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Speaker 2: All right, so you know earlier we got an update
Speaker 2: on US inflation showing signs of moderating in April, giving
Speaker 2: the Fed maybe room to pause read. So we're splitting
Speaker 2: here's here. All right, let's get into it, because two
Speaker 2: folks who know a lot about it and have a
Speaker 2: lot to say about it is Bloomberg's Mike McKee and Dartmouths.
Speaker 2: Danny Blanchflower. Mike, of course, Bloomberg News international economics and
Speaker 2: policy correspondent who's been up for like twenty four hours
Speaker 2: straight talking about this. He's on the phone in New
Speaker 2: York City. Danny Dartmouth, professor of economics, former member of
Speaker 2: the Bank of England's interest rate setting Monetary Policy Committee.
Speaker 2: He's a labor economist. He's with us from zoom in
Speaker 2: Hanover in New Hampshire. Folks, thank you so much for
Speaker 2: being with us. Mike. I want to start with you. You
Speaker 2: were on early breaking it down as a numbers cross
Speaker 2: You've had hours to go over all of the data points.
Speaker 2: What are the key facets of this report?
Speaker 3: Well, I think I said this earlier and it really
Speaker 3: is the case that this was a status quo report.
Speaker 3: It didn't move the ball much one way or another.
Speaker 3: We saw inflation move up a little bit on a
Speaker 3: headline basis, largely because of the energy. We saw the
Speaker 3: core rate not go down very much, largely because of housing.
Speaker 3: And these are stories that we have seen before. So
Speaker 3: this isn't going to change the way the Fed is
Speaker 3: looking at the overall economy and looking at the fight
Speaker 3: against inflation. They can still pause in June, but it
Speaker 3: won't be because of this report.
Speaker 4: So we saw for the first time an inversion, or
Speaker 4: the first time in many months, an inversion of the
Speaker 4: headline figure which is now lower than the core figure.
Speaker 5: Does that mean anything or does it just look cool
Speaker 5: on a chart?
Speaker 6: Mic?
Speaker 3: It looks cool on the chart, Matt. The biggest thing
Speaker 3: is that we're going to see core starting to come
Speaker 3: down when the drop in rental prices over the past
Speaker 3: year finally starts to show up in the data, which
Speaker 3: should be in the next month or so. But the
Speaker 3: core is the core for a reason. It is the
Speaker 3: stickier parts of inflation, and the headline numbers largely influenced
Speaker 3: by things like inflation and food, although food wasn't a
Speaker 3: big factor this time, but energy and food energy prices
Speaker 3: went up. They've started to go down again, so we'll
Speaker 3: probably see it change next month.
Speaker 2: All right, Danny, come on in on here. You've been
Speaker 2: very clear on how you feel about what the Fed's
Speaker 2: been doing here. But do you feel like inflation is
Speaker 2: slowly it's certainly better than it was a year ago.
Speaker 5: How did I feel, Danny? How do you feel about
Speaker 5: what the Fed's been doing here?
Speaker 6: Oh?
Speaker 7: Well, I mean I think that the reality I mean,
Speaker 7: Mike laid it out very well and very carefully. The
Speaker 7: reality is that what's most astonishing is it everybody seems
Speaker 7: to have such a kind of accepted view. Everybody seems
Speaker 7: to think the same. All the central banks are saying
Speaker 7: the same things. And the reality and we have unanimous votes,
Speaker 7: and the reality is we just don't really know. There's
Speaker 7: no fundamental theory here as to what's going on. What
Speaker 7: we see is inflation starting to fall today. Basically what
Speaker 7: you got was the base effects for this month stop working.
Speaker 7: So you dropped a point four, and you got a
Speaker 7: point four, and in the seasonally unadjusted you get a
Speaker 7: drop in the seasonal adjustment, you get it to stick
Speaker 7: at five. So the next two months we're going to
Speaker 7: have big base effects dropping out. And I think in
Speaker 7: a sense the discussion has to actually be so what
Speaker 7: are the costs of inflation? I mean we all sort
Speaker 7: of sit around and go, yeah, that's what the Fed's
Speaker 7: got to do. Inflation is such a terrible thing. Well,
Speaker 7: actually enumerate what a terrible thing it is. Yeah, I
Speaker 7: know that inflation low as well being, and I've measured
Speaker 7: a great deal of it. But the question is what
Speaker 7: do you replace it with? And what are the costs
Speaker 7: and the consequences of overly tightening. And the answer is
Speaker 7: that a one percent rise in unemployment is between five
Speaker 7: and ten times worse on ordinary people than a one
Speaker 7: percentage point change in inflation. So essentially what we're going
Speaker 7: to see is how much this how much The consequences
Speaker 7: of what they're doing are much worse than the problem
Speaker 7: of inflation.
Speaker 2: So I don't think we can have maybe a recession though,
Speaker 2: with a labor market that is still strong, well, I don't.
Speaker 7: Even believe this thing about strong. I think it's kind
Speaker 7: of nonsense. I mean, the reason it's The reason I
Speaker 7: think it's nonsense is that the unemployment rate no longer
Speaker 7: is a decent measure of anything. So I've worked on
Speaker 7: this forever. The unemployment rate is uncorrelated with wage growth.
Speaker 7: It's uncorrelated with it. The biggest macro problem you have
Speaker 7: is to explain why wage growth was so flat between
Speaker 7: twenty ten and two anyone unemployment was falling.
Speaker 6: Answer, unemployment rate is irrelevant.
Speaker 7: What you have here is lots of labor markets slacked
Speaker 7: currently being indicated by the non employment rates and the
Speaker 7: labor force and activity rates. That's what's determining wage growth
Speaker 7: and keeping wage growth down. If you try and look
Speaker 7: at every country in the world, every other country other
Speaker 7: than the US, the Inact, the the EPOP, the employment
Speaker 7: to population rate is at least equal to its rate
Speaker 7: in two thousand, The UK is well above.
Speaker 6: It, Greece is even comparable.
Speaker 7: So the question you have to ask yourself up to
Speaker 7: which I don't have a great answer, and we can
Speaker 7: discuss it, is why is it true that the non
Speaker 7: employment rate in the US suggests to get back to
Speaker 7: two thousand levels, you need about seven million more people working.
Speaker 7: So on that basis, I don't believe the unemployment rate
Speaker 7: because nobody can show me anything that it's related to wages.
