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Speaker 2: All right, I knew when Netflix reported last night and
Speaker 2: we were breaking down the numbers, I knew that. Ultimately
Speaker 2: I wanted to get to Keeta Ringanathon, who follows this
Speaker 2: name so closely and picks it apart, goes through the
Speaker 2: details and really explains the story. She has Bloomberg Intelligence,
Speaker 2: Technology and media analyst. As I said, Geeta Ringanathon, she
Speaker 2: is with us on zoom from our Princeton, New Jersey bureau. Hey,
Speaker 2: geta stock's a little bit lower today, but if you
Speaker 2: looked at the aftermarket last night, it was getting killed
Speaker 2: Netflix like down ten to eleven percent, now down about
Speaker 2: four percenters. So initial stock reaction, what were they reacting to?
Speaker 2: And then maybe why did investors maybe rethink it a
Speaker 2: little bit?
Speaker 3: Yeah, thank you so much Carolyn Madison for having me so. Obviously,
Speaker 3: the nee jerk reaction, as always has been to the
Speaker 3: subscriber numbers, right, and so the one Q subscriber numbers
Speaker 3: came in a little bit lighter. The two Q revenue
Speaker 3: guidance wasn't looking too great either, and you know, that
Speaker 3: was kind of what prompted that initial sell off in
Speaker 3: the stock. I think as investors kind of had time to,
Speaker 3: you know, go back a little bit into the report
Speaker 3: and digest some of the other details. Remember, Netflix itself
Speaker 3: is pivoting away from, you know, just being a subscriber
Speaker 3: story to becoming more of a profitability story, becoming more
Speaker 3: of a free cash flow story, and I think they
Speaker 3: did absolutely spectacularly on that front. You know, if you
Speaker 3: look at the operating margins, they came in well above
Speaker 3: what they had projected. If you look at operating profits again,
Speaker 3: they came in very well. And where they really kind
Speaker 3: of stunned, you know, the street was with their free
Speaker 3: cash flow numbers. So over two billion dollars just in
Speaker 3: first quarter free cash flow. They upped their guidance for
Speaker 3: the full year to three and a half billion, and
Speaker 3: we think that that still is pretty conservative. It it
Speaker 3: could well go to maybe about four billion dollars just
Speaker 3: a free cash flow.
Speaker 2: I heard Jens surveillance this marrity, so I got to
Speaker 2: chee a little bit in terms of your thinking. But
Speaker 2: that's amazing, right for media company essentially.
Speaker 3: That is absolutely amazing for media, for streaming, and especially
Speaker 3: for Netflix. Remember, this was a company that was getting
Speaker 3: criticized left, right and center for not you know, not
Speaker 3: generating cash, for losing, for burning three and a half
Speaker 3: billion dollars in cash maybe just about four years ago.
Speaker 3: And how they've turned the story around has just been,
Speaker 3: you know, miraculous, And of course it gives I think
Speaker 3: the whole of the media landscape now a playbook. Right,
Speaker 3: this is what everybody wants to do. This is what
Speaker 3: everybody's aspiring to do. Get to those twenty percent operating margins,
Speaker 3: not only break even on their streaming business, but then
Speaker 3: really get out to churning profits and charning free cash. Remember,
Speaker 3: everybody right now is losing money in the streaming business.
Speaker 3: Whether it's Disney they're going to lose about three billion
Speaker 3: dollars this year, whether it's Paramount again two billion dollars
Speaker 3: in losses, Peacock three billion dollars in losses. So the
Speaker 3: fact that Netflix is going to throw out seven billion
Speaker 3: dollars in EBITDA and three and a half billion in
Speaker 3: free cash flow is is just marvelous.
Speaker 2: You know, media companies have always been fun. If you
Speaker 2: go back to kind of the likes of traditional cable companies,
Speaker 2: and we always talked about them not being necessarily huge
Speaker 2: money maker, Like how do we think about streaming. Should
Speaker 2: they be making money KITA in this environment or should
Speaker 2: they be as a class be making money?
Speaker 3: I mean, that is such an excellent question, right. I
Speaker 3: think after that initial dust settled from that streaming land
Speaker 3: grab phase and everybody was just kind of in that
Speaker 3: rush to get streaming subscribers, I think then this question
Speaker 3: kind of really started to evolve being you know, what
Speaker 3: is what is the endgame? What are the unit economics
Speaker 3: in this business? Is it ever going to be as
Speaker 3: good as the old TV model where we saw networks
Speaker 3: linear TV networks like a USA or a CNBC generate
Speaker 3: you know, thirty thirty five percent margins quarter after quarter,
Speaker 3: and so what we've kind of now, you know, obviously,
Speaker 3: with you know, companies spending handover fist when it came
Speaker 3: to content, you know, there was this question about whether
Speaker 3: they're ever going to be able to break even. I
Speaker 3: think Netflix finally has provided the intry with some sort
Speaker 3: of a template of how to go about it. I mean,
Speaker 3: obviously they did have a lot of bumps down the road,
Speaker 3: especially in their early innings. But I think now now
Speaker 3: that you know they're in a slightly more mature face,
Speaker 3: I think we do have this finally, this this kind
Speaker 3: of playbook.
Speaker 4: So that's my exact question for you. In terms of
Speaker 4: the cash flow, what do you anticipate Netflix pouring that
Speaker 4: cash into to increase profits even more? Are they going
Speaker 4: to lean into more content creation for those programs that
Speaker 4: are really cheap to produce.
Speaker 3: That's a fabulous question. I think what they said last
Speaker 3: night is yes, they're holding content. So they are curbing
Speaker 3: their content spending a little bit this year especially and
Speaker 3: also for twenty twenty four. They kind of gave some
Speaker 3: guidance there. But I think after that, you know, kind
Speaker 3: of everything becomes you know, fair game. So they talk
Speaker 3: not just about you know, necessarily TV shows or film content.
Speaker 3: They're going to expand into different categories. They're going to
Speaker 3: expand into gaming. They already are. In fact, they might
Speaker 3: look at different genres, you know, whether it's sports, pro gramming,
Speaker 3: and all of that is going to take a lot
Speaker 3: of money. So yes, they're definitely going to invest in
Speaker 3: more content, in more programming. But they also talked about
Speaker 3: return of capital. So they already bought back about four
Speaker 3: hundred million shares in the first quarter, and they're going
Speaker 3: to accelerate their whole share repurchase program. So this is
Speaker 3: becoming very much like a traditional, you know, low growths
Speaker 3: tech company.
Speaker 4: Really well, real quick on that, because you mentioned sports
Speaker 4: and I feel like the live stream of the Love
Speaker 4: Is Blind reunion was a good test run for them
Speaker 4: when it comes to live programming. Is it a big
Speaker 4: deal that that didn't go well?
Speaker 3: You know, and they addressed that yesterday a little bit,
Speaker 3: so they did talk about, you know, some technical bugs.
Speaker 3: It obviously is important for them to have all the
Speaker 3: infrastructure in places before they embark on something as ambitious
Speaker 3: as sports programming. I think they'll get there. I mean,
Speaker 3: obviously they are. There are going to be some kings,
Speaker 3: some hiccups on the way. I don't think it's as
Speaker 3: big of a deal. They did finally get the show
Speaker 3: up and running, and they're going to learn along the way,
Speaker 3: so you know, eventually they will have all the infrastructure.
Speaker 2: Isn't it funny though, Geita that you feel like the
Speaker 2: streaming services all this highly produced content you know, you know,
Speaker 2: you can watch it at any time, doesn't matter when
Speaker 2: you watch it. Is now kind of going back to
Speaker 2: the linear model of destination viewing or specific times, whether
Speaker 2: it's through sports or something like a live feed.
Speaker 3: Yeah, I mean that's kind of interesting, and I think
Speaker 3: what Netflix is really trying to do here, I think
Speaker 3: is just kind of build anticipation, create bus. I mean,
Speaker 3: if you look at reality series and something like you know,
Speaker 3: Love is Blind or I don't know, Nailed It or
Speaker 3: all those making competitions. I mean that's something that you
Speaker 3: typically have on in the background as you're folding laundry
Speaker 3: or kind of you know, unloading your dishwasher. But I
Speaker 3: think they want to just create the bus, create anticipation,
Speaker 3: so that you have this audience kind of coming in
Speaker 3: to watch it, almost like appointment television. So it's really
Speaker 3: just more ways for them to you know, have a
Speaker 3: captive audience, which eventually, hopefully they can sell to advertisers.
