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When Uber chief executive Dara Khosrowshahi quoted Jerry Maguire in an all-staff email a few weeks ago, my ears pricked. “We need to show (shareholders) the money”, he wrote. “We have made a ton of progress in terms of profitability, setting a target for $5bn in adjusted EBITDA in 2024, but the goalposts have changed. Now it’s about free cash flow.”

Good. “Adjusted EBITDA” is a scourge on the accounting profession. EBITDA stands for earnings before interest, tax, depreciation and amortisation. Those expenses after the word “before” are all very real. And there are no prizes for guessing which way the adjustments go when companies calculate “adjusted” EBITDA. And the investment community was duped into using these vastly overstated estimates of profitability to value companies.

But the companies themselves use these make-believe profit numbers for internal decision making. That results in a lot of misallocated capital and overpaid staff.

No one seems to care while share prices were rocketing. In this new-age tech bubble, even adjusted EBITDA became a boomer metric. All that mattered was revenue and growth.

But the bubble has burst. Uber’s share price is now half its IPO price and 55 per cent down on where it traded a year ago. And it is one of the better performing tech companies.

Zoom is down 75 per cent from its peak. Australia’s tech darlings haven’t faired much better. Xero’s share price is down more than 40 per cent and most smaller companies have performed even worse.

Highly valuable companies will undoubtedly emerge from this tech wreck.

Many are generating billions of dollars of revenue, unlike the Pets.coms of the dotcom bubble. Many have great products and subscription-based revenue models that make their revenue relatively reliable and predictable.

But they ultimately need to generate cashflow for their shareholders. Bubbles come and go, but share prices always, eventually, depend on investors wanting to earn a real return on their investment. Show them the cash and your share price will go up.

That’s why Khosrowshahi’s email piqued my interest. He’s an industry leader and he gets it. And Uber is already making moves to deliver on what long-term investors want to see. I’m seeing more and more chief executives follow the lead. We own ASX-listed companies Whispir, Nitro and Bigtincan in our Australian Shares Fund and all three have become recently vocal about generating cashflow for shareholders.

Many CEOs, however, are still in denial. And even Khosrowshahi hasn’t yet got the full picture. Generating cashflow is one thing. How much of that money ends up in shareholders’ pockets is just as important.

Uber issued more than US$1bn ($1.39bn) worth of shares to staff last year. Khosrowshahi isn’t talking about that expense anywhere. It isn’t in adjusted EBITDA and it isn’t in free cashflow because it isn’t a cash cost. It is a very real one.

Electronic signature company DocuSign claims to be nicely profitable already. It reported “adjusted operating profit margins” of 20 per cent in 2021. Those margins translate to healthy cash generation. But it is not counting “non-cash” share compensation to staff in those numbers. It has been issuing shares worth 20 per cent of revenue to staff every year – that’s all of the reported operating profit.

Over the past three years, DocuSign’s generous grants have translated to one-third of the company being gifted to staff. It’s not cash remuneration, but giving a third of the company away is a very real expense for shareholders.

DocuSign’s response to a precipitous decline in its share price (down more than 70 per cent from its peak) has been to suggest it might need to issue more shares to staff, not less, to compensate for the lower price.

Cryptocurrency exchange Coinbase wants to compensate staff for losses on previous share issues by – of course – issuing them even more shares.

The largesse in this tech bubble has been unprecedented. Hundreds of billions of dollars of capital have been thrown at the sector with very few questions asked. Much of that money has ended up in the pockets of founders and staff.

It cannot be easy for insiders to accept that the largesse needs to end. But with interest rates rising, share prices falling and access to capital becoming far more contingent, they are going to get the message.

When Khosrowshahi starts talking about free cashflow after stock-based compensation, then reality will finally be sinking in.

Third party logistics provider eStore Logistics has called in advisers to hold talks with potential suitors, as part of a wider strategic review.

Street Talk understands eStore Logistics has appointed Highbury Partnership and law firm Allens to help test potential buyer appetite in the business, and see whether there’s a big offer that can be put to the company’s shareholders.