Speaker 7: I have lots of papers on it. So and why
Speaker 7: is the US so much different to everybody else? So
Speaker 7: the argument you have to raise rates because the labor
Speaker 7: market so tight, it's for the birds.
Speaker 4: So what Let me ask you this because you know
Speaker 4: in econ one oh one, I was mostly thinking about
Speaker 4: Kegger's and the Grateful Dead.
Speaker 5: But why is it that.
Speaker 4: You know, the FED wants to use unemployment and a
Speaker 4: recession to fight inflation?
Speaker 5: Is what I get.
Speaker 4: They're saying, we have to fight this inflation, and we're
Speaker 4: gonna have to accept a recession and higher unemployment in
Speaker 4: order to do that. And you say, a higher unemployment
Speaker 4: is actually much worse than higher inflation, right? Why Why
Speaker 4: is that? Because inflation affects all of us, right, and
Speaker 4: unemployment only affects a very much.
Speaker 6: So that's that's completely wrong.
Speaker 2: Actually, Okay, obviously a lot of is still in his life.
Speaker 2: I'm just gonna say to.
Speaker 7: Charlie Evans, who told me when I showed him these estimates,
Speaker 7: he said to me, Danny, this is great. Everyone told
Speaker 7: me always what you've just said, that inflation hurts everybody.
Speaker 7: It's like thirty times worse than un employment. So here's
Speaker 7: the story. You go measure it. You ask people you'll
Speaker 7: about your well being, and you say, so, how much
Speaker 7: does inflation? So think about a one percentage point rise
Speaker 7: in inflation against a one percentage point rise in unemployment.
Speaker 7: Well you get a number for the inflation. What you
Speaker 7: get in unemployment is well, one percent of people are unemployed.
Speaker 7: So those people's unemployment rises a lot and they're really unhappy. Great,
Speaker 7: but what happens is a one percentage point rise in
Speaker 7: unemployment makes people much more unhappy than a one percentage
Speaker 7: point rise in inflation. Now you can argue I don't
Speaker 7: like this, but you could say this is the evidence.
Speaker 7: This is the data. Nobody else has any other data.
Speaker 7: Everything else about they worry about inflation and inflation expectation
Speaker 7: is just dreamed up. Make stuff up. This is the data.
Speaker 7: The data says a one percentage point rise in unemployment. Well,
Speaker 7: there's a new paper by Robert McCulloch from New Zealand
Speaker 7: just come out says that a one percent rise in
Speaker 7: unemployment raises pain ten times more than a one percentage
Speaker 7: point rise in inflation. I mean, the problem for anybody
Speaker 7: who says that's wrong is they have no data. This
Speaker 7: is the only data that exists, and it shows that
Speaker 7: the impact of one of unemployment or joblessness is much worse.
Speaker 7: So still waiting for people to tell me what are
Speaker 7: the consequences of an inflation rate of five percent that
Speaker 7: you're trying to get down by creating.
Speaker 2: Might come on in or other economists.
Speaker 3: Well, the obvious consequence is that people lose purchasing power
Speaker 3: and their standard of living goes down. And we saw
Speaker 3: that very specifically during the nineteen eighties great inflation, which
Speaker 3: is what scared the pants off of all the central
Speaker 3: bankers who are now trying to bring down inflation. But
Speaker 3: I was truck Danny by what you were saying about wages.
Speaker 3: Wages are still rising at a very high pace, especially
Speaker 3: compared to what they were doing in the teens. We're
Speaker 3: still well over four percent, and inflation is still running
Speaker 3: above that level. So people are still losing grounds even
Speaker 3: though they are getting raises.
Speaker 2: At this point, Danny got about just about twenty seconds.
Speaker 7: So unfortunately, well, real wage is a flat over the
Speaker 7: last year, and obviously, for the level of the unemployment.
Speaker 6: Rate, wage growth is actually still very compressed.
Speaker 7: I mean, in the past, you had an unemployment rate
Speaker 7: of three and a half, you'd be talking to wages
Speaker 7: greater than that.
Speaker 6: So the answer is that.
Speaker 7: The unemployment rate is uncorrelated with wage growth. Just get
Speaker 7: it into everyone's heads. It's completely uncorrelated with it. It
Speaker 7: has no relationship with wage growth whatsoever. You can't run
Speaker 7: it in any form of wage de grade to be
Speaker 7: at Phillip's curve or anything else or a wagecurve.
Speaker 6: The unemployment rate is uncorrelated with wage growth.
Speaker 2: We gotta run that though.
Speaker 4: I'm gonna tweet that because I think that's the most
Speaker 4: fascinating thing that I've heard today.
Speaker 2: All Right, we gotta say goodbye to Danny and two
Speaker 2: of course, our Michael mcke Danny Blanchflower over at Dart method.
Speaker 6: Sucks.
Speaker 2: All right, everybody, Well. Shares of H and R Block
Speaker 2: selling off today, hitting its lowest level in about a year.
Speaker 2: This after the company cut its outlook for the year
Speaker 2: after reporting lower earnings and revenue in its fiscal third quarter.
Speaker 2: So let's get into the quarter. Let's get into the business.
Speaker 2: This is a company that's been transforming itself over the
Speaker 2: last couple of years. Back with us as Jeff Jones,
Speaker 2: president and COO at H and R Block. We've mentioned
Speaker 2: in the past his background chief marketing officer at Gap, Target,
Speaker 2: president of ride sharing at Uber formerly. Jeff joining us
Speaker 2: via zoom from Kansas City, Missouri. Jeff, good to have
Speaker 2: you back here with myself and Matt Miller. Talk to
Speaker 2: us about the quarter, the outlook. What's going on.
Speaker 8: Yeah, Well, first of all, Carol, we definitely have not
Speaker 8: hit our fifty two week low, so I want to
Speaker 8: be clear about that. Listen, the season did not end
Speaker 8: the way we expected it to. There were multiple industry
Speaker 8: dynamics of play. Our assisted business was a little softer
Speaker 8: than we wanted. But there are many many things that
Speaker 8: went well this year, and I think that's what investors
Speaker 8: are hearing. You know, we still expect to grow earnings
Speaker 8: and EPs in a really tough backdrop. Our DIY strategy work,
Speaker 8: we introduced AI, so you know, there are many things
Speaker 8: that are working. But we were clear on the call
Speaker 8: yesterday there were three reasons why our volume didn't deliver,
Speaker 8: and we feel like we've got a really good handle
Speaker 8: on that.