Speaker 4: At some point on that exact note, advertisers, they were
Speaker 4: going to roll out this ad supported model, What is
Speaker 4: the plan for that? Because I have not seen that yet.
Speaker 3: So the ad supported model is up and running. They
Speaker 3: did not give us necessarily any subscriber numbers around that,
Speaker 3: but they did give us some directional data points. So
Speaker 3: what they did say is that it is going according
Speaker 3: to plan. They probably I mean, by our estimates, they
Speaker 3: probably have about two twenty half million subscribers on that
Speaker 3: AD plan. There's still a lot more market to capture.
Speaker 3: But I think the really interesting point that they gave
Speaker 3: us is even though the plan is priced at seven dollars,
Speaker 3: they are actually making sixteen dollars per subscriber because they're
Speaker 3: able to attract all those advertising dollars. So essentially they're
Speaker 3: agnostic between an AD supported consumer or an AD free consumer.
Speaker 3: Because you remember the standard plan, the standard Netflix add
Speaker 3: free plan costs about fifteen and a half dollars.
Speaker 2: So the AD supported tier and the cracking down on
Speaker 2: password sharing, that's catalysts for the stock to move to
Speaker 2: the upside ultimately when they get it all in place.
Speaker 2: And I'm just worry coutely and should we be concerned
Speaker 2: about the delays here and kind of rolling this out
Speaker 2: or nah, not.
Speaker 3: Really, I picket it in the scheme of things. I mean,
Speaker 3: it's probably a few months out and they needed to
Speaker 3: kind of they need to execute well, and it was
Speaker 3: essential for them to kind of roll it out in
Speaker 3: a few test markets, get those learnings, and then kind
Speaker 3: of implement it. Was it was really interesting that they
Speaker 3: first rolled it out in Canada, and they pretty much
Speaker 3: look at Canada as kind of this proxy for the US.
Speaker 3: So they've got all their learnings from Canada. They know
Speaker 3: how exactly the audience reacted, the users reacted. They kind
Speaker 3: of know what to expect now when they do a
Speaker 3: much broader rollout in the US, which is by far
Speaker 3: their biggest market and where they need to execute really flawlessly.
Speaker 2: Hey, one last question. You know Netflix has been telling
Speaker 2: investors stop fixating on my subscriber model, take a look
Speaker 2: at like sales and profit. Are they right to do
Speaker 2: so in your view?
Speaker 3: I think so? I think investors and Wall Street has
Speaker 3: to pick a lane, right if you wanted. I mean,
Speaker 3: all along it was the subscriber story. Then last year
Speaker 3: you had the great Netflix meltdown, the great Netflix correction,
Speaker 3: and you know they said, okay, subscriber growth has hit
Speaker 3: a wall. Start focusing on our aftability metrics. And you know,
Speaker 3: investors rightly started focusing on profitability metrics. Nobody is chasing
Speaker 3: subscribers anymore, and so now when they are reporting plug
Speaker 3: you know, good profits and good free cash flow, we
Speaker 3: got to give them credit.
Speaker 2: This is why we want to talk to you. Gita
Speaker 2: ring Anathon. She's technology and media analyst at Bloomberg Intelligence,
Speaker 2: knowing all when it comes to Netflix. Joining us from
Speaker 2: our Princeton, New Jersey bureau. Gita, thank you.
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Speaker 2: All right, let's get back to Tesla because that is
Speaker 2: certainly a big focus for investors. Dot down just about
Speaker 2: one percent. Here in the aftermarket, we talked about the valuation,
Speaker 2: especially as the company continues to cut prices. We talked
Speaker 2: a little bit about margins, a little bit light based
Speaker 2: on what the street was expecting. So let's get to
Speaker 2: the valuation side of the story and the fundamental Esha
Speaker 2: Day is Bloomberg News Equity Markets reporter here in our
Speaker 2: Bloomberg Interactive Broker's studio along with gay couple Lot. She
Speaker 2: is Bloomberg News Auto reporter. She's on the phone in
Speaker 2: our Detroit bureau, and I do believe you know, Gabby,
Speaker 2: We've got to start with the fundamental story. What are
Speaker 2: some of the key takeaways that you see? We just
Speaker 2: were kind of running through the numbers with our TV colleagues,
Speaker 2: But what jumps out for you, hey, Carol?
Speaker 5: So yeah, I think going into this, we all knew
Speaker 5: that margins were going to suffer because Tesla has been
Speaker 5: implementing price cuts around the world. But I think a
Speaker 5: floor that the street had was twenty percent gross margin,
Speaker 5: and they came in with nineteen point three percent gross margin.
Speaker 5: So it's not a lot of difference, but that's sort
Speaker 5: of the floor that we thought they would try to
Speaker 5: stay above, and they did in this quarter. And if
Speaker 5: you look at I'm just going through the letter, Tesla's
Speaker 5: letter to investors, and the opening line talks about in
Speaker 5: this current macro economic environment, this is a unique opportunity
Speaker 5: for Tesla. It talks about how basically they are going
Speaker 5: to underprice their competitors.
Speaker 2: We see this right with I mean, China has done
Speaker 2: it right on steel and close and you know, so,
Speaker 2: I mean, we understand the strategy to be fair, yes.
Speaker 5: But I mean, I mean Tesla does. China is a
Speaker 5: huge market for Tesla, and I do have an assembly
Speaker 5: factory in Shanghai, but that I don't think, you know,
Speaker 5: it's not totally the same thing as like the China.
Speaker 5: I mean, Tesla still builds vehicles in America, I think,
Speaker 5: and employees people in the United States, and you know,
Speaker 5: DOES is doing this in the United States, a lot
Speaker 5: of it, so, including the cyber truck, which they just
Speaker 5: said also that it's on track to come lader this year,
Speaker 5: start production later this year, I should say. So it's
Speaker 5: really about thinking about you know, Elon Musk from the beginning,
Speaker 5: even when he was talking about going through production. Hell,
Speaker 5: we didn't think he was going to make it. He's
Speaker 5: always always always stressed that he was going to drive
Speaker 5: down cost, and now we're going to see him leverage that.
Speaker 5: And it's just a matter of if you've been doing this,
Speaker 5: you know, for a decade versus you know, GM or
Speaker 5: four or Stilantis or Volkswagen or whoever, who are kind
Speaker 5: of just now coming into this. Even though they're you know,
Speaker 5: legacy automakers with a lot of manufacturing experience, they don't
Speaker 5: Tesla has more experience than they do at building evs
Speaker 5: and that gives them the advantage to do that. I mean,
Speaker 5: that's part of it.
Speaker 2: So, and this is what's key. We're talking about, not
Speaker 2: just the cost when you say driving down cost, the
Speaker 2: cost of producing it as well as the cost of
Speaker 2: the actual vehicle both.
Speaker 5: Yes, I think yes, yes, I mean the way he
Speaker 5: can cut he's betting that. I mean, you see other
Speaker 5: I mean I cover Stalantis, right, So the CEO Stalantis
Speaker 5: will always brag about how he has a that you know,
Speaker 5: car sales around the world could drop forty percent, he
Speaker 5: would still make money. And that's because you have you
Speaker 5: take a lot of cost out of your manufacturing. And
Speaker 5: that's I mean, Tesla has sought to start producing batteries
Speaker 5: in house. They're talking about processing their own lithium to
Speaker 5: make batteries in Texas. They have you know, they make
Speaker 5: a lot of parts in house. You know, they're not
Speaker 5: like other car companies that buy all this stuff from suppliers,
Speaker 5: you know, down the supply chain. That's what we saw
Speaker 5: during the chip crisis, Tesla did. You know, everybody suffered
Speaker 5: in the auto industry, but Tesla did fair better because
Speaker 5: they did so much of this stuff in the house
Speaker 5: that they could be nimble. They could take a semi
Speaker 5: conductor chip and rewrite the code and make it function
Speaker 5: for another purpose or another thing inside the vehicle.
Speaker 6: Yeah.
Speaker 4: So yeah, well, Asha, I want to bring you in here.
