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Speaker 2: Hey, Apple shares a little bit lower in today's trade.
Speaker 3: This, as one of the world's largest market cap companies,
Speaker 3: as you know, took the rare step of cutting about
Speaker 3: one hundred jobs. It happened in its digital services group.
Speaker 3: It's part of a shift and priorities for the critical
Speaker 3: division at least that's according to people with knowledge of
Speaker 3: the matter.
Speaker 4: Well reporting this out as he does all things Apple.
Speaker 4: Back with this is Bloomberg News Chief Technology correspondent Mark
Speaker 4: Germ and he joins us from Los Angeles. Mark. When
Speaker 4: we talk about Apple, we talk about a company that,
Speaker 4: as of its latest filing, as about one hundred thousand
Speaker 4: employees around the world. The cut of one hundred people,
Speaker 4: it's not huge, but as you write, it's pretty rare
Speaker 4: for Apple to do layoffs.
Speaker 5: What's going on one hundred in context of how big
Speaker 5: Apple is and in context of the size of the
Speaker 5: layoffs that some of Apple's peer group have done is
Speaker 5: very minimal. But layoffs at Apple, no matter how many
Speaker 5: people are involved, have an outsized influence. Right, It's an
Speaker 5: outsized understanding of what's going on here. Apple simply does
Speaker 5: not do this. They've done it four times this year,
Speaker 5: four times. Right. They've probably done four rounds of layoffs
Speaker 5: in the twenty years prior to this year.
Speaker 6: Wow, So this is notable.
Speaker 5: At the beginning of this year, you had one hundred
Speaker 5: and twenty one people at an AI serie related operations
Speaker 5: group in San Diego, California. The end of February, you
Speaker 5: had several hundred people across two projects that were shut down,
Speaker 5: one the self driving car initiative, the other a micro
Speaker 5: led project. Right, And if you really look at it,
Speaker 5: both of those have to do with cost cutting. Even
Speaker 5: the San Diego one has some cost cutting involved. There
Speaker 5: cut to the services division, which by the way, is
Speaker 5: Apple's fastest growing and one of its most important organizations
Speaker 5: in the entire company, one that most people would probably
Speaker 5: believe would never face any layoffs. That is where the
Speaker 5: cuts happened. So about one hundred jobs mainly across Apple
Speaker 5: Books and Apple News. We're talking about engineers, we're talking
Speaker 5: about design, we're talking about software quality assurance and testing.
Speaker 5: These people worked across many different platforms within Apple Services.
Speaker 5: Some of them probably touched the App Store, some of
Speaker 5: them probably touched Apple Music and Apple TV to some extent.
Speaker 5: So that's one hundred resources there. And if it wasn't
Speaker 5: purely a cost cutting move, Apple probably could have relocated
Speaker 5: those people to other teams from the get go. To
Speaker 5: be fair, they're getting sixty days notice here, they have
Speaker 5: sixty days to find another job within Apple. I would
Speaker 5: venture to guess that far fewer than half of the
Speaker 5: one hundred people will find a new job within Apple
Speaker 5: in the next two months. So most of those people
Speaker 5: probably will be leaving the company in sixty days from
Speaker 5: yesterday when this was announced internally, So this is quite
Speaker 5: a big deal, although it is one hundred people comparatively.
Speaker 3: Yeah, and if you're one of those one hundred, it
Speaker 3: certainly doesn't feel like a small job cut. Having said that, Mark,
Speaker 3: why is it then happening? As you said four times
Speaker 3: this year, this does not happen at this company, So
Speaker 3: why is it. It's a company that's got a very
Speaker 3: rich balance sheet, it's got lots of cash.
Speaker 2: What's going on.
Speaker 6: So let me start with yesterday's cut.
Speaker 5: So Apple Books is not a big part of the
Speaker 5: overall PI of revenue for the Apple Services organization, right,
Speaker 5: It's probably one of their weaker services. They don't invest
Speaker 5: a ton in it. It's not a true money maker.
Speaker 5: Apple News doesn't make a ton of money either, even
Speaker 5: though there's advertising, even though there is that subscription which
Speaker 5: I believe is now thirteen dollars a month, So it's
Speaker 5: simply less of a priority. So there's a bit of
Speaker 5: a priority shift in Apple Services towardstreaming, video, streaming music, gaming,
Speaker 5: the App Store and such. Remember there was that app
Speaker 5: store reorganization a couple of weeks ago, which meant that
Speaker 5: they probably had to reallocate some resources related to that
Speaker 5: as well. Now, in terms of the layoffs and totality,
Speaker 5: I think it shows that, you know, Apple is bracing
Speaker 5: for some sort of recession or trying to get ahead
Speaker 5: of the possibility of a recession. Obviously we've seen stats
Speaker 5: out there, and Apple wants to be a leaner company, right,
Speaker 5: They're not able to spend extra few billion a year
Speaker 5: at this point, or they don't want to spend an
Speaker 5: extra few billion a year at this point on bets
Speaker 5: like the self driving car, like the micro led project
Speaker 5: that they believe there's a strong chance will never come
Speaker 5: to fruition. Right, Apple can continue to spend a billion
Speaker 5: a year on each of those projects, rack up a
Speaker 5: bill of an extra ten billion over the next five
Speaker 5: years and get absolutely nowhere. But they decided to save
Speaker 5: that ten billion and probably reinvest it into bigger priorities
Speaker 5: like generative AI. They're working on the tabletop robotics project
Speaker 5: that I reported all and they're working on a new
Speaker 5: iPad that's going to require a lot of R and D.
Speaker 5: This is a nineteen inch iPad that can fold in half.