Speaker 5: What do you think investors are getting wrong here?
Speaker 4: Because I mean if it was a week later, you'd
Speaker 4: be at your fifty two week low, right, I mean,
Speaker 4: just because you had an incredible May in twenty twenty
Speaker 4: two in terms of the stock. Why are investors not
Speaker 4: understanding your optimistic view?
Speaker 8: You know, I think like any like any company that
Speaker 8: has an unusual mix of business and seasonality, it's just
Speaker 8: hard to get your mind around that so much of
Speaker 8: our business happens in one quarter, you know, I think for.
Speaker 4: Some mill it's been that way for how many years
Speaker 4: since like nineteen thirteen.
Speaker 8: Well not quite that far. I mean, we have a
Speaker 8: very very large and healthy tax business, and that's determined
Speaker 8: by one time a year. So I think that you know,
Speaker 8: when you look at our financials and you see us
Speaker 8: lose money in most quarters of the year, but then
Speaker 8: generate five or six hundred million of free cash flow,
Speaker 8: I think the investors that take the time to really
Speaker 8: understand the story take a great long term view on
Speaker 8: how we allocate capital, our dividend, our share repurchase. And
Speaker 8: it's a really good story.
Speaker 9: All right.
Speaker 2: And just to clarify, I'm just looking at some data
Speaker 2: on the Bloomberg it does say you're at the lowest
Speaker 2: level since about May twelfth of twenty twenty two.
Speaker 4: Yeah, that's why I said it's a it was a
Speaker 4: week later, it would be the fifty two week low.
Speaker 5: You're eight or fifty one week low. Let's put it
Speaker 5: that way, just.
Speaker 8: To say we're not twenty we're not twenty five dollars.
Speaker 2: Okay, fair enough, fair enough. You are the CEO, you know,
Speaker 2: But I just wanted to clarify in terms of the data.
Speaker 2: Having said that, you guys are going through a transformation.
Speaker 2: And Jeff, when we last talked in terms of I
Speaker 2: think it was back in August, we talked a little
Speaker 2: bit about the impact of higher rates. Tell us about
Speaker 2: the folks on your platform, whether it's individuals, whether it's
Speaker 2: small business, in terms of the activity you are seeing,
Speaker 2: What is it telling you about them and what it
Speaker 2: tells you about the broader outlook.
Speaker 8: Well, I think the biggest thing we see is really
Speaker 8: the health of the consumer, especially you know, we saw
Speaker 8: this year the tax industry got off to a really
Speaker 8: fast start. People were looking for their money. We saw
Speaker 8: these refund advance loans really perform well this year. In
Speaker 8: the industry that speaks to the cash needs of the
Speaker 8: American consumer. The problem is, for many many Americans this year,
Speaker 8: refund sizes were down, you know, eight to nine percent,
Speaker 8: and many people who are used to getting a refund
Speaker 8: suddenly found themselves owing money. So those kind of things
Speaker 8: are very confusing to the consumer. But we definitely see
Speaker 8: consumer needing cash and looking for alternative ways to find it.
Speaker 4: Why did a lot of filers see that change? Why
Speaker 4: were a lot of filers owing money when they normally
Speaker 4: get a refund because I would I think immediately of
Speaker 4: the salt deduction cap, but that went into went into
Speaker 4: play in like twenty seventeen, twenty eighteen.
Speaker 8: Yeah, yeah, So you know, keep in mind, giving tax
Speaker 8: advice is like asking Mayo clinic for you know, medical advice.
Speaker 8: Like there's so many things that depend. But there are
Speaker 8: two broad things that happened. The first is the roll
Speaker 8: off of stimulus benefits. The second is the IRS made
Speaker 8: a change to withholding tables, which essentially more people kept
Speaker 8: money in their paycheck but didn't think about changing their
Speaker 8: withholding and therefore, you know, had a surprise at the
Speaker 8: end of the year. Those are the two main reasons.
Speaker 4: Can I ask, and I'm sure you already have a plan.
Speaker 4: What does how can AI help you at ation R Block.
Speaker 8: Well, first of all, there are many things we're already
Speaker 8: doing with AI. We use it in robotics, process automation
Speaker 8: on remedial tasks. We use it to match labor and
Speaker 8: supply and scheduling. This year, we introduced an industry first
Speaker 8: in our DIY product, where if you switched from a competitor,
Speaker 8: we automatically and proactively looked at last year's return to
Speaker 8: identify any errors that may have been made, and if
Speaker 8: we found one that was worth more than two hundred
Speaker 8: and fifty dollars for you, we notified use you could
Speaker 8: file an amendment. So there are a number of things
Speaker 8: that we're already doing today. And you know, listen, we
Speaker 8: have the same broad ethics, regulatory, legal, security, and privacy
Speaker 8: concerns as I think many companies do. But in general,
Speaker 8: we're excited about the potential for what this technology can
Speaker 8: do come or customer service, et cetera.
Speaker 4: I mean, can't can't AI make the tax code easier
Speaker 4: for humans to deal with? I remember Donald Rumsfeld's famous
Speaker 4: letter to the I R S where he was like,
Speaker 4: I have no idea, and I have a college degree,
Speaker 4: like my wife doesn't know either, So.
Speaker 5: Here you go.
Speaker 4: Can't can't this make make it easier for Americans to
Speaker 4: file their taxes by themselves?
Speaker 2: I mean basically talk to a bot and just do it.
Speaker 4: Yeah, talk to an H and R AI bot and
Speaker 4: they'll say, I fire your taxes and it's it's all done,
Speaker 4: you know.
Speaker 1: Yeah.
Speaker 8: I mean, I think what obviously has to happen is
Speaker 8: the you know whatever average means. The average American consumer
Speaker 8: has to be willing to turn over all of their
Speaker 8: most intimate financial data to the bot.
Speaker 4: And for the average American consumer, that's like a W two.
Speaker 4: Here you go, all done.
