Industry News: Equity Mates Tech-Tacular!

Bryce: [00:01:35] Equity Mates, here we are again, Episode 13, I'm Bryce and I'm here with my Equity Mates buddy Ren. How are you? [00:01:42][7.1]

Alec: [00:01:42] I'm good Equity Mates. How are you? [00:01:44][2.0]

Bryce: [00:01:45] Very well. Good to be with you again. We've got a very special episode lined up today, one that we've been wanting to do for a while now. We know everyone loves technology and it's it always seems to be the topic of choice for a lot of newspapers at the moment and media outlets. And you can't sort of avoid it in day to day life. So we thought we'd do a tik-tok episode where we talk about all things to do with technology, how that can relate to investing and sort of what it means for us in our daily lives. [00:02:16][31.4]

Alec: [00:02:17] And to be honest, it's a good indulgence for us to tell some of our favourite stories that you may not have heard before, but we find really interesting. [00:02:24][7.3]

Bryce: [00:02:26] Yeah, we've been looking for episodes to throw some stuff at you, and I think we figured that the best way to do it would be to to do it all at once. [00:02:32][6.8]

Speaker 3: [00:02:33] So we're going to start and [00:02:36][3.3]

Bryce: [00:02:37] we're going to start off with the current state of play and let you know some of the things that are going on with advances in technology and what it's going to look like in the future and also what opportunities that can present for investing in Australia and overseas. Then we're going to kick into some. [00:02:55][18.1]

Alec: [00:02:57] Failed some failed technology investments and what what's different about technology investments and what we should what we watch out for? [00:03:06][8.8]

Bryce: [00:03:07] Yeah, so some tips and tricks of finding some stock companies and and what's the differences in investing in a tech company or if there are differences to a regular non tech company? And then we'll finish off, as always with the Stock of the Week. Let's get straight into it, Ren. And we'll as always, we like to kick off with some news. This time around, we're going to go in with a bit of current state of play and what it can mean for us, because not everything here is, you know, brand new and has been happening in the last couple of weeks. Most of what we're going to discuss has been an ongoing development, [00:03:47][39.9]

Alec: [00:03:49] basically where we're stretching the definition of news to fit some more things into it. [00:03:53][4.5]

Bryce: [00:03:54] Yeah. So let's kick it off. [00:03:55][1.2]

Speaker 3: [00:03:56] Let's some private cars. [00:03:57][0.8]

Alec: [00:03:58] Yes. So if there was one technology, if you were going to ask me what's the one technology that will change our investing lives but our lives more generally in the next 10 years, I'd have to answer self-driving cars. [00:04:10][12.4]

Bryce: [00:04:11] Interesting. [00:04:11][0.0]

Alec: [00:04:12] Yeah, I mean, there's a lot of options. I would be up there. But I think in terms of the next 10 years, what's really going to come down the pipeline and hit society? I think self-driving cars probably takes the cake. [00:04:23][11.3]

Bryce: [00:04:24] For what reasons? [00:04:24][0.4]

Alec: [00:04:25] I think the huge structural change it will bring to society, the amount of jobs that will be lost because of it, but also the amount of efficiencies that will be gained because of it, the way it will change people's lives. I mean, you know, if you look at the economic modelling around self-driving cars, chances are a lot of people sort of born today won't ever need to buy a car in their lifetime. What that will mean for big companies today, what that will mean for transport, what that will mean for cities, you probably won't need any parking in the city or anything like that. So that's going to change the way we design cities. I mean, I can go on and on about this, but I think it will represent a real structural change in our society. [00:05:06][40.7]

Bryce: [00:05:07] Yeah, no, it's it's exciting. I don't recall ever in the car, probably because it's because of this reason, like living in the city. I don't need one at the moment. And I'll either be able to press the button on my phone and something will come and pick me up or, you know. [00:05:21][14.2]

Alec: [00:05:21] Yeah, and it [00:05:22][1.1]

Bryce: [00:05:22] would not even have to ever learn how to drive. [00:05:24][1.4]

Alec: [00:05:24] Our kids will think like crazy talking about driving like it will be something like rich people do on private racetracks because. [00:05:30][6.2]

Speaker 3: [00:05:31] Yeah, exactly. Yeah. All right. So we're where to get ahead of ourselves. [00:05:35][4.4]

Bryce: [00:05:37] So where are we up to in terms of self-driving cars? What what are some of the main players doing in Nevada? [00:05:42][5.3]

Alec: [00:05:43] So I think probably a good indicator of how serious this race is is the amount of players in the race. So we thought we would do is just go through some of the the sort of main players say where they're at and sort of look forward a little bit and see what they're doing. And so the first one we want to start with was Ford and Ford and every other major traditional car company have a self-driving division at the moment. They're all investing in at GM, Toyota, Honda. I mean, I could just keep naming car companies, but, you know, the more [00:06:15][32.5]

Speaker 3: [00:06:16] yeah, [00:06:16][0.0]

Alec: [00:06:16] they're all trying they're all trying to be the first. And Ford recently made the big move of firing their CEO and promoting the head of their automated car division to say so. That's a pretty big statement to the market. And it shows shows just how serious they are. [00:06:32][15.8]

Bryce: [00:06:33] And it's interesting that well, I find it interesting because in my mind, you don't tend to think of these more traditional companies as having a lot of skin in the game with this sort of stuff. You always think of the Teslas and Apple and Uber and and those sort of companies that have promoted themselves as more technologically advanced. But you're right, all these companies need to have some skin in the game out of it. Otherwise they're just going to be left behind. [00:06:56][23.2]

Alec: [00:06:56] Yeah, definitely. And I mean, I think what Tesla and other car companies have shown is that making the car is actually the easy part of this equation. Making the self-driving technology is obviously harder. And, you know, these traditional car companies thought for a while that self-driving cars were a pipe dream and then would have assumed that they could just licence the technology of whatever car company won this race. But now I think they're slowly realising is if a company like Tesla wins this race, they don't have to licence the self-driving technology to all your traditional car manufacturers. You can already make the cars or Apple wins this race. They can create a car manufacturing facility then and. Yeah, and then they can dominate this self-driving car market. So I think that's lit a fire under a lot of those traditional car manufacturers. And that's why you're seeing them really take this race seriously at the moment. [00:07:50][53.8]

