Carbon capture, Google & Facebooks ad duopoly and where are Bryce and Alec investing?

HOSTS Alec Renehan & Bryce Leske|4 October, 2021

Meet your hosts

  • Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

Today Bryce and Alec take another look at what’s happening at Woolies, Facebook and Google breaking up the ad duopoly, and the World’s biggest plant to pull CO2 from the air.

If you want to let Alec or Bryce know what you think of an episode, write to them here

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Bryce: [00:00:09] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my Equity Mate Ren. How are you going?

Alec: [00:00:29] I'm very good, Bryce. Excited for this episode. We've got a lot to cover. It always feels like there's a lot to cover and it feels like things are constantly changing. Last week in markets it was China and Evergrande and now it's the global energy crisis. What's it going to be next week? 

Bryce: [00:00:46] And that's the beauty of markets. They're always changing, really. In this episode. We're going to be looking at the changing performance metrics at Woollies, breaking up the Facebook and Google ad duopoly and the world's biggest plant that is now pulling CO2 directly from the air and the interesting investment opportunities that may be around that. But to start with, Ren, we both want to just have a chat about where we're currently standing on our side when it comes to investing. 

Alec: [00:01:14] So this is unsponsored, but we both use a NAB product, Equity Builder. And I mentioned to you that I had upped my limit so I'd borrowed more money. And you had some strong thoughts about what I should do with it. And I figured we should just save it and we can talk about it on the podcast. 

Bryce: [00:01:33] I didn't have strong thoughts about what you should do with it. 

Alec: [00:01:36] Sorry, you had strong thoughts about what you're going to do with your money. 

Bryce: [00:01:40] I have conflicting thoughts. 

Alec: [00:01:41] Okay. Yeah, yeah. 

Bryce: [00:01:43] Because I also have cash sitting in my equity builder. Yeah. 

Alec: [00:01:46] Yeah. And like, it's a funny time in markets. You know, there's always reasons to be nervous. You know, I mentioned Evergrande last week, the energy crisis this week. We're saying a lot of records being broken around the world in the US. You know, we've seen all this chat about speculative trading and things being at the top. And there was recent reporting from The Wall Street Journal that this has been a record year for options trading. Nine of the ten biggest options trading days in history happened this year. The value of options is actually now bigger than the value, total value of the stock market. So, like, on one hand, it's like, is it all this speculation? On the other hand, ETFs have had a massive year. They've had a record year. I think they broke the record in July for the most inflows in a year. So it took seven months to break the previous record. But, you know, countering that speculative narrative, the biggest inflows have been to VOO, which is Vanguards, S&P 500 product that seems to indicate a level of sensible investing. Bond ETFs are having a record year. Property prices around the world are having a record year. You look at all that, you look at these rolling crises. There's a lot of reasons to be uncertain. So I'm excited to hear what your thoughts are and to try and figure out what I'm going to do with this money as well. 

Bryce: [00:03:13] Well, for me, it's actually more around the product itself. So you've got to invest in minimum chunks and you can't dollar cost average or anything like that. So you've got to, like, have a pretty high conviction of what you're going to be investing in. And then, of course, there's a payment period in which you're going to be paying it off. 

Alec: [00:03:29] You could dollar cost average 

Bryce: [00:03:31] In ten thousand dollars chunks. 

Alec: [00:03:33] You could follow along. 

Bryce: [00:03:35] Yeah. If you wanted to borrow two hundred grand to do that for sure. But you can't do your whole, you know, five hundred a fortnight or whatever it may be. And the original reason for the attraction for this product, for me particularly, was having the ability to invest in managed funds because this product not only gives you access to listed products, but gives you direct access to managed. 

Alec: [00:03:59] And I think the important context here is that most managed funds have a minimum investment, have minimal and without borrowing money, we don't quite have the financial means to hit the liquidity. 