Speaker 8: It's it's really not a W two. Think about the
Speaker 8: Earned income tax credit, the child tax credit, the way
Speaker 8: childcare happens. Are you a grandparent of paren and anna
Speaker 8: or and uncle taking care of the child? I mean,
Speaker 8: there's an enormous amount that goes into this for the
Speaker 8: consumer every year, way beyond a W two. There's no
Speaker 8: question this technology can help all of us provide better
Speaker 8: tax planning and make things faster. We're already leaning into that,
Speaker 8: but I think you know, the jury will be out
Speaker 8: over many years on will people be comfortable turning over
Speaker 8: essentially their financial DNA to the computer?
Speaker 2: Well, and I guess I would argue, I know what
Speaker 2: we share with our accountant, and they pretty much know
Speaker 2: everything and anything when it comes to our finances, So
Speaker 2: you essentially are handing it right now to affirm individuals
Speaker 2: who put it into a database that you get.
Speaker 5: My dad was never. My dad would be never. Okay,
Speaker 5: he'll do his own taxes until he dies.
Speaker 2: But we are so are many other people. So I
Speaker 2: think it does sound like just kind of the normal progression. Hey,
Speaker 2: one thing I want to go back to, Jeff, because
Speaker 2: you do have a vantage point when it comes to
Speaker 2: your platform. San Francisco FED coming out with their household
Speaker 2: survey and they're saying that house is still strong in
Speaker 2: terms of the money that they have on their individual
Speaker 2: balance sheets despite how many years we are out from
Speaker 2: the pandemic. Do you agree in terms of what you
Speaker 2: are seeing or do you feel like things are getting
Speaker 2: a little bit weaker and softer?
Speaker 8: You know, what I can speak to, Carol is the
Speaker 8: twenty million people that we serve and the last several
Speaker 8: months of seeing how important it was they got their cash.
Speaker 8: So does that mean they're excited to get it because
Speaker 8: their flush and their bank accounts are full and their
Speaker 8: credits their debt is low. Or does it mean you
Speaker 8: know that money's already spent. And what we see with
Speaker 8: the consumers we serve is that refund is already spent
Speaker 8: and so you know, it's not go on a vacation.
Speaker 8: So we still absolutely saw this year urgency to get
Speaker 8: cash and just too many people being surprised by the
Speaker 8: outcome for those two reasons I mentioned earlier.
Speaker 2: Hey, I do want to go to since you do
Speaker 2: know when your stock HiT's a fifty two week low
Speaker 2: and I was looking at, you know, the moves today
Speaker 2: it's down about four percent. It was down six percent
Speaker 2: at its lows. What are investors saying to you, because
Speaker 2: they obviously are disappointed.
Speaker 8: Well, first of all, they're excited that we will still grow,
Speaker 8: earnings will still grow, expect to grow EPs. We have
Speaker 8: a really strong capital allocation program, and when you put
Speaker 8: all that together, we deliver a really nice TSR. So
Speaker 8: they definitely see that. I think what they want to
Speaker 8: know is, you know, why did you lose volume this year?
Speaker 8: And there are three answers, and we're really clear with this.
Speaker 8: You know, we lost filers who make less than five
Speaker 8: thousand dollars of income who were most likely in the
Speaker 8: system because of stimulus. That represents about a third of
Speaker 8: our client loss. The second is those EITC filers that
Speaker 8: we're looking for refunds refund advances. And the third about
Speaker 8: twenty percent of our client loss is just do to
Speaker 8: the California extension timing. So I think the clarity about
Speaker 8: why we lost volume this year is helped investors understand
Speaker 8: that two of those three headwinds are behind us, and
Speaker 8: we're still generating a tremendous amount of free cash flow
Speaker 8: and deploying that very effectively.
Speaker 2: Right, including buybacks, right and dividend correct, exactly. All right,
Speaker 2: Gonna leave it on that note. He Jeff always fun
Speaker 2: to check in with you, Jeff Jones. He's president and
Speaker 2: CEO of H and R. Block stock is down about
Speaker 2: fourteen percent so far. You talked about TSR. Of course,
Speaker 2: total shareholder return joining us from Kansas City, Missouri. So
Speaker 2: your dad doesn't handle anything over.
Speaker 5: No, never would never. It's a little worrying.
Speaker 2: Actually, all right, more to come on Bloomberg Business Week.
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Speaker 2: All right, you are listening and watching Bloomberg BusinessWeek. Matt
Speaker 2: Miller and Carol Masser, We're gonna, just like our TV colleagues,
Speaker 2: stay with Disney because the stock is down about two
Speaker 2: and a half percent in the after market. So let's
Speaker 2: get to it with Jamie Lumley, senior analyst at Third
Speaker 2: Bridge Group. They provide global research to PE firms, hedgephones
Speaker 2: and consultants. On the phone in New York City, Paul Sweeney,
Speaker 2: co host of Bloomberg Surveillance and Bloomberg Markets with us
Speaker 2: on the phone. My man from New Jersey. He is Paul.
Speaker 2: Let's start with you. What jumps out for you at Disney.
Speaker 11: The first number I went to, the first one nightem
Speaker 11: I went to, was the streaming losses. Now, the good
Speaker 11: news is the losses of six hundred and fifty nine
Speaker 11: million dollars came in less than the estimates, which is
Speaker 11: about eight hundred and fifty million dollars. So that's good news.
Speaker 12: The bad news is six.
Speaker 11: Hundred and fifty nine million dollars is still a huge
Speaker 11: loss just for one quarter. So I think on the call,
Speaker 11: investors will want to get us sent from management, you know,
Speaker 11: where do they see that glide path for that business
Speaker 11: as it tries to get to break even?
Speaker 4: All right, so it looks better than expected. I wonder why,
Speaker 4: at least, you know, on the headlines. I wonder why
Speaker 4: we're seeing the drop then in the stock after hours. Jamie,
Speaker 4: I guess you could never really tell, you know, why
Speaker 4: investors are buying and selling.
Speaker 5: Across global Wall Street. But what do you take out
Speaker 5: of this that could be bearish?
Speaker 12: Well, I think there are definitely a couple of interesting
Speaker 12: things to look at for revenue, you know, certainly I
Speaker 12: also first looked to see what the line item was
Speaker 12: for the loss of in streaming, as that as one
Speaker 12: of the big stories over the past couple of quarters,
Speaker 12: and trimming those losses is definitely one of those things
Speaker 12: which Bob Iger is putting at the top of this
Speaker 12: to do list. And certainly I think there is some
Speaker 12: encouragement to be found and that those losses are being trimmed.