Bryce: [00:07:51] Well, speaking of licencing, you were talking before that Apple was previously doing something along those lines. But now that may have changed direction. [00:07:58][6.9]

Alec: [00:07:59] Yeah. So they they announced late last year or it was late, late last year that they're sort of stepping back. They hadn't had a lot of success in their self-driving department and they were going to try and move away from actually developing the technology to making a software platform on which, you know, other developers could build the technology and they could create new like apps and stuff to go with the technology. So everyone thought Apple would kind of dwindling in this race. But then what we heard in April this year is that they're now looking to test self-driving technology. They are pretty secretive company these days, you know, they have that big facility out in Nevada where they secretly invest their billions that they've earned [00:08:41][42.9]

Bryce: [00:08:42] no fly zone. [00:08:43][0.6]

Alec: [00:08:43] Yes, and maybe this is just a case of misdirection and they've been quietly working away at it and not trying to alert their competitors. [00:08:53][9.6]

Bryce: [00:08:54] I mean, a company that certainly has let everyone know how they're going and not traditionally at a car manufacturing company would be Google. So where do they stand in [00:09:03][8.6]

Alec: [00:09:03] in all of this? Yeah. So Google owns a company called Winmar, and that's basically the self-driving car division. OK, I was actually in Silicon Valley late last year. [00:09:15][11.5]

Speaker 3: [00:09:16] Yeah, I'm [00:09:18][1.7]

Alec: [00:09:19] trying to do a funding round for Equity Mates [00:09:21][1.6]

Speaker 3: [00:09:23] and [00:09:23][0.0]

Alec: [00:09:23] we actually saw the Google prototype self-driving car being tested on the streets of San Francisco. I actually saw a couple of times. Wow. And, you know, there's obviously someone isn't successful. I mean, it was driving. So at this stage, yeah, there's someone in the driver's seat and they didn't have their hands on the wheel, though. So I guess that's a good sign. But, yeah, Google has got to a point where they're testing prototypes. You know, it's it's like a prototype car, not your traditional design with cameras on top of it. Yeah, I imagine a whole bunch of sensors in it. Yeah. But yeah, look, they're really taking along and they've they've actually made a partnership with Lyft and Lyft for those who don't know, is basically a carbon copy of Uber. Yeah. I mean they'll probably argue they're not, but realistically they are. And WAMMO or Google have actually partnered with Lyft to develop this technology, which a lot of people were surprised by. But then it's come out that wammo are actually suing Uber [00:10:30][66.5]

Speaker 3: [00:10:31] and [00:10:31][0.0]

Alec: [00:10:33] they're alleging that Uber and the head of the self-driving division stole all of Google's technology. And that's how they're developing their own self-driving car, which I also saw in San Fran. So, you know, they're really taking along as well. Yeah. Why are claiming that all of that progress was because they stole the technology and so they're suing. But then it's like a bit of a stuff. You on the side. They've also partnered with his biggest competitor to develop this technology. [00:11:03][30.5]

Bryce: [00:11:04] We're speaking of Uber and stealing technology. They certainly grab some headlines last year when they did the first automated truck delivery in Colorado with the delivery of beer, which is pretty cool. However, not everything is rosy at the moment. And I'm sure you've got something to add into this Ren. [00:11:21][16.5]

Alec: [00:11:21] Yeah. So as a company, Uber, a bleeding money, so recently announced that this quarter, only this quarter, they made a 708 million dollar loss. Huge. So just for some context, they brought in three point four billion in revenue, but their costs were four point one billion. Yes. Think about those numbers for a second. That's crazy. 4.5 billion cost in a quarter. Yeah, but then when you compare that to the quarter before where they made a 900 million dollar loss, I guess they're trending in the right direction. [00:11:54][32.9]

Bryce: [00:11:55] Yeah, I guess so. I saw on the news maybe it was this morning or late yesterday that Ariba has now gone into the market of Ariba in boats between like the Greek islands and the Croatian Croatian islands. So I looked at that and thought about this seven hundred and eight dollars billion loss and just thought, you know, they are obviously expanding or trying to expand at such a rate that their expenses obviously shooting through the roof. But it also makes you question, are they expanding in the right areas and are they just trying to target a market or get their foot in in all markets where who knows what's going to happen down the track? Is it going to come back and bite them or what's going to be the case? [00:12:36][40.9]

Alec: [00:12:37] Yeah, I mean, no one knows the answer to that question. And I think similar to what we were saying before about how car manufacturers realised that the key to all of this is the self-driving technology, more than the ability to manufacture cars. Uber recognise that the key to their future is the self-driving technology as well, because hypothetically, you know, if Apple makes self-driving technology first and develops the car, that will then be like building an app that matches cars with draw with riders. It is so easy for them and they'll have such a cost advantage because the biggest cost is that drivers of Apple, all they need to do is there will be an upfront capital cost in developing the cost and then they'll be able to put a whole fleet on the road that only have minimal maintenance costs. Yeah, and then, I mean, if you say. 30 percent less to get a self-driving car. There's no way you're going to go to Uber now and then Apple can very slowly work those capital costs off over a number of years, but that will dominate that market. So I think Obama recognises how important this race is. I mean, I think everyone recognises how important this race is. [00:13:53][76.2]

Bryce: [00:13:54] Yeah, I'm very keen to say how it all pans out. And honestly, I don't think it's that far from around the corner. [00:13:59][5.6]

Alec: [00:14:00] Well, to give you an idea of just how close it is, the last company that we were going to touch on is one of both of our favourites, we have to admit. And that's Tesla. The recently I think it was end of last year, a video came out of a Tesla driver asleep in his car and the car was driving through traffic. [00:14:17][17.4]

Speaker 3: [00:14:18] They've actually seen it on YouTube. Yeah, yeah. [00:14:20][1.7]

Alec: [00:14:20] You can Google it. And this guy is just fast asleep in the driver's seat and the car just driving in traffic [00:14:25][5.0]

Speaker 3: [00:14:26] for it looks really changed the way we live to imagine not having to have a seat like [00:14:33][7.5]

Alec: [00:14:34] you just have a [00:14:34][0.4]

Speaker 3: [00:14:34] couch [00:14:34][0.0]

Alec: [00:14:36] and a tiny little fridge. [00:14:37][1.2]

