Category: Business

“That really forced us to focus on developing a product that people wanted to use, rather than papering over it with a bull market and incentives and crazy token prices. That focus, I think, on building a product that people actually wanted to use was imperative for us developing anything good.”

In fact, he reckons that if the company had raised the $280 million that it did in March at the early stages of its development it wouldn’t have been good.

A lot of ground to claw back

“We had no idea how to spend that money. When we raised $2.5 million (in 2018) you have to think incredibly efficiently. What is the priority today?

“I actually think having too much money can be harmful to the psyche of building something because you tend to view it as, I have to spend this rather than what I need to build. Or who do I need to hire in order to accomplish what I want?”

The Ferguson brothers debuted on the Financial Review Rich List in May with wealth estimated at a combined $1.01 billion.

Since then, crypto markets have tumbled before a rebound last month. But there’s a lot of ground to claw back. Ether, the currency tied to ethereum, which Immutable builds its businesses upon, is down about 50 per cent.

Ferguson concedes the downturn is hurting crypto companies. Even Immutable has let some people go within its gaming operations. Ferguson wouldn’t comment on the cuts.

But he is busily hiring to build the broader business, confident Immutable is building products, including its Immutable X platform, that will find demand as more of the world shifts to owning and trading digital assets, or non-fungible tokens (NFTs).

“Our thesis is that all forms of unique value in the world will eventually be tokenized,” he says.

“And they will be tokenized via the data structure of an NFT. So, in 10 years, we expect the vast majority of industries with unique value, whether it is real estate and trading houses, or whether it is the trillion dollars’ worth of T-bills or term deposits that are outstanding liabilities today, to be tokenised and transformed into NFTs.

“The technology in the platform that we’re building for games is precisely what is needed to allow hundreds of millions of homes to be tokenised, or pieces of real property and IP, like music royalties.”

The company’s genesis was in video games called Etherbots and Gods Unchained, where players could buy and sell items within the game.

Obsessed with fantasy

But as demand for their games, and to own items within them, surged, so too did the fees to keep building it on the blockchain.

So, they set about building a platform that would allow gamers and other businesses wanting to market NFTs to operate without incurring huge costs, called gas fees.

Ferguson confesses he was a massive nerd who was obsessed with fantasy fiction as a kid.

He was dux of his year at Knox Grammar, but even though he was punching above his weight academically, he and James would frustrate their parents by spending a lot of time playing video games.

“We would play a tonne of video games,” Ferguson recalls. “I think I have a few thousand hours in League of Legendsa few thousand hours in runescape from when we were a bit younger. Anything with an in-game economy, I loved. I wasn’t particularly good at these games, by the way,” he tells the podcast.

“I do remember Mum being very frustrated with those, but I think that formed the basis of a lot of what we ended up building later on and understanding that these digital goods are actually really meaningful for kids.”

By the time he was in year 9, he was working with his brother on side projects. They became obsessed with developing digital products.

It was during his summer holidays at the end of 2017, after his second year studying law and computer science at University of Sydney, when one of their ideas was really paying off.

A game they’d built, Etherbots, went viral. It was making millions. Ferguson didn’t go back to university. They set up Immutable instead. For a time they worked all night from a co-working space.

“I remember the other half of the building was this photo box start-up that was building photo boxes for events. And they thought we were nuts. They came in on a Monday, and we were just sleeping under the desks, and we hadn’t left all weekend.”

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Last week saw a number of broker notes hitting the wires once again. Three buy ratings that investors might want to be aware of are summarized below.

Here’s why brokers think investors ought to buy them next week:

According to a note out of Goldman Sachs, its analysts have reiterated their buy rating on this fund manager’s shares with a slightly trimmed price target of $1.92. Goldman was pleased with GQG’s results and remains positive on its outlook. This is due to its strong operating momentum and low fees. It also highlights the company’s co-founders have the majority of their wealth invested in GQG and its investment strategies. The GQG share price ended the week at $1.66.

Pilbara Minerals Ltd (ASX:PLS)

A note out of Citi reveals that its analysts have retained their buy rating and lifted their price target on this lithium miner’s shares materially to $3.60. The broker made the move after increasing its earnings estimates for FY 2023 and FY 2024 significantly on the back of higher spodumene price assumptions. It is expecting this to underpin high levels of free cash flow. The Pilbara Minerals share price was fetching $3.12 at Friday’s close.

Analysts at Morgans have retained their add rating on this property listings company’s shares with a slightly trimmed price target of $143.00. This follows the release of a full year result that beat on the top line and narrowly missed on the bottom line. REA was particularly pleased with the performance of REA’s local operations, which delivered very strong growth over the prior corresponding period. Looking ahead, the broker believes management has levers to potentially pull to boost its growth. The REA share price ended the week at $133.85.