Speaker 12: But again, it is a large amount of money which
Speaker 12: is losing and also coming off the backs of Brothers
Speaker 12: Discovery last week reporting that their streaming business is starting
Speaker 12: to turn around a profit. I think there's ongoing pressure
Speaker 12: to see some slightly more positive results in that segment. However,
Speaker 12: you know, other things to look at as well, as
Speaker 12: overall revenue seems to be delivering some strong growth. Looking
Speaker 12: at thirteen percent overall top line revenue growth from the
Speaker 12: year ago period. There are definitely a lot of factors
Speaker 12: and I think that as we look at the call
Speaker 12: layer this afternoon, there will be a number of areas
Speaker 12: where it'll lead just interesting to see how management is
Speaker 12: interpreting these results and looking at what are the top
Speaker 12: priorities that they want to discuss.
Speaker 2: Yeah, you know, I got to say when I look
Speaker 2: at you know, streaming, it's still such a smaller business
Speaker 2: when it comes to what goes on a Disney Paul,
Speaker 2: But is it right for Disney? I mean, they have
Speaker 2: such incredible content, I feel like, and they are really
Speaker 2: good at usually leveraging across parks and movies and so
Speaker 2: on in merchandise. Can they figure out how to make
Speaker 2: this be a lot more productive when it comes to
Speaker 2: top and bottom lines?
Speaker 11: I think they can, because as you mentioned, they have
Speaker 11: such great programming across their film studios and television studios
Speaker 11: and it's got arguably the best content on the planet.
Speaker 11: They like everybody else, has to, you know, make that
Speaker 11: migration from the traditional pay TV model to the streaming model,
Speaker 11: and that is a very expensive transition and the payoff
Speaker 11: at the other side is a little bit unknown at
Speaker 11: this point. So if you're an investor in Disney or
Speaker 11: some of these other big knee companies, you're really making
Speaker 11: a bet on management to execute here. So again that's
Speaker 11: why these conference calls in these meetings with investors are key,
Speaker 11: because boy, we see the programming costs really really high,
Speaker 11: and you kint to really make a stretch to see
Speaker 11: when this same term is profitable. And that's why Bob
Speaker 11: Iger really has been focusing on the cost side of
Speaker 11: the business as well as the top one.
Speaker 2: And to be fair, he gutted, you know, a lot
Speaker 2: of the folks that were behind Disney Plus initially, so
Speaker 2: we know he is remaking it in terms of the manager.
Speaker 5: Wait, Disney Plus, that's the streaming service.
Speaker 4: So I guess I watched that a lot, but only
Speaker 4: only like three films we watch in Conto Mulwana and
Speaker 4: Frozen well Frozen one and two.
Speaker 5: Jamie, what about ESPN?
Speaker 4: This is something that stop, this is marvel Come on
Speaker 4: mag now, Jamie. What what do we think about ESPN?
Speaker 4: Paul and I talk about this all the time, and
Speaker 4: it feels like they could do a heck of a
Speaker 4: better job at monetizing that incredible content and they just
Speaker 4: leave so much money on the table.
Speaker 12: You know, It's definitely an interesting question, and looking at
Speaker 12: ESPN and ESPM plus it has definitely been one of
Speaker 12: those hot bun issues over the last year or so,
Speaker 12: and looking at as you highlighted the value content there,
Speaker 12: one of the big questions of course around you are
Speaker 12: broad cost looking at sports rights and renegotiation there, but
Speaker 12: then also just the best way to monetize that of
Speaker 12: course across the traditional linear channels as well as the
Speaker 12: streaming side of things. It is definitely far smaller than
Speaker 12: Disney's other streaming offerings, and there are some questions about
Speaker 12: overall as streaming in general continues to see a rise
Speaker 12: in live sports across a riet different platforms, looking to
Speaker 12: have that view one of their you know, areas of focus,
Speaker 12: what exactly Disney will be doing for ESPN Plus and
Speaker 12: ESPN is a big question. Earlier this year, of course,
Speaker 12: we heard the Bob Eiger is not really entertaining at
Speaker 12: this point any thoughts about divesting that part of the
Speaker 12: part of the business. But exactly what the plan is
Speaker 12: is one of those things which our experts continue to
Speaker 12: say there is an uncertainty around.
Speaker 4: I just mean because you know, a lot of people
Speaker 4: don't have cable anymore, but the best content that ESPN
Speaker 4: has is only available on cable. So suckers like me
Speaker 4: that by the ESPN Plus service realize later that we
Speaker 4: can only watch like Duke's JV field hockey team, you know,
Speaker 4: no offense.
Speaker 5: Paul, All right, Jamie, what can they do about that?
Speaker 12: It's a really good question. And I think that one
Speaker 12: of the things that we've certainly heard is also just
Speaker 12: in general nature of the challenges of sports streaming in general,
Speaker 12: because of the seasonality of it, you have just a
Speaker 12: lot of challenges the overall fundamental business model of getting
Speaker 12: sustainable subscribers and not having people hop on for when
Speaker 12: their team is playing and then immediately leave once the
Speaker 12: season is over and marsh badness is no longer upon us.
Speaker 12: So for that kind of model. Right, We're still trying
Speaker 12: to figure out exactly what to do here.
Speaker 2: Yeah, I'm just reading from the press release decrease a
Speaker 2: cable due to higher sports programming and production costs and
Speaker 2: to a lesser extent, lower affiliate and ad revenue. All right, folks,
Speaker 2: just got about forty seconds, twenty seconds. First to you, Paul,
Speaker 2: what would you be asking on the call?
Speaker 11: Just the streaming business? Give me the updated path of
Speaker 11: profitability for streaming?
Speaker 2: All right?
Speaker 12: How about for you, Jamie, I'm still curious to hear
Speaker 12: what's happening with Hulu. I think that's one of the
Speaker 12: big question marks coming off of the back of the
Speaker 12: leadership transition, another of those areas with a lot of uncertainty.
Speaker 12: So also how that factors in this streaming is another
Speaker 12: big area.
Speaker 2: Hulu subscribers forty eight point two million, That is more
Speaker 2: than ESPN plus, and that is certainly let.
Speaker 5: Me think I get them all in a bundle.
Speaker 4: I have Disney, Hulu, ESPN all in a bundle, so
Speaker 4: I would think that's the same with most people.