Speaker 4: Tell me what you're thinking about the market reaction. Is
Speaker 4: there more disappointment than you anticipated.
Speaker 6: That's a great question. So, as Gaby mentioned, you know,
Speaker 6: the twenty percent cross margin was sort of the hard
Speaker 6: line that everybody was looking at. Investors are trying to understand,
Speaker 6: you know, this land craft that Tesla is kind of
Speaker 6: getting into, at what price is it coming for?
Speaker 2: So let's talk valuation, right because if you pull it up,
Speaker 2: I mean we've got Tesla at a current pe of
Speaker 2: about fifty two, a forward looking pe of almost forty six,
Speaker 2: and we know investors were and be focused on, especially
Speaker 2: with a company that's been cutting prices absolutely.
Speaker 6: So that margin is the like one of the big
Speaker 6: corner stores of the valuation that Tesla has. And the
Speaker 6: Tesla is valued at like, you know, forty seven fifty
Speaker 6: times earnings forward earnings when you talk about GM or four,
Speaker 6: that's about six seven times, So you know, the disappointment
Speaker 6: on margin is a big disappointment when it comes to
Speaker 6: Tesla compared to like any other automaker, because that that
Speaker 6: is sort of the corner store that's holding up the valuation.
Speaker 6: So if GM has to cut prices or four has
Speaker 6: to cut prices, that's still understandable. But Tesla, even though
Speaker 6: it has scale, doesn't have scale at that point where
Speaker 6: it can hold up the valuation. Can it bring in
Speaker 6: as much revenue, even more scale and really cut down
Speaker 6: the cost of making those cars to at some point,
Speaker 6: you know, drive these margins back up.
Speaker 4: Yeah, So, Gabby, should we be valuing Tesla differently than
Speaker 4: a GM or a Ford.
Speaker 5: Ooh, that's a very controversial question. Obviously, for years we
Speaker 5: heard Wall Street say that this was a tech company,
Speaker 5: not a car company. I kind of feel like both
Speaker 5: are true.
Speaker 7: How do you report on it?
Speaker 2: Like, how do you think about it?
Speaker 5: I take the technology company stuff with a grain of salt,
Speaker 5: because at the end of the day, they are making
Speaker 5: their still metal bashers. However much they don't make you
Speaker 5: want to escape. I mean yes, And you know, when
Speaker 5: you see Elon and I look at this investor letter
Speaker 5: and they talk about their strategy going forward, they're talking
Speaker 5: about we're still making investments in autonomy and vehicle software,
Speaker 5: so that speaks to the tech question you're talking about.
Speaker 5: Tesla believes that they you know, obviously they're quote unquote
Speaker 5: full self driving, which is not full self driving, but
Speaker 5: they're you know, autonomous features in the car that have
Speaker 5: gotten them into hot water with regulators. Nonetheless, they believe
Speaker 5: Elon still seems to firmly believe that that is a
Speaker 5: growing revenue source in future, along with other software services
Speaker 5: in the car, and that's something that all the carmakers
Speaker 5: are looking at now. They're trying to not just be
Speaker 5: metal bashers, but they also want to sell services to
Speaker 5: consumers through the car, which obviously pits them against Apple
Speaker 5: and things like that. There's one other point I wanted
Speaker 5: to make Carol. As we think about this, don't forget
Speaker 5: about China. I'm just looking at you know, there's been
Speaker 5: a lot of headlines about what's going on the auto
Speaker 5: market in China. Elon had a very interesting relationship with China.
Speaker 5: All the other automakers were forced to do joint ventures
Speaker 5: where there would be tech transfer with their Chinese competitors,
Speaker 5: not Tesla Tesla. Elon held out right he never did that.
Speaker 5: He came in and built a plant, you know, once
Speaker 5: he owned it himself quickly. Nonetheless, nonetheless, you see by
Speaker 5: d you see these other domestic Chinese car companies gaining
Speaker 5: share in the Chinese market, not just Tesla, but everybody
Speaker 5: is kind of feeling the pressure there from some of
Speaker 5: the you know, the Chinese car companies have matured and
Speaker 5: they're making some good product now, which is another say.
Speaker 2: To think about when we think about the valuation. And Maddie,
Speaker 2: I knew you wanted to ask that one thing when.
Speaker 4: Its Tesla Gabby Real Quick Inflation Reduction Act, they reported
Speaker 4: an increase in regulatory credits this quarter. How big of
Speaker 4: a deal is that for Tesla moving forward?
Speaker 5: Okay, well, I think it is going to be significant.
Speaker 5: And the CFO, Zaka Kirkhorn, talked about that last quarter
Speaker 5: and I'm definitely going to be watching for his comments
Speaker 5: this quarter. But just let's just make it clear in
Speaker 5: folks minds. Like one thing is the regulatory credits that
Speaker 5: is that's been around for years and that's basically when
Speaker 5: another car company can't meet the EPA's fuel economy rules,
Speaker 5: they can actually buy credit from Tesla, which has nothing
Speaker 5: Tesla does not make combustion engines, right, there's no they're
Speaker 5: all zero emission vehicles, right, So that has been another
Speaker 5: kind of revenue cushion. Margin cushion for Tesla is his credits.
Speaker 5: But as more car companies get electric vehicles, they don't
Speaker 5: need to buy from Tesla. I mean, you know, for example,
Speaker 5: Chrysler and now Stiland has had a huge deal with Tesla,
Speaker 5: and they weren't the only one. So I'm trying to
Speaker 5: look at it there the let's see regular and trying
Speaker 5: to look for regulatory credit. But basically, let me just say, yeah,
Speaker 5: IRA is a different deal. The IRA is about Biden administration.
Speaker 5: The federal government is paying companies to make batteries on
Speaker 5: US soil.
Speaker 8: Right.
Speaker 5: Tesla already has a completely scaled and they're going to
Speaker 5: expand it giga factory in Nevada, and they have one
Speaker 5: in Texa. They're building it. They have it in Texas.
Speaker 5: They're building batteries in Texas. So that's another source of
Speaker 5: government revenue. And it's all about how many batteries, how
Speaker 5: many kill a lot hours of batteries you made? Guess what?
Speaker 5: Like I said, they have first moved for advantage. Tesla
Speaker 5: has been doing this longer, and they're further along.
Speaker 2: This is what is like when it goes back to
Speaker 2: Esha's story that's on the Bloomberg and you should check
Speaker 2: it out. This is why you know, it's like, yeah,
Speaker 2: my valuation, I got it, I'm worth it.
Speaker 9: All right.
Speaker 2: Well, let's see what Ross Gerber has to make out
Speaker 2: of all of this. He's president. You have Gerber Kawasaki
Speaker 2: Wealth and Investment Management, a Tesla shareholder, a Tesla car
Speaker 2: owner once wanted a board seat and then did not.
Speaker 2: He's with us, back with us on Zoom from Santa Monica, California. Hey, Ross,
Speaker 2: good to have you here. I know you're looking at
Speaker 2: all the news coming out of Tesla's stock is still
Speaker 2: down I think about three or four percent here in
Speaker 2: the aftermarket. What jumps out for you.
Speaker 9: Well, what jumps out for me is what I've been
Speaker 9: saying forever, which is Elon needs to spend some money
Speaker 9: on advertising instead of just sacrifice some gross margins and
Speaker 9: cash flow to lower prices. And he's treating the car
Speaker 9: like a commodity, and so you know, if there's less sales,
Speaker 9: they just lower the price, and if there's more sales,
Speaker 9: they raise the price, but that's actually not how you
Speaker 9: sell cars. So I think that this quarter was in
Speaker 9: line with our expectations, so that's the positive. It wasn't worse.
Speaker 9: But you know, when sales are up forty percent but
Speaker 9: revenue and profits are down, there's an issue you got
Speaker 9: to deal with. And blaming the macro environment, like a
Speaker 9: lot of people want to do, isn't isn't accurate, you know,
Speaker 9: So Tesla needs to address the demand side of their business,
Speaker 9: whether they like it or not.
Speaker 4: Well, to be fair, they also blame the weather in California.
Speaker 7: Ross do you suy that.
Speaker 9: That was for solar deployment though, but yeah, yeahyeah, yeah.
Speaker 7: Yeah, fair enough.
