Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you
Speaker 1: along with my co host Lisa Brahma Wis. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Well, global economics tend to be
Speaker 1: a cross I guess there's cross currents, as best you
Speaker 1: could say. We're getting certainly some very weak numbers coming
Speaker 1: out of your even Germany, which tends to leave the
Speaker 1: European Union. We have the Chinese economy still growing but
Speaker 1: at a slower rate. And here in the US kind
Speaker 1: of some cross currents, the manufacturing sector showing some signs
Speaker 1: of weakness, yet the consumer remains quite strong. So to
Speaker 1: get a sense of kind of where we are on
Speaker 1: the economic outlook, we welcome Constance Hunter. She is a
Speaker 1: chief economist for KPMG. Joins us on the phone. Constance,
Speaker 1: thanks so much for joining us. Guess let's start with
Speaker 1: the consumer. We got the retail sales this morning came
Speaker 1: out a little bit better than expected, suggesting that you know,
Speaker 1: despite a lot of the uncertainty in the market, the
Speaker 1: consumer remains generally pretty strong. Yeah, it was. It was
Speaker 1: a pretty good report, But we're also getting to the
Speaker 1: point where we need to parse the signal from the noise.
Speaker 1: So as we proceed through the remainder of the year,
Speaker 1: because retail sales is a nominal data series and not
Speaker 1: adjusted for inflation, uh, we may start to see some
Speaker 1: strength in areas where tariffs are being applied, So we
Speaker 1: may begin to see price increases or what seems like
Speaker 1: more consumption, and it's important to consider what have prices
Speaker 1: done in those areas. Are those really um real increases
Speaker 1: or are they just nominal increases due to some some
Speaker 1: pockets of inflation due to tariffs. So that's the first thing, um,
Speaker 1: And the second thing is just to sort of consider
Speaker 1: where we are in relationship to last year. So when
Speaker 1: we when we look at the control group, which is
Speaker 1: obviously excluding auto's, gasoline and building materials, it's up you
Speaker 1: over year, and um it is doing better than en
Speaker 1: was up four point seven. We did a we did
Speaker 1: a three month moving average just to kind of smooth
Speaker 1: out some of the noise and even with that, this
Speaker 1: most recent report showed a year every year increase of
Speaker 1: four point nine percent, so that gives us some hope
Speaker 1: that the consumer is remaining strong. With that said, it's
Speaker 1: um one of these what I would call war starts
Speaker 1: war sharts, uh, you know, pieces of data. There's something
Speaker 1: in there for everybody, depending upon what you want to see.
Speaker 1: So um one area of concern was the decline in
Speaker 1: food services and drinking establishments UM so that was up
Speaker 1: at about six and a half percent pace in eighteen
Speaker 1: and this most recent report takes it down below three percent.
Speaker 1: So so that does give us a little bit of pause.
Speaker 1: It tends to be one of the more leading indicators
Speaker 1: of how consumers are feeling. UM. So we'll be watching
Speaker 1: that closely to see if it rebounds in the next
Speaker 1: couple of months. Consence, how concerned were you about that?
Speaker 1: I sm data that came out recently, I think last
Speaker 1: week that came into forty nine point one reading suggesting
Speaker 1: that the manufacturing economy in the US is contracting. How
Speaker 1: concerned are you about that? Overall? So at first I
Speaker 1: would say we within any given business cycle often go
Speaker 1: through sort of what I would call mini manufacturing recessions. UM.
Speaker 1: So uh, it's not always a cause for concern, but
Speaker 1: to me, UM, what we're what we're seeing is we're
Speaker 1: seeing it with a confluence of other things that are concerning. Right.
Speaker 1: So we see this UM, it's it's first of all
Speaker 1: global and nature. Uh. Second of all, it is coming
Speaker 1: at a time where we've had six consecutive quotas of
Speaker 1: negative real estate investment. It's coming at a time where
Speaker 1: we see broad business investment slowing rather substantially. UM. And
Speaker 1: so it is, Uh, it is something we're watching very closely,
Speaker 1: and where in the past we may not have been
Speaker 1: as concerned, uh, that it would spill over into the consumer.