Bryce: [00:04:13] Yeah, the liquidity to do so. However, since then, well, since then, the market has also just gone ballistic. And so a lot of managed funds are struggling to keep up. Yep. But also a lot of managed funds are now creating listed products. So that accessibility issue is now not as prevalent as it was before. You don't need a minimum to get access to, you know, the Magellan's and other funds here in Australia. And it's obviously playing out around the world as well. And so then we also have a number one policy here that we hate fees. And so when you kind of combine all of that together, it sort of begs the question for me, you know, if you're going to take this long term approach and a leveraged position is there, I'm just tossing out now between just going into that ETF mode and I don't need the managed fund. I can't justify paying the fees because the markets are giving seriously adequate returns. Yes, if things are risky at the moment, maybe that is the time to think about managed funds. If the. Market were to turn, they might be able to manage the money better, but then I also consider what is my existing portfolio and do I just double down on what I've got because I'm really happy with my current structure and just leverage it even further because I've got a number of leveraged ETFs in there. 

Alec: [00:05:29] So basically, to summarise, you've borrowed money, your choices are putting it in managed funds, eight listed ETFs or listed investment companies, and you don't know what you're going to do. 

Bryce: [00:05:42] Well, yeah, but I think the products that I want to put it in doesn't exist. What is it? It's like the bottom half of the Nasdaq 

Alec: [00:05:49] or like a Nasdaq 500. 

Bryce: [00:05:52] I don't want the top end of the tech market and the way to access that would be to go like a small mid-cap fund manager. Yeah, so that would be the way to do it. But then their fees are just like one and a half percent, 20 percent on profit. And just like that's just against what I talked about in the survey. So I mean, this predicament of like that's where I'm at and I'm just burning cash sitting there waiting to see, 

Alec: [00:06:15] you know, you're not burning, but it's burning. Yeah, yeah, yeah. So for people unfamiliar with the product, there's a number of fund managers that you can invest in, but it's not open slather. It's not like you can just go to any fund manager and say, well,

Bryce: [00:06:28] there's one particularly that I want to put money into is not on the on the list. Let me 

Alec: [00:06:32] guess. Give me two guesses and I'll get it. Yeah. My first guess is Frazis. 

Bryce: [00:06:37] I don't know if he is, but that wouldn't be one. 

Alec: [00:06:40] And my second guess is Fairlight. 

Bryce: [00:06:43] Yeah. Fairlight Asset Management, smallcap. Love what he does. Unfortunately, he has an AMP fund. I'm pretty sure it's not not part of this product list for NAB and for me, just you know, he does his fees are probably on the highest higher end. But I think I just love listening to him and really want to back him in. But he's not on this. So now I'm in this. Yeah, I mean, it's big predictions. True. 

Alec: [00:07:05] True. Maybe you should just rather than getting this like equity, build a loan, maybe you should just take a personal loan and pay interest. 

Bryce: [00:07:13] No, no, no. So that's kind of where I'm at. I'm slowly working through it. I'm enjoying the process of working through it. It's led me to really consolidate a lot of my portfolio. To be honest. I did a real deep dive in a lot of ETFs, way too much overlap, and I really want to avoid that with those type of investments. And so, yeah, I'll keep everyone updated on how it goes. But I'd love your thoughts because you're fresh. 

Alec: [00:07:36] It's it's just started burning a hole in my leg. Like the spots are just catching up. I haven't really thought about putting it in ETFs. I think I've got a pretty good coverage in terms of that core ETF holdings that I dollar cost averaging through. And I don't think I really need to borrow money to do that. But now that you've started talking about it, I'm like, maybe that is that's the sensible approach. I liked the idea of the access that borrowing this money gave me to fund managers that I wouldn't otherwise be able to access. But you look at the list of all the fund managers and now the process is actually trying to figure out which ones it's like. Who are the needles in that haystack of, I don't know, like thirty pages worth of potential funds. And so if we just start doing heaps of fund manager interviews on this podcast, you'll know that's just me trying to destabilise. 

Bryce: [00:08:28] So I started this process like a few months ago, and I've just come to realise that so many of them at the moment just hold very similar portfolios to some of the ATS, unless you go super concentrated, which is where I would definitely be going. But, you know, a lot of them hold those top ten or fifteen positions that you're going to get in an ETF. And it's so yeah, that that's for me where you go, whoa. If you're going to do that and there's no point paying one and a half percent or one point thirty five percent. Yeah. 