Speaker 4: Do you do you think on the valuation side, has
Speaker 4: your perspective changed at all? Do you think the valuation
Speaker 4: is fair?
Speaker 8: Yeah?
Speaker 9: I think the valuation is fair, and I think we've
Speaker 9: been running at fifty times earnings and originally about six
Speaker 9: eight months ago, our earnings expectations for this year we're
Speaker 9: six dollars, So we were at around three hundred dollars
Speaker 9: for Tesla and now they've been lowered to under four dollars.
Speaker 9: So if you do do fifty times four dollars, you're
Speaker 9: at two hundred dollars right now we're seeing earnings that
Speaker 9: might not even make four dollars. So I don't think
Speaker 9: the stock's acting irrationally. And I think for investors who
Speaker 9: have a long term focus, you know, Tesla's trading for
Speaker 9: what it's worth, and so if you're a long term investor,
Speaker 9: it's a good value. But if you're a long term
Speaker 9: Tesla shareholder like myself, it's very disappointing. You see earnings
Speaker 9: going down, right.
Speaker 2: You buy, you sell shares of Tesla. We know that
Speaker 2: we've talked with you a lot. Would you buy at
Speaker 2: this valuation? And as a stock is going down about
Speaker 2: three or four percent here, at least in the aftermarket.
Speaker 9: Well, I think you have to look at it from
Speaker 9: the perspective of if I'm an investor with cash and
Speaker 9: I'm looking to make investments with Tesla still be one
Speaker 9: of our top investments, and absolutely it would be. But
Speaker 9: the question is is if you're heavily invested in Tesla
Speaker 9: today and that's all you own is Tesla, is this
Speaker 9: a smart investment strategy? And I would say no, there's
Speaker 9: a considerable amount of risk that wasn't in Tesla a
Speaker 9: year ago.
Speaker 2: So are you upbeat though that they're saying they are
Speaker 2: seeing an ongoing cost reduction of its vehicles. You know
Speaker 2: what they're doing, right, They're cutting prices to grab more
Speaker 2: of the market. But they're also saying, we're gonna be
Speaker 2: able to cut the cost of production. Do you believe it?
Speaker 2: Can they do it?
Speaker 7: Well?
Speaker 9: I was just there. Absolutely they can do it because
Speaker 9: they got a massive factory that's only producing a couple
Speaker 9: hundred thousand cars that can produce over a million cars.
Speaker 9: So when you think about the point of scale that
Speaker 9: they're in, there's no doubt that they can cut the
Speaker 9: cost of the car. But the problems is as they
Speaker 9: increase production, can they sell all these cars? And if
Speaker 9: they continue to lower prices faster than costs are going down,
Speaker 9: then we've got a real bad situation for Tesla. And
Speaker 9: that's what my concern is when you haven't tried all
Speaker 9: the leave to sell cars. But one thing I think
Speaker 9: we can safely say that Elon's new job at Twitter
Speaker 9: is not helping Tesla sell cars.
Speaker 2: Yeah, and if they're going to do some advertising cuts
Speaker 2: into margins, do you hate that he's cutting prices? Just
Speaker 2: got thirty seconds twenty five? Absolutely?
Speaker 9: I think Tesla's a premium product, and I think it
Speaker 9: serves what we call the mass affluent marketplace, which is massive.
Speaker 9: And I think the continuing and cutting prices actually hurts
Speaker 9: the brand, and so I'd love to see Tesla try
Speaker 9: to hold prices here and try to sell cars any
Speaker 9: other way.
Speaker 2: All Right, Gonna leave it on that note. We know
Speaker 2: a busy afternoon, so so appreciate you weigh Have you
Speaker 2: been buying prices any Tesla's on the price cuts ten seconds?
Speaker 9: Well, no, I already have to Tesla's and they've lost value,
Speaker 9: so I'm not happy.
Speaker 2: All right, Well said, Well said Ross Gerber. Thank you
Speaker 2: so much, President and Chief executive Officer Kerber Kawasaki Wealth
Speaker 2: and Investment Management.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Easter on Bloomberg Radio,
Speaker 1: the Bloomberg Business App, and YouTube. You can also listen
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Speaker 2: Continue to track developments daily when it comes to AI,
Speaker 2: in particular, generative artificial intelligence, increasingly creeping into the conversation
Speaker 2: is also the creepy thought that AI is like a
Speaker 2: person sentient. There's a great story on the Bloomberg about
Speaker 2: that and reminding us that machines are not conscious. So
Speaker 2: let's get to our next guest. See what he has
Speaker 2: to say about what's going on when it comes to AI.
Speaker 2: He is head of and co founder of a company
Speaker 2: that has been named to Fast Companies prestigious annual list
Speaker 2: of the world's most innovative companies for twenty twenty three
Speaker 2: when it comes to the AI category. With more on that,
Speaker 2: and let's get into the company. It's an AI powered
Speaker 2: app development platform builder dot Ai. I think I need
Speaker 2: AI right now to help me read. We welcome co
Speaker 2: founder Satan Doogal. He's Dev Doogal, co founder and chief
Speaker 2: wizard a builder dot Ai. He's here in our interactive
Speaker 2: broker studio. Sorry my introduction was too long. I should
Speaker 2: have just said hello, come in.
Speaker 8: Thank you so much for having me.
Speaker 2: Good to have you here with us. Tell us, first
Speaker 2: of all, what your company does specifically.
Speaker 8: So we allow people who don't understand technology to be
Speaker 8: able to.
Speaker 2: Build software, so anybody can build.
Speaker 8: Anyone And why is that important?
Speaker 1: Right?
Speaker 8: If we think about every small business every department in
Speaker 8: a large company, every entrepreneur with an idea they need
Speaker 8: to be digitally native, but they have no idea how
Speaker 8: to be digital native. Like the average person when you
Speaker 8: say Java, thinks coffee being at Starbucks. And when you
Speaker 8: ask them how do they use Excel? They use a
Speaker 8: calculator with it. And that's the average audience. And how
Speaker 8: suddenly do they become relevant in a world that's so digital?
Speaker 2: Can they just hire somebody to be digitally native?
Speaker 8: Yeah, and you have five hundred million developers worth a
Speaker 8: demand and fifteen million developers with a supply. But the
Speaker 8: issue is much bigger than that. I give you a
Speaker 8: really funny an average. So I have two little children,
Speaker 8: and if you say to them, paint me Picasso and
Speaker 8: art class, it's pretty bad. Then you put five pictures
Speaker 8: of Picasso around it and say, paint me pickass So
Speaker 8: it's much better. And then you say to them you
Speaker 8: can cut up these five paintings and make Piassa. And
Speaker 8: now it's something you'll put on the wall. And I think,
Speaker 8: you know how we build software to people that are
Speaker 8: not technically it is the same thing. They need people
Speaker 8: to pick and choose things from things they recognize just
Speaker 8: like they order food at lunch or they order a
Speaker 8: kitchen and that's how software should be.
Speaker 4: So what are you seeing in the trends of the
Speaker 4: entrepreneurs that are coming to you to use your platform.
Speaker 4: What's changed? What's been the single biggest change you've seen
Speaker 4: over the past couple of years.
Speaker 8: So I think firstly the speed at which people are
Speaker 8: coming and the sheer of velocity COVID it was interesting.
Speaker 8: It was like a massive tailwind, but it was a
Speaker 8: gating function. It's like, we're not going back to the
Speaker 8: old way. I think the second thing we've seen is
Speaker 8: it went from a nice to have where I might
Speaker 8: speak to my cousin or the person down the road
Speaker 8: to help me build a website or help me build
Speaker 8: an up to my business is not going to work
Speaker 8: unless I have this working or this problem solved. Right,
Speaker 8: I'm not going to succeed in my job in the
Speaker 8: finance department in a company.
Speaker 2: Yeah. That two year plan to be really all in
Speaker 2: on digital.
Speaker 8: Yes, got to do it now. Yeah, it's accelerated. And
Speaker 8: I think that the third has been for us is
Speaker 8: people have basically let go of the idea that I
Speaker 8: need to be a developer or I need to be
Speaker 8: a programmer, and they are all in and saying I
Speaker 8: just need to get on with this now. So to
Speaker 8: the extent that someone can help me, I will take it.