Speaker 1: That's that's why we're watching something like this UM eating
Speaker 1: and drinking establishments to determine. Hey, you know what we're
Speaker 1: seeing this a little decline here in this somewhat leading
Speaker 1: indicator of how consumers are feeling. Let's keep our finger
Speaker 1: on the pulse of that to see if that is
Speaker 1: a sign that this manufacturing recession is spilling over to
Speaker 1: the services economy. Right. So, you know, we hear Bloomberg Radio,
Speaker 1: We thought that ECB news we got yesterday about the
Speaker 1: you know, the rate cut and then really the q
Speaker 1: E infinity, if you will, was really big news. What
Speaker 1: was your takeaway? Well, one, I think it was pretty expected.
Speaker 1: Uh so Uh. Nevertheless, I think markets if you look
Speaker 1: at the FX markets, you know, while it may have
Speaker 1: been expected, it certainly wasn't fully priced in UM. And
Speaker 1: I think it raises a lot of questions. Um, it
Speaker 1: raises a lot of questions if this is a fact,
Speaker 1: is if it's going to result in the turnaround uh
Speaker 1: in the European economies that uh that central bankers are hoping.
Speaker 1: And I think Jogging made it pretty clear that monetary
Speaker 1: policy cannot be the only one doing the heavy lifting
Speaker 1: that in uh certain economies, in certain cases, we need
Speaker 1: to see fiscal policy step in and and and give
Speaker 1: an assist to monetary policy. Because if we leave it
Speaker 1: all up to monetary policy, especially when we're negative rates, um,
Speaker 1: you know, it's it's not going to necessarily yield the
Speaker 1: results that they're hoping for. So content next week we
Speaker 1: have the FED decision, So obviously the markets pricing in
Speaker 1: a FED rate cut. Kind of what is your view
Speaker 1: of how they will play it over the next call
Speaker 1: it six or twelve months? Yeah, So I hate to
Speaker 1: use this phrase because I don't mean it to be
Speaker 1: a cop out, but it is I think, going to
Speaker 1: be data dependent. UM. They have they went from a
Speaker 1: stance of hiking three times this year to job owning
Speaker 1: and saying, listen, we're going to be patient, to now
Speaker 1: they're in what uh what powelled her a mid cycle
Speaker 1: adjustment UH and hoping that it's it's like the nineties
Speaker 1: when when there were two sort of mid cycle adjustments UH.
Speaker 1: And certainly the sectors that are interest rate sensitive, like manufacturing,
Speaker 1: that is an interest rate sensitive sector, so lower rates
Speaker 1: should help that sector. Also, we saw, as I mentioned
Speaker 1: earlier that UM decline in residential investment. We've seen mortgage
Speaker 1: rates come down almost a hundred basis points. That should
Speaker 1: certainly help real estate. UM. One of the things people
Speaker 1: are pointing to in this increase in in auto sales
Speaker 1: today is is that car loans have come down. And
Speaker 1: so they're going to watch and be and and look
Speaker 1: at the data and see has has what we've done
Speaker 1: UM caused interest rate sensitive sectors to see a rebound UH,
Speaker 1: in which case we may not need to. We may
Speaker 1: not be in a full blown rate cutting cycle. I
Speaker 1: think UM. One of the things that that is well
Speaker 1: aware of, and I think the market is pretty aware
Speaker 1: of its. Yeah, it's kind of over to overdoing it perhaps,
Speaker 1: Uh concant, We're gonna have to leave it there. Thank
Speaker 1: you so much for joining us. Constance Hunter, chief economist
Speaker 1: for KPMG, giving us her thoughts on you know, kind
Speaker 1: of strong retail sales numbers we had out today and
Speaker 1: what does that mean for the FED going forward? Is
Speaker 1: are we in an easy moment or just a mid
Speaker 1: cycle adjustment? Well, our recent I p O s just
Speaker 1: over the last several months, I had some rocky waves. Um,
Speaker 1: you know, we've had a very successful one very successful
Speaker 1: I p O in recent times. Back from late twenty nineteen.