Sources said the review was prompted by a low-ball unsolicited bid to acquire the company. Fingers were pointing to Australia Post as the mystery suitor.

Instead of hitting the bid – said to have been pegged at circa $100 million – it is understood eStore Logistics opted to test interest more broadly. The review’s expected to include talks with potential private equity investors and other logistics sector companies.

eStore Logistics was founded in 2008 and is Australia’s biggest provider of specialised third party logistics, including warehousing and order fulfilment for traditional and online retailers.

The group, founded by managing director Leigh Williams, opened its eighth site late last year, which was a 19310 square metre fulfilment centre at Bankstown Airport, in western Sydney. Other sites include retail warehousing facilities in Derrimut, Melbourne, and in Erskine Park, Sydney.

Retailers serviced by eStore include online sellers Kogan.com and Temple & Webster (for which it opened a dedicated Melbourne fulfilment centre in May) as well as outdoor clothing company Patagonia and pharmacy chain Chemist Warehouse.

Kogan.com founder and major shareholder Ruslan Kogan is also an eStore Logistics investor.

Williams, 39, is also the company’s biggest shareholder with a 76 per cent stake, according to filings with the corporate regulator, and is joined on the share register by Kogan Management Pty Ltd, which has another 19 per cent. Kogan Management Pty Ltd is owned by Ruslan Kogan.

Shoppers at major supermarket Woolworths can now scan a code to both check-in and check out, with the retailer being the first to roll out QR code payments across their stores nationally.

Customers will be able to link their chosen payment method to a digital wallet, through the company’s Everyday Rewards app. Scanning the QR code at checkout will then process the payment and scan the customers’ loyalty card simultaneously, with a receipt being sent to their phone afterwards.

QR code payments were touted as the next step in Australia’s payments landscape late last year, with major payments service Eftpos saying the option could become as prevalent as tap-and-go given how comfortable consumers are with using the technology in light of the pandemic.

Woolworths’ managing director of Everyday Rewards, Hannah Ross, told The Age and The Sydney Morning Herald the ubiquity of QR codes post-COVID was a significant factor in the company’s decision.

“We’ve seen a big shift in digital adoption as customers are feeling more comfortable scanning QR codes while on the move, which we weren’t really doing so much before the pandemic,” she said. “The ability to pay with a QR code now seems so much more normal than it did years ago.”

Woolworths is the first major retailer to allow customers to pay via QR, a service it is offering in its supermarkets, Metro stores and Big W locations.

The codes will be available at both self-serve and traditional checkouts, appearing on the point-of-sale terminals where shoppers usually enter their payment details.

Ross says around one million Woolworths customers already use the company’s Everyday Rewards app each week and the retailer expects those shoppers to be quick adopters of the new payment method.

“It’s really about solving that customer pain point of missing out on their rewards points when they forget to scan, and just making a more convenient, seamless experience at the checkout,” she said.

Woolworths’ recently established Wpay payments arm built the QR payments technology for the retailer and could offer the same tech to other businesses down the track, Ross said.

A number of other retailers and banks are also trialling QR payments tech, meaning Woolworths will likely be the first of many Australian merchants supporting the new offering.

“It is something we’re expecting to see a lot more of,” Ross said. Woolworths has a total of 13 million Everyday Rewards members across Australia, the country’s second-largest rewards program behind Qantas’ Frequent Flyer scheme.

A spokesperson for Coles told The Age and The Sydney Morning Herald the supermarket was also working on deploying QR code payments across its stores and online platforms.

“We plan to create an omnichannel store experience for our customers using QR code payments through flypay via the Coles App,” the spokesperson said.

Online furniture retailer Temple & Webster is moving into the home improvement and DIY market with an online store aimed at challenging the dominance of Australia’s biggest hardware chain Bunnings.

The company plans to spend $10 million over this financial year and the next establishing The Build, an online store selling home improvement products such as ceiling fans, lighting fixtures, bathroom vanities and wallpaper. Further categories, such as tools and building equipment, will be added over the coming months, Temple & Webster told its shareholders on Wednesday morning.

The retailer announced the plans as it updated shareholders on its trading performance through the second half of the 2022 financial year so far, with sales up 23 per cent for January through to the end of April. The company expects its earnings margin to be around 3 per cent for the full year.

Investors weren’t impressed, sending the stock down 6.7 per cent to $5.04 in late afternoon trade.

The expansion into home improvement is a notable deviation for the online furniture retailer, which has established itself as a significant player in Australia’s home goods market during the pandemic, thanks to a boom in demand for home office equipment such as desks and office chairs.

Chief executive Mark Coulter said the move was a “natural extension” for the ASX-listed business as Australians were drawn to home improvement projects.

“Australia is a country of home renovators, we love our homes, and we love making them more beautiful,” he said. “We believe our expertise in ecommerce and the home will help make The Build become Australia’s first-stop shop when it comes to renovating and redecorating.”

The market for online improvement in Australia could be worth around $16 billion and the category was yet to make its mark online, with just 4 per cent of DIY shopping happening online compared to around 25 per cent in the UK, the company said.

Investors were sceptical, with RBC Capital Markets analyst Wei-Weng Chen saying the company’s sales were tracking well below estimates and that shareholders would look upon the launch of The Build with caution.

“While the total addressable market, margin opportunity and online-penetration story for the home improvement category looks attractive in the medium [and] longer term, we expect the market to approach the launch [...] with an element of caution, given the current macro headwinds facing the Australian property market,” the analyst said.

The company will also face a tough job when squaring off against Wesfarmers’ Bunnings juggernaut, which - despite only recently launching an online store - holds around 50 per cent market share for home improvement in Australia.

Perhaps in recognition of this, Temple & Webster said it doesn’t expect The Build to make a material contribution to its overall sales and earnings for the first four years. However, it expects the long-term-margins for the business will be better than its furniture and homewares category.

In the face of the highest levels of inflation in four decades, Amazon on Thursday posted its slowest quarterly growth in years.

The company reported $US116.4 billion ($164 billion) in revenue in the first three months of the year, up 7 per cent from a year earlier. That was down from 44 per cent sales growth in the first quarter of 2021. The number of products that Amazon sold in the quarter was flat from a year ago and its costs to sell those items also increased.

Amazon lost $US3.8 billion in the quarter, its first such loss since 2015. The loss included a decline of $US7.6 billion in the value of its investment in Rivian Automotive, an electric truck maker whose shares have fallen this year. The losses also stemmed from Amazon’s consumer businesses in North America and internationally, although its cloud services division continued to grow and make money.

The results fell far short of Wall Street’s expectations, causing Amazon’s share price to fall more than 10 per cent in after-hours trading.

“Our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network,” Andy Jassy, the company’s CEO, said in a statement. “We know how to do this and have done it before. This may take some time, particularly as we work through ongoing inflationary and supply chain pressures.”

The company’s forecasts for the current quarter of a 3 per cent to 7 per cent increase in sales indicated its growth could continue to slow.

Amazon benefited from the coronavirus pandemic as people flocked to online shopping. But as vaccines have become widespread and as inflation in the US - its biggest market - hit 8.5 per cent in March, shoppers have become more skittish. According to US Commerce Department data released on Thursday, consumer spending on the kinds of nondurable products that people often buy on Amazon was down 2.5 per cent in the first quarter compared with the final three months of 2021.

Facing rising costs, Amazon has increased prices for customers and sellers on its marketplace. The price of its Prime membership program rose in February to $US139, from $US119, the first increase since 2018. This month, the company announced an additional “fuel and inflation” fee for sellers whose inventory it warehouses and delivers to customers.

At one point in mid-March, Amazon forced employees at several warehouses to take mandatory time off without pay because customer demand was weak.

Labour shortages have also cost Amazon billions of dollars recently as it has responded by raising wages and offering other incentives. The company barely grew its workforce during the quarter, with a total of 1.62 million employees.