Alec: [00:08:57] I think if you're finding a large cap fund manager that basically just tracks an index. Yeah. It's not worth paying the fees for. May this rule isn't said with any authority. It's just sort of where my thinking is at. But whether it's worth it, paying for management is small caps, emerging markets and managers that are just the smartest people that you've ever come across who would just like the best investing minds that the world can offer you. 

Bryce: [00:09:27] Yeah, well, so this is the other thing. So the when I did a portfolio review, I'm seriously underweight small caps and I just know that that's given my age and time horizon like I want to be much more weighted towards small caps. So then I did start looking at some of the small cap fund managers and, you know, what's in their portfolio, their performance. And very few of them have actually outperformed the small cap index. 

Alec: [00:09:52] So if you just because I was going to say a very few of them will have outperformed the general index, but that's just because Facebook, Microsoft, Apple, Amazon just setting an unrealistic benchmark. 

Bryce: [00:10:04] But index has been swamping it like forty, forty six percent or something. Yeah. And but that's that's my point. It's like to outperform that like. You may as well just take this one. 

Alec: [00:10:15] Why don't you just put it in a small cap idea? 

Bryce: [00:10:17] Well, that's that's exactly where I'm at. It's just like 

Alec: [00:10:20] I don't love the idea of a small cap ETF, though, because for for the gems, there's also a number of dots. Of course. 

Bryce: [00:10:26] Yeah, of course. But you're going to catch the gems as they come through and the duds are going to ideally be weighted towards the bottom of the ETF. And you're going to 

Alec: [00:10:34] get no, but some will start as a top weighting. Some might have fallen out of the ASX 200 into the small cap index and they'll fall. 

Bryce: [00:10:42] But I think what I'm just getting at at the moment is we're just in this really interesting dynamic of the market where everything's just going nuts. And so it's just hard to really differentiate between good management versus like index at the moment, because for so long the index has just been pumping at that. The value of a fund manager, I think has just dwindled. Yeah, but the fund managers out there and still on something 

Alec: [00:11:07] that I feel like that's exactly the conversation that happens before fund managers start to become. Yeah, and 

Bryce: [00:11:14] that's exactly 

Alec: [00:11:15] what's that saying. You don't know who's swimming naked until the tide recedes or something. Yeah. 

Bryce: [00:11:20] Yeah, it's not. But it's not before the tide comes in, that's for sure. 

Alec: [00:11:23] Yeah, yeah, yeah. And right now, like it's high tide, like everyone is just that. How many metaphore is going to mix. It's a rising tide lifts all boats. Yeah. But at some point that tide will come out. Yeah. 

Bryce: [00:11:35] Let's keep, let's keep each other updated on what we do here. Yeah. Do you have anything more to add 

Alec: [00:11:40] now except if not the equity build. I want to throw us the sponsorship for that unsponsored plug, you know where to get us. 

Bryce: [00:11:47] Well, speaking of keeping the finger on the pulse and updated Ren, I mentioned a couple of weeks ago that I was invested in an ETF KRBN is the ticker. It follows the carbon price. Yeah, I got in on the twenty fourth of August. 

Alec: [00:12:00] I'm currently was KRBN taken as a ticker. 

Bryce: [00:12:05] I didn't, I didn't name out there, I didn't name them. And I think it's named after the company which is Krein shares. OK, yeah. But anyway we're not here to discuss that. I could have been better. I bought it on the twenty fourth of August, currently up eleven and a half percent at the time of recording. It's pretty volatile. ETF has been up as much as twenty two percent in the last month or so. But it's now obviously meant, as we talk about in investing, that once you're in you get involved in the kind of topics that you're invested in and I've kept my finger on 

Alec: [00:12:35] now finally care about carbon in the atmosphere. Yeah

Bryce: [00:12:37] ESG Baby and I saw pretty interesting news article the other day around carbon capture and what's going on in that space. And sort of just to recap, carbon capture is all about capturing the CO2 before it enters the atmosphere, taking it out of our atmosphere. And that's pretty crucial for us 

Alec: [00:12:58] sorry, just there's two separate technologies as carbon capture where you stop it going in the atmosphere. There's a whole other, I guess, field where it's like actually removing it from the atmosphere. 

