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The Contrarians catchup
The Contrarians live event is on December 8 at Blue Rock in Melbourne. Expect amazing special guests. Get your tickets here before they sell out!
Adir’s daughter joined the pod as a first-hand retail data point. She resells books, clothes, and plushies on Vinted and eBay, buying from op shops, yard sales, and across platforms. Her margins: buy a plushie for $2, sell for $7-10. Her verdict on the current economy: “Bad. It slowed down sales because people have less money, so I have to make things cheaper, but still get a profit.” She noted eBay has died for Vinted, and op shop prices have risen due to inflation.
The Victorian election is days away. Adir met Jess Wilson, James Newbury, and David Southwick during the week. His read: “I was impressed with the level of discipline that they had when I met them. No one is taking anything for granted.”
Adir is advertising his Tanssu luggage brand through boosted LinkedIn posts, something he believes has never been done for a consumer brand. “I really could not find a single other consumer brand that was advertising on LinkedIn. Super expensive, like it is the highest priced social media you could possibly advertise on. But my audience is so focused around LinkedIn because of who they are.”
Bunnings, JB Hi-Fi, and Super Retail Group all slow
Three of Australia’s best retailers delivered weaker-than-expected trading updates in the same week. Bunnings sales growth slowed by one percentage point, missing the 2.4% market expectation. JB Hi-Fi comparable Australian electronics sales fell 1.4% in the three months to October 30, with The Good Guys down 0.4%. Super Retail, owner of Super Cheap Auto, BCF and MacPac, reported like-for-like growth of just 0.2%, down from 2%. With inflation running at 4.3%, real sales are going backwards across the board.
Adam: “If Bunnings are struggling for growth, and in real terms going backwards, we’ve got some real issues here. These are global elite retailers. Arguably Bunnings are even better than Home Depot.”
Adir: “Bunnings is a trades business or a home improvement business. Fifteen percent of economic activity in Australia is driven by property transactions. Of course that is going to be suffering.”
Adir: “I think there’ll be lots of insolvencies for March, April. People will just have a bad end of year and they’ll be insolvent. This is basically directly attributable to the government. The rest of the world is not experiencing this.”
On retailers hoping for Black Friday:
Adam: “I’m going to hope for a time where I smash my margins, but yeah.”
Adir: “The way that we’re going to introduce Black Friday into Australia this year is with an interest rate rise. That’s bad news.”
David Jones is heading for administration
David Jones suppliers have been refusing to send stock for months due to unpaid invoices. The private equity owners are now being wiped out by the debt holders.
Adir: “Four months ago on this very podcast, I said to you, suppliers to David Jones are not supplying stock anymore. I think they’ve got big cash problems. Every supplier to David Jones saw this coming.”
Adam: “Suppliers are the last people you don’t pay. Maybe you don’t pay the ATO, maybe you don’t pay your landlords, ’cause they have skin in the game. You’ve got to pay your suppliers ’cause they’re just not going to supply you.”
Adir: “I think David Jones, I don’t want to say it’s badly run ’cause it’s got a good CEO. But she hasn’t had enough time. I think strategically they went down the wrong road for too long. I would love to own that brand.”
On what happens next:
Adir: “Stores are gonna close. And David Jones, they pay a lot of rent. And I don’t think landlords will simply be able to extract this level of rent out of whoever replaces them.”
Adir: “The gift card question. I actually think the gift cards will be honoured, is my gut feel. They’ll just move from one balance sheet to the next one. It kills the brand if you don’t honor them.”
The AFR Young Rich List: at least half are miles off
Adam ran through the AFR’s Young Rich List and questioned the valuations on multiple entries.
Canva (Mel Perkins and Cliff Obrecht, #1, $12.5B each): The AFR used a $40B AUD valuation. Both hosts agree it is defensible given Canva’s own self-reported write-down, but argue the right move would have been a braver $20B or lower.
Adir: “Any valuation for Canva right now is a made-up number because no one knows what it’s worth.”
Adam: “The brave move and the right move here is writing it down and saying no, we think your public comps are wrong. We’re gonna give you a value of $20B.”
Tim Rosenfeld (#3, $1.7B implied at a $31B Firmus valuation):
Adam: “They couldn’t get it away at $44B. There is no way this one’s $31B. It could just as easily be zero as $15B.”