Speaker 2: Yeah. Now I'm just looking at you know what do
Speaker 2: they do though? Right? Because it's just like another channel. Gentlemen,
Speaker 2: Thank you so much. Jamie Lumley, senior analysts on the
Speaker 2: phone in New York City over at Third Bridge Group,
Speaker 2: and Paul Sweeney, of course, co host of Bloomberg Surveillance
Speaker 2: and Bloomberg Markets and really our go to internally. When
Speaker 2: it comes to media, Disney shares Matt are down two
Speaker 2: point two percent, Marvel, you know nothing. Have you not
Speaker 2: seen any of them?
Speaker 5: I'm not into superheroes or comic books.
Speaker 1: This is Bloomberg Business Wait inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: gloom Wall Business finance and tech news. The Bloomberg Business
Speaker 1: Week podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: You've got a lot when it comes to artificial intelligence
Speaker 2: and certainly the next level AI. We heard Pellant here
Speaker 2: earlier in the week, the CEO saying in terms of
Speaker 2: their strategy, they've said they're just going to take the
Speaker 2: whole market. We just talked about with Ed Ludlow about
Speaker 2: Alphabet and Google.
Speaker 5: IBM's brought Watson back.
Speaker 2: IBM has brought Watson back.
Speaker 5: I mean to no fair fanfare at all.
Speaker 2: Hey, I's been around for a long time. W's just
Speaker 2: getting a lot smarter and we can actually talk to
Speaker 2: it if you will, or talk with it. So let's
Speaker 2: get another take on AI with us is Favorite Shaithe
Speaker 2: He is co founder and CEO at the conversational messaging
Speaker 2: platform for commerce, marketing and support there called gup shop,
Speaker 2: and he's here in our Bloomberg Interactive Broker's studio. Erty,
Speaker 2: good to have you here with Matt and myself. Tell
Speaker 2: us a little bit. You guys are all in on AI.
Speaker 2: What specifically is it just about? When we call a
Speaker 2: company you can be behind it in terms of your platform.
Speaker 9: Yeah, first, lead Carol, Matt, thanks for having me here.
Speaker 9: That's exactly right right helping businesses and brands build these
Speaker 9: conversational experiences or chatbots through which they can engage with customers.
Speaker 9: So for a consumer, the consumer experiences that chatting with
Speaker 9: the business is just as easy as chatting with a
Speaker 9: friend or family member. You ask them questions and through
Speaker 9: those conversations you can get deals offered, shopping payments, customer support,
Speaker 9: troubleshooting and so on like so.
Speaker 4: Or well, I have used some chatbots recently with a
Speaker 4: couple of your clients. For example, Verizon and the experience
Speaker 4: I had was nothing like a conversation. In fact, I
Speaker 4: thought it might have been the dumbest piece of technology
Speaker 4: that I've.
Speaker 5: Ever interacted with.
Speaker 4: Now, I was also angry at the time, to be
Speaker 4: fair about Verizon nothing to do with the chatbot. But
Speaker 4: are you saying that your technology is able to do
Speaker 4: that stuff now or that you know, five to ten
Speaker 4: years down the road they should be able to do that.
Speaker 9: No, I think it's more like six or twelve months now, right.
Speaker 9: What's changed, Okay, what's fundamentally changed a few months ago
Speaker 9: is that these large language models got It was a
Speaker 9: huge step function in capability, meaning it just dramatic improvement,
Speaker 9: and all of those are now trickling into these experiences.
Speaker 9: So it's it. It takes a little bit of time,
Speaker 9: but in the next few it's a matter of months
Speaker 9: because the hard part is done. It just has to
Speaker 9: be integrated. But the fact that they can handle these
Speaker 9: conversations in a natural way, understand, interpret, sense what the
Speaker 9: query is, and then provide good responses, etc. It takes
Speaker 9: a little bit of work to optimize it For a
Speaker 9: particular enterprise.
Speaker 2: It's a big jump. What was it all of a
Speaker 2: sudden because AI, as we've said, right, this has been around.
Speaker 2: But what happened? What was the big jump in particular?
Speaker 9: Yeah, now that's a great question. See AI. I mean
Speaker 9: I did my graduate research twenty thirty years ago in
Speaker 9: AI and it's been going around for seventy eighty years, right,
Speaker 9: AA has been making constant progress out of the limelight.
Speaker 9: I think what happened literally over the last six months
Speaker 9: was it reached a point and basically three things came together, right.
Speaker 9: One is on the software algorithm side, there was ideas
Speaker 9: around deep learning and the transformer, which was amazing. The
Speaker 9: other is More's law, right, hardware getting better and faster.
Speaker 9: And then the third is data right, Internet data. The
Speaker 9: volume of data available for training has become available. So
Speaker 9: these three things together, and then I guess its just
Speaker 9: a numeric thing which is at a certain number of parameters. Right,
Speaker 9: at one hundred million, it wasn't good. But at one
Speaker 9: hundred billion parameters, suddenly it.
Speaker 2: Understands legging point where all this came actually really productive.
Speaker 9: So from a media standpoint, it looks like it went
Speaker 9: from nothing to something. But you know, AI research has
Speaker 9: been going on making steady progress.
Speaker 5: But I mean.
Speaker 4: When I talk to a chat bot online at any
Speaker 4: of these big companies, or if I get a computer
Speaker 4: on the on the hotline, it's just a horribly frustrating experience.
Speaker 4: And your business is very impressive a cup shop. You
Speaker 4: have a ton of clients, you have marquee investors.
Speaker 5: You know, you have a huge.
Speaker 4: One point four billion dollar valuation. So I have a
Speaker 4: lot of respect for that. But I have to guess
Speaker 4: when you talk to people who interact with chatbots, they're.
Speaker 5: All as frustrated as I am.
Speaker 4: Because I'm finding myself saying, agent, agent, agent, get me
Speaker 4: to a human because I can't get anything done with
Speaker 4: the I hate to call it AI because there's nothing
Speaker 4: intelligent about the current services.
Speaker 9: So I'll answer there are two aspects to it.
Speaker 2: Right.
Speaker 9: Once is if we just step away from the US
Speaker 9: for a for a second in the rest of the world,
Speaker 9: where you don't have as many customer support agents, as
Speaker 9: many businesses investing in these things for consumers, if the
Speaker 9: baseline is zero, A chat pot that works half the
Speaker 9: time is a miracle, right, because it solves a lot
Speaker 9: of problems. You don't have to wait on hold, you
Speaker 9: don't have to wait in long queues, and so on.