Bryce: [00:13:09] Oh, yeah, yeah. Then this would be carbon capture. We're taking it out of the. 

Alec: [00:13:17] Oh it's actually taken out of the atmosphere. Yeah. 

Bryce: [00:13:19] Let's take it out of the air. OK, yeah. Yeah. And this is pretty crucial we know to getting to towards carbon neutral. So it's a project by business called Clim Works and the project is called Clean Works Orka. And it's the biggest direct carbon capture plant in the world. It's in Iceland. And what it does through fans the size of humans, they say it literally sucks. 

Alec: [00:13:44] The Air France, the size of humans doesn't actually sound that big. 

Bryce: [00:13:49] But anyway, it could be could be bigger. Yeah, yeah, yeah. I think as many of them. Yeah. 

Alec: [00:13:53] Like fans, the size of buildings would be impressive, you know. 

Bryce: [00:13:58] And what it does, it sucks air out of it sucks, sucks in air and removes carbon. They say it can remove up to four thousand tonnes of CO2 a year and then stores it underground, turns it into rock essentially. But that's a really small fraction of the thirty three billion tonnes of carbon that we are emitting each year. So it's a small step towards a large problem. 

Alec: [00:14:22] A human sized fan on every home 

Bryce: [00:14:26] I takes, as I said, carbon dioxide from the air injects it underground where it mixes with water and eventually they turn it into rock and locks away the carbon. 

Alec: [00:14:34] We've really gone full cycle for two hundred years. We dug up the rocks and turned them into carbon and release them in the atmosphere. And now we're pulling it back and turning them back into rocks and bury them underground. 

Bryce: [00:14:47] You go. But yeah, it's just a it's interesting because I'm invested in this carbon ETF and it tracks the price of carbon and we've spoken about carbon offsets. And what this orchid plant does is sells these offsets to customers around the world. So it sells the most expensive carbon offsets. 

Alec: [00:15:05] I was going to say you compared the offset you get from planting a tree compared to this. Yeah, it's going to be more expensive, much more. 

Bryce: [00:15:13] So their carbon offsets can cost up to a thousand euro, a tonne of CO2 removed, but it's really in demand. So some of their customers include Audi, Shopify, and it's so popular that they have sold out of their credits for an entire 12 year lifespan. So as we spoke about the carbon offsets Ren, there's no doubt that if my thesis for this ATFP was that the demand for these offsets is only going to be increasing, therefore you think the price would be increasing over time. And this is just another example. But I could be wrong. My thesis could be wrong

Alec: [00:15:52] I don't think the price of the price of these offsets should hopefully come down as the technology becomes more cost effective. 

Bryce: [00:16:00] Yeah, well, it's very expensive, this type of technology at the moment, I think about six hundred a tonne and they hope to get it down to about one hundred and fifty bucks a tonne. 

Alec: [00:16:08] The thing for me that this story just really illustrates is the importance of putting a price on carbon. And, you know, we're recording in Australia and Australian politics has been the 2010s was defined by the energy was the climate was three prime ministers lost the leadership role because they tried to put a price on carbon. But if you look at how this project got up, they sold these credits to big companies around the world. And these companies, some of them would have needed to buy credits. Shopify is Canadian. I don't know what the the regulatory arrangements are there, but I assume they need to buy credits as well. And that has underwritten this project. 

Bryce: [00:16:49] Yeah, well, there's all these companies now start making these commitments towards net zero. These sort of projects are going to become more and more important. 

Alec: [00:16:57] Yeah, I mean, Europe's had a carbon trading scheme for years, not decades, but for a long time. 

Bryce: [00:17:03] And so a little bit of context as well. Biden over in the States, he's announced a three and a half billion dollar fund for for direct air capture hubs over in the states. But I guess what does this mean from an investment opportunity? There aren't actually many ETFs that track the price of carbon. Carbon is one of them, if not the only ETF. There is no exchange traded note, which is really a debt facility. It's called IPART, Series B Carbon ETN, but otherwise not very many products at the moment to get sort of direct exposure to the carbon price through an ETF. 