Bryce: [00:14:38] Everyone commutes hassle free. No good. I was just going to say, I guess the question we should try and answer briefly is, so what does all this mean in terms of investing and do we see any opportunities going forward? So from my point of view, obviously, the clear ones are to keep an eye on these main players in this space and just keep on keep abreast of whatever developments are coming from. And and then if you feel it necessary or you think it's a good opportunity to jump in on some of these companies, then that's obviously the main way that you can get invested in this sort of stuff. But then if you sort of look further into it and think, what does this mean for other parts of our economy, then we can start talking about, you know, there's going to be people who are. Losing out on jobs because it's going to disrupt labour market and, you know, it's going to change the way that, as Ren US was saying before, you know, cities are built and the way that we go about our lives. So do you have anything to add in on that Ren? [00:15:45][66.9]

Alec: [00:15:46] Oh, look, I think you I think you covered most of it. I guess, as an Australian investor, though, to bring it all back. There are ways that you can capitalise on this trend. And as a little teaser for all our listeners, the stock of the week that we're going to bring you gives you a pretty good way of, you know, making a bet on a number of these players. And you might find a way to capitalise on self-driving technology regardless of who wins. [00:16:11][25.1]

Bryce: [00:16:12] Yeah, I think that Stock of the week is going to encapsulate almost everything that we talked about today. [00:16:18][6.3]

Speaker 3: [00:16:19] So that's why we chose. Well, I guess, yeah. [00:16:22][3.2]

Alec: [00:16:23] Now, that doesn't convince people to stick around. I don't know what. [00:16:25][2.6]

Bryce: [00:16:27] OK, speaking of transformation, then, two companies have transformed the way that the Globe advertises and the way that consumers receive advertising. Gone are the traditional forms of advertising in newspapers. And I mean, TV still exists. But if you look at how it compares to trend of advertising now, it is certainly nowhere near where it used to be. And those two companies are hopefully most people would be aware, Google and Facebook, they are on a relentless march at the moment and dominating the world in terms of advertising and advertising revenue. They bring in one fifth of the globe's ad revenue, which is an enormous amount between two companies, one fifth of the globe's ad revenue, which totals to bring in one hundred and six billion dollars from advertising. [00:17:21][54.3]

Speaker 3: [00:17:22] Yeah, and I think it's [00:17:24][1.8]

Alec: [00:17:24] worth reflecting just on what that means, like one fifth of the globe's advertising revenue. That means, you know, in Russia, in China, in, you know, like South America, like literally across the world. Tasmania. Yeah. Because when you think about the traditional media landscape, every country had big media companies. You know, Australia. We had Fairfax and News Corp in America, though, the big TV networks and then the big national newspapers on every country has these media conglomerates that have, you know, made millions of dollars over the last hundred years from radio, TV, a newspaper advertising. Yeah. And yet all of those companies are getting crushed at the moment by these two absolute Internet payments. [00:18:10][45.6]

Bryce: [00:18:11] Yeah, and it's driven primarily by the data that these two companies have on every single one of us. And it allows these companies to specifically start targeting in a way that has never been able to be done before, so that ads now become much more meaningful to the market that they're being promoted towards, whereas TV and newspaper mass markets, you would hope that of everyone that saw that an X percentage would find some value in that advertising, whereas with these companies that are offering companies the ability to target so much more specifically. And so the ads will have so much more meaning and relevance to the markets that they're trying to get people to buy their products. And I think what we also need to mention is that the revenue that they're bringing in over the last five years has doubled. So we can only imagine what it's going to be like in five or 10 years time. And obviously, this is their main revenue stream at the moment. So in terms of investing, if the money keeps coming in the way it is, then these guys are going to be making some serious cash in 10 or 20 years. [00:19:20][69.0]

Alec: [00:19:21] Yeah, well, I mean, one hundred and six billion at the moment. It's pretty serious cash, even more serious cash, I guess. [00:19:28][7.2]

Bryce: [00:19:29] All right. Well, speaking of transformation, once again, we're just going to keep going into the weeds here a little bit. But Bitcoin, I know I've seen so much in the media about it, and I'm sure you have as well, Ren and a lot of well, a lot of almaty's overstatement, but a couple of our mates are in Bitcoin. But for those that are unaware, do you want to give a very brief update on what it is? [00:19:51][22.0]

Alec: [00:19:51] So Bitcoin is a cryptocurrency. The beauty behind all of these crypto currencies is that the the record of ownership is held on a decentralised ledger. It's a way of keeping records that is, you know, can't be hacked. These Bitcoin can't be stolen because if you hack one computer to try and change the ledger, every other computer will recognise that that doesn't match what every other computer has. That's a really simple way of explaining. [00:20:18][26.4]

Bryce: [00:20:19] So it's not that simple, but sorry. [00:20:21][2.5]

Alec: [00:20:22] Say, that's a really great way of. Yeah, not simple at all. It's definitely worth looking at because. Whilst Bitcoin and the other crypto currencies, you know, they've had a great run and we'll see what happens, but the technology behind it, it's called block chain and in some ways that might end up being more valuable. [00:20:42][20.2]

Bryce: [00:20:43] Yeah, far too complicated for us to try and explain and would make it almost an entire episode in itself. [00:20:48][4.7]

Alec: [00:20:48] But maybe just Bitcoin succulence. [00:20:50][1.8]

Speaker 3: [00:20:51] I'm not sure about that. Yeah, I reckon what what [00:20:54][3.5]

Alec: [00:20:55] all we need to say about Bitcoin is that if you bought it, you're pretty, pretty stoked right now to give you an idea of how much it's shot up in price. In this time last year, it was about 700 dollars a Bitcoin, which people thought was expensive at the time, but it shot up to three grand over three grand a bitcoin. [00:21:16][20.9]

Bryce: [00:21:17] Yeah, huge movements in price. And, you know, no one really understands where this is coming from. There's a lot of speculation as to whether it's in a huge bubble at the moment. Is this bubble going to crash? There were people like Danville's there on Instagram telling the world that he bought Bitcoin. It was in mainstream media. So, you know, traditionalists would like to say that when that happens, when your investments start hitting mainstream media like Bitcoin have, then it's certainly in a bubble and to and to watch out. But who knows? This this could skyrocket. This could crush any second. No one's really sure what's going on. But, you know, underlying it all, there's certainly a disconnect between the movement in price and the actual use and utility of the currency at this point in time. So will that even out? Who knows? But yeah, it has certainly shot up. But Bitcoin is not the only one, is it? [00:22:07][50.8]