Speaker 1: Was Zoom Video Communications that stock us up about from
Speaker 1: its I p O. To get the latest on what
Speaker 1: is moving Zoom Video Communications, we welcome Kelly Steckelberg. Kelly
Speaker 1: is a chief financial officer for Zoom Video Communications and
Speaker 1: that companies based in San Jose, California. Kelly, thanks so
Speaker 1: much for joining us. Give us a sense of I
Speaker 1: know you guys reported earnings a couple of weeks ago.
Speaker 1: What's what did you really talk about? What are you
Speaker 1: seeing in your business right now and your earnings in
Speaker 1: your current outlook. Sure, thanks for having me. We had
Speaker 1: a really great strong second quarter. We announced Q two
Speaker 1: revenue of a hundred and forties six million, growing year
Speaker 1: over year, and we also were profitable from a gap
Speaker 1: in a non gap basis, which I think our investors
Speaker 1: are super excited about. Deuilvering a non gap operating margin
Speaker 1: of four along with a little our thirty million in
Speaker 1: operating cash flow. One thing that's interesting is that this
Speaker 1: growth has come despite the fact that we talk a
Speaker 1: lot about companies withdrawing some of the spending that they
Speaker 1: have been making on just our businesses, expanding new technologies, etcetera,
Speaker 1: in light of some of the trade disputes and sort
Speaker 1: of the uncertainty. What have you been seeing there in
Speaker 1: terms of how much business is are willing to spend
Speaker 1: on their sort of internal infrastructure. Yeah, so Zoom is
Speaker 1: great right there. We're a video first communication platform that
Speaker 1: is really changing the way that people work and customers.
Speaker 1: You know, people serve their customers. An example of this
Speaker 1: is we actually are super excited than us. He became
Speaker 1: a customer into two. It was the largest initial deal
Speaker 1: to date. They are standardizing on zoom across you know,
Speaker 1: sixty seven countries offices and they bought two hosts licenses.
Speaker 1: So that's a company that's really embracing this video first
Speaker 1: platform and I think we expect to see that even
Speaker 1: if people are consolidating or conserving and other areas to spend,
Speaker 1: they see that this can really make their employees more efficient. So, uh, Kelly.
Speaker 1: Another I p O that is about to hit the market,
Speaker 1: hopefully potentially is we work. Give us a sense of
Speaker 1: how you know your companies impacted by the distributed workforce
Speaker 1: we're seeing the gig economy. Um, is that a net
Speaker 1: positive for you? It is because what Doom allows is
Speaker 1: even in the big economy, is for people to take
Speaker 1: their communication virtual office with them anywhere that they go.
Speaker 1: You can access to from any platform, any device, anywhere.
Speaker 1: So with some of our cool features like virtual background,
Speaker 1: you can join a meeting from your PC or from
Speaker 1: your phone and put up a virtual background so it
Speaker 1: looks as if you're in an office or speech. So
Speaker 1: that makes it really easy for people to be very
Speaker 1: productive even sitting in for example or we work office
Speaker 1: may be surrounded by you know, other people, but they
Speaker 1: want to give the impression that they're sitting in a
Speaker 1: different location. When we talk about the pace of growth,
Speaker 1: this company obviously is growing exponentially, is reflected by its
Speaker 1: share prices, reflected by the enthusiasm of many investors going forward.
Speaker 1: Where do you see the biggest case for expansion here
Speaker 1: for your business? So they we have some more key
Speaker 1: growth pillars that we're working on into it's continue expansion
Speaker 1: into the market and enterprise. HSBC is a perfect example
Speaker 1: of that international expansion. Today, international is about of our revenue,
Speaker 1: so we see premendous opportunities there as well. We have
Speaker 1: about eight sales offices around the globe and see no
Speaker 1: reason in the future why international can't contribute to fifty
Speaker 1: of our revenue. We also have a new product, Zoom Phone.