Alec: [00:17:37] How do you think about the supply and demand dynamics, though? Because like at a very simple level, the price of carbon is set by those that are creating offsets like this company, like the companies that plant trees and whatever and everything in between, you know, renewable energy generators, the supply side, they're creating carbon offsets or carbon credits. And on the demand side is companies, polluters that need to buy the credits and the prices set that way. If as technology like this comes online and more innovation happens, supply will likely increase. So there could be a world where supply had moved faster than demand. 

Bryce: [00:18:16] Don't disagree with that at all. My thinking at this stage is that as it stands and for the foreseeable future, demand is outstripping supply drastically. 

Alec: [00:18:26] Yeah, because everyone's making these commitments up front. 

Bryce: [00:18:28] So so supply just cannot keep up. I'm not saying that this is an ETF that I'm going to be in for 40 years, because you would imagine that it gets to a point where it might start to flip the other way. But I think for me, it's something that I'm pretty confident that for the foreseeable future, maybe two, three, then reassess what's going on, but that demand is by far and away outstripping what's available on the supply side. 

Alec: [00:18:51] Yeah, and don't come at us if you're thinking, well, you know, governments regulate this market and, you know, they can make rules around how many credits are created and all of that stuff. Yeah, we know. We know. But on a simple level that that was the question. Yeah. Yeah. 

Bryce: [00:19:08] So, yeah, keeping the finger on the pulse. I'll update you if anything else comes across my desk on the carbon ETF space, not one. Let's take a quick break and then we're going to have a chat about the Facebook and Google Play. 

Alec: [00:19:23] So Bryce, I'm sick of talking about your ETFs. We've done about 20 minutes, you telling me about what ETFs you might buy, what ETFs you own. So let's move away from Bryce ETFs chart. I think there's an interesting trend emerging that's worth paying attention to. We all own Facebook and Google in one way or another. Either we own them directly, we own them in ETFs. We are in managed funds that own them. They own us and our attention, which is actually a great segue into what we want to talk about, which is their ad duopoly, because they do own our attention and they monetise that attention in a big way. And I think the 2010s was Pache golden era, golden era, a duopoly, Facebook and Google. They just built these unassailable ad businesses and the legacy media businesses around the world struggled to keep up because just advertising dollars just flowed into these two tech companies by twenty 19 days to control over 60 percent of the global online ad market. They almost earned one hundred and eighty billion dollars in advertising revenue between the two of them and in twenty twenty eight percent. So 88 cents on every dollar of new digital advertising went to Google and Facebook. 

Bryce: [00:20:45] That is crazy. 

Alec: [00:20:46] Just unbelievable. But the reason I want to talk about it today is because it feels like there might be some cracks appearing. And I think this is a trend that's worth watching. OK, so Amazon is now a big player in the in the ad game. OK, did you hear 

Bryce: [00:21:04] the platform like through through one 

Alec: [00:21:07] through Yeah. 

Bryce: [00:21:09] Yeah, yeah. Well they and they like also almost now classified as a search engine in some way, 

Alec: [00:21:13] like the percentage of search that starts on Amazon, which is like getting higher and Google is Google still very dominant. But yeah, a lot of people start searching for products on Amazon now rather than on Google. Yeah, yeah. So in twenty nineteen, Google and Facebook's ad business was about 60 percent of the market digital ad market globally. It's now back in the low 50s and the biggest, I guess, competitor that's muscling in is Amazon. So the last three quarters, they don't split out advertising particularly, but they have this other business and advertising is the biggest share of that last three quarters. It grew forty four percent year on year, then seventy seven percent year on year, then eighty seven percent year on year. Wow. Yeah, pretty impressive. Yeah. Over seven billion dollars in ad revenue in the last quarter. Chase and predictions are that they have about 10 percent of the US digital ad market. Wow. Yeah. So I mean and it makes sense. 

Bryce: [00:22:12] Like everyone keeps surprising. 