Speaker 5: They need to reduce some R and D to redesign
Speaker 5: the iPhone. They need to put money into shrinking down
Speaker 5: their components and making them more efficient so they can
Speaker 5: roll out new form factors. There are some health technologies
Speaker 5: that they want to roll out. But you know, the
Speaker 5: big picture here is AI and probably reinvesting that money
Speaker 5: into artificial intelligence development.
Speaker 4: Mark Apple as a lean company. I didn't think i'd
Speaker 4: hear you say that. How would you describe Apple? How'd
Speaker 4: you characterize Apple in terms of it being a quote
Speaker 4: unquote lean company.
Speaker 5: I watched this great interview with Luca Maystree, the outgoing CFO,
Speaker 5: earlier this week, and he said that he runs the
Speaker 5: company with about ten percent in his finance office. The
Speaker 5: amount of people he had, Well, he was a CFO
Speaker 5: with other public companies prior, even though Apple's market cap
Speaker 5: is ten times the size, if not more than those companies. Right,
Speaker 5: he worked at Xerox, he worked at General Motors, a
Speaker 5: few other companies before Apple. Those are big companies internationally, right,
Speaker 5: they're global titans as well.
Speaker 6: He gave this example.
Speaker 5: So he said his investor relations group has two people.
Speaker 5: He says that Apple's hedge fund. That's Brayburn Capital out
Speaker 5: of Nevada. They manage Apple's cash, right, several hundred billion dollars,
Speaker 5: he says, that's seven people, right, And so I think
Speaker 5: those are some good examples of how lean they run
Speaker 5: in terms of their R and D budget. Over the
Speaker 5: past few years, I've seen the overall company y R
Speaker 5: and D budget either stay stagnant or grow less than
Speaker 5: five percent on an annual basis. And if you compare
Speaker 5: that to the R and D budget growth of companies
Speaker 5: like Meta and Google and Microsoft.
Speaker 6: It's slim right.
Speaker 5: Apple knows that the iPhone and some of their other
Speaker 5: products and services are going to continue to print a
Speaker 5: lot of cash and a lot of money. Right, They
Speaker 5: don't want to upset the status quo and risk doing
Speaker 5: something that is going to put the company in a
Speaker 5: bad position. Now, what I will tell you is Apple
Speaker 5: as an issue here where they're not really reinventing themselves.
Speaker 5: They're not really moving the needle. They are very far
Speaker 5: behind in artificial intelligence, robotics in some other areas, and
Speaker 5: there is a lot of catchup to do. They have
Speaker 5: become too reliant on this annual September formula of new iPhones,
Speaker 5: Apple watches, and AirPods does great for the stock, make
Speaker 5: shareholders happy. There's not a lot of needle moving there,
Speaker 5: and so I believe the company needs to take more risk.
Speaker 5: And so I guess the hope as a consumer and
Speaker 5: someone who watches the company, and maybe the hope for
Speaker 5: employee morale the people who are still there, is that
Speaker 5: this amount of money could be reinvested in other areas
Speaker 5: that will allow Apple to pursue new growth opportunities and
Speaker 5: create some really cool products. When was the last time
Speaker 5: you waited in line for an Apple product, and when
Speaker 5: you got your hands on that device for the first time,
Speaker 5: you were amazed. I have never seen anything like this before.
Speaker 5: I can give you a few examples. There was the
Speaker 5: iPad Air in twenty thirteen. There was the first retina
Speaker 5: iPad the Air before that, the iPhone four with that
Speaker 5: threat and display in that glass back in front design
Speaker 5: with the aluminum band around the edges.
Speaker 6: That was pretty incredible. But it's been a while.
Speaker 5: Maybe the twenty eighteen iPad Pro, maybe the original Apple Watch,
Speaker 5: maybe the AirPods, but it has been a serious number
Speaker 5: of years since the last time. I feel like they
Speaker 5: came out with something that was really earth shattering, and
Speaker 5: I think COVID played.
Speaker 6: A part in it.
Speaker 5: Right between across the pandemic or the hide the Pandemic,
Speaker 5: Apple was able to churn out products still at an
Speaker 5: amazing pace. They were able to get out the iPhone
Speaker 5: twelve with five G only with about a month and
Speaker 5: a half to lay right in the height of COVID.
Speaker 5: That is crazy that they were able to do that,
Speaker 5: and that was a major accomplishment. But that what people
Speaker 5: don't realize is how many years of R and D
Speaker 5: how many years of Apple working on these new types
Speaker 5: of form factors and products and software and services that
Speaker 5: they normally be doing during COVID, how much of that
Speaker 5: was just pushed to the wayside in order to prioritize
Speaker 5: the products they had to get out right and everything
Speaker 5: else going on with the pandemic working from home versus
Speaker 5: the office. So there's a bit of a delay there,
Speaker 5: and I think it's going to take a few more
Speaker 5: years for them to.
Speaker 2: Catch up, all right.
Speaker 3: And for me, I think it was when I got
Speaker 3: my Apple Watch, which was the second version, and it's
Speaker 3: I don't even have it on right now.
Speaker 2: I mean I haven't touched upgrade.
Speaker 4: She still has the second version of the Apple Yeah,
Speaker 4: anti collectors.
Speaker 6: You'll get some new ones in a few weeks.
Speaker 3: Hey, listen, you mentioned the CFO that you listened to
Speaker 3: that conversation about being lean and how he ran his
Speaker 3: office and his team. He is stepping down from the
Speaker 3: job at the end of the year. It sounds like
Speaker 3: he's not leaving the company, but are they getting ready
Speaker 3: in terms of a younger c suite thinking about the
Speaker 3: company moving forward.