He acknowledges that the inflation fight is not over, but says a pivot from the Federal Reserve does not have to involve rate cuts; the Fed keeping rates on hold for a period or even reducing the size of the super-sized increases it has delivered recently would represent a change in direction that the markets are likely to embrace.

He has noticed a few signs of a shifting mood in the markets recently, from signals that turbocharged inflation rates in Brazil have peaked – sparking a rally in the country’s small and mid-cap stocks – to a greater number of institutional investors positioning for a potential end to deep risk aversion.

hedging effect

When the Global Select Fund started investing in a beaten-down healthcare stock recently, it jumped about 10 per cent just as Richyal started buying. His market soundings suggested the move was driven by a degree of short covering as well as by hedge funds getting long.

“Because everyone’s so hedged, there might be a fear that the pain trade is up, and then you might get a scramble to actually reposition long.”

That would be good for Richyal’s portfolio, which is dominated by long-duration stocks, which were beaten up in the first half of this year but are now rising off their lows. He says it’s time for investors to start looking at higher-quality stocks in parts of the market that have been heavily sold during the past six to nine months, such as technology.

“Some parts of the market really have already suffered. That doesn’t mean that the index at an aggregate level can’t come down further, and it doesn’t mean that some pockets can’t de-rate further.

“But if we start to gravitate towards those parts of the market that have had the pain, and are stabilizing and where you’re seeing some fundamental improvement, it is the right thing to do right now.”

The market has clearly soured on recently listed tech companies and those that went public in the past few years, either via floats or during the SPAC craze of 2021. But Richyal is looking for nuggets here, too.

“This is the correct time to sharpen your pencil and find an IPO that’s actually a good quality company but the baby has been thrown out with the bathwater,” he says. “Because there’ll be some pretty solid businesses over the next five, 10, 15 years who may just have derated because they happened to IPO at exactly the wrong time, or they happened to de-SPAC at exactly the wrong time.”

Richyal and Lees’ cautious optimism appears to be catching. Legendary hedge fund investor George Soros has also been buying tech stocks, loading up on Amazon, Salesforce and Google’s parent Alphabet such that all three are now among his 10 biggest holdings.

According to Bank of America, their US clients have been net buyers of stocks (that is, more buyers than sellers) for six consecutive weeks, with institutional buyers leading the way in the last two weeks. Tech stocks have been particularly popular – last week had the biggest weekly inflows to the tech sector since 2008.

As BofA says, there is risk in this tilt to tech; Although the June quarter earnings numbers for US tech giants held up reasonably well, there are questions about whether these stocks will prove quite as defensive as investors think, particularly as US economic growth slows further.

And as this column has been banging on about for months, the excesses of the past decade, let alone of the past few years, look a long way from being washed out of this market.

inflation outlook

But even if investors feel the recent market momentum is unwarranted – the S&P is now up 16.7 per cent since its low in mid-June, the Nasdaq Composite is up 22.6 per cent and the ASX 200 is up 9.3 per cent – ​​they need to be at least considering the idea that the market has bottomed and risk- on sentiment can keep running for a while.

How long sentiment remains robust will probably depend on the outlook for inflation. The Fed has made it clear that inflation remains uncomfortably high and interest rate increases will be needed well into next year. It will be worried about rising equity markets too, as this loosens financial conditions.

But investors in bonds and stocks are effectively shrugging their shoulders and betting that the Fed will take its foot off the interest rate accelerator to engineer the sort of soft landing in which the US avoids a recession.

Richyal is watching inflation too, although not for the reasons you might think.

“We still think that even though some of the strongest disinflation trends may be coming to an end in certain cases, the most important trend – demographics – is still going in the same direction. We are still living with aging societies, regardless of whether that’s west or east, global north or global south. And that primary trend is going to overwhelm most other trends.”

Many economists argue that aging populations will be inflationary: the trend of fewer workers pushes wages higher, and consumption of healthcare and similar services explodes. But Richyal has a somewhat contrarian view.

As the population ages, older people will tend to downsize where they live, meaning investment in fixed assets (particularly property) actually falls. The experience of Japan, which Richyal describes as “an ideal petri dish” because it has had a rapidly aging population and has been battling deflation for decades, suggests “that decline in fixed asset investment means you don’t actually need that many people” .

Richyal also borrows from work done by Australian economist Gerard Minack, who was previously Morgan Stanley’s chief global investment strategist and says the data disputes the idea that a reduced workforce pushes up wages.