Alec: [00:22:07] Ren now there's a bunch of others all using the same sort of block chain technology. Would you say Ethereum is the second biggest one? I think so, yeah, definitely. It's the second most amount of press. Yeah. And it's all it's also had a pretty crazy price run. A year ago it was trading at about fifteen bucks and it's now three hundred and seventy or about that. So yeah, I'm kind of reluctant to talk about the rise in price for Bitcoin because I don't want people going out there thinking that, like putting all that other investing funds into bitcoin or another cryptocurrency is sort of a guaranteed return. Now, I think it's worth saying that Bitcoin is a pure supply and demand play, like all of this price rise has literally just been because there's more demand and supply for the for the coins. There's no sort of underlying value in the asset. So this is an asset that could go to zero, you know, currencies and stuff, you know, anything, a supply and demand game. But it's very unlikely that they go to zero because the tangible value attached to that asset, to that investment. But Bitcoin literally, you know, if you know, if governments get together and regulate the currency out of existence, which is a is a possibility in this case, you may be left holding the bag on something that's valueless. [00:23:31][83.3]

Bryce: [00:23:32] Yeah. So don't don't get caught up in the hot. And just because we've pointed out those huge movements don't think that it's going to continue that way. Of course it may. But yeah, I would be incredibly careful when when looking at buying this sort of stuff. And to be honest, I've had to look at buying some of this stuff and to even buy it, you'll get your hands. Well, get your hands on is the wrong thing to say because it's a digital currency. But to even get involved in buying this stuff, that the amount of the process that's involved in it and and the time that you have to spend to actually look after your coins in these online wallets to make sure that no one comes on and hacks the system and takes over. It's so time consuming. And and you've really got to have a solid understanding of what's going on before you get involved. So that's my two bitcoins about it. [00:24:20][47.7]

Alec: [00:24:20] I think we've sufficiently scared all of our non existent. [00:24:23][3.0]

Speaker 3: [00:24:24] Yeah. Let's look at get [00:24:26][1.7]

Alec: [00:24:26] seriously troubled by some Bitcoin purists. Yeah. Big time, because there are some people out there that will live and die defending bitcoin. [00:24:33][6.9]

Bryce: [00:24:34] We've probably said a lot of wrong things, whatever. [00:24:36][1.9]

Speaker 3: [00:24:36] I mean, give us feedback. [00:24:37][0.5]

Bryce: [00:24:38] Let's let's go one step further then and look at societies that are now cashless [00:24:44][5.7]

Alec: [00:24:45] and they and try to become [00:24:46][1.0]

Bryce: [00:24:46] cash. Well, yeah. Trying to become cashless. And this is something that, you know, both you and I Ren can definitely see becoming a reality. [00:24:53][7.2]

Alec: [00:24:54] And look, we might be stretching the definition of technology a little bit here, but it's definitely something that's enabled by technology. And it's something that in the same way that self-driving cars was, it will be a big structural change. Society is going cashless, will be a big structural change. Then people would first think so. [00:25:13][18.7]

Bryce: [00:25:13] In November 2016, it was India decided to ban its two largest notes, which were the five hundred rupee and the one thousand rupee. So two of them were their two biggest notes. Yeah. [00:25:25][12.2]

Alec: [00:25:26] And now, just just to give context of how big. That is it effectively banned 86 percent of India's currency. It's the two biggest notes, but it's also the two most common notes by a long way. [00:25:36][10.7]

Bryce: [00:25:37] Now, the primary reasons for doing this were not driven by technology. So this is where we're sort of pushing the boundary in terms of the technology. But it was to try and fight against corruption and start getting a hold of how much wealth is actually in the economy and so the government can start receiving taxes and all that sort of stuff. However, the effect of doing what they have done has driven rapid changes in technology within within the country. Do you have anything to add to that Ren? [00:26:04][27.1]

Alec: [00:26:05] Oh, look, just quickly, because we should try and root through some of these. They eventually had to reissue some of the cash because the issue was in some ways, India put the cart before the horse. If not everyone has an online payment system, you know, like a phone or a computer to to pay for things, then what you do is you take all the cash out of society and then there's a cash crunch and people really struggle. So that's what India found there now on a real serious project of digitising everyone's identity. So making sure everyone has a smartphone, giving everyone, you know, a sort of digital identity so they can get online payments from the government rather than having to rely on cash. [00:26:42][37.7]

Bryce: [00:26:43] And that's done through fingerprint. I want to point out. [00:26:45][1.8]

Alec: [00:26:45] Yeah, yeah. So it is a really good case study of a country that maybe is skipping a step in traditional development and it's trying to jump straight into the digital age rather than, you know, the industrialisation dragging everyone out of poverty and then moving towards a more digital economy that you sort of say China has done over the last, say, 30 or 40 years. [00:27:09][24.4]

Bryce: [00:27:11] Look, I think what they've done is a very brave thing. And I think that they're just forced people into doing something that I think would have otherwise taken years and years to do. They forced millions of millions of people to open bank accounts, put their money into banks. And as you said, they've started this digital system of getting everyone recorded and online so they can start getting welfare payments and that sort of stuff. It's also worth noting that there's a company called Katmai, which has just gone ballistic in India, worth about five dollars billion, I think. And you'd be interested to know that Alibaba has actually invested about one and a half billion into the company, I'm pretty sure. And what they do is a lot of Indians have mobile phones, not necessarily smartphones, but they all have mobile phones. And so this company allows payments to be transferred between mobile phones. So there's about three and a half or four million businesses in India that use this payment system and many more customers. And it's one way that they have sped up this process of getting rid of cash in society and allowing customers to pay businesses and businesses to pay businesses just by typing in amounts and using their phone numbers. So, yeah, that's an interesting way of utilising technology. [00:28:31][79.6]

Alec: [00:28:31] Yeah, it really is something that seems so simple, being able to send money not between smartphones, but just between any phone. But it is actually having profound effects across the world. And it if you want to look at sort of a real hub of entrepreneurism, look into some of these African countries. Yeah. Because mobile payments is Middle Eastern as well. Yeah, it really is changing the continent. [00:28:55][23.8]