Speaker 9: So there's a lot of people around the world.
Speaker 4: If your problem is solved, but if your problem isn't solved,
Speaker 4: then there's another two or three minutes that you've wasted
Speaker 4: talking to What you're saying.
Speaker 2: Is this is what we're finding. The more information that
Speaker 2: goes into it, it's going to get better. Christos Fair,
Speaker 2: we've all been in that point where we're.
Speaker 4: So you're saying it's going to improve something.
Speaker 9: But now now we are on the cusp of it. Okay,
Speaker 9: because of what open ai and there's just one example,
Speaker 9: but there are many other models, you know, Meta and
Speaker 9: Google and even the open source community is just driving it.
Speaker 9: So it's solve the hard part of understanding language, which
Speaker 9: is the hardest thing. The second bit is packaging it
Speaker 9: into specific business conversations. That's remaining, but that's now like
Speaker 9: weeks or months away doing that for a whole bunch
Speaker 9: of enterprises, you know, and you kind of have to
Speaker 9: handcraft the integration a little bit. But we are even
Speaker 9: productizing that.
Speaker 2: How do you protect the accuracy and the purity of
Speaker 2: the information. So it's not a case of we're doing
Speaker 2: something that we're googling, you know, later on and we're
Speaker 2: trying to do our own research, and.
Speaker 9: That's that's exactly what takes time. Right. These general language
Speaker 9: models are simple word prediction, meaning they just make up
Speaker 9: their generative right, so they kind of make up an answer.
Speaker 9: It may not be accurate, but in a business context,
Speaker 9: you need accurate information, so we do. There's a process
Speaker 9: called fine tuning, there's something called prompt engineering, and then
Speaker 9: you also link it to plugins which give you the
Speaker 9: actual data. Right, So for example, what's the interest rate
Speaker 9: on a checking account? I mean, you can't make up
Speaker 9: an answer, even though AI will, so there it looks
Speaker 9: up the right answer from the right place, or it's we're.
Speaker 2: Going to know is users that it's the right answer.
Speaker 9: Well, so the business, the business has the responsibility and
Speaker 9: the owners to make sure because they also have the
Speaker 9: liability for what the bot says. Right, So so I
Speaker 9: think they are. This is exactly where we work with
Speaker 9: them to make sure that the conversations are precise, that accurate,
Speaker 9: the information works and so on, and then there's a
Speaker 9: lot of debugging and so on.
Speaker 13: Right.
Speaker 9: It was Look, the web wasn't built overnight, and neither
Speaker 9: will these chat bots. But I think as they get
Speaker 9: optimized and refined. I think it'll be It'll be good
Speaker 9: enough for you, Matt.
Speaker 5: I'm excited. I'm looking forward to the future. I'm just
Speaker 5: saying you have a little.
Speaker 6: Time, a little bit hurt.
Speaker 2: She's going to learn her language. It takes some time.
Speaker 10: Exactly.
Speaker 2: How busy are you? Just ten seconds? Are people calling
Speaker 2: you off the phone or just give me an idea?
Speaker 9: Yeah, this is accelerating. I mean, we are doubling business
Speaker 9: year over year, and it's accelerating even more.
Speaker 2: All Right, well, come on back so we can, you know,
Speaker 2: make Matt happy. That's the future. Chat GBT experiences will
Speaker 2: be better, even better.
Speaker 9: The next time I'm here. You'll talk to my chatbot.
Speaker 5: All right, he'll do the interviews for you.
Speaker 2: All right, we get a Right.
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Speaker 2: All right, everybody, under eighteen minutes left in today's trading session.
Speaker 2: We got a two year note as we hear from Charlie,
Speaker 2: still down around three point nine percent. But more importantly,
Speaker 2: well it's not necessarily more importantly, but we do have
Speaker 2: some buying as we get towards the last twenty minutes
Speaker 2: of trading here point two percent higher on the Nasdaq.
Speaker 2: We're off. Definitely are loads of the session at our
Speaker 2: highs when it comes to the Nasdaq trade. So yeah,
Speaker 2: that's what's going on. So let's get to it with
Speaker 2: our Drive to the closed.
Speaker 13: Guest.
Speaker 2: Alan Lance is back with us research director at Lance
Speaker 2: Global dot com, joining us on the phone from Toledo, Ohio. Alan,
Speaker 2: nice to have you here with Matt and myself. So
Speaker 2: it is an interesting day. I've been calling it kind
Speaker 2: of a meth week of trading because it feels like
Speaker 2: we're looking for direction. What's your take on where you
Speaker 2: can find opportunities in this market environment?
Speaker 13: Well, I think Carol, it's a situation where you know,
Speaker 13: the market has been presenting opportunities in the beginning of
Speaker 13: the year with the megacaps, you know, after the megacap
Speaker 13: tech stocks were down so much, you know, over the
Speaker 13: past few weeks, you know, you had companies like acam
Speaker 13: Technology and Google that really are in good spaces that
Speaker 13: we like, like cybersecurity and AI, and they really had underperformed.
Speaker 13: And today both of them are up, and I think
Speaker 13: investors are realizing or Wall Street's realizing that that, you know,
Speaker 13: most companies are going to have a significant take as
Speaker 13: far as in cybersecurity for Akamai and AI obviously for Google.
Speaker 13: So I think that's where you've really got to get
Speaker 13: to avoid the torpedo areas, you know, like the small
Speaker 13: banks and the regionals, and you know, capitalize on these
Speaker 13: areas now that might not have performed yet are in
Speaker 13: good long term areas that can can do well. And
Speaker 13: I think that's the type of market we're going to
Speaker 13: have winners or and losers, and the divergence is going
Speaker 13: to be pronounced.
Speaker 4: Are you worried at all about dropping stocks if we
Speaker 4: don't have an agreement on the debt ceiling? I look
Speaker 4: at the you know, before TARP we had stocks drop
Speaker 4: eight percent, and before well in twenty eleven, when the
Speaker 4: debt on our debt rating was downgraded, we have docks
Speaker 4: drop twenty percent. So you know, that can bring us
Speaker 4: down to thirty seven hundred, or it could bring us
Speaker 4: down to thirty three hundred.