Alec: [00:22:14] Oh it's just so dominant. Yeah. But like if you think about you want to be as an advertiser, as close to the purchase decision as possible. And you know, Facebook are doing Facebook business and Facebook shops and stuff like that. But traditionally it was probably two clicks away from buying Amazon. You can be one click. Google was probably two clicks as well because you have to click on the site and then click by now. Amazon, you're there. And like, if you can be at the top of an Amazon search for like a key product, if you're searching hair gel and it's the first one there, that's valuable because you're a big spender on that. But this year, two of the other big digital companies that are competing for our attention are getting serious about ads as well. So Spotify one of your favourites? Yes. Tough year for the share price. 

Bryce: [00:23:02] Yes, it is. But I've actually used as a chance to get in more. Really? 

Alec: [00:23:07] Yeah. 

Bryce: [00:23:07] OK, that's good. Well, it's good now that we're talking about this because I actually know. So I'm glad that now they're getting into the advertising game. 

Alec: [00:23:13] Well, they've been in the advertising game for a while, but not that strongly. So they've had this Spotify for brands. They rebranded it last week as Spotify Advertising. They've just launched a global campaign to attract more advertisers. And their biggest challenge has been inventory, like they haven't had enough ad inventory because if people are paying for Spotify and then podcasts have their own ads inserted before they actually get to the platform, all they like, you play it on the platform, they're getting serious about advertising. They're building a whole bunch of new features. And maybe we're biased, but I feel like audio advertising is a lot more effective than search advertising. Interesting. 

Bryce: [00:23:53] Yeah, harder to track, a lot 

Alec: [00:23:55] harder to try. A lot harder to track. Yeah. Yeah. The whole thing is like they can be very contextual with the advertising, you know, like if Spotify know you're cooking because you're playing your cooking music, good music, you play when you're cooking or you're like listening to a podcast recipe or whatever it is, they can hit you with context specific. Yeah. Yeah, yeah. Probably a better example is like if they know your exercise, listening to a recipe with the recipe. We broadcast coming from Equity Mates 2022. But yeah, like if they know you're exercising, they can hit you with exercising related ads. I am very interested to watch their move. But you can say that what they're trying to do, take some of that digital ad market. Yeah, but the last one and the one that I think is going to be particularly interesting, particularly for Facebook, is tik-tok big. 

Bryce: [00:24:47] Yeah. Yeah. What are they doing? 

Alec: [00:24:49] So Tik-tok have the fastest ever platform to hit a billion monthly active users. And I think I announced last week that a billion monthly active users for context at the beginning of twenty eighteen, they had fifty five million. 

Bryce: [00:25:04] Wow. So over what, three years. Yeah. They've just gone from fifty five to a bill. Wow. 

Alec: [00:25:10] They've gone from like the population of the UK to like an eighth of the world. Yeah. Chase for credit. They have twice as many users as SNAP. They make about a third of the advertising revenue. 

Bryce: [00:25:25] Wow. Seriously undermine it. 

Alec: [00:25:27] So they're building a whole bunch of new features and tools. Apparently they have fourteen hundred job openings at the moment. So if you're looking 

Bryce: [00:25:37] for anything in there, I 

Alec: [00:25:38] try to. Yeah, if you're looking for a job. But don't you want to look at and a lot of those are in ad tech so they're getting serious about building out a self-service advertising platform similar to what the rest of these tech companies have. They already have one, but I think they're really looking to build it out. But a billion monthly active users, if they can nail their ad business, you would expect, especially Facebook, to to suffer as a result. 

Bryce: [00:26:07] Yeah, it's interesting. Seems like all these companies that have huge audiences all vying for attention now, trying to monetise that attention in a big way. Yeah, yeah. Yeah. And double down on. Yeah. I mean, Amazon obviously making shed loads of money in other ways, but recognising the, I guess the value of having so many people use the platform, getting advertisers and to your point, getting the advertisers as close to that purchase decision as possible. 