Bryce: [00:28:56] I guess to wrap up, I just want to mention that, you know, we've gone from self-driving cars all the way through to cashless societies and trying to find companies that are specifically relevant to everything that we've mentioned can be either time consuming or near impossible for someone that doesn't have a lot of time or really know where to start. I guess why we did this Ren and correct me if I'm wrong, but was more to just give an update and understanding of where things at, but also to encourage everyone to just keep abreast of what's going on and start to develop your own ideas of what that could mean going forward. And then think about how that is going to sort of shape your investing sort of philosophy of of companies that you can see 10 or 20 years down the track having some sort of impact. [00:29:49][52.8]

Alec: [00:29:50] Yeah, definitely. And I think in a general sense, the reason that I love investing and I'm sort of drawn to the study of it is because you get the opportunity to be a student of the world. It's not often that we could talk about three pretty diverse topics and just talk about how these things are going to change the world. And yeah, it doesn't always have to be that, you know, cashless society. OK, well, I'm going to invest in this mobile payment company, but you can think of, like, you know, the second order and third order effects down the line. So definitely mobile payments are going to become a bigger thing. This will enable. That commerce in regions that were generally plagued by corruption and crime and stuff like that, what does that mean for the continent of Africa or countries within Africa? Maybe there's something in there that you can look at to invest in. So it's about it's not just literally reading as much as you can, learning about as much as you can, and just thinking about the second and third order effects and, you know, just just be a student of the world. That's more investing opportunities out there than we have time on this earth. So just keep learning. [00:30:58][68.4]

Bryce: [00:32:52] Yeah, nice one. Well, moving on then. [00:32:53][1.4]

Alec: [00:32:54] So now that we've got everyone really excited about the potential for technology, I think we need to temper those expectations a little bit and talk about tech investing gone wrong. Yeah. And then maybe what people should look for when they're thinking about investing in a technology company. [00:33:12][18.0]

Bryce: [00:33:13] Well, I mean, yeah, true. So 1997 to 2001, I'm sure people have heard of it. And if you haven't, that was the era of the first Internet boom, otherwise known as the dotcom bubble. This was a time where we started to see crazy value, right valuations in companies and irrational exuberance, expenditure and an investing that it was a time of people just throwing money at companies. [00:33:40][27.1]

Alec: [00:33:40] I think maybe to give a quick flyer idea of just how crazy that whole time was, let's just fire some stories back and forth of our sort of favourite dotcom bubble stories. OK, just how crazy, you know, the valuations were, how much money was involved and sort of what happened back in the day. [00:33:58][17.3]

Bryce: [00:33:58] All right. Kick it off. [00:33:59][1.1]

Alec: [00:34:00] Well, look, one of the ones that I'm sure no one's heard of today is Budokan, which raised hundreds of millions of dollars and then burnt through 188 Dollars million in just six months trying to build a global online fashion store. It went bankrupt in 2000 [00:34:17][17.1]

Bryce: [00:34:22] broadcast dotcom, which was Mark Cuban's initial company that he began. He later went on to sell that to Yahoo! For five point nine dollars billion. Interestingly, though, once that was sold to Yahoo, Mark Cuban then went and shorted the stock and made even more money. So for those that aren't aware of that, well, that means he essentially had no faith in the stock, thought it was way to value. This is his own company, bet against it. And it obviously crashed. And he made even more money than the five point nine billion. [00:34:53][31.3]

Alec: [00:34:53] So, I mean, it really suck then, I guess. But I think he knew that it was a bubble, I guess, and he made the rest of it. So you can't fault another one. I mean, we just spoke about Bitcoin, but they were the first attempt at a digital currency. Flooz dot com was an online digital currency that folded in 2001. But they that moment in the spotlight because Whoopi Goldberg is one of the lesser known appearances, actually acted as their spokesperson. [00:35:24][30.8]

Speaker 3: [00:35:27] This is [00:35:27][0.2]

Bryce: [00:35:27] ridiculous. GetNet, which I haven't heard of [00:35:32][5.2]

Speaker 3: [00:35:33] at [00:35:33][0.0]

Bryce: [00:35:35] this point when they had their IPO or initial public offering, which is the day that they become available to retail investors on the stock market, they floated that day at 30 Dollars at opening and they closed at two hundred and thirty nine dollars and 25 cents per share in one time. One day they gained six hundred and ninety eight percent [00:35:59][24.1]

Speaker 3: [00:36:01] a [00:36:01][0.0]

Bryce: [00:36:02] year after that IPO. However, their share was worth eight dollars. [00:36:06][3.9]

Speaker 3: [00:36:06] So they hope you sold at the [00:36:09][2.5]

Bryce: [00:36:11] sell that day and walk away at seven. [00:36:12][1.3]

Alec: [00:36:14] What I mean, in a similar vein, another company that I'm sure no one's heard of, InfoSpace in March 2000, its stock price cracked a grand. It reached 1305 Dollars per share, which back then. Yeah, I mean, that's crazy. I mean, we're talking about Google cracking a thousand dollars a share. Now, InfoSpace, just as big a company is going to go back in the day. Correct. A thousand dollars a share in March 2000. By 2002, it was trading at two dollars per share. [00:36:45][31.6]

Bryce: [00:36:46] So that's obviously a company that has seriously been going bust. 2001 was the best of the bubble, 2002, which was two dollars a share. And boy, if you held onto it, the big company that everybody's heard of, Books-A-Million now instead of the 25th of November 1998, so that just after the boom started kicking off in a big way, it was trading at three dollars a share. Three days later, it was thirty eight point ninety four a share, so three point thirty eight dollars in two days. People were making a fortune off of these and all people were losing a fortune. Three days after that thirtieth of November nineteen ninety eight, it reached forty seven dollars a share. So we've gone from three point forty seven dollars in the space of five days. However, two weeks later everyone realised what was going on. Books-A-Million made didn't make a million and it was worth ten with ten dollars a share and everyone lost them. [00:37:41][55.2]

Alec: [00:37:43] Oh now this brings us to my favourite. I don't think you can beat this in just a crazy tech boom story. So this company was called PIC's alone. It sold itself as a company that offered higher quality video streaming and it raised twenty three million dollars and then spent six million of that on a dot com launch party in Las Vegas featuring the Dixie Chicks kiss. And they even got the hole to reunite just for that party. And they called it I Bashan. Ninety nine [00:38:18][34.5]