Speaker 1: So this is a product that was launched in Q
Speaker 1: one and it is our cloud TV ex polution and
Speaker 1: super super early days for this product, and yet we're
Speaker 1: excited about the traction that we're making. We announced that
Speaker 1: there is a global luxury brand that brought new phone
Speaker 1: in Q two and they're using the product not only
Speaker 1: for their corporate offices, but also rolling it up to
Speaker 1: all of their real tail locations. So really excited to
Speaker 1: see a brand like that using Zoom Phone that's early
Speaker 1: in the game. And then also Zoom Rooms, which is
Speaker 1: our conference room solution, and this seamlessly brings video communications
Speaker 1: into the conference rooms in a way that it hasn't
Speaker 1: been done before, a very cost effective way. Kelly, give
Speaker 1: us a sense of kind of the competitive landscape for
Speaker 1: you guys. I think it's when I think of kind
Speaker 1: of this business, I think about maybe some big telecommunications
Speaker 1: companies are big you know, services companies. Who do you
Speaker 1: compete against and how do you position yourself? Yeah, you're
Speaker 1: exactly right. When we go into the enterprise, an enterprise organization,
Speaker 1: for example, there's typically an incumbent and it's typically you know,
Speaker 1: just go WebEx solutions are in there. That's who we're
Speaker 1: seeing compete with. And then in the mass market, we
Speaker 1: often are competing either with free solutions or other online
Speaker 1: providers like logged me in. Kelly Stuckelberg, thank you so
Speaker 1: much for being with us. Kelly Steckelberg is chief financial
Speaker 1: Officer of Zoom Video Communications UH, joining us from San Jose, California.
Speaker 1: Zoom has been one I p O that is absolutely
Speaker 1: skyrocketed since since when it came out earlier this YEurope
Speaker 1: more than a hundred and twenty two percent. And interestingly enough,
Speaker 1: I remember when this first landed and how well it performed,
Speaker 1: and people said, see it actually matters that they make money,
Speaker 1: they're not burning cash. Investors like that, and Zoom is
Speaker 1: delivered again, which sort of shows, you know, perhaps it's
Speaker 1: less you know, the sort of sexy dream of some
Speaker 1: of these companies, of of of you know, community adjusted
Speaker 1: to Avida, but rather the reality of cash talking about
Speaker 1: stocks that have been doing very well. Let's talk smart sheet.
Speaker 1: The CEO currently in our studios here are when we're
Speaker 1: getting active brokers studios, Mark Mader, chief executive officer of
Speaker 1: this company. UM he joins us. And before we get
Speaker 1: into the nitty gritty of your business, what do you do?
Speaker 1: We help companies unlock the potential of their people. And
Speaker 1: for too long, come on, what does that mean? I mean,
Speaker 1: so we for too long have have relegated our team
Speaker 1: members to doing I would say that the core fundamentals
Speaker 1: of productivity send a message, create a document, have a
Speaker 1: do a video conversation. These are all fundamentally important to
Speaker 1: how we work. I actually believe and we believe that
Speaker 1: workers need to do more, they can participate in more.
Speaker 1: How do you automate something, how do you actually provide
Speaker 1: structure to something? How do you put something on the
Speaker 1: rail so your business can achieve more? And we believe
Speaker 1: that it's not just the six or seven percent of
Speaker 1: the I T population. You should be enabling businesses. We
Speaker 1: think that median employees should participate in those ways. So
Speaker 1: how do you elevate them from tracking in spreadsheets year
Speaker 1: over year over year to improving how the process actually
Speaker 1: works that they can achieve more? Okay, so this is different.