Speaker 5: I've been writing a lot about this and my latest
Speaker 5: point of view and You can read my power on
Speaker 5: column this weekend on Sunday at Bloomberg dot com to
Speaker 5: get more insight on this. But they've come up with
Speaker 5: a new Formula's a succession here, right, do everything you
Speaker 5: can to make sure the old guard, Kim Cooks most
Speaker 5: trusted lieutenants don't really leave the building. The last you know,
Speaker 5: four major executive departures.
Speaker 6: They didn't let them leave.
Speaker 5: Well, I mean they didn't you know, handcuff them to
Speaker 5: their office or anything like that, right, but they gave
Speaker 5: them enough money and enough of a business card and
Speaker 5: responsibility to stay. Phil Schiller is not marketing chief anymore.
Speaker 5: He runs the app store. Dan Riccio is love hardber
Speaker 5: Engineering chief. He runs the Vision pro. Now you have LUKEA.
Speaker 5: Maistreet who's no longer CFO, and he's going to run ISMT,
Speaker 5: which by the way, is probably the most controversial and
Speaker 5: boring division in the entire company. So you know, you
Speaker 5: can see what they're doing here. They're trying to keep
Speaker 5: the band together as long as possible because I don't
Speaker 5: think they they're I think they're a little afraid of
Speaker 5: evolving and reinvention and risk taking. Given that you don't
Speaker 5: want to upset something that is working so well, but
Speaker 5: you also have to at the same time balance, you know,
Speaker 5: long term management of the company. And so that's really
Speaker 5: the succession story there. Kevin Perrick, he basically came to
Speaker 5: Apple alongside Bucca may Street. In two thousand and thirteen
Speaker 5: or so, Park joined the company. He's been the heir apparent.
Speaker 5: Apple has been signaling this CFO transition for months now.
Speaker 5: I wrote about it earlier this year. They have been
Speaker 5: showing off Parick so to speak to financial institutions, investors,
Speaker 5: financial analysts and the like. They've been talking him up
Speaker 5: externally and internally. He has been really shadowing Luca has
Speaker 5: been involved in every CFO related meeting over the last
Speaker 5: year or so they've been preparing for this. It was
Speaker 5: down to two candidates at the end of last year,
Speaker 5: so Kevin, Parrit and cr Ac. When Casey apparently found
Speaker 5: out that, you know, she wasn't going to be the replacement,
Speaker 5: she left. Maybe I think that was at least a
Speaker 5: component of her leaving Apple. At the beginning of this year,
Speaker 5: she became the CFO of Sonos, So it seems clear
Speaker 5: that she wanted a public company CFO role, and Sonos
Speaker 5: is a great brand despite the issues they've been facing lately.
Speaker 4: Yeah, we could do a whole segment on those app issues. Mark,
Speaker 4: we have twenty eighty two. Yeah, we have twenty seconds left.
Speaker 4: Very briefly, what about filling Tim Cooks shoes twenty seconds?
Speaker 5: I wrote earlier this year. My belief is that John
Speaker 5: turnis the senior VP of hardware Engineering. He's still not fifty.
Speaker 5: Tim cook stays around another three.
Speaker 6: To five years.
Speaker 5: Turnas is the only one that would have a long
Speaker 5: runway a CEO and Apple board can make a strong
Speaker 5: argument about getting a hardware person back in those shoes.
Speaker 2: All right around the world.
Speaker 3: And Apple of Apple and about what seven eight minutes,
Speaker 3: nine minutes. You did it as you always do. Mark German,
Speaker 3: thank you, Thank you. He is Bloomberg News Chief Technology
Speaker 3: correspondent Mark German.
Speaker 4: And apples hedge fund Rayburn. It's a type of Apple.
Speaker 2: Lean lean Apple Apple like sticking with me.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 4: Let's get a view of the private mind.
Speaker 3: Yep, that's because NFL owner is voted to allow private
Speaker 3: equity firms to buy stakes in their franchises and move
Speaker 3: expected to attract billions in fresh capital while boosting team
Speaker 3: valuations that have already been surging.
Speaker 4: Yeah. During a special one day league meeting in Minneapolis,
Speaker 4: the group loosen some of the strictest ownership rules in
Speaker 4: professional sports to allow private equity to own it as
Speaker 4: much as ten percent of a team. That's according to
Speaker 4: the NFL. You know who was there, Randall Williams was
Speaker 4: there and he's fresh off a plane from Minneapolis. Wow,
Speaker 4: we've all we've all been there.
Speaker 2: You have been there.
Speaker 4: You right into the office. Yeah.
Speaker 7: Absolutely, Thank you all for having me.
Speaker 4: Yeah, thanks so much for joining us. Randall's Bloomberg News
Speaker 4: US sports business reporter. He's the perfect guy to have
Speaker 4: on talking about this. When this broke yesterday, we read
Speaker 4: your story on air. Randall, it's the red headline. A
Speaker 4: big deal. I was being a little cynical in my
Speaker 4: analysis of this. I was like, Oh, you know, a
Speaker 4: bunch of folks get together who own assets that are
Speaker 4: worth a lot of money, and they vote to open
Speaker 4: up to allow them to become worth more. AM I
Speaker 4: do I look at the AM I looking at this incorrectly.
Speaker 7: I think there's an argument for both. There are a
Speaker 7: lot of private equity pros in the NFL, but they're
Speaker 7: invested individually, and the NFL has limited the role that
Speaker 7: they can play as individuals in investing through funds. So
Speaker 7: I think they've structured it in a way so that
Speaker 7: it isn't unfair, or it isn't. Yeah, it isn't unfair
Speaker 7: for some of these NFL owners. I think I did
Speaker 7: a really good job.
Speaker 3: But doesn't it by bringing in a new group of
Speaker 3: investors just automatically the demand will increase the value of
Speaker 3: these teams. So those existing NFL owners are like, yeah, come.