Speaker 13: Yeah, I think, Matt, we're in the higher end of
Speaker 13: the range, so it would be a little bit more
Speaker 13: selective now. And obviously if something as dramatic as twenty
Speaker 13: eleven occurs, I would utilize that as a as a
Speaker 13: buying opportunity, but you know, selectively, so we're not real
Speaker 13: concerned with it. But we are in the higher end
Speaker 13: of the range, so it would be you know, just
Speaker 13: a matter of a risk profile to not stretch and
Speaker 13: chase things here because of you know what you said
Speaker 13: and an other geopolitical and you know, interest rates, et cetera.
Speaker 13: I mean, there's there's a lot of headwinds and there's
Speaker 13: no really reason that chase stock, especially some of these
Speaker 13: areas have done so well.
Speaker 2: But how much of this the worries are already factored in, Well,
Speaker 2: some of.
Speaker 13: It, you know, it's already factored in, Carol, But but
Speaker 13: you know, I think it really depends on the area.
Speaker 13: I mean, like the energy has gone down quite a bit.
Speaker 13: So so if you think that, you know, we're going
Speaker 13: into recession, you know that that might be a good
Speaker 13: area with China opening up.
Speaker 2: Is that economic slowdown or is that also this shift
Speaker 2: away from fossil fuels. I know it's it's a slow shift,
Speaker 2: but it's happening.
Speaker 13: Yeah, I think it's more of the economic slow down
Speaker 13: and a switch, you know, from the standpoint of just
Speaker 13: the sentiment and what have you. So I think that
Speaker 13: that's gonna hurt, you know, and that's why you have
Speaker 13: some of the utilities that have outperformed that are in
Speaker 13: in the alternative space. Well you know, some of these
Speaker 13: others have have have dramatically underperformed. So again it goes
Speaker 13: back to the winner and loser, you know, categories more
Speaker 13: so than the specific sector.
Speaker 4: Do you think the bank turmoil is behind us? You know,
Speaker 4: a couple of times we've thought that and then we
Speaker 4: saw another bank fail.
Speaker 5: But it does seem like.
Speaker 4: It does seem like Wall Street is pretty sure that
Speaker 4: all the banks right now have enough asset to pay
Speaker 4: out depositors if.
Speaker 12: They need to.
Speaker 13: Yeah, I think the worst is behind us. Matt. I
Speaker 13: think it's it's a matter you know, if something else,
Speaker 13: you know rose, and again the area that's going to
Speaker 13: get hit or the areas you want to avoid anyway.
Speaker 13: But actually, you know, a JP Morgan is going to
Speaker 13: be stronger, and that's why you want to be in
Speaker 13: a JP Morgan or a Goldman Sachs, you know. And
Speaker 13: if if we're wrong and and things escalate and and
Speaker 13: and get worse. But I think the majority of it's
Speaker 13: behind us, and and it's just going to be a
Speaker 13: one off type event, you know, from here on in.
Speaker 13: I don't I don't see it really becoming a contagion,
Speaker 13: you know, or anything disastrous. Uh, you know, especially in
Speaker 13: the US.
Speaker 2: Hey listen, you know one of the things that you've
Speaker 2: liked in the past, Uh is in you know, the
Speaker 2: travel and hospitality space. And I'm thinking about Airbnb, which
Speaker 2: is getting hammered today. Uh is that an opportunity or
Speaker 2: have you guys suggested people be out of it ahead
Speaker 2: of this earnings? Where are you on that?
Speaker 13: Yeah, we we liked airbnb in the eighties and and
Speaker 13: you know, obviously the stock rose you know quite a bit.
Speaker 13: So Uh, if if it's all back. If it falls
Speaker 13: back a few more days like today, and we'd be
Speaker 13: back than buying it. It's a long term you know,
Speaker 13: hold you know, at these levels. But again it shows
Speaker 13: the importance of taking profits. We took some profits and
Speaker 13: Treehouse Foods something we talked about a year ago and
Speaker 13: went from the thirties to the fifties, and we think,
Speaker 13: you know, it could be taken over, but we're probably
Speaker 13: looking at a sixty dollars price and it's not you know,
Speaker 13: worth it in the mid fifties anymore to hold on. So, yeah,
Speaker 13: that's a good point. I think as the market sees
Speaker 13: this volativity and winners and losers, you know, to take
Speaker 13: some profits, at least martial profits on some of these winners.
Speaker 4: What do you think about Apple coming to the market
Speaker 4: for bonds when they already have one hundred and seventy
Speaker 4: billion dollars in cash. You know, they only offer a
Speaker 4: zero point five percent.
Speaker 5: Dividend yield, which is good.
Speaker 4: I don't have to you know, I know they do
Speaker 4: big buybacks, you know, seventy eighty maybe one hundred billion
Speaker 4: dollars this year, But how do you feel.
Speaker 5: As a shareholder?
Speaker 13: Yeah, you know, the company's great. You know, I feel
Speaker 13: real comfortable with it. We're not buying it at as level.
Speaker 13: I mean, you know, our average cost is is far lower.
Speaker 13: But you know, we did buy you know, Alphabet when
Speaker 13: it went down, and we did actually buy some Amazon,
Speaker 13: so some of the mega caps we did buy it
Speaker 13: at the end of last year, but not Apple. Apples
Speaker 13: really held up pretty well and never got into buying
Speaker 13: territory unfortunately for us.
Speaker 8: Alan.
Speaker 2: I'm just curious because you've got Disney reporting after the
Speaker 2: close and just kind of springing this on you just
Speaker 2: got about thirty seconds left. Here is Disney a name
Speaker 2: that's on your radar.
Speaker 13: If it continued to weaken, we'd look at it, but
Speaker 13: it's not one of our favorites. I think there's a
Speaker 13: lot of other areas. I think streaming, you know, those
Speaker 13: type of stocks you have to be worrisome, and I
Speaker 13: never really understood that concept from unbundling, and now you
Speaker 13: get all these different streaming services. So I'd be a
Speaker 13: little bit cautious. But again, you know, it's a weekend
Speaker 13: enough to get into a high quality company that it
Speaker 13: would be fine.
Speaker 2: All right, Well, fun to check in with. You really
Speaker 2: appreciate it. Alan Lance, director of research at Lanceglobal dot Com.
Speaker 2: President Vallan B. Lanson associates on the phone from Toledo, Ohio.
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