Alec: [00:26:35] Yeah. So I think it's like Google has this unfair advantage of being what they have, like. Ninety six percent market share in search for something like Google will be fine. Yeah, Facebook for me is the one that's interesting because Amazon can probably get them closer to an advertiser, closer to the purchasing decision, put a pin in the whole Facebook for business and Facebook shop stuff. Tik-tok can offer longer engagement, like the numbers coming out of how long people spend on Tik-tok compared to other social platforms. It's just ridiculous. And Spotify can potentially give people greater context like you can. Audio is something you listen to while you're doing other things. And for advertisers, that's quite unique. Whereas Facebook read on Facebook or you're not on Facebook, you're not doing anything else when you're on Facebook. So for me, that's an interesting one. They've obviously got other revenue streams that they're building. If you're interested in big tech, you should be very interested in digital advertising. 

Bryce: [00:27:31] Yeah, and it's great for advertisers now that there's more opportunity to hit segments other than through Facebook. Yeah, which is good. 

Alec: [00:27:39] The other interesting thing is that there's a lot of noise from regulators about this ad duopoly and no one's been that effective at doing anything about it. You know, they say in Australia's made noise in the US, there's not as much noise, but in Europe there's a fair bit of noise. But what might actually break this duopoly isn't government intervention. It might just be competition. Better tech. Yeah, yeah. 

Bryce: [00:28:02] Well, pretty fascinating stuff. Go Spotify. But anyway, to close out Ren we haven't been speaking about Woolley's a fair bit I feel in the last couple of episodes, but this is just a short and shallow. 

Alec: [00:28:14] This is like as soon as you mention it and drops it into the Google doc, I was like, here we go to work. Second week in a row, wants to talk about what's going on, 

Bryce: [00:28:25] going on at the great retailer. I just want to get your thoughts on this, because we often talk on the show about the importance of understanding remuneration incentives when it comes to executives and understanding how that drives their decisions to run businesses and the difference between sort of short term remuneration bonuses and how that impacts short term thinking and the difference between that and creating long term shareholder value. Just thought this was an interesting one, that Woollies have now changed their performance metrics for their executive team. So their traditional performance metrics used to determine remuneration and bonuses was looking at relative shareholder returns, looking at return on funds employed and then looking at sales per square metre, which is such a retail metric. And all of those were considered in equal weight. OK, what they then did was say, well, sales per square metre now feels like it's becoming less and less relevant, as we have seen. Like the B2B business growing and e-commerce and, you know, other less traditional forms of bricks and mortar, and we're going to get rid of that and we're going to replace it with a metric that measures our reputation as a business and replace that instead of sales per square metre, 20 percent will be weighted towards the reputation and 80 percent towards the traditional sort of return shareholder return and return on funds employed. I guess the reasons why they've done this Woollies has been battered a little recently in terms of its reputation with the 500 million sort of wage underpayment scandal they tried to open at Dan Murphy's megastore in an indigenous community in Darwin, which didn't go down too well. And there is the cynical view that they've gotten rid of the sales per square metre because it's incredibly hard to cycle numbers from. So why would you want to be measured on something that's going to be really hard to beat? 

Alec: [00:30:18] Yeah, and potentially because of those scandals, their reputations an all time low. Yeah. 

Bryce: [00:30:24] So, yeah, take the cynical view. So that's what they've done. But I just sort of want to close out by putting a few open ended questions out to get your view on it. What does it mean as a shareholder, like there's a couple of fund managers, there's a guy called Stephen Johnson, he works at Forager Funds. He's the CEO there. And he said he's seeing more and more companies turn to these sort of softer metrics, as they're called. 

Alec: [00:30:47] When you say softer, do you mean harder to quantify or softer as in like. 

Bryce: [00:30:51] Yeah, a lot of the metrics that you could say are rewarded based on effort rather than like hard outcome on paper. Yeah, I'm not going to just get a that's that's a number. Yeah. You need an auditor to come in or some sort of independent body to kind of say, yeah, your reputation's increased. 

Alec: [00:31:10] I'm sure that would define how they're going to measure. Of course it would be a net promoter scores or so. Of course 

Bryce: [00:31:16] that. Yeah, but it's it's not as it's not as hard and fast as, say, a return on shareholder capital. 

Alec: [00:31:22] Yeah, yeah. Yeah. 