Speaker 7: On, right, thousand percent. I mean, there is an expectation
Speaker 7: that a couple of these deals will happen before the
Speaker 7: end of the year. I've had NFL executives and in
Speaker 7: their in their building their HQ and NFL team executives
Speaker 7: say they expect these deals to go fast and furious.
Speaker 4: Because an NFL team is so expensive that they're only
Speaker 4: a handful of individuals.
Speaker 7: Or thirty two of them, and technically thirty one.
Speaker 4: Really and if you think about who can actually afford
Speaker 4: to buy a new one or to buy a team
Speaker 4: that goes up for sale. Yeah, there's a small number
Speaker 4: of people because these these are so expensive. So if
Speaker 4: now you're allowed to sell ten percent to private equity,
Speaker 4: you're opening up the available pool of purchases just so
Speaker 4: many more people. Doesn't that just automatically increase the value
Speaker 4: for sure?
Speaker 7: But there's only four groups. Arctose Aries Sixth Street in
Speaker 7: a consortium that consists of Dynasty and Curtis Martin led
Speaker 7: this other group. It's Dynasty, it is I'll have to
Speaker 7: pull up the names.
Speaker 4: It's fine.
Speaker 7: He's off of Dynasty, CVC, Blackstone, and Carter all together
Speaker 7: at the same time. And so those four will get
Speaker 7: the first right and then eventually they may open it
Speaker 7: up to more firms, but they'll have to be pre
Speaker 7: approved and the NFL will do its due diligence.
Speaker 3: There what's the due diligence like? It kind of sounds
Speaker 3: like a credited investors You know, you can.
Speaker 7: First of all, you have the money. You have to
Speaker 7: have the money. If you don't have the money, there's
Speaker 7: no way. So it starts with the funds, and then
Speaker 7: I think it depends on how you're going to invest.
Speaker 7: One of the things that the NFL CFO was saying
Speaker 7: was that each of these funds have a different strategy
Speaker 7: for how they're investing in sports teams, and so that
Speaker 7: for a team perspective, what you're going to expect is
Speaker 7: a team may not want to do a deal with
Speaker 7: one for one fund. They may want to do something
Speaker 7: with somebody else. So they have enough capitals for them
Speaker 7: to have a wide variety of choices.
Speaker 3: How much, say, will private equity investors they have in
Speaker 3: this zer row?
Speaker 2: How do you know that?
Speaker 3: I mean, if you're anteing up, I mean, what are
Speaker 3: the limitations on how much a private equity firm can
Speaker 3: put in a team?
Speaker 7: Is So the reason that this is happening is because
Speaker 7: when Josh Harris raised money last year, he had I
Speaker 7: would say significant difficulty doing it. Is six billion dollar
Speaker 7: team and he has to put up a lot of
Speaker 7: money by himself. I believe his ownership group is twenty plus.
Speaker 7: The cap for an ownership group is twenty five. That
Speaker 7: raised concerns if you have private equity who can offer
Speaker 7: ten percent. Let's say an average NFL valuation by Sportico
Speaker 7: is five point nine to three billion. That's five hundred
Speaker 7: million right away. They have to hold the team for
Speaker 7: six years, so then you have a little bit more leeway.
Speaker 4: Other leagues having done this, Yes, what have we learned?
Speaker 7: Well, the NBA, MLS, all of the other leagues allow this.
Speaker 7: The NFL's rules are the strictest. They also have the
Speaker 7: highest valuations. The NBA's are the most expansive. The ARCTOS specifically,
Speaker 7: is a pioneer in this private equity sports space. I
Speaker 7: expect them to be one of the first, just because
Speaker 7: there they've been the most active.
Speaker 4: Hey, what was this meeting? Like you were actually did
Speaker 4: you actually get to go into the meeting?
Speaker 7: Of course not, of course not. But a lot of
Speaker 7: the NFL owners meetings are watching the owners come in
Speaker 7: saying hi, hello, how you doing, Watching the NFL's employees
Speaker 7: come in, Hi, Hello, how you doing? And then they go,
Speaker 7: you know, they'll walk past, they'll they'll speak, and when
Speaker 7: it's meeting time, it's meeting time. You don't hear anything
Speaker 7: unless you have sources like the really really good reporters.
Speaker 7: And then you sit and wait, you wait to hear
Speaker 7: what happens. You get to ask questions to Roger Goodell,
Speaker 7: Jerry Jones is always going to talk to you. That's fun, guy.
Speaker 7: But it's quite the interesting meeting because I'll say, at
Speaker 7: the March and May league meetings it's a lot more
Speaker 7: free flowing. Owners bring their families, coaches bring their families.
Speaker 7: They're more relaxed, they're happy to talk to you. In
Speaker 7: the season. Absolutely not, it's a competition, huh.
Speaker 3: You know in your story, though, you say the move
Speaker 3: to allow private equity and to ownership has the potential
Speaker 3: to shift how teams are run. Limited ownership partners have
Speaker 3: traditionally been friends, former players and local celebrities. I mean,
Speaker 3: this definitely does change the dynamics. We'll find out I
Speaker 3: guess over time what that actually means.
Speaker 2: But it's going to be different.
Speaker 7: It's going to be different. There's an example in the
Speaker 7: story where I talk about how the Atlanta Falcons welcome
Speaker 7: some new limited partners, but they won't be able to
Speaker 7: sell to private equity. Only people that can sell are
Speaker 7: family limited partners and controlling owners. So if you just
Speaker 7: happen to have a piece of the team, but you
Speaker 7: are not a member of the family that owns the team,
Speaker 7: you're out of luck. But if you own a piece
Speaker 7: of the team, and you're a member of the family,
Speaker 7: it's a good time for you.
Speaker 2: So we'll still have family ownership.
Speaker 7: Of course, of course you got to protect the f
Speaker 7: on my ownership.