Speaker 3: [00:38:20] million, [00:38:20][0.0]

Alec: [00:38:21] six, eight million on a party in Vegas. [00:38:22][1.5]

Speaker 3: [00:38:24] Oh yeah. [00:38:25][0.7]

Alec: [00:38:25] Probably not surprising to anyone. Within a year, the whole company collapsed, as they did when they admitted they misrepresented or completely faked their technology. But what was surprising to a lot of people is their founder named Michael Fenn was actually a convicted felon on the run called David Kim Stanley. [00:38:45][19.3]

Speaker 3: [00:38:46] OK, now you probably think [00:38:48][1.8]

Alec: [00:38:49] we're making this one up, but Google, David, Kim, Stanley, this did happen. This party did occur. The who reunited for it. And if that doesn't sell what the tech boom was like, well, then nothing will. [00:39:04][15.1]

Bryce: [00:39:04] I know. I know some crazy times. And, you know, you still hear people talk about it. People are they made an absolute fortune and are still incredibly rich from it all. People lost an absolute fortune. I mean, lessons from this. And it's easy to say that it happened a while ago and we've learnt our lesson and and whatnot. But the first thing that we can take away is that investors obviously got got caught up in the potential of what the Internet could bring and that they forgot to do their fundamental research and valuation of the companies they got carried away and all the money that was being thrown around. And as a result, we're investing in companies that had nothing. Yeah. And no substance behind them. [00:39:44][39.7]

Alec: [00:39:44] And I mean, look, we laugh at all these people, but the reason they invested so much and the reason that it was such a craze was because the theory was that the Internet would change the world and that all businesses would move online and these investors actually went wrong. I mean, look at the world today. All the biggest companies, the Internet companies or technology companies, retail has moved online like Netflix and stuff. Everything is done over the Internet now. Yeah. Whatever good or service you want, it's it's online. So the investors fundamental thesis was right. The issue was that they got so caught up in this new technology that they didn't look at the actual companies that they were investing in and they didn't think about whether what they were actually buying was a good price. The company, they just thought the Internet will change everything. Who cares what we pay? Because, you know, Books-A-Million is going to be selling a million bucks a day online, regardless of how many books they were selling on [00:40:40][55.4]

Speaker 3: [00:40:40] pixelation had the who would [00:40:42][2.1]

Alec: [00:40:43] to say, you know, [00:40:44][0.6]

Speaker 3: [00:40:44] like [00:40:44][0.0]

Alec: [00:40:45] video streaming, it's going to be big and these theories went wrong. I don't know. Bookseller that's now the biggest retailer in the world. [00:40:52][6.2]

Bryce: [00:40:52] Yeah. These companies, these investors had the right thought process, but they let their emotions in and the emotions of others get in the way, obviously. So it's easy to look back and say that was in hindsight and that it's not going to happen now. But there are examples at the moment that put into question, have investors actually learnt their lessons? For example, Facebook has gone ahead and bought WhatsApp, which is the online mobile application messaging service for 19 billion dollars, despite WhatsApp only having a revenue of 50 million. Another one was Twitter filed for a billion dollar IPO before it was even profitable. And Amazon's price to earnings ratio is at one hundred and eighty four. So for those that are unaware, that means you're paying one hundred and eighty four times their earnings for for their shares, which is an incredible amount and something that in this day and age would certainly put it into the spectrum of very overvalued. But who knows. Yeah. What does what does that what does that mean? [00:41:54][61.6]

Alec: [00:41:54] So I guess the question that we have to ask is, are investors making the same mistakes as they did in the early 2000s or are we missing something with, you know, those sort of examples that you just talked about [00:42:05][10.7]

Speaker 3: [00:42:06] or what do you think? [00:42:06][0.5]

Alec: [00:42:08] So technology companies are unique in some ways. They're a lot of them are sort of all or nothing plays. And I guess what do I mean by that? So, you know, a traditional business that you're investing in can have a 30 percent market share, strong profit margins and be a good investment. Like as an example, you know, Woollies, if you invested in Woollies and every year they were making money, they wouldn't have to have 100 percent of the grocery sector to be a solid investment for years to come. Yeah, but with technology companies, their business model is a little bit different because of the sort of unique nature of a lot of technology companies. There's a real incentive to dominate the market and control a certain section of the market. And then you're able to monetise the users that you've brought in or you can raise your prices. So if we look at if we look at the examples that you that you brought up before. Yeah, I mean, Amazon is probably the best one. You know, it traded one hundred and eighty four times multiple, which is a crazy multiple to be paying. But the reason investors are buying it is because it deliberately trades at such a thin profit margin to destroy traditional retailers, which has had a lot of success doing. But it wants to become the dominant e-commerce platform, not just in America but across the world. And then, you know, if everyone is buying through Amazon and all the retailers are selling through Amazon, then Amazon becomes the only game in town and then it will have a significant ability to change its prices. And, you know, if it if it doubles its profit margins all of a sudden, rather than paying 184 times earnings, you're paying 92 times earnings. Yeah, that that's all happened because it's dominated the market and it has all the uses similar to Twitter. Like the reason that investors were willing to give it so much cash was because it had two hundred and fifteen million monthly active users. And when you think about that many users, if you can monetise them, if you can, you know, get a dollar of advertising revenue out of each user each month. So that's two hundred and fifteen million monthly active users. If you can get a dollar out of them, that's two hundred and fifteen million dollars in revenue a month. And all of a sudden not being profitable is the least of your worries. You have to worry about how to spend all your money. [00:44:30][142.1]

Bryce: [00:44:31] Yeah, the big question is, if just like with Snapchat, you know, they've got these big users. [00:44:37][6.1]

Speaker 3: [00:44:37] But yeah, [00:44:38][0.8]

Bryce: [00:44:39] how to how to monetise and [00:44:41][1.3]