Speaker 2: You guys are powered, as we said, or I tried
Speaker 2: to say the introduction AI powered app development platform. So
Speaker 2: what is the role of AI in this?
Speaker 8: So there's a couple of things. Firstly, our user experience
Speaker 8: with the customer is like a Domino's Pizza experience plus
Speaker 8: conversational AI. So you talk to the system and as
Speaker 8: you talk, NATASHAI I will understand what you're saying and
Speaker 8: we'll say, okay, let me ask this question. But she
Speaker 8: may not ask the question that the human might ask
Speaker 8: the question. And that's important because we're sill at a
Speaker 8: stage where AI is a toddler, not an adult, and
Speaker 8: so having a human in the loop is really important
Speaker 8: and we realize this our own experience. The second is
Speaker 8: there are things that a machine can do, for example,
Speaker 8: like does the app look like the design? It's a
Speaker 8: computer vision problem. We don't need a human to look
Speaker 8: and go through every single screen on every single device
Speaker 8: and highlight you know what's wrong. And so those are
Speaker 8: really good examples. Our entire platform is powered by knowledge graphs.
Speaker 8: I think about a knowledge graphs like a synthetic brain.
Speaker 8: It knows what you want to build before you know,
Speaker 8: because it's got so much data and so many relationships
Speaker 8: between them. But the most important thing is what we're
Speaker 8: what we're really seeing as an industry trend is the
Speaker 8: shift towards making humans more creative so you don't have
Speaker 8: to do the benign work?
Speaker 2: Is it kind of like I love editing, so like
Speaker 2: somebody writes something and then you go off and edit it.
Speaker 8: Is that kind of how we even further?
Speaker 10: Yeah?
Speaker 8: Look, so I think the editing is even I think
Speaker 8: the editing is a great analogy, right, And I think
Speaker 8: that's what you're getting. What's what we're seeing now is
Speaker 8: eighty percent of the work can be done by machine.
Speaker 6: Yeah.
Speaker 8: The last twenty percent is the human power of creativity? Right?
Speaker 4: Is chat GPT then? And I'm calling it that, but
Speaker 4: I know it's a lot bigger than that. Is that
Speaker 4: a tailwind or a headwind for you?
Speaker 8: I think it's a tailwind, you know. I was joking
Speaker 8: with someone this morning that suddenly llms are things that
Speaker 8: you hear on the tube. The large language models, which
Speaker 8: the acronym that obviously what chat chiped's underlying is six
Speaker 8: months ago, no one talked about llms in the tube
Speaker 8: or chatchiped in the tube. Now suddenly everybody talks about.
Speaker 2: Airbody this, and this is something we were trying to
Speaker 2: talk with. I was with our Rachel Matt, who covers
Speaker 2: AI for Bloomberg News. I mean, what is it what
Speaker 2: happened that all of a sudden this is dominating our conversation.
Speaker 2: AI is not a new thing. We've been using it already.
Speaker 2: We were talking about before you or as you came
Speaker 2: in that I read a sentence and you know, whatever
Speaker 2: program and it helps me finish the sentence. What is
Speaker 2: it that happened? Was it just Microsoft buying something or
Speaker 2: what was out there? What was technologically that happened?
Speaker 8: So I think it was like the perfect storm, and
Speaker 8: it's it's like, you know, you had a piece of
Speaker 8: technolog that had just reached the light level of inflection.
Speaker 8: It got in the hands of general public, they could
Speaker 8: actually do things with it. You had enough people writing
Speaker 8: about it, and it drove into mainstream news so quickly.
Speaker 8: Keep in mind that the reason has become so prolific
Speaker 8: is a part of also how news percolates today compared
Speaker 8: to say when AOL came out with the internet way
Speaker 8: back when, right in the early intern days. Easy to quickly,
Speaker 8: it's very easy to go very quickly.
Speaker 2: It's all bite size your business. Tell us about growth rates.
Speaker 2: We're Bloomberg. We like numbers. Tell us a little bit
Speaker 2: about what you guys are doing, and you're profitable. What's
Speaker 2: your growth rate?
Speaker 8: So we grew last year at two hundred and thirty
Speaker 8: percent year on year. The year before we grew to an.
Speaker 2: Eighty two Are you talking toplant?
Speaker 8: What are your top line revenue?
Speaker 10: Okay?
Speaker 8: And two?
Speaker 2: Tell us what kind of numbers.
Speaker 8: It's it's the it's in the in the in the
Speaker 8: high hundreds of millions. It's low in the hundreds of millions, okay.
Speaker 8: And the year before we grew it three hundred percent
Speaker 8: year in year. We've only been out of beta for
Speaker 8: two and a half years. Profitable, we're almost there, okay
Speaker 8: this year on and off, I mean technology, these were
Speaker 8: also investing a lot, right, So, but for us it's
Speaker 8: the more important thing is we're really focused around building
Speaker 8: a business with strong economics, and so you know, we
Speaker 8: we return between four to six times marketing and sales,
Speaker 8: so our customers really stick onto the platform and they
Speaker 8: spend more.
Speaker 2: All right, really interesting, and it really just plays into
Speaker 2: so much that's going on in our world. Come back,
Speaker 2: let's know how the growth is going.
Speaker 8: Thank you really appreciate it to come back.
Speaker 2: Yeah, really fun, really appreciate. Sachan dev Dougal, co founder
Speaker 2: and chief wizard. What does a chief wizard do?
Speaker 10: Just you got ten.
Speaker 8: Seconds learning to be a CEO?
Speaker 2: Okay, that's cool, CEO adapt that's a nice cover. He
Speaker 2: is a chief wizard and more of Builder dot Ai
Speaker 2: in our Bloomberg Interactive Brokers studio looking forward to and
Speaker 2: coming back and giving us an update. All right, you're
Speaker 2: listening and watching Bloomberg Business Week right here on Bloomberg Radio.
Speaker 1: This is Bloomberg Business Wait inside from the reporters and
Speaker 1: editor who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.
Speaker 2: All Right, everybody, Well, the repo man is, why.
Speaker 4: Are you I'm so sorry that I can't control.
Speaker 7: It's kind of funny.
Speaker 2: Well, this whole idea is just really charming. He's back,
Speaker 2: perhaps a sign of our times. We're talking about the
Speaker 2: Repo man. Yeah, it was not just a movie. It's
Speaker 2: actually a real man or woman who's out there repossessing
Speaker 2: our cars. Let's get into it with Bloomberg News Personal
Speaker 2: Finance reporter Claire Valentine, who tracked him or her down
Speaker 2: and a convention. Who knew there's actually a convention out there?
Speaker 2: The stories of the upcoming new issue of Bloomberg Business
Speaker 2: Week on newstands starting tomorrow, already online at Bloomberg dot com,
Speaker 2: slash Businessweekend on the Bloomberg terminal. So let's get to
Speaker 2: it and more on her reporting, Claire joining us in
Speaker 2: her Bloomberg Interactive Broker studio al the editor of Bloomberg
Speaker 2: Business Retil Weber, and Jill I have to say when
Speaker 2: Claire I was in the makeup room a while ago
Speaker 2: and she's like, you don't even believe what I'm doing.
Speaker 2: I'm like, Repo, what what's going on? So so glad
Speaker 2: we can talk about this story.
Speaker 10: Are we not going to talk about Boys to Men?
Speaker 10: Because the Boys to Men was.
Speaker 7: Movie?
Speaker 10: I mean, it's a certain movie. I don't know if
Speaker 10: it's going to be this one. But somebody got to
Speaker 10: the end of the road. All right, Okay, the connection,
Speaker 10: so you get yeah, you get that, there's the road there. Yeah,
Speaker 10: the producers all over that one. Okay. So this immediate
Speaker 10: with the moment Claire started talking about that story about
Speaker 10: the return of the rep a man, I was like,
Speaker 10: oh man, you had me at the But the repost
Speaker 10: story is a really significant one. The car is so
Speaker 10: central to the American economy, and when people start to
Speaker 10: lose that car, I think it has some bigger implications
Speaker 10: for the US economy. But I do want to start
Speaker 10: with this convention because lo and behold, there's a convention
Speaker 10: for everything, and of course there's one for REPO men.
Speaker 10: What goes down at the REPO convention? Claire, Well, as.