Speaker 2: That's really fair, and that's kind of in.
Speaker 4: The family ownership will get di looted a little bit.
Speaker 7: Technically, it depends. It depends on the relationship within the families.
Speaker 7: So if you have a sibling that you don't get
Speaker 7: along with and they want out, this is an opportunity
Speaker 7: for them to get out.
Speaker 4: So it's also an opportunity for some of these families
Speaker 4: to cash in on an asset that has insuest in
Speaker 4: value quite a bit.
Speaker 7: Absolutely. I mean there are some as you said there,
Speaker 7: you know, there's these are family run businesses, but if
Speaker 7: your money is all tied in the family, you might
Speaker 7: not have unlimited cash flow to be able to spend
Speaker 7: on the things you want to spend on. This liquidity
Speaker 7: is an option for that. And then there's a stadium
Speaker 7: part of it. Some of these NFL owners and teams
Speaker 7: want to host a Super Bowl, they want to host
Speaker 7: an NFL Draft, an NFL combine without a stadium or
Speaker 7: a facility that can show off that can really be
Speaker 7: a state of the art arena. It's not going to happen.
Speaker 7: So if you have private equity coming in paying for
Speaker 7: some of these renovations or new stadiums.
Speaker 3: It helps ten seconds. So the next thing you watch
Speaker 3: now is the deals to start happening.
Speaker 7: Of course, of course the green light is officially lit.
Speaker 4: Maybe get some sleep too, I'm gonna try.
Speaker 2: It's not a lot of work ahead.
Speaker 4: I have got a lot of work doing a lot
Speaker 4: of work on this.
Speaker 7: Thank you all for having Thank you.
Speaker 4: Randa Williams, Bloomberg News US Sports business reporter. Check out
Speaker 4: all his work at the Bloomberg Terminal and of course at.
Speaker 8: Bloomberg dot com.
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Speaker 4: Many kids across the country are already back in school
Speaker 4: after summer break. Can you believe that?
Speaker 2: That is crazy? Like I just I don't know.
Speaker 3: I can feel it though, and like this city's winding down,
Speaker 3: gave the city's winding on.
Speaker 4: We do it a little differently we do in New York.
Speaker 2: Yeah, we start later after.
Speaker 4: Labor day, after labor day, New Jersey.
Speaker 2: To wait, California. Did you grow up that way?
Speaker 4: I don't even remember.
Speaker 2: Okay, we didn't. We were after every day.
Speaker 4: Well in New Jersey.
Speaker 8: Yeah.
Speaker 4: Yeah. Many of the kids when they go back to school,
Speaker 4: or maybe they're back in school, they'll take language classes.
Speaker 4: Maybe they'll learn Spanish, Mandarin, French, or they'll do what
Speaker 4: I did. What's that? Nothing? Take Latin? Yeah, not the
Speaker 4: most practical of languages when it comes to world. That's
Speaker 4: pretty good. Well, you don't have to be in school
Speaker 4: to learn a new language. There's no shortage of apps
Speaker 4: and services out there to help you do that. Do
Speaker 4: a lingo, Rosetta Stone Memorized, and more, such as Babbel
Speaker 4: Back with Us as Julie Hansen, us CEO of Babbel,
Speaker 4: She joins us from New York. Julie, good to have
Speaker 4: you with us. Happy almost September. Back to school. I
Speaker 4: mentioned a few names there, some of them publicly traded,
Speaker 4: including due Lingo. How do you differentiate given that when
Speaker 4: you google language learning apps just like five up there
Speaker 4: that are just sponsored results. There's a lot of competition
Speaker 4: in your space. How do you do it?
Speaker 8: There is a lot, Tim and Carol, thanks for having me.
Speaker 8: It is a competitive space. But I think there really
Speaker 8: are two big players in the market, and Babel is
Speaker 8: one of them. Our differentiation is all about our pedagogy.
Speaker 8: But I can use that term or you know, the
Speaker 8: kind of the way we approach the learning, the seriousness
Speaker 8: of it, and the effectiveness of it. You know, we
Speaker 8: have studies that have shown that Babel is more effective
Speaker 8: than others in actually learning a language. But a lot
Speaker 8: comes down to also your personal style, the way you learn.
Speaker 8: Everyone learns differently, so we try to make sure we
Speaker 8: reflect all the different ways of learning in the app, writing, reading, speaking,
Speaker 8: of course the most important.
Speaker 2: Hey, how do you measure success?
Speaker 3: Because I think about we talked with you, wasn't it
Speaker 3: around like the New Year, and we talked about how
Speaker 3: people in the New year sometimes are like I want
Speaker 3: to learn to do this or that, I want to
Speaker 3: lose weight, I want.
Speaker 2: To learn a language.
Speaker 3: So I am curious, how do you guys measure success
Speaker 3: that people act actually have become have learned the language?
Speaker 3: And can converse and are fluent even.
Speaker 8: Yeah, that is a great question, and I can assure
Speaker 8: you we spend so much time on that topic.
Speaker 6: There's really two main ways to think about it.
Speaker 8: One is against the SEAFER, the common European frame of reference,
Speaker 8: which is kind of a formal way of evaluating language abilities,
Speaker 8: and that is that's very common in Europe.
Speaker 6: Everyone knows it.