Alec: [00:44:41] monetise them. Yeah. Yeah. And that's where that's where the the Facebook one comes in I guess. So you know, you talked about the WhatsApp acquisition and that's one of the puzzles Avon asks for the price, 19 billion is a lot to pay given the amount they only paid one Dollars billion for Instagram. Um, the theory, and I guess I kind of subscribe to the theory, is that Facebook is ubiquitous across Western countries. So in America, in Western Europe, in Australia, everyone has Facebook, everyone is a user of Facebook and Facebook has I think it's something like one point seven monthly active users. So one point seven billion monthly active users. But it's having trouble building not. In sort of poorer countries in Latin America, in Asia and India, but in all those countries, what's up is a clear market leader. It's done. It's done really well to sort of dominate that messaging space. And so the theory is that Facebook bought WhatsApp for so much because it covers up a real strong weakness for it. And that is these non Western countries where there's not a lot or not as many Facebook users. And I think between Instagram, Facebook and WhatsApp. Now, Facebook has something like two billion daily active users. So that's more than a quarter of the world's population. [00:46:03][82.1]

Speaker 3: [00:46:04] That's a huge amount huge. [00:46:06][1.6]

Alec: [00:46:06] So, I mean, like their ability to advertise the data that they're getting, it's it's pretty phenomenal and mind blowing when you think about it. [00:46:15][8.8]

Bryce: [00:46:15] Yeah. Yeah. So tech companies are the same, but they're different, which can be a bit confusing, I guess. So in essence, investors are willing to accept bad financial figures if they can see a path to the market domination and to later monetising that domination. So when trying to figure out if a tech company has the right or he's on the right path, there are a few key metrics that investors sort of look for, such as monthly, daily active users, user growth, user retention, the cost of acquiring customers, network effect and obviously how to monetise. So we'll briefly give you an idea of what all of those mean. Do you want to kick off Ren? [00:46:58][42.4]

Alec: [00:46:58] Yeah, sure. So monthly or daily active users, something you hear a lot. Yeah, the best way to explain it. Have you ever downloaded an app or signed up to a website and then never visited again. Never open the app. Yeah. Yeah, everyone has. And you're not alone. Tech investors can be fooled by total use of figures. You know, everyone has downloaded the app. So what investors want to look at is the daily or monthly active users. That's the amount of people that use the app or the website every month for every day that they're the important users for these companies because they're the reoccurring people that are going to the website and that can be monetised. [00:47:36][38.0]

Bryce: [00:47:37] So user growth and as the name suggests, that's what they look at. This is a better indication of a company's growth rate as opposed to something like revenue growth rate for traditional companies. So if a tech company is having a crazy user growth, but no revenue growth, that is OK. As long as you can see and management have talked about and explained that there is a way to monetise these users in the future. [00:48:00][22.6]

Alec: [00:48:01] Yeah, definitely. So similar to the two we've talked about before is user retention. And that is in a nutshell, what percentage of users are staying on the app? Because, you know, you could have a crazy marketing campaign or, you know, Whoopi Goldberg could be promoting your online currency. If if people are signing up to go to the website Lonza, then never again. That's a really strong indication that whilst you might be really good at getting users to the site, you're not good or your product is very good at keeping them there. So that's that's a big warning sign if there's a low user retention rate. [00:48:39][38.5]

Bryce: [00:48:40] Yeah. And off the back of that, if the next one, obviously, we said was the cost of acquiring customers, you don't want to have to be investing in companies sorry that are spending an absolute fortune just to get someone to sign up to this service. So the customer acquisition cost some companies can fudge their user growth numbers for a while by investing huge amounts of money into acquiring new customers. So this metric shows how much companies are paying to acquire each new user and gives a good idea if user growth numbers are sustainable. I guess the end goal is that you want to be acquiring customers for the lowest cost possible without having to spend huge dollars advertising your product or getting them to sign up to your service because it's just a waste of one other waste of money, but something you don't have to be spending money on. [00:49:26][46.5]

Alec: [00:49:27] And I mean, combined with customer acquisition cost, you want to be looking at the average revenue per user. So, you know, if your customer acquisition cost is five dollars a user, but then you're only getting four dollars a user either from sales or from advertising revenue from that user, then it's obviously unsustainable long term, unless you can bring that into that revenue number up or the customer acquisition cost, no doubt. So, yeah, in essence, if you're trying to get a user more than you're making from that user a big red flag, [00:50:02][34.8]

Bryce: [00:50:02] you're in a [00:50:02][0.3]

Speaker 3: [00:50:02] bad situation. Yeah. [00:50:04][1.7]

Bryce: [00:50:05] All right. Network effect Ren. [00:50:06][1.0]

Alec: [00:50:07] OK, so network effect by way of a definition is where each additional user of a good or service adds value to all other users in the network. So the best example is social media. Facebook, if you were the only person on Facebook, it wouldn't be very valuable because you're one of a few billion people on. There's a lot more value, and that's different to, you know, traditional traditional retailer, because if we take Woolley's example, if I can go to Woolley's and buy a bag of carrots, those carrots are just as valuable if 100 people can also go and buy a bag of carrots. There's no network effect in the product that Woollies is selling now with a lot of online companies, especially social media. There's a really strong network effect. And so even if you have, you know, say Facebook had 100 daily active users, super loyal, you can advertise to them. You have to wonder if that's sustainable because you're not really going to get that network effect unless you're constantly adding new users. And yeah, look, that's part of the reason why Facebook wants to be the sort of go to social media for everyone in the world, because imagine the network effect. If there was a social media where everyone in the world was on the same platform like that, that value of being able to communicate to everyone just makes it exponentially more valuable as a platform. So, you know, network effect isn't something that's going to show up in a company report or financials, but it's an important concept to think about when you're thinking about technology companies. [00:51:39][92.1]

Bryce: [00:51:40] Definitely. And then I guess it all comes back to the last metric, which while it's not necessarily a metric, but the ways to monetise. So we've discussed a lot about users and user growth and retention and what that all means. And at the end of the day, if you have two hundred and fifteen million users using your application, but there's no way that you can get a single dollar out of them, them investing in them is is not going to be entirely financially rewarding. [00:52:05][25.5]

Alec: [00:52:06] Yeah. And I think that's probably the biggest lesson from the tech bubble of the late 90s. Investors didn't think enough about the ways that these users we're going to be monetised, those sort of an assumption. And I mean, that assumption exists today, but it existed a lot more back then that build it and they will come and then we'll figure out how to monetise Babay, the first online bookseller by the first map company online, you know, whatever. And then everything will sort of take care of itself. Investors have learnt a lot, but, you know, there's there's definitely companies out there that get funding when there's not really a clear path to monetisation [00:52:42][36.3]