Speaker 7: Soon as I heard that this existed, I told my
Speaker 7: boss I have got to go to this and just
Speaker 7: see what it's all about. And it did not disappoint.
Speaker 7: It was a two day convention in Orlando, Florida. So
Speaker 7: I went down on an airplane full of screaming children
Speaker 7: going to Disney World and college students on their way
Speaker 7: to spring break, and got this convention and the first
Speaker 7: thing that really struck me was how many tow trucks
Speaker 7: they managed to get in this hotel. They had displayed
Speaker 7: all their tow trucks. There was all these vendors, all
Speaker 7: this technology on the best way to repo cars. And
Speaker 7: it really got real when one convention attendant looked at
Speaker 7: me and said, yeah, everyone in this room has been
Speaker 7: shot at at least once.
Speaker 2: Why these individually? Is it largely men?
Speaker 7: A lot of men? But it's you know, it really
Speaker 7: is all small business. And I'm really glad I went
Speaker 7: because in doing stories about the repoman and the consumer,
Speaker 7: it was nice to put actual phases to this. And
Speaker 7: what really struck me was that, you know, there is
Speaker 7: this narrative of the evil repo man, and I'm sure
Speaker 7: it's true in some cases, but no one here is
Speaker 7: getting super rich off repoeing cars. He's a very down
Speaker 7: to earth, regular Americans that just happened to make their
Speaker 7: money taking cars from people.
Speaker 10: Okay, so how is that business trending? And by business
Speaker 10: I mean repos Right, this is not something that you know,
Speaker 10: we've really seen for a while, right is it? How
Speaker 10: is it back? And how big is it?
Speaker 6: Yeah?
Speaker 7: So during the pandemic, repos largely dried up. There was
Speaker 7: stimulus checks, a lot of leniency from lenders on pain
Speaker 7: auto loans. Now things are kind of starting to turn,
Speaker 7: and I think this convention really marks almost the start
Speaker 7: of what we're going to see as a surge in repossessions.
Speaker 7: The estimates are that they were about one point two
Speaker 7: million in twenty twenty two. It's up from last year,
Speaker 7: but still down from about one point seven million in
Speaker 7: twenty nineteen. So these are really picking up, and I
Speaker 7: think the convention as a whole was this great window
Speaker 7: into the economy. Right now, do they.
Speaker 10: Play any jokes on each other at a convention like this?
Speaker 7: The jokes that I saw, Let's see who's there. The
Speaker 7: highlight was definitely the repo demo. There's some jokes thrown around.
Speaker 10: There with the demo.
Speaker 7: The repot demo was all of the convention attendees filed
Speaker 7: out to the parking lot, where I thought this was
Speaker 7: very poetic.
Speaker 6: It was a.
Speaker 7: Giant tow truck that was repossessing a Toyota Hybrid. So
Speaker 7: it was like this very liberal car that they were
Speaker 7: like re possessing, and they everyone was crying around the
Speaker 7: tow truck was getting hooked up to take this car away,
Speaker 7: and they were demonstrating all the best techniques and how
Speaker 7: you know what the repro agent honing techniques, towing techniques,
Speaker 7: That's what I thought that was the best one. Well,
Speaker 7: the thing that that stood out to me the most
Speaker 7: is that they really emphasized that when your back is
Speaker 7: turned to the situation behind you, that's the most vulnerable
Speaker 7: because you're at risk of violence.
Speaker 2: Because you have to do it right as somebody who's
Speaker 2: repossessing right. You have to physically do it so like
Speaker 2: you're not.
Speaker 7: Yeah, and it can get really dicey. That was another
Speaker 7: big takeaway. I had no idea how dangerous this industry was.
Speaker 10: There's the other side of this. You talk to people
Speaker 10: who have had their vehicles repossessed, and I'm curious what
Speaker 10: came out of those conversations.
Speaker 7: A lot of people really struggling right now to afford
Speaker 7: their car loans. We saw car prices skyrocket during the pandemic,
Speaker 7: a lot of supply chain issues. A lot of people
Speaker 7: in America just have to have a car, no way
Speaker 7: to get around if you're you know, don't live in
Speaker 7: a city with good public transportation. So people are taking
Speaker 7: out loans with insane interest rates, I mean nineteen twenty percent,
Speaker 7: and their car payments are just so high. There's not
Speaker 7: enough money to go around, especially with inflation.
Speaker 2: You talk about Sarah Fader in your story, and she's
Speaker 2: the one right who's got a nineteen percent interest loan
Speaker 2: from American Credit Acceptance.
Speaker 7: Yes. I went up to New Haven and met Sarah,
Speaker 7: met her family, saw the car, really talked with her
Speaker 7: about her situation, and it really hits home just what
Speaker 7: a lot of people are dealing with right now. I mean,
Speaker 7: her rent had gone up, her groceries were so expensive,
Speaker 7: She's got two teenagers, and with a high car payment,
Speaker 7: there's she's such a tough spot.
Speaker 4: And lenders are excited about making these loans, even if
Speaker 4: they're lending out that money to people who they know
Speaker 4: can't necessarily afford it.
Speaker 7: Right, Yeah, it's the whole way they package up these
Speaker 7: auto loans into bonds. In some cases, investors would still
Speaker 7: get their money back with interest if even three quarters
Speaker 7: of barers so falls it on the loans. So it's
Speaker 7: of course, you know, moves to Wall Street where they're
Speaker 7: eager to package these up and sell them and make
Speaker 7: money off of them.
Speaker 10: Okay, So with the people that you talked to. See
Speaker 10: your car gets repossessed and you know you've lost out
Speaker 10: in that vehicle. Where does the story go from there?
Speaker 10: What do they have to do to get it back,
Speaker 10: to get back to work, to get all that stuff
Speaker 10: that not only has impacts for them, but also the
Speaker 10: economy as a whole.
Speaker 7: Ring. Yeah, in many cases, it's not just the back
Speaker 7: payments that they have to make that they haven't paid
Speaker 7: so far. It's additional fees for repossession and for towing,
Speaker 7: and then there's the hit to their credit score, which
Speaker 7: is going to affect them in the future. I talked
Speaker 7: with a couple of people who'd had their cars repossessed
Speaker 7: that essentially just had to count it as a loss.
Speaker 7: They didn't have the money to get the car back,
Speaker 7: so they were going to have to just move on
Speaker 7: with their lives in any way they can. But it
Speaker 7: definitely you know, when people suddenly don't have a car,
Speaker 7: they can't get to work, maybe they lose their job,
Speaker 7: and it's just this whole spiral cycle.
Speaker 2: So you know, what I'm also curious about is the
Speaker 2: individuals who are the repo man or woman. Do they
Speaker 2: think about this like in terms of that there are
Speaker 2: people and you know, with problems and financial problems. I
Speaker 2: just wonder, is it a job or is it a
Speaker 2: lot more than that.
Speaker 7: I think that's a great question, and it is, you know,
Speaker 7: I don't think they're ignorant of that. But I do
Speaker 7: think what came away from me from the conference was
Speaker 7: very much I think there's this attitude that REPO men
Speaker 7: are misunderstood, and it was a bit of a.
Speaker 2: That's another new movie or we're talking about but go ahead,
Speaker 2: go ahead.
Speaker 7: That the REPO men were sort of like, we're the
Speaker 7: good guys and we're just doing our job. No one
Speaker 7: understands how hard or how dangerous that is. And I think,
Speaker 7: you know, it's it's easy to point your finger at
Speaker 7: at the villain in these situations. I do think the
Speaker 7: truth is more nuanced. You also have in some cases
Speaker 7: predatory lenders that are giving out loans was kind of
Speaker 7: high interest rates. So it's a whole system that contributes
Speaker 7: to this kind of crisis.
Speaker 10: Okay, I'm curious about the Python. Can we talk about
Speaker 10: the Python?
Speaker 7: Yes, the Python.
Speaker 10: The Python.
Speaker 7: It's a pretty impressive truck. I'm not gonna lie.
Speaker 10: It must just like make this room get really excited
Speaker 10: a room full of REPO people.
Speaker 7: I wish I had seen them get these tow trucks
Speaker 7: into the conference room because it was a very nice
Speaker 7: conference center. I mean this was like palm trees this one.
Speaker 7: I mean it's Florida. It was Florida. It was very nice.
Speaker 7: And then all of a sudden you look around and
Speaker 7: there's five tow trucks sitting around. It's I mean, they
Speaker 7: were huge. And what I love the most is that
Speaker 7: to sort of demonstrate how they work, they had this
Speaker 7: little toy car that they were towing that was just
Speaker 7: like the size of a kid's little tricycle. It's showing
Speaker 7: how you hook it up.
Speaker 2: So they have a sense of humor.
Speaker 7: There was a certain extent I eighty eight thousand dollars.
Speaker 10: Though, and these are small businesses, you know. I found
Speaker 10: that to be really interesting, Like it's it's not like
Speaker 10: it's some big company. It's like you're out there on
Speaker 10: your own reprossing vehicles. Was that true for everyone in
Speaker 10: the room? Were they all small businesses or how many
Speaker 10: of them work for somebody else?
Speaker 7: I mean, I would say most of them were small businesses.
Speaker 7: I mean you look around at the clientele and These
Speaker 7: are not you know, millionaires, businessmen in suits. These are
Speaker 7: very you know, blue collar kind of workers. And I'd
Speaker 7: say maybe they have, you know, a place with at
Speaker 7: most to thirty employees, but there are really giant firms
Speaker 7: doing this well.
Speaker 4: It makes me wonder, Claire, like, on a personal level,
Speaker 4: was it ever hard for you to walk up to
Speaker 4: people and just say like, hey, can you give me
Speaker 4: your life story?
Speaker 7: Were you like nervous at all? I was only because
Speaker 7: I'm pretty sure I was the only journalist there. I'm
Speaker 7: sure I am one of the only women, one of
Speaker 7: the only women. These people are not huge fans, so
Speaker 7: got a lot of that, got a lot of people
Speaker 7: coming up to me and being like, oh, hey, I
Speaker 7: heard you're the journalist. Yeah, so it's me.
Speaker 4: Honestly, I went to a men's rights conference for Bloomberg
Speaker 4: a few years ago.
Speaker 7: It sounds very similar.
Speaker 4: You're like, hey, yeah, sorry it was Did.
Speaker 2: You talk to the journalist?
Speaker 7: Yeah? I do think. You know, there are pros and
Speaker 7: cons to being a young woman in this industry, and
Speaker 7: you know, lots of cons, as you and I know,
Speaker 7: but one of the pros is that kind of non threatening.
Speaker 1: Yeah.
Speaker 7: I think if i'd been a big guy coming in
Speaker 7: there talking to the reputman. It may have been a
Speaker 7: little different. So it was a very unique situation recording
Speaker 7: wise that I've been in.
Speaker 10: Does make me wonder who do these people work for?
Speaker 10: You know, like and like how do they get their
Speaker 10: next job?
Speaker 4: Oh?
Speaker 7: This is fascinating. I had no idea the technology behind
Speaker 7: all of this. There were so many firms that were
Speaker 7: advertising their databases. So in some cases these small businesses
Speaker 7: sign up to have access to databases with all this
Speaker 7: license plate data. Oh, it's all proprietary, right, And it
Speaker 7: was fascinating to me. I mean, these are all this
Speaker 7: is public sector, this is or private sector. This is
Speaker 7: not government data.
Speaker 2: So somebody's feeding it into these these apps if you will, or.
Speaker 7: Whatever, like basic like readers that compile all of this
Speaker 7: and then REPO agents can access it to then track
Speaker 7: down your.
Speaker 10: Car AI's work. What do they make?
Speaker 2: How can they afford that?
Speaker 3: Eighty eight?
Speaker 2: That's a dullar?
Speaker 10: What is it called?
Speaker 5: Python?
Speaker 1: Yeah?
Speaker 10: What I want to see is with the Python get.
Speaker 7: Repossessed'll circle right? Yeah, definitely? Yeah. I you know, in
Speaker 7: terms of profit margins on these, I don't have an
Speaker 7: incredible idea. I do think they have had a tough
Speaker 7: couple of years.
Speaker 10: Yeah, because the numbers went down, right like the pandemic
Speaker 10: there was you know, the chart in the story sort
Speaker 10: of says it all. It's like it's backed because you know,
Speaker 10: there was a lull and so and speaking to everyone there, though,
Speaker 10: do they think that this these numbers are going to
Speaker 10: keep going up?
Speaker 7: I think so, yeah. I mean that's I think the
Speaker 7: fact that they dropped so much really has contributed to
Speaker 7: this sort of you know, our industry is in crisis
Speaker 7: and risk kind of mentality. And now what I saw
Speaker 7: at the conference was a lot of people getting more
Speaker 7: excited or getting more like, our industry is on the
Speaker 7: upswing now we are.
Speaker 2: Bad news is good news.
Speaker 7: Bad news is good news. Yeah. Yeah.
Speaker 2: I also thought it was interesting that, you know, one
Speaker 2: of the things we talk about with I feel like
Speaker 2: everybody who comes on is like the tight labor market,
Speaker 2: and they're dealing with that too, just quickly they are.
Speaker 7: Yeah, they're having a lot of trouble hiring workers, especially
Speaker 7: because many of their repo agents from pre pandemic went
Speaker 7: to other industries.
Speaker 2: Right, right, exactly did they try to recruit you?
Speaker 8: Just I'm just curious.
Speaker 7: I quite have the profile.
Speaker 2: Unbelievable, really funny. You took us to a place that
Speaker 2: I think nobody has really seen. Claire Valentine, she's personal
Speaker 2: finance reporter at Bloomberg News here in studio with us,
Speaker 2: longing till were the editor of Bloomberg Business Week, and
Speaker 2: of course the stories we mentioned coming up in the
Speaker 2: new issue of Bloomberg Business Week out on newsstands tomorrow,
Speaker 2: already online at Bloomberg dot com, slash BusinessWeek and also
Speaker 2: on the Bloomberg terminal.
Speaker 4: Are you gonna get a python anytime soon?
Speaker 2: Explain the song to me? Was that from the movie
Speaker 2: It's Boys.
Speaker 4: I was just laughing from boys to men.
Speaker 2: I didn't anticipate boys to men playing in my ears.
Speaker 2: Like the wedding. He wanted to get like all the
Speaker 2: couples get up on the floor.
Speaker 10: This is Bloomberg.
Speaker 2: I'm brother Marc, a journal How about you let me drive?
Speaker 8: No, no, no, no, honey, please, how do the riding gravels?
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Speaker 6: It's a good question time.
Speaker 1: This is the drive to the Globe.
Speaker 10: Dot com for me.
Speaker 1: I think we'll buy around you on Bloomberg Radio.
Speaker 2: All right, everybody, just at your eighteen minutes left in
Speaker 2: the trading day. Really the little changed here just down
Speaker 2: about point three percent on the DALLA. So the biggest
Speaker 2: move on a percentage basis right now is for the
Speaker 2: Dow Jones Industrial Average call it flat as you heard
Speaker 2: from Charlie on the S and P and the Nasdaq
Speaker 2: just one tenth of a percent here. Our next guest
Speaker 2: notes that with earnings releases picking up, some companies weren't
Speaker 2: some pretty close watching. So let's get to it with
Speaker 2: Burns McKinney, portfolio manager at the Global Value Equity Manager
Speaker 2: and Texas based NFJ Investment Group. He is on the
Speaker 2: phone from Dallas, Texas. Hey, Burn's, good to have you
Speaker 2: here with Maddie and myself. So tell me out in Texas.
Speaker 2: What are people talking about? Yeah?
Speaker 11: I think that people are still you know, they've we've
Speaker 11: been talking about inflation, inflation, inflation for fuite sometime, and
Speaker 11: it's something that you know, that's it's probably of all
Speaker 11: the economic statistics you look at, you know, whether people
Speaker 11: focus on GDP or earnings, it's the one thing that's
Speaker 11: kind of right in your face and you go to
Speaker 11: the grocery store, you see the price of Eggs. I mean,
Speaker 11: the price of gasoline is is advertised in you know,
Speaker 11: in five foot letters on huge designs, and so people
Speaker 11: have been talking about inflation for quite some time. But
Speaker 11: you know, we are starting to see a shift such
Speaker 11: that I think the focus is kind of moving towards
Speaker 11: the fact that the economy is starting to slow.