Bryce: [00:31:23] So, yeah, I guess the question is as an investor is, is this good, do you think it is going to be better for shareholder value? Is it going to get the desired outcome of actually improving reputation in the business? Because for me, I understand where they're coming from, but it is just going to be very it's it's going to be hard to measure. And I think like sales per square metre, you know, results in shareholder value, like if you're increasing sales per square metre or if you're increasing whatever the metric, the hard metrics are, you know, that generally speaking, that's going to result in some sort of shareholder value. Harder to quantify. Whether or not a great reputation does result in shareholder value is one way to look at it. 

Alec: [00:32:05] It's one way to look at it. I like the fact that companies are thinking about this. And I think, you know, incentives matter. That's a truism if there's ever been one. But when we're talking about executives that could be in line for millions of dollars worth of bonuses, these incentives influence behaviour. Yes, sales per square metre makes a lot of sense, but it also could incentivise, you know, the wrong behaviour. If you're trying to close stores, you could turn around. But it's like sack the square metreage, jack up the sales number by keeping high performing stores. It's like is that is that a long term investment or like making getting ahead of population growth and saying we're going to open stores that will start by doing two hundred grand a week in sales. But we know as population density improves around it, they can get to a million. Well, maybe that population density will happen in five years. And I'm on a three year contract as CEO and I'm planning to retire after that. So I'd rather just take the money now. So, like, every incentive that you build has multiple dimensions to it in the same way this reputation like maybe that will really engender long term thinking about like we've got scale across Australia. We now want to focus on people loving Woolworths. Yeah. So if they live closer to a Coles, they'll have a brand affinity to Woolworths and they'll drive that extra five minutes to get to Woolworths. And maybe that is building long term value. But you could be cynical and you could say if all that matters is shareholder return and reputation, let's just juice the advertising campaign. Let's not actually invest in any innovative parts of our business. Let's just make it look good, make our net promoter score really good. Get broadband out in the public in the podcast, button up his reputation. So like this cynical ways you can think about it. But I think the fact that they are thinking about it is the news and is important at this point. Yeah. And it wouldn't surprise me if things like sustainability get so built into more and more performance metrics, because if I was a future story or an Australian Ethical Investments and I was thinking maybe we're not going to get a. I would say maybe we're not going to be able to get the votes to actually get someone on, but what else can we do? I would be looking at board and executive renumeration and looking at their incentive structures. I think it's interesting. 

Bryce: [00:34:34] It is interesting. Yeah, I think you're right. Be great to see how this impacts sustainability and RSJ. So, yeah, I promise that that would be the last Woolworths content for a while 

Alec: [00:34:45] until broadband actually agrees to come on the 

Bryce: [00:34:48] that Brodney listing. We would love to hear from you if you're a part of the Woolworths network or the investor relations team. We have reached out. Check your e-mail. 

Alec: [00:34:56] Yeah, yeah, yeah. And if you used to work with Bryce and you want to do him a solid. Yeah. Come on, guys, when you say bandaging the hole, I want to go back to the office tapping on the shoulder where you Equity Mates shirt to work, whatever it takes. That's it. Whatever it, whatever it takes and similarly calls people. I also reached out to the calls Time Health, a brother and I. 

Bryce: [00:35:21] Well, just a reminder that I Get Started Investing feed book is now available as well. If you haven't bought one yet or know of a friend or family member who want to start their investing journey, head to any of the online book retailers. They are also in bookstores at the moment. So go and grab one great Krissie present if you're thinking of adding some books into the stocking. Also, we are doing a summer series across our entire network and we would love to hear stories for our Get Started Investing feed podcast. Anything to do with big wins, losses, you know, mistakes or things that you wish you knew. Hit us up at Use the link in the show notes or dob in a mate who might have a great investing story to share. And you can have your time on the show chatting with Ren and I about your story. Five minutes, 20 minutes, whatever it may be, you can remain anonymous or one final thing, please do rate and review. It always helps us in the charts. And if there's any support that you can show other than buying the book and coming on the show, it's to write and review Bryce. 

Alec: [00:36:20] Also a lot of you. I do a lot. Ask her a lot.

Bryce: [00:36:23] But look, it's always great chatting stocks Ren. And we'll be back next week. Sounds good.

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