Speaker 1: We just had the CFO of Zoom on just before
Speaker 1: you came on talking about their company. You guys are
Speaker 1: different from Zoom and Slack, right, we are. I mean
Speaker 1: we're happy customers of both of those companies and they're
Speaker 1: they're great communication platforms. I think the differences when you
Speaker 1: communicate on something and you agree to do something, where
Speaker 1: does that thing live the things that we just agreed to,
Speaker 1: those accountabilities, whether it's a project or process or program,
Speaker 1: what do we do with it? We don't just talk
Speaker 1: about it. We actually need a reference point. And for
Speaker 1: years people have used spreadsheets as the reference point and
Speaker 1: we're now looking to provide them a better vehicle for
Speaker 1: those types of things. So you have I think you
Speaker 1: said eight customers paid customers, Uh, and they spit. They
Speaker 1: span a whole host of different industries. How customized does
Speaker 1: this software have to be for each business? Highly configured?
Speaker 1: And the reason I say that we're sort of customer
Speaker 1: When I hear customization, I think of development and cost
Speaker 1: and complexitiess configuration is the human being wants to make
Speaker 1: a change. Let them make a change, Taylor, that column definition,
Speaker 1: the name of the column, what's in the pick list?
Speaker 1: So what's in the check box? Let them define it.
Speaker 1: Don't go out and create a spec and have someone
Speaker 1: else do it for you. When you connect the person
Speaker 1: to actually defining what that tracking mechanism is, they care
Speaker 1: about it more because they were involved in its definition.
Speaker 1: That's how you create advocacy and engagement simply receiving something
Speaker 1: from someone else who built it. I think let's just
Speaker 1: abandon things a little more easily. So is this I'm
Speaker 1: trying to think your competitive environment? Would this be like
Speaker 1: a Microsoft because Microsoft Office and things like that is so,
Speaker 1: who do you really compete against in this? It's really
Speaker 1: a new category where you have um you're you're bringing
Speaker 1: together a number of concepts. You're bringing together intake collection
Speaker 1: through forms. You're bringing together tracking mechanism which has almost
Speaker 1: some database to have constructs to it. You have reportability. Now,
Speaker 1: you could easily say all of those technologies were done
Speaker 1: twenty years ago. Mark, They've been around forever. But I
Speaker 1: would challenge and say, have they been accessible to people?
Speaker 1: It's not the definition of a new concept, it's can
Speaker 1: you make it consumable and accessible by the majority of
Speaker 1: people in a business? And that is where you get
Speaker 1: that enrollment. That's where you get the value creation. So
Speaker 1: I'm trying to understand the advantage to this versus just
Speaker 1: throwing your files up into the cloud and being like you, guys,
Speaker 1: it's your job, check it out. If you don't do it,
Speaker 1: you're fired. That's that's a fairly draconian way of running
Speaker 1: a bass. That's how they look at it and get
Speaker 1: paid or I don't get We found that, we found
Speaker 1: that the modern employee does not respond to such such
Speaker 1: a post Seattle, New York. Let's talk. So, I think
Speaker 1: people have choice today and and I think when when
Speaker 1: you thrust them into an area of of sort of
Speaker 1: aggressive take it or leave it. People will leave it.
Speaker 1: People will absolutely leave it. And I think when when
Speaker 1: more people understand that there is that there is a
Speaker 1: better way, they will embrace it. What's frustrating, though, is
Speaker 1: that when we talk about all this goodness of technology,
Speaker 1: one of the reason things like Zoom have done well,
Speaker 1: it's because it's accessible. So when you help let person
Speaker 1: achieve something, that loyalty goes out. But the it is
Speaker 1: when you change behavior, it's difficult, right, So it has
Speaker 1: to be easy enough. It's not just do you see
Speaker 1: value in the idea? Can I have a win with it?
Speaker 1: What I'm hearing is the website is pretty and it's
Speaker 1: it's pretty self explanatory. I mean that's that's basically because
Speaker 1: ultimately it's a it's a sort of more complicated idea
Speaker 1: to track everything. But it sounds like, you know, if
Speaker 1: you make the interface easy enough, people actually use it,
Speaker 1: engage with, and all of a sudden it's becomes useful. Correct.