The company has also faced a surge in labour activism. In April, workers at a warehouse in New York voted to be the first Amazon facility in North America to unionise.

Some investors have been optimistic that the costs will taper off. Amazon has spent heavily to expand its warehousing infrastructure, including opening delivery depots across the country that let its network of contractors quickly bring packages to people’s doorsteps.

The boom in online shopping that dominated the first two years of the pandemic is starting to unwind, as shoppers freed from lockdowns head back into bricks and mortar retail stores.

The pure-play e-commerce sharemarket darlings are having a tougher time also as supply chain disruptions and hefty shipping and freight costs eat into profits.

One of the highest-profile e-commerce companies, Kogan.com was severely punished again on the stockmarket on Friday as profits slipped in the three months ended March 31. Kogan.com is also still carrying large amounts of inventory in warehouses as a buffer against potentially long delays for some orders, which is weighing on profits.

Kogan.com founder and chief executive Ruslan Kogan said on Friday there had been a general slowdown in e-commerce across the market in the March quarter, as he foreshadowed a crackdown on costs in the business to preserve profit margins.

“Over the coming year, the company will be recalibrating its organisational costs in line with current growth levels to support a return to the historical operating margins previously generated,” Mr Kogan said.

Justin Hemmes and Neil Perry backed QR-code hospitality ordering business me&u is sounding investors for a $50 million capital raise, riding on the wave of interest in rival Mr Yum.

me&u lets restaurant and pub patrons order food and drink (and pay for them) via a QR-code placed on their tables, cutting out traditional wait staff. It makes money by taking 1.5 per cent of the order value as commission.

The business has been around since 2018 and was founded by Stevan Premutico, who also established restaurant reservations start-up Dimmi and sold it to TripAdvisor in 2015.

me&u’s mandated Record Point to help drum up investor interest, for what sources said was expected to be a $50 million capital raise.

Flyers sent to potential investors said me&u cut out wait times and drove serious labour efficiencies. It said the business usually achieved a 30 per cent spending uplift (being better at upselling than busy staff), and could feed back proprietary data-driven insights to help pubs and restaurants with their operational decisions and menu presentation.

Fast growing Melbourne-based mobile restaurant ordering and payments start-up Mr Yum has used a chunk of its recently raised capital to make its first major acquisition, buying out fellow Melbourne tech firm MyGuestlist, in a deal it said would expedite its international growth ambitions.

Details of the deal are not being disclosed, but Mr Yum’s co-founder and chief executive Kim Teo said it was in the “tens of millions”, and would include MyGuestlist subsidiary Sprout and all of its 23 staff – based mainly in Melbourne and London – moving across to Mr Yum.

Mr Yum grew rapidly during the pandemic by offering restaurants, cafes and pubs a way to deal with customers during lockdowns with QR code-based menus, and has raised significant external capital, including $US65 million ($92 million) in a round led by Tiger Global, AirTree Ventures and Scott Farquhar and Kim Jackson’s Skip Capital, last November.

At the start of 2021 Mr Yum employed just 15 people, but following the close of the acquisition this will have grown to 260. Ms Teo said MyGuestlist and Sprout would add much more capability to its products, which would otherwise have taken a huge amount of time and resources to build itself.

MyGuestlist is a customer relationship management platform used by hospitality operators including Nando’s, Shake Shack, Solotel Group and Accor Hotels. Sprout meanwhile is a customer communication tool, that lets operators deal with customers via email and SMS.

Online marketplace Redbubble says its sales fell by 16 per cent in the third quarter, despite a high level of returning customers who first engaged with the brand during Covid lockdowns.

In a trading update, the company said its third-quarter sales fell to $384 million with gross profit down by 22 per cent to $144 million. Operating EBITDA was $4.5 million.

The group has also registered ‘strong’ overall customer retention during the quarter with 47 per cent of marketplace revenue coming from repeat purchases – the highest level since the company was founded.

In the update, the company said it would look to both organic and non-organic opportunities to boost its share price, which it believes does not accurately reflect the fundamentals and prospects of the business.