Speaker 8: But even here in the US that framework is understood
Speaker 8: and used in some circles, and so we measure people's
Speaker 8: advancement against it. But at the same time, the most
Speaker 8: important thing and what we're trying to do in babble,
Speaker 8: because we know will never make you fluent, No app
Speaker 8: will make you fluent, So we're trying to help you
Speaker 8: get comfortable having a conversation. So we actually ask our
Speaker 8: users to evaluate subjectively, personally their view of their progress,
Speaker 8: and that's for us, the like they're kind of their
Speaker 8: own personal learner. Success rating is our number one way
Speaker 8: of looking at it, because at the end of the day,
Speaker 8: if you're you know, a B one on the C
Speaker 8: for scale, but you can't speak, then are you really
Speaker 8: making the progress you want? Or if you're a sloppy
Speaker 8: a something but you're you're getting out there and making
Speaker 8: conversation like that's really more success in many ways. So
Speaker 8: those two.
Speaker 4: Ways you said that no app will will make you fluent,
Speaker 4: but can developments with AI and perhaps maybe a conversation
Speaker 4: partner that is a bot eventually make you fluent. Like,
Speaker 4: do you think that no app will ever make you
Speaker 4: fluent or are we on a on a sort of
Speaker 4: pace to get to that at some point in the
Speaker 4: near future.
Speaker 8: Well, fluence is a very high bar. Fluent is you know,
Speaker 8: live there, speak it like in.
Speaker 4: That language, right, Yeah, that's what they always say.
Speaker 8: Exactly exactly, And when I got to that point in college,
Speaker 8: when I dreamt in French, it was incredibly thrilling.
Speaker 6: It's long gone.
Speaker 4: By the way, I know a place where you can
Speaker 4: work on it.
Speaker 8: We completely agree with you that a chat bot can
Speaker 8: serve that purpose.
Speaker 6: In fact, in our.
Speaker 8: US product where for English speakers learning Spanish, we have
Speaker 8: rolled that out already and people are very engaged with it.
Speaker 8: It doesn't judge you. I mean, it gives you feedback,
Speaker 8: but you're not embarrassed in front of the AI. You know,
Speaker 8: it's very effective. We didn't, by the way, just throw
Speaker 8: an LLM in the app and say have at it
Speaker 8: like we had a kind of an expert train at
Speaker 8: for a considerable period of time and that's what makes
Speaker 8: it successful. But absolutely that is going to help more
Speaker 8: and more.
Speaker 2: What's the demographics.
Speaker 3: Is it a lot of people maybe younger starting jobs
Speaker 3: or what is it?
Speaker 2: Is there some kind of.
Speaker 3: I'm always curious about, like the folks using your platform, It.
Speaker 8: Is a mix. Honestly, it's not school kids. We are
Speaker 8: not aimed at that at that market for various reasons.
Speaker 8: In many ways, our best users are older, you know,
Speaker 8: over call it forty five, because they have time, you know,
Speaker 8: they have time in their lives to pursue this. But
Speaker 8: it's really all ages and people, you know, starting from
Speaker 8: eighteen and up. So the remember that in the US,
Speaker 8: you know, in grade school, only twenty percent of students
Speaker 8: ever take a language. By the way, the state with
Speaker 8: the highest percentage of kids taking a second language in
Speaker 8: public high school is New Jersey. So well done there.
Speaker 6: Yeah, that is just.
Speaker 2: I took a lot of Spanish.
Speaker 3: I probably took maybe ten years starting in fifth grade.
Speaker 4: We will do the interview in Spanish, maybe in.
Speaker 8: Can we try French.
Speaker 6: I'm a little better at that, But I also.
Speaker 2: Think, you know, it's interesting.
Speaker 3: I have a daughter who, when she was younger, she
Speaker 3: was learning Chinese, then she learned fro like in Latin,
Speaker 3: she did really well. Like I think there are people
Speaker 3: that can just take to learning a language pretty quickly.
Speaker 3: I mean, I've traveled with her overseas and she can
Speaker 3: converse and understand, and I feel like I can do
Speaker 3: that a little bit when I've been in some Spanish
Speaker 3: speaking countries.
Speaker 2: But it's just interesting.
Speaker 3: I do think there are people who have a knack
Speaker 3: for learning it.
Speaker 2: Is that a fair thing to say?
Speaker 6: No question?
Speaker 8: Okay, I mean we believe anyone can learn a language,
Speaker 8: but there's no question that some people take to it
Speaker 8: more instantly. And aren't we all better at the things
Speaker 8: we enjoy? I think it kind of lines up pretty
Speaker 8: closely there.
Speaker 4: I'm thinking about what you've talked to us language. Yeah,
Speaker 4: I took Spanish, well, Latin was what I took in
Speaker 4: high school. And then when I got into college, there's
Speaker 4: this very strange program. They said, this is true, are
Speaker 4: you to go overseas? I'd go overseas for my first
Speaker 4: semester freshman year, so I frantically worked on Spanish but
Speaker 4: I'll tell you what, Julie, it didn't stick for me
Speaker 4: until I got there and moved in with a family
Speaker 4: that only spoke Spanish, and I had to be speaking
Speaker 4: in Spanish completely immersed. I mean, there's no there's no
Speaker 4: substitute for that, Julie. As you mentioned one hundred percent.
Speaker 8: This summer, our family went on a vacation in France
Speaker 8: and I went back to the town in which I
Speaker 8: was an au pair back in college, and I was reminded,
Speaker 8: you know, kids are the best language teachers a their
Speaker 8: vocabulary is a little simpler and but be they have
Speaker 8: no mercy. So that's just really a great way to learn.
Speaker 3: So I am curious about you know, I always think
Speaker 3: about someone who's listening. So to start, you just you
Speaker 3: just dive in, right, You just start from the beginning
Speaker 3: and just start going with it. Don't get discouraged. Like,
Speaker 3: what is your advice for someone who's learned a language,
Speaker 3: a second language or first language.