Speaker 1: So I'm looking um mark at my Bloomberg terminal, looking
Speaker 1: at the s M A R is a symbol for
Speaker 1: your company, and looking at over a couple of years
Speaker 1: the streets got you growing, you know, top line UM
Speaker 1: but I don't see profitability. I don't see cash flow
Speaker 1: positive and that's historically if you look at the Lift
Speaker 1: or an Uber or some of these other recent tech
Speaker 1: companies that have come public, the market's kind of push
Speaker 1: back on that lack of profitability. How come your stock
Speaker 1: is kind of weather that. Have you indicated that your
Speaker 1: investors that you do, in fact have a path to profitability. Yeah.
Speaker 1: I think one of the reasons why they're they're they're
Speaker 1: so supportive of the company is we've we've exercised really
Speaker 1: a sound from physical discipline. So we're growing organically over
Speaker 1: fifty we're investing because our markets less than two percent penetrated.
Speaker 1: So when you're retaining on a percentage basis at four
Speaker 1: percent as a subscription provider, they encourage you to, oh,
Speaker 1: now you need to do that with discipline. But that
Speaker 1: balance between our free cash from our growth rate, it's
Speaker 1: decidedly healthy, and they're strongly encouraging us to pursue that opportunity.
Speaker 1: Where are you seeing the biggest potential for growth regionally
Speaker 1: well when when you're in a two percent penetrated market,
Speaker 1: even though we're still going extraordinarily well in the US,
Speaker 1: US represents a little over our revenue. So we see
Speaker 1: both massive growth in our home country. We see it
Speaker 1: internationally where we have presence a team in the UK.
Speaker 1: We're expanding, as we said on an Orange call into
Speaker 1: Asia pack as the next stop with our direct team,
Speaker 1: but we also see new markets. We were one of
Speaker 1: the few SAS companies that was recently approved at the
Speaker 1: federal level for the fed RAM program. So now we're
Speaker 1: looking to bring all the benefits that the commercial sector
Speaker 1: has had to the agencies, and we see such a
Speaker 1: shortage of valuable solutions for this for this population. So
Speaker 1: what are the key I mean? I know you mentioned international,
Speaker 1: but are there's some industry verticals that represent growth areas
Speaker 1: for you guys, because I get them when I see
Speaker 1: top line growth kind of wonder where's it coming from
Speaker 1: and how sustainable is it. Yeah, there's some obvious categories
Speaker 1: like media, um and and technology which are are highly
Speaker 1: cross company in their collaborative needs. So a tool like
Speaker 1: ours beautifully fits into that. But what I would also
Speaker 1: say is I can't think of an industry today that
Speaker 1: is internally focused only. The pressure for companies to reach
Speaker 1: outside of their walls is greater than ever, so it's
Speaker 1: really it's about why we serve such a diverse group
Speaker 1: of customers. Real quick acquisitions, anything in the offing. Yeah,
Speaker 1: we we've just done two in the last six months,
Speaker 1: so we're we're bringing those to market right now. But
Speaker 1: we're absolutely looking at both. One of the reasons we
Speaker 1: did our follow on in June, what happens if some
Speaker 1: big tech company wants to come along and buy you. Well,
Speaker 1: I think it's something where you know you. You focus
Speaker 1: on controlling your destiny to the best of your ability,
Speaker 1: create a valuable product, have raving fan customers, do it
Speaker 1: globally and maintain that optionality, but don't put yourself into
Speaker 1: a box where you're forced to make that decision. Marketer,
Speaker 1: thanks made her. Thanks so much for joining us, Mark
Speaker 1: as the CEO of smart sheet Again trades on the
Speaker 1: New York Stock is Strange under the symbol s m A.
Speaker 1: Are joining us live here on our Bloomberg Interactive Brooker Studio.
Speaker 1: We appreciate you coming to Mark. Thanks for listening to
Speaker 1: the Bloomberg P and L podcast. You can subscribe and
Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform
Speaker 1: you prefer. I'm Paul Sweeney I'm on Twitter at pt Sweeney.
Speaker 1: I'm Lisa Abram Woyds. I'm on Twitter at Lisa abramloits
Speaker 1: one before the podcast, you can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio