those people who are leaving school this year and are thinking about either going to university or taking up a trade or going straight into an internship, what would be your main advice for them? Do you have any experience or words of wisdom that you would share with them?”
Five other stories worth following:
X (formerly Twitter) paid ~$5M in fines to get service restored in Brazil, but service is still dark because, according to the nation’s Supreme Court, the social media company paid the wrong bank.
Thanks to the introduction of weight loss drugs, a US decades-long rise in obesity may have been reversed in a few short years. In a public health milestone, the US adult obesity rate stopped its long climb and dropped by roughly two percentage points between 2020 and 2023.
Kamala Harris appeared on ‘Call Her Daddy’ as part of a whirlwind media tour. The VP and Democratic presidential candidate is embarking on a media blitz this week with ‘60 Minutes’, ‘The View’, ‘The Howard Stern Show’, and ‘The Late Show With Stephen Colbert’ all lined up.
Everyone’s talking about Google’s AI research assistant (including Adir on this podcast), NotebookLM, a groundbreaking tool with the power to distill text into realistic-sounding, podcast-style explainers - and the potential to change how we consume complex information forever.
If you follow Kim Kardashian on Instagram, you’ll be interested to know that Los Angeles prosecutors said they would review the Menendez brothers’ high-profile 1996 conviction and prison sentence for murdering their parents in light of new evidence potentially pointing to abuse from their father.