Speaker 8: Yeah, that's exactly right everything you said. Just start and
Speaker 8: also be consistent. You know, binge learners as people who
Speaker 8: do it hour one day and then nothing for the
Speaker 8: next six You're not going to learn as fast. You're
Speaker 8: not going to retain it as well as if you
Speaker 8: do ten to fifteen minutes every day, and we've shortened
Speaker 8: our lessons over time so that you know, hey, if
Speaker 8: you've got five minutes, that works too. So absolutely is
Speaker 8: the repetition. But just start and have fun with it.
Speaker 8: And also the more ways you can learn, the better
Speaker 8: you use the app, but also watch a movie in
Speaker 8: your target language, or have a conversation if you can,
Speaker 8: or all of those things cumulatively are the best way.
Speaker 4: Or go to France, Okay, just hang out there, no parents, Yeah,
Speaker 4: go back in time and do that. Sounds pretty good.
Speaker 4: Julie Hansen. Always good to check in with you. Thanks
Speaker 4: so much for joining us. Happy end of summer, Happy
Speaker 4: Labor Day. As US CEO of Babbel joining us from
Speaker 4: New York.
Speaker 9: I'm brother Mack.
Speaker 8: Journal.
Speaker 9: How about you let me drive?
Speaker 7: Oh no, no, no, no, who's going to drive?
Speaker 9: Alright?
Speaker 4: Please gravel?
Speaker 6: Let's wait, I want to drive.
Speaker 8: It's a good question.
Speaker 7: This is the drive to the globe. We'll buy around
Speaker 7: other don on Bluebirg Radio.
Speaker 3: All right, everybody, we've got eighteen minutes left in today's
Speaker 3: trading session, and then add another twenty minutes on top
Speaker 3: of that, and then we'll get in video earnings.
Speaker 2: I'm just trying to put it all together.
Speaker 4: This is your super Bowl.
Speaker 2: So roughly forty minutes more or less. That could change
Speaker 2: narrative thirty eight.
Speaker 4: Minutes, sentiment if the countdown is on.
Speaker 2: If the countdown is on.
Speaker 4: And as a reminder, we're going all in on in
Speaker 4: video in our four o'clock Wall Street Time hour.
Speaker 2: As we should.
Speaker 3: You know, like we talk about it's been kind of
Speaker 3: you know, it's been kind of quiet. We keep, you know,
Speaker 3: ticking off things. Our next guest has some thoughts on Invidia.
Speaker 4: Yeah, Jeffaclain, managing partner at Solidarity Capital, is with us,
Speaker 4: joining us from Utah. Jeff happy in video earning. Stay,
Speaker 4: how are you?
Speaker 6: I'm doing great.
Speaker 9: Everyone's the edge of their seat over here for the
Speaker 9: big day.
Speaker 4: Yeah you got what are you guys doing to celebrate.
Speaker 9: Pop and open some doctor Peppers, you know, and just
Speaker 9: waiting to hear Jensen preach the good work.
Speaker 4: Okay, Well, let's talk a little bit about that. The
Speaker 4: doctor is in That would be doctor Pepper, Naja, that's
Speaker 4: the doctor. What do you think about in Nvidia?
Speaker 9: Look, I mean they are a massive driver to the
Speaker 9: economy and to the market right now, and I think
Speaker 9: there's I don't think there's a single company that's more
Speaker 9: tied to how the S and P is going to
Speaker 9: do tomorrow than in Vidia, and so I think they're
Speaker 9: going to come out really strong today. The question for
Speaker 9: Nvidia long term is how do they keep it up?
Speaker 9: I mean, the numbers are just astronomical at a company
Speaker 9: there's eyes to continue to set the standard on beating
Speaker 9: earnings by insane amounts and growing at this incredible piece.
Speaker 9: How do they keep it up is really the big
Speaker 9: question long term. And does someone try to steal their lunch?
Speaker 9: Like does someone come in and what are their threats?
Speaker 9: That's the big question. But I think today's going to
Speaker 9: be a big day for them.
Speaker 3: All right, So this is obviously a company that's on
Speaker 3: your radar. Do you suggest to your clients to investors
Speaker 3: to own it? Do you own it?
Speaker 6: Great question?
Speaker 9: And so we like it if you're already in it,
Speaker 9: if you got in early, and video is a great
Speaker 9: spot if you're buying in trying to buy in now
Speaker 9: at this price point of where they're at, We're a
Speaker 9: no on new money going into in video. Simply from
Speaker 9: a valuation perspective. I mean their valuation numbers are off
Speaker 9: the charts when you really dial in and look at it.
Speaker 9: I mean they're treating at forty times revenue. That's a
Speaker 9: big number and hard to swallow. And so as you
Speaker 9: look hopefully, I think it's a great company if they
Speaker 9: stub their foot and you can get it down a
Speaker 9: good value cuation by emotional trading in the market. Great.
Speaker 9: But for new money going in, it's a tough one
Speaker 9: to say yes to.
Speaker 4: But you're not willing to sell yet, no.
Speaker 9: I if you're in now, this is actually a great
Speaker 9: question because guess who is selling Jensen? Yeah, yeah, he
Speaker 9: sold like a half a billion dollars in the past month.
Speaker 4: And a half, the tiny fraction of what is interesting.
Speaker 9: But he owns so much, Yeah, he's worth so much.
Speaker 9: Maybe he wants to buy a yacht. I don't know,
Speaker 9: but that's an interesting data point to.
Speaker 2: The least, or some new leather jackets.
Speaker 1: I don't know.
Speaker 7: I don't know.
Speaker 4: Yeah, he sounds like he works a lot.
Speaker 3: Yeah, listen, I get it, And you're right. When it's
Speaker 3: such a big part of your portfolio. How many times
Speaker 3: do we talk to folks like yourself or other money
Speaker 3: managers who say, you know, don't have all your eggs
Speaker 3: in one basket, even if you out those eggs.