“We intend to invest in both the artist and consumer experiences, to improve loyalty and retention and to ensure long-term growth,” said Michael Ilczynski, CEO.

Last year, the business hit $144 million in profit, up by 118 per cent, reflecting its strong consumer demand over the holiday period.

Ilczynski reiterated that the company’s revenue and profit performance are in line with expectations. 

Sarah Willersdorf is a partner and managing director at Boston Consulting Group. Based in New York, the Australian was walking her eight-year-old son to school late last year when they bumped into a friend of hers.

Santino, said to his mother’s friend: “Are your sweatpants Balenciaga?” Willersdorf’s friend of 10 years nearly fell over. How on earth had an eight-year-old boy even heard of luxury fashion house Balenciaga?

The answer to that question was that Willersdorf’s son had purchased a Balenciaga-branded outfit – otherwise known as a skin – for his character in online video game Fortnite.

In another example of life – and the potential for new revenue streams and marketing avenues – in the virtual universe, in 2020 online fashion retailer NET-A-PORTER created a space inside Nintendo’s virtual gaming platform Animal Crossing: New Horizons where gamers could take their avatar to meetings in a wood-paneled boardroom, photoshoots and browse back catalogues. French fashion designer Isabel Marant created five outfits for the occasion, so gamers could dress their avatars.

Virtual concert

Early last year McDonald’s partnered with 88rising, an Asian artist collective, to create a virtual Lunar New Year concert by Chinese hip-hop artist Masiwei that was broadcast exclusively on the McDonald’s app. This year the fast food behemoth held a virtual exhibition showcasing the 12 animals of the Chinese zodiac, Eventually McDonalds is planning to set up storefronts at virtual events that will sell virtual NFTs and food, which can be delivered during the event.

These examples demonstrate why companies in sectors ranging from fashion, beauty and fast food to property need to be monitoring and experimenting in the virtual world, aka the metaverse, says Willersdorf, even if it is early days.

“There’s not a perfect metaverse right now,” she warns.

“It’s not going to be your biggest revenue driver right now. Everyone’s coming out of COVID-19, so I think you have to keep the wheels on and be doing what you’re doing, but you also need to start experimenting a little bit,” argues Willersdorf, who has lived in New York for 10 years and in London and Paris before that.

“The metaverse today is like the internet was in the late 90s. It’s a new medium, and we’re just learning how to use it,” adds Jared Spataro, corporate vice president of modern work at Microsoft.

There are limitations to the platforms and the hardware such as virtual reality headsets that are used to access the metaverse.

Brand extension

Kelly Brough, retail lead at Accenture ANZ, says the metaverse is a useful tool for brand extension, similar to social media, ecommerce and stores or venues.

“When I’m talking to my clients right now, it’s very much about, what are the experiments that make sense to do, to start to understand this?”

But companies should expect the metaverse will expand quickly, given the huge amount of money that is pouring into start-ups in the sector. Companies such as Microsoft, Apple, and Sony have also made significant investments in the area.

“What this represents is new ways to shop, new ways to engage, and I think new ways to build communities,” Willersdorf says.

It is not just consumer-facing industries that need to get on board.

Since last June, more than 2000 of Accenture’s employees in Australia and New Zealand have been introduced to their colleagues in the company’s metaverse.

All new employees spend a quarter of their orientation training in the metaverse. They create an avatar and access One Accenture Park, a shared virtual world where they can interact with colleagues and complete training modules.

Last year, Microsoft released a version of its Teams collaboration platform, known as Mesh, which creates a metaverse-like experience where workers can meet each other and collaborate via avatars.

Willersdorf says some companies are considering whether they might need to create a head of metaverse role, given that expansion in the virtual world will require co-ordination across companies’ technology, marketing, sales, payments, branding and legal departments.

“The coordination even to do experiments is huge. Also, you’re typically working with a lot of other companies and vendors, and you’re contracting with big platforms and maybe small developers who are going to do the design.”