01:15:48 · Luca Ferrari
[01:15:48] S1: First of all, we like to keep them for ourselves because they're a competitive advantage. Also, you can't do everything in life. We're talking about prioritization and focus, and we just decided that we use these tools for our own benefit to run this business as well as we can. Also, don't think they would be all that appreciated by the broader market for a couple of reasons. Number one, they tend to be very, very advanced. Most people out there who run a digital business, they actually don't want maybe they think they do, but they don't want the most sophisticated AB testing platform. Overwhelming. They're not obsessive about AB testing. They want something that's a little bit more approachable. So they wouldn't actually necessarily take full advantage of the real... There are solutions out there on the market that are more mass market, a little bit more intuitive, easier that I would recommend to them rather than our own, which is again meant for high level of sophistication. And lastly, a lot of these technologies are doubly powerful because they're fully natively integrated with one another. They're all built to function together. And so it's very difficult for a business out there to choose to adopt 50 different things. They're not gonna scrap everything they're doing. And so a lot of the value fades away from only giving you one thing. So I don't even think that the the business opportunity will be all that great to to to market this stuff.
01:17:07 · David Senra
[01:17:07] S0: I've heard people that I don't think pay attention to Bending Spoons to, like, oh, this is just like another, like, PE play. I was like, that's... I don't think that's it at all. Can you... So let's, I think, walk through one of the acquisitions. You mentioned earlier, I don't know if this is a term you put on it, when you're starting a company, you have to luck your way into product market fit. You don't want to do that. You want to buy a working product. Let's take Evernote, for example. I was an Evernote customer for, I don't know, eight years. What did you see in Evernote? What was the state of the business? Then what happened after the fact, I guess?
01:17:39 · Luca Ferrari
[01:17:39] S1: By the way, I think people who compare Bending Spoons to private equity, they maybe have a simplistic, superficial view of the world and they're like, okay, they acquire companies and they've raised prices. Then Google acquires companies, acquired hundreds of companies and has raised prices hundreds of times. So it's a little bit of a pretty limited set of criteria to compare. I'll give you the highlights on a high level and then I'll translate to the very specifics of Evernote or any business you want me to talk about. First major difference, we're not a fund, we don't buy to sell. We've never sold a material business. We buy to hold and operate forever. The second very big difference is that our interventions on the business require are very, very deep. Again, I'll be very clear as I describe Evernote, but we transform them sometimes beyond recognition. I'd like to think for the better. That's what we try to do here. And the third aspect is we integrate these businesses very, very deeply into a shared platform, including the technological operating system we were discussing, but also this core team of, we call them Spooners, who run the businesses, a lot of the R and D marketing, we move them around fluidly across businesses, and none of this bears any resemblance to what private equity does, because those are funds they buy to sell after, say, five years. They generally intervene, yeah, maybe on some costs or price, but I've never seen a private equity reinvent a product or rebuild the org or rebuild the technological infrastructure, and they generally don't integrate the businesses together under a shared platform because they don't have the platform, and even if they did, they need to sell them piecemeal. So if you integrate them, you can't sell them, or at least it would be much more difficult to sell them. So we are almost as different as it gets, other than we acquire stuff for a living. So that's for sure in common. Now Evernote specifically, so what we saw in it... Well, Evernote in its history has been used by a quarter of a billion people. How many? A quarter of a billion people. Extensive reach and usage ultimately build the brand. Naturally, there's that plus the experience needs to be good, which often was, especially for the first many years.
01:19:58 · Luca Ferrari
It's certainly a brand that almost everybody has heard of, is familiar with, often is perceived positively, sometimes not as much, but certainly not negatively, more sometimes as well, it's something from the past, it's probably not that relevant, but nobody has a negative association with Evernote or very few people. So a very well known, powerful brand, a pretty sizable user and customer base, several million active users and customers at the time of acquisition and to this day. And we believe a substantial opportunity for improvement across the board. I'll describe the improvements in a moment. And lastly, something we always seek in acquisitions is predictability. We like to buy stuff where we have a good sense of where it's going at least five years out, at least under management once it's installed into our platform. In that case, a few factors enabled us to predict its future. One, user and customer base was highly tenured. On average, I think a paying customer had been on the platform using Evernote for five to ten years, don't remember exactly, but an extremely long period of time. Most of the revenue was from subscriptions, which we tend to be able to predict in terms of their future performance better than more volatile revenue streams like advertising. Most of the value lay with existing users and customers as opposed to hypothetical new users and customers that acquire out there. And we find that it's much easier to bet on existing customer bases than new acquisition, because new acquisition of users and customers tends to be much more volatile with the changes in competition, advertising dynamics, in terms of advertising for acquiring customers. So we like the whole package. We thought the price was reasonable.
01:21:44 · David Senra, Luca Ferrari
[01:21:44] S0: Do you disclose what you bought it for? [01:21:46] S1: Well, it can be seen directionally from our financial statements. It was about $200,000,000 give or take. Say that again. Number again? 200,000,000. [01:21:53] S0: 200. Okay. [01:21:54] S1: More or less. About. Okay. $20.03, something like that. [01:21:56] S0: So wait, they were doing 100,000,000 in revenue? [01:21:59] S1: A little [01:21:59] S0: less, like 90. 90. Were they making any money or no? [01:22:03] S1: I would say roughly breakeven. Okay. Roughly breakeven. Slightly profitable. [01:22:09] S0: And it's doing what now? [01:22:11] S1: So we don't disclose profits by individual business, but I would say it's very profitable. You can see our overall profitability as a group. Adjusted operating income margin were at around 50 four-fifty 5%. Individual businesses tend to be more profitable, especially if you've owned them for more than a couple of years. [01:22:35] S0: Hold on, before you go on in there, an Evernote case, you drastically increased the profitability based on these rough [01:22:42] S1: Revenue went up to That's what I [01:22:44] S0: was going to ask. Does the revenue also have to go up, or you were just fine if [01:22:46] S1: you just make it? We try to improve revenue and improve costs. Sometimes we're successful on both fronts. Generally, I would say sometimes more on one than the other, but on Evernote, we both increase revenue and reduce costs.
01:22:46 · Luca Ferrari, David Senra
[01:22:46] S1: you just make it? We try to improve revenue and improve costs. Sometimes we're successful on both fronts. Generally, I would say sometimes more on one than the other, but on Evernote, we both increase revenue and reduce costs. [01:23:01] S0: Explain the difference of what you were doing compared to were doing, whatever, 90,000,000 and not making any money or breaking even. What is the difference between how you were running the business and We how they [01:23:11] S1: made a lot of changes. We rebuilt the org vastly. So it was roughly 350 team members. We made it substantially smaller, I think, a year, a year and a half after the acquisition closed. We were more around 50 to 60 team members.