Speaker 4: Hey, you know who you can't say that too? Is
Speaker 4: someone like Steve Bomber seriously, because he did leave all
Speaker 4: his eggs in one basket. Yeah, and it worked out well. Yeah, great,
Speaker 4: And Bill Gates didn't. Bill Gates diversified and he moved
Speaker 4: away from Microsoft, and if it would have held on
Speaker 4: a Microsoft, he would be wealthier.
Speaker 3: Like, I know, he's having such a tough time right now.
Speaker 3: All right, little sarcasm there, but no having said that though,
Speaker 3: is there something like Jensen Wong though, because of his
Speaker 3: connection with this company that when he is the ultimate
Speaker 3: insider that he is selling, does it potentially those send
Speaker 3: a message even a little bit?
Speaker 9: Yeah for some people. I mean I don't put a
Speaker 9: lot of weight into this specific instance, one because he
Speaker 9: owns so much of it. But also two, I mean
Speaker 9: we know he's grinding. I mean he's given all these
Speaker 9: talks about suffering and wishing suffering upon Stanford students so
Speaker 9: they could learn things in life. He's put on a
Speaker 9: long track record. We have zero concerns around Jensen and
Speaker 9: his activity here. But it is an interesting data point
Speaker 9: of is it at a momentary kind of top where
Speaker 9: he's taking advantage of it. That's something to keep in mind.
Speaker 9: As for anyone who's not in n video right now
Speaker 9: and thinking about getting in, it's an interesting data point
Speaker 9: of how is the right time to get in? I
Speaker 9: would hesitate on that point.
Speaker 4: You make the point of that there are several customers
Speaker 4: that make up a good portion of revenue. Alphabet Meta, Microsoft,
Speaker 4: super Micro is a big customer. Yeah, gonna go talk
Speaker 4: a little about super Micro, and my decliner is just
Speaker 4: a deep teas. There is there concern though, as our
Speaker 4: own Ian King pointed out our Chip King here at
Speaker 4: Bloomberg that with a big portion of CAPEX being spent
Speaker 4: individually by these companies, there's not so much room for
Speaker 4: growth from these companies. And and Nvidia has to diversify.
Speaker 4: Where do they diversify their revenue?
Speaker 9: Yeah, And that's the catch is that these companies it's
Speaker 9: not just a small amount. I mean Microsoft alone almost
Speaker 9: accounts for twenty percent of the revenue at Nvidia. That's
Speaker 9: such a huge number that not only do they need diversify,
Speaker 9: I think the bigger risk to them is microft saw
Speaker 9: saying why don't we do this ourselves? We have the capex,
Speaker 9: we can easily acquire the talent, why not do it ourselves?
Speaker 9: And so Nvidia is going to have to expand the
Speaker 9: scope of who they're going after, but it's going to
Speaker 9: take a whole lot of companies, as you might imagine,
Speaker 9: to make up for a Microsoft, you know, is around
Speaker 9: twenty percent, you have Meta around ten percent, Alphabet seven
Speaker 9: percent of in Nvidio's revenue. Those are big numbers and
Speaker 9: with what comes with that concentration risk is if you
Speaker 9: stub your toe or if Microsoft or Meta wakes up
Speaker 9: tomorrow and says, forget you in a video, We're going
Speaker 9: to do this ourselves. We're going to build our own stuff.
Speaker 9: That becomes a problem. Now, how they stay ahead of
Speaker 9: that is they continue to iterate with Blackwell and other
Speaker 9: type of the next gen stuff that they're working on
Speaker 9: that's obviously going to be hugely important. And that's really
Speaker 9: what I think everyone's waiting for Jensen to talk about today.
Speaker 9: Where are they at with the next gen stuff and
Speaker 9: what does that look like from a timeline perspective.
Speaker 3: Hey, rybod, I do want to mention a headline crossing
Speaker 3: the Bloomberg terminal, and that is the Telegram ceo been
Speaker 3: charged in France for alleged criminal use of the app,
Speaker 3: his app, you might recall, over the weekend, Pavlodorov, the
Speaker 3: CEO of Telegram, was arrested outside of Paris. Authorities alleged
Speaker 3: that he he's Russian born, he's a billionaire, he founded the
Speaker 3: service back in twenty thirteen, that he had failed to
Speaker 3: fight crime committed on the app by its users, including
Speaker 3: the spread of child sexual abuse material. So there's been
Speaker 3: some concern with his arrest about free speech in terms
Speaker 3: of social media and media. But nonetheless, the Telegram CEO
Speaker 3: has been charged in France for the alleged criminal use.
Speaker 2: Of his app.
Speaker 4: Okay, Jeff, we only have about thirty seconds left with you,
Speaker 4: but we got to get your thoughts on Nike very briefly.
Speaker 4: It's not just in Nvidia out there. What's going on
Speaker 4: with Nike for you.
Speaker 9: Nike is violating the maximum of Warren Buffett around a
Speaker 9: hamstand which should run a successful company could run it someday,
Speaker 9: and the ceo is failing. I mean, it is an
Speaker 9: incredible marquee brand. I can't tell you how many Nike
Speaker 9: shoes I have in my closet, but according to my wife,
Speaker 9: too many. And so it's an incredible company and he's
Speaker 9: tanking it. They have to make a change. Bill Ackman
Speaker 9: got involved with Nike, and I hope he makes the move.
Speaker 9: I'm a big Nike fan from a long term investor perspective.
Speaker 9: I think it has a massive moat around its business.
Speaker 9: But they have a management consultant guy screwing it up,
Speaker 9: and they need a product guy in there.
Speaker 3: All right, interesting stuff your perspective. Nike shares down about
Speaker 3: twenty four percent year today. Jeff McLain, Magic partner over
Speaker 3: at Solidarity Capital of joining us.
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