Immutable (the Ferguson brothers, #6, $1.3B each at a $4B valuation):
Adam: “This is possibly the dumbest valuation I’ve ever seen. The business was valued at $3.5B in 2022, and since then its dodgy cryptocurrency has lost 98.3% of its value. The AFR are still valuing this thing at $4B. You could give it a couple hundred million bucks value. They’ve got this wrong by 98%. This is an embarrassment.”
The overall picture:
Adir: “I can’t pay an earnings multiple for these, can I? In summary, real business but in trouble. AI fake bubble. Real gambling. Fake AI. Gambling. Welcome to Australia.”
Adam: “It feels like we’re in prohibition era US and they’ve just given a bunch of bootleggers the top of the list.”
OpenAI couldn’t raise $30B, settled for $11B
The Wall Street Journal reported OpenAI targeted a $30B raise at a $1.4T valuation, but received only tepid interest from large investors and has so far secured $11B in commitments at a $1.25T valuation.
Adir: “This is the second biggest story in the world that’s been completely shaded by the biggest story in the world.”
Adir: “There’s gonna be a couple of years where everyone is in the water, treading water, with their legs roped to everyone else’s legs. And so if one company sinks beneath the surface and goes down, they drag everyone else down with them as well. What you’ll see is renegotiation of terms.”
On why OpenAI is struggling:
Adir: “OpenAI has been hit with a double or triple banger. One is competition is a lot stiffer in their category than it was a year ago. Number two, the demand for returns on equity has gone up because interest rates have gone up. And the third thing is that debt has become more expensive, but lenders are starting to worry, am I going to get my money back? Forget about the interest rates, are these businesses going to go broke?”
On Spotify’s 90% token cost reduction:
Adir: “What they discovered is that when you go and ask one of these frontier models to change a piece of code, even though it doesn’t need to read the entire code base to make that change, it does. It reads it all. And what they found is that almost all of the token usage from these frontier models was not doing, it was reading. And so then they broke apart the tasks and said we’re gonna get the ultra-cheap models to do all of the reading, get them to summarize what they’ve read, feed that to the frontier model, and then get the frontier model to do it.”
Still the right horse, but search is wobbling
Google search revenue grew 12% in Q3, slowing sharply from 70% in Q2 and 19% in Q1. Meanwhile Google Cloud grew 100%. Two structural concerns have emerged: Google has quietly switched from a second-price to a first-price auction model for search ads, squeezing short-term revenue at the cost of long-term advertiser trust, and has also allowed “exact match” keywords to serve across thousands of unrelated terms without advertiser consent.
Adam: “This is a business that people love because it was so efficient and such a great way to get customers. And almost every e-commerce business has built their business on Google. Google now saying we don’t care. We’re gonna squeeze every last dollar out of these guys. This is really concerning.”
Adir: “It’s dumb. And what I think Google needs to do is do a Zuck. Get the courage to say we’re gonna do some things that are gonna look bad for a few quarters and slow our growth. Like we’re gonna put this thing back and do what’s best for the customer because we’re a great business.”
On whether decision prompting replaces search:
Adir: “The most important bit of the future of this business is are people still turning to this brand to make decisions? And what they’ve said to you is, yeah, like our search volume has gone through the roof. It’s just right now, instead of using the traditional way that we’ve been able to monetize, they’re clicking this other tab at the top and using another way that we haven’t really figured out how to monetise yet. But that’s all right. We’ll work it out.”
Adir: “I still feel very bullish on Alphabet. I just want the bubble to crash so they stop spending their cash.”
Five other stories worth following:
The Golden State Valkyries claimed their first WNBA championship in just their second season, defeating Atlanta Dream 68–63 in a historic Game 7. Finals MVP Gabby Williams scored 30 points before 18,000 fans.
Former English detective Steven Richardson has built 22one into a $400M AI company just five years after leaving policing. Its technology reportedly helps police forces, although its actual capabilities remain largely mysterious.
Luxury residential cruise ship Odyssey has stranded over 200 passengers in Cambodia after operator Villa Vie Residences ran out of money. Residents paid six figures for cabins, expecting 15 years of continuous global cruising.
Startup SuperMe is creating AI versions of real experts, allowing users to seek professional advice without personal connections. Its platform offers group discussions and individual conversations covering topics including entrepreneurship and business strategy.
Google’s AI search rollout is threatening its advertising revenue and reducing traffic to websites like Reddit. Following disappointing earnings and a record stock decline, Google reportedly stopped enabling AI Mode by default.