“The key to the aging-is-inflationary argument is the assumption that falling labor supply leads to increased bargaining power for labour,” Minack wrote last year. “Japan shows the reverse applies: fast labor supply growth went hand-in-hand with fast wage growth, then slowing labor supply growth slowed wage growth.

“Japan is not exceptional. Slowing labor force growth is a cause of, not an antidote to, secular stagnation. It is a false hope to think that aging will end secular stagnation. And neither Japan nor the US is exceptional: the link between demographics and disinflation is obvious elsewhere.”

Richyal does see risks to his argument, particularly around the appetite for borrowing in the economy; if this is considerable, persistent inflation is possible.

But the power of deflation from aging is such that he believes “we could just end up in Goldilocks again, where it’s just not too cold, not too hot, because these forces all just wash each other out”.

If that’s the case, Richyal believes investors will want long-duration stocks such as those he owns – high-quality tech and healthcare companies that investors will reward for delivering growth in what he believes could be a low-growth, deflationary world.

Koala would not confirm how many staff members it employed before the layoffs, though the professional social network LinkedIn puts it at 288. However, that figure is unlikely to be accurate because some people do not update their employment status when they change or leave a job .

Industry insiders, who spoke to The Sydney Morning Herald and The Age on condition of anonymity to discuss the market candidly, said Koala had once appeared a runaway success that pioneered delivering mattresses in a box in Australia, only to find itself competing with a raft of copycats.

A similar mattress company in the US, Casper, was valued as high as $US1.1 billion in 2019 but went public for less than half that and was taken private again earlier this year after its value fell by about another 40 per cent. In 2020, Koala was reported to be raising money at a $500 million valuation.

Former Australian cricket captain Steve Smith was an early investor in Koala. Several of its former leaders have gone onto found other high-profile start-ups, including co-founder Dany Milham, now chief executive of grocery delivery business Milkrun, and former marketing head, Tim Doyle, now boss of healthcare start-up Eucalyptus.

Koala’s spokeswoman did not give figures on the company’s revenue, profit, capital raising or savings but championed its prospects and said suggestions it had explored an IPO were “not correct”.

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“Like any private company with proven success as a market leader in our categories and markets, we are fortunate enough to receive countless inbound introductions from potential investors. They see the opportunity for Koala to continue to disrupt the global furniture market.”

She said Koala’s margins were double those of some competitors and that more than half its Australian revenue was coming from non-mattress products, representing a more diverse business.

“Word of month about our furniture offering and experiences has led to incredible growth in non mattress sales. With many more unique Koala designs being launched later this year, we’re excited to continue this strong growth into all rooms of the home.”

The company was supported by its existing investors. “We will continue to invest in our operations across Australia and Asia,” the spokeswoman said.

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Those who drive a 2019 or newer Mitsubishi Outlander Sport might want to park them for the time being. Back in May of 2019, three such SUVs either failed to start or stalled while driving. After a lengthy investigation and a bunch more dead Outlander Sport engines, Mitsubishi is recalling more than 75,000 examples to ensure that no more cases occur.

It was more than a year before a fourth stalling occurrence took place. Analysis of the returned engines indicated that an exhaust valve had tried to share the same physical space as a piston. That’s never a good thing but despite its best efforts, Mitsubishi couldn’t determine a root cause for the issue.

From May 2020 through April 2021 more instances continued to trickle in. They continued to show piston to exhaust valve contact but it wasn’t until bench tests and on-site investigations determined that the control logic of the CVT-ECU might be at the heart of the issue.

Read More: Ferrari Recalls Almost Every Car It Sold In The US Since 2005

Beginning in January of this year Mitsubishi began further in-depth analysis and simulations with a focus on the CVT-ECU. It found that in rare instances, the CVT-ECU briefly loses its power supply, and when the unit resets it sends the target gear ratio to the lowest “gear” possible. Imagine being on the highway and then forcing your car into first gear. That’s similar to what happens in the case of these Outlander Sports.

When that happens, the engine speeds up beyond what it can tolerate and the piston and exhaust valves meet which stalls the engine. Clearly, that’s a safety hazard and so a total of 76,508 Outlander Sports will need a software update to eliminate the risk.

Mitsubishi has concluded that there are two classes of Outlander Sport that don’t need to worry about this recall. That includes any equipped with a manual transmission (duh) and those that use a push-button start.

The automaker has received a total of 21 field reports and 29 potential warranty claims (19 of which were also field reports). Owner notification letters should be mailed by August 24th but if you own an Outlander Sport and want to confirm whether or not your vehicle is included before that you can simply call your local dealer or the NHTSA.