Speaker 4: So talk to me Burns about the stickiness of inflation
Speaker 4: versus the indications that you're seeing in terms of slowing.
Speaker 4: Because I have to wonder, I know you're in Texas,
Speaker 4: big oil state, but are you worried at all about
Speaker 4: these OPEC cuts making inflation stickier than we might be
Speaker 4: seen in the data right now?
Speaker 11: Well, you know, OPEK, it really does appear that they've
Speaker 11: kind of settled on trying to establish a cost more
Speaker 11: for oil of around eighty dollars. That's something that probably
Speaker 11: in many ways makes it sticky. But at the same time,
Speaker 11: you know, that's something that as well, you know, at
Speaker 11: some point you start lapping you know, these figures and
Speaker 11: it no longer actually has the impact on inflation today.
Speaker 11: But you know, really investors are focused on inflation being sticky.
Speaker 11: You know, there's there's been a lot of consternation of
Speaker 11: the fact that it hasn't been it's been pulling back,
Speaker 11: but it hasn't been coming down as quickly as a
Speaker 11: lot of forecaster, a lot of investors would would really
Speaker 11: like to see it come down. And you know, I
Speaker 11: think that's something that just really involves patients. You know,
Speaker 11: they say that, you know that it took about you know,
Speaker 11: a year and a half or so for inflation to
Speaker 11: kind of peak, and expectations should really sort of remnage
Speaker 11: themselves such that it might take a year and a
Speaker 11: half for it to actually come down to prior levels,
Speaker 11: and even then it probably won't go all the way
Speaker 11: back down to that two percent sub to two percent level,
Speaker 11: because you know, there are some structural factors that may
Speaker 11: actually keep it a little bit more elevated than it's been.
Speaker 11: You know, really, I think the primary one being just
Speaker 11: the you know, the reversal of the globalization and and
Speaker 11: the you know, near shoring of supply chains and may
Speaker 11: keep prices higher. But we do think that it's probably
Speaker 11: going to pull back and continue to pull back the
Speaker 11: remainder this year.
Speaker 3: All right.
Speaker 2: What we love is when a guest comes on and
Speaker 2: they say, we've got some names you want to talk
Speaker 2: about because we can get into the specifics which I
Speaker 2: think our audience really appreach it, appreciate, appreciates about around
Speaker 2: the much you know, debate that we are having on
Speaker 2: so many different macro issues. So, having said that, Zoetes
Speaker 2: zts is the ticker Animal Pharmaceuticals. If you will, this
Speaker 2: is a name that you like. It's up roughly twenty
Speaker 2: percent so far this year. I know people spend a
Speaker 2: lot on their pets. I know I spend a lot
Speaker 2: of my pets. I know private equity likes the pet space.
Speaker 2: What is it about zoetis so that.
Speaker 5: You really like?
Speaker 1: Sure?
Speaker 11: Yeah, and private equity definitely does you know there was
Speaker 11: one of the European competitor was just announced to an acquisition,
Speaker 11: Decra Pharmaceuticals. Yeah, an acquisition was announced just earlier this week.
Speaker 11: But yeah, I think this is the name that you know,
Speaker 11: you're looking for companies that have the company specific you know,
Speaker 11: benefits from long term structural tailwinds and they have a
Speaker 11: couple of big ones. You know, this is the name
Speaker 11: that you know for those who an't is familiar with it,
Speaker 11: it's you know, really the leading pure play global animal
Speaker 11: health company. It was spun out a few years back
Speaker 11: from Pfizer, and you know, they split their business pretty
Speaker 11: equally between what they call companion care i e. Pets
Speaker 11: and livestock. So the two big secular trends, one of
Speaker 11: which is you're just seeing increasing demand for global protein
Speaker 11: as you have a growing middle class. And then on
Speaker 11: the pet side, you're just seeing that you know, as
Speaker 11: you know correctly noted, you know, pets are becoming increasingly
Speaker 11: important members of people's families. And as that's happened.
Speaker 2: Costly members and costly members families, there's been more Yeah,
Speaker 2: there's been more penetration of medicines used for pets.
Speaker 11: And you know, I could say for our for our household,
Speaker 11: they probably have me forgo my meds before we would,
Speaker 11: you know, have our cat or our dog, you know,
Speaker 11: forego theirs. And that's something that makes it. It tends
Speaker 11: to be defensive for that reason, and it tends to
Speaker 11: give them pricing power, which is what you should look
Speaker 11: for in an inflationary environment.
Speaker 4: So talk to me about true as Financial another pick
Speaker 4: of yours. It's a Charlotte based bank. Why why do
Speaker 4: you like it? Because we're obsessed with the regional bank story.
Speaker 4: So tell me more.
Speaker 11: Yeah, this is one you know for contrarians who are
Speaker 11: kind of looking for, you know, the proverbial babies that
Speaker 11: have been thrown out with the bath water with respect
Speaker 11: to you know, some of the recent banking turmoil. But
Speaker 11: you know, for one thing, we do tell our clients
Speaker 11: that that a lot of the turmoil that we've seen
Speaker 11: around Silicon Valley Bank really was very company specific to them.
Speaker 11: You know, they had some issues with hedging, hedging their
Speaker 11: assets as well as a very concentrated deposit base, whereas
Speaker 11: you know Truest it's uh, you know, it's now I
Speaker 11: think the sixth largest US bank, So it does have
Speaker 11: good diverse diversity of their clients. It was born with
Speaker 11: the merger of bb and T and sun Trust, and
Speaker 11: so they're located in a lot of the great places
Speaker 11: the South, the sun Belt, where you do have good
Speaker 11: demographic and population growth. Right now, it trades at a
Speaker 11: discount to book value, which is a discount even to
Speaker 11: the regional banks. You have a six percent dividend yield
Speaker 11: that that does look pretty safe. They hiked it by
Speaker 11: eight percent over the past year, which demonstrates management confidence
Speaker 11: in the business. And you know, yeah, and you compare
Speaker 11: it to you know, where there has been some of
Speaker 11: the turmoil. You know, roughly, you know, only half of
Speaker 11: their their deposits running shirt, which does prevent them from
Speaker 11: having any sort of run on a bank like you
Speaker 11: saw in Silicon.
Speaker 2: Valance, Hey Burns. One last one I want to ask
Speaker 2: you about, certainly because real estate is on our minds,
Speaker 2: as you know, and wondering if that's the next shoot
Speaker 2: a drop coming off of the bank crisis not crisis,
Speaker 2: if you will. Alexandria real estate ticker is AR. It's
Speaker 2: up about off about fifteen percent so far in twenty
Speaker 2: twenty three, twenty one billion dollar market cap. They play
Speaker 2: in the Pharmer space personal care research thirty seconds.
Speaker 11: Why though this name, you know, it's you know right now,
Speaker 11: it's traded about thirteen and a half time spun from operations.
Speaker 11: You have a nice four percent dividend deals, which we love.
Speaker 11: And what they do is they own office and lab space.
Speaker 11: They least a pharma, biotech and diagnostics, and so you know,
Speaker 11: sometimes people sort of misclassify it. They think of it
Speaker 11: as being more of a real estate play, but really
Speaker 11: it tends to trade more with the biotechs, and you know,
Speaker 11: they have long term relationships with where there's academic institutions,
Speaker 11: all the places you want your kids to get into college,
Speaker 11: you know, Harvard, Stanford, Duke, as well as a lot
Speaker 11: of the big form of companies. And they have a
Speaker 11: great track record of growing their funds from operations every
Speaker 11: quarter for just like five years. And so it doesn't
Speaker 11: really trade like the reefs, and as a result it
Speaker 11: should give investors a little bit of defensiveness in involved
Speaker 11: the market.
Speaker 2: All right, but as we said, down about eighteen percent
Speaker 2: so far here in twenty twenty three, and that's after
Speaker 2: a year. Well, we know a lot of assets classes
Speaker 2: and assets where are really beating up?
Speaker 10: Who was down about twenty sixty percent?
Speaker 2: Hey Burns, thank you so much. Bernie McKinney, he's portfolio
Speaker 2: manager at NFJ Investment Group. Joining us on a phone
Speaker 2: from Dallas, Texas.
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