Bryce: [00:52:43] one hundred percent year and. Right. So what does all that mean and what does it mean for us? And how have we utilised that to find a stock that we think is going to be an absolute doozy for Stock of the Week, while. Well, in [00:52:54][10.5]

Speaker 3: [00:52:55] a sense of the word. There we go. [00:52:57][1.9]

Alec: [00:52:58] Yeah, I don't know. I mean, it's a if if you're looking for a set and forget investment, I reckon you'd be hard pressed to find a better one to be on. [00:53:06][8.4]

Bryce: [00:53:06] Yeah, this is a this is great stock of the week. [00:53:09][2.9]

Alec: [00:53:10] And if we say so, yeah. [00:53:12][2.2]

Bryce: [00:53:13] This the Australian stock market itself doesn't have as many big players in tech like the US does. So lots of opportunities for public investment in tech stocks, as we have discussed more in line with this episode. You know, we haven't really delved into biotech or fintech or anything like that. So to get investment in stocks that we sort of discussed is, you know, your best opportunities are actually found overseas. [00:53:39][26.6]

Alec: [00:53:40] Yeah, notably in the US where they all seem to be based. [00:53:43][3.2]

Bryce: [00:53:44] Yes. Yes. And the US technology stocks tend to trade on what's known as the Nasdaq, which is the National Association of Securities Dealers Automated Quotations Exchange. [00:53:56][11.6]

Alec: [00:53:57] Just in case you needed to know, it [00:53:58][1.2]

Speaker 3: [00:53:59] is the [00:53:59][0.2]

Bryce: [00:54:00] first electronic exchange where investors can buy and sell stock. So it's essentially the ASX. It's another form of exchange either in the states. It's traditionally known as the exchange where all of the tech stocks lift themselves. They all like to hang out in the big group and lobby. That's where the tech stocks would like to be separate. But yeah, this is when you hear someone talk about the Nasdaq, then, yeah, they're referring to this exchange or. Well, without getting too much into the ways they're referring to an index of the Nasdaq, which leads us to our Stock of the Week, which is Ren. [00:54:34][34.1]

Alec: [00:54:35] It is an exchange traded fund with the stock ticker and the Q and what it is is simply a basket of the top 100 non-financial companies traded on the Nasdaq or so. [00:54:51][16.4]

Speaker 3: [00:54:52] What's and what does that actually mean? [00:54:53][1.3]

Alec: [00:54:53] Yeah, so it means that the company, I think its iShares that have put this exchange traded fund together have literally just bought 100 of the biggest companies on the Nasdaq. And you can buy into that fund and follow the movement of the of the index. [00:55:11][18.1]

Bryce: [00:55:12] So a fantastic way of getting access to all of the companies we previously talked about. [00:55:17][5.0]

Alec: [00:55:18] Do we go why don't you just return now? [00:55:20][1.9]

Bryce: [00:55:20] Just rip through. [00:55:21][0.4]

Alec: [00:55:21] All right. So Apple is the biggest company in the ETF. I think it's like 12 percent of the ETF. Alphabet, which is Google, second biggest company, Microsoft, Amazon, Intel, Cisco, Comcast, that's the American cable company, if you haven't heard of them, Kraft Hine's the biggest food producer in the world. Starbucks, the biggest producer of shitty coffee, Netflix, Adobe, Tesla, Yahoo, eBay, the list goes on. But yeah. So, look, essentially all the big tech companies, ba, LinkedIn, for some reason they wanted to invest, at least on the New York Stock Exchange and IBM. IBM was sort of, you know, one of the very first Internet companies it. It listed maybe before the Nasdaq existed, but definitely before the Nasdaq was a sort of bastion of tech companies. So. So, you know, this is a good way of getting exposure to a broad range of tech companies. [00:56:27][66.1]

Bryce: [00:56:28] It's a great way of well, it's it's good to have in your back pocket as well when this index starts to burn. Yeah. You know, you can chuck some money. And this is one that we're going to be adding to our portfolio online to hopefully offset the losses that we're seeing coming from bear at the moment, which was a stock that we chose a couple of weeks ago for particular reasons as well. [00:56:51][23.1]

Alec: [00:56:52] I'd probably have to say this for legal reasons. I actually am. And the end queue, I don't know. And yet, look, it it's probably worth saying that a lot of people are talking about the Nasdaq being pretty fully valued at the moment, mean they expect to crash. I am a little bit more bullish than a lot of people. I think there may be a short term correction, but I think some of the things we talked about today is, as I think especially the advertising story that we didn't spend as much time on. But I think the the consolidation of this much advertising revenue is going to keep the Nasdaq churning along pretty nicely, let alone all of the new technologies that all these companies will develop. [00:57:37][45.5]

Bryce: [00:57:38] Yeah, no, I agree. I think this is a very long term play. I think this stock could be worth a lot more down the track if you just look at these companies and the potentials that they have. And I can't see yet, as you said, short term corrections. Yes, long term gains for sure. So that's it. And will throw it out. We'll invest a thousand through AIG. Still have lots of trade. [00:58:03][25.3]

Alec: [00:58:04] They still haven't reached out to us about that sponsorship. [00:58:05][1.4]

Speaker 3: [00:58:06] But you have put the offer out. Yeah, but that's it. [00:58:10][4.0]

Bryce: [00:58:10] Ren. And another great episode that was Tik-tok. You're going to have a particular to point out later down the track or we'll do a spectacular and discuss some of the other things going on. [00:58:20][10.0]

Alec: [00:58:20] So we kind of we could have waffled on for a whole other episode here. [00:58:23][2.7]

Speaker 3: [00:58:24] And they probably were [00:58:26][1.5]

Alec: [00:58:26] probably worth saying, if you want any other form of tech or not tik-tok any other Tukwila, you know, if you want us to do a Deep Dive on something, give it shoot us an email, shoot us tweet, shoot us a Facebook message. Yeah, yeah. Whatever one tries to contact us, let us know. We'll be happy to do it. [00:58:47][20.3]

Bryce: [00:58:47] Yeah. So as always, thanks for listening guys. And we will be back in a couple of weeks. [00:58:52][4.5]

Speaker 5: [00:58:53] Equity Mates and the people appearing in this programme may have positions in the company's pension. This is general advice for me. Please speak to a financial professional, understand how they pertain to your individual situation. [00:58:53][0.0]

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