Speaker 1: This is Bloomberg Business Week with Carol Messer and Jason
Speaker 1: Kelly on Bloomberg Radio. Well, amid all of the earnings
Speaker 1: that we're hearing about, a lot of folks focused on
Speaker 1: alphabet Google as it is better known, Google's parent company,
Speaker 1: and that stock Carol is trading off about two point
Speaker 1: to five percent. We're following the headlines also our top
Speaker 1: live blog. Let's understand what's behind those numbers. For that,
Speaker 1: we bring in Tender World, senior Internet and consumer products
Speaker 1: analysts for Bloomberg Intelligence, joining us on the phone from
Speaker 1: San Francisco, and bab o'donald, president in chief analysts for
Speaker 1: Technolysis Research, on the phone from not too far from
Speaker 1: our San Francisco beer down in Foster City, California. J Tender,
Speaker 1: I want to start with you what's driving these shares down?
Speaker 1: So basically, it's a cost that's really wing wing on
Speaker 1: the company right now. So you know it's going to
Speaker 1: cost them to play in cloud. The marketing spending is
Speaker 1: up nine sent are and these up. So what we're
Speaker 1: seeing over here is they are finding success in enterprise cloud,
Speaker 1: certainly as the Google other segment is continuing to report
Speaker 1: strong revenue growth but it will cost to play um
Speaker 1: and then then that's what sort of is is you're
Speaker 1: seeing in terms of their expenses going up. But as
Speaker 1: far as the core business is concerned, I mean there's
Speaker 1: an interesting dynamic that's happening wherein the ad pricing imp
Speaker 1: is improving why, whereas the number of our ad volumes
Speaker 1: is decreasing. So what you're seeing over here is, you know,
Speaker 1: as search gets more and more crowded, it's becoming more
Speaker 1: and more valuable in terms of cost per click. And
Speaker 1: that's what's driving the top line. So top line is fine.
Speaker 1: I think it's the expenses while they push into cloud
Speaker 1: and invest in machine learning. That's uh, that's affecting this
Speaker 1: quarter and potentially common quarter as well. And I'm looking
Speaker 1: at a live blog on the Alphabet earnings too. They
Speaker 1: talk about advertising revenue growth up seventeen point two a
Speaker 1: year over year last quarter was up only our mark
Speaker 1: German Um, adding to the blog saying in an interview
Speaker 1: with Blueberg News, Alphabet CFO report attributed two main negative
Speaker 1: impacts and results. It's a legal settlement with France for
Speaker 1: one billion dollar related to taxes and unspecified losses from
Speaker 1: venture investments. So a lot of things, and they are
Speaker 1: apparently declining to comment on what poor at called rumors
Speaker 1: surrounding a Google bid for a fitbit. So, um, let's
Speaker 1: talk to bab O'Donnell. What do you make of the
Speaker 1: quarter and all the news surrounding Google alphabets. Well, you
Speaker 1: know exactly right what your Tayver said in terms of
Speaker 1: it's it's going to cost them to get into these businesses.
Speaker 1: It's good to see Google called growing. We saw strength
Speaker 1: from Microsoft on the Azure side, we saw it from
Speaker 1: um Amazon on AWS, but at a slightly slower rate.
Speaker 1: Google is actually sort of the up and comer in
Speaker 1: the cloud business. Uh. And the Google Cloud business is
Speaker 1: actually doing pretty well for them, And I think you're
Speaker 1: going to see them start to grab some share in
Speaker 1: the market that continues to grow, but it's slowing down
Speaker 1: a bit. I think will see their rate of growth
Speaker 1: probably continue for a while because they're they're building from
Speaker 1: a smaller base, so I think that's important. I do
Speaker 1: think as well this you know, if you look at
Speaker 1: I quickly looked through right as the numbers came out,
Speaker 1: this other income thing. They took a big hit on
Speaker 1: equity securities, a big loss and so that seems to
Speaker 1: be a big part of the number that caused that
Speaker 1: earnings miss um in terms of the earnings for the quarter.
Speaker 1: But we'll see obviously as they provide more details behind
Speaker 1: that well. And tender also interesting sort of stat that
Speaker 1: came out that their head count increasing to one fourteen
Speaker 1: thousand in the past twelve months from nine four thousand.
Speaker 1: That's a pretty meaningful jump. You know, obviously it's a
Speaker 1: growing economy, but they're they're bringing to people on board. Yeah,
Speaker 1: So basically, uh, the cloud business is you know, a
Speaker 1: very primary focus at Google right now, and it's going
Speaker 1: to be the sort of the deciding factor for the
Speaker 1: next year as well. Uh. You they give you a
Speaker 1: revenue run rate of eight billion plus. I think you know,
Speaker 1: the growth is going to continue there, but that growth
Speaker 1: is sort of driving the headcount but also investing a
Speaker 1: lot in infrastructure. You know, with machine learning. You're seeing
Speaker 1: some results in YouTube in terms of engagement. Uh, and
Speaker 1: then the revenue growth there. And let's not forget the
Speaker 1: regulatory issues impacting Internet in general, where you know, compliance
Speaker 1: costs are going up, so you need more people for
Speaker 1: that as well. So I think it's a combination of
Speaker 1: pushing for growth, but also you know headcount um impacted
Speaker 1: by regulations. So what do you want to know from
Speaker 1: the company right now? Well, I want to obviously we
Speaker 1: want to get a better understanding of the details of
Speaker 1: this equity thing, which seems to have been a surprise,
Speaker 1: a bit of a surprise. Also, the click rates were
Speaker 1: seems as have been down much lower than people expected
Speaker 1: than to be. So you know what's driving that click
Speaker 1: rate uh decrease um. Yes, they're maintaining strong growth on
Speaker 1: the revenue side, but it sounds like it's getting tougher
Speaker 1: and tougher uh per click um. Like again, I think
Speaker 1: the overhang of regulatory issues are going to be concerned.
Speaker 1: I don't know that they can address that, but I
Speaker 1: think explaining a little bit better more around what happened
Speaker 1: with that click rate UM is going to be important.
Speaker 1: And of course obviously a little bit more color on
Speaker 1: exactly what happened with Google Cloud is if the other
Speaker 1: big thing I'd like to see well, and interestingly just
Speaker 1: reiterate something on paid clicks only up about eighteen percent.
Speaker 1: Estimates there had been as high as thirty two percent,
Speaker 1: So as you say, it's coming a lot harder in
Speaker 1: terms of getting paid for people clicking through. All right,
Speaker 1: we're gonna leave it there. Bob o'donnald, President and chief
Speaker 1: analyst for Technolysis Research. He joined us on the phone
Speaker 1: from Foster City, California, and to tender war. All senior
Speaker 1: Internet and consumer products analysts for Bloomberg Intelligence joining us
Speaker 1: on the phone from our San Francisco bureau, giving us
Speaker 1: that instant analysis. Uh, those numbers and shares still down
Speaker 1: will be interesting to see, you know how people sort
Speaker 1: of synthesize what Ruth Porrett is saying in interviews as
Speaker 1: well as what we hear from the company as they
Speaker 1: talked to investors, and they're saying that Fitbit closed hired
Speaker 1: by trimming some of that game after hours and down
Speaker 1: about one point six percent, So one can assume, of course,
Speaker 1: not getting any kind of commented confirmation, although you wouldn't
Speaker 1: expect it. Yeah, we're doing it. Yeah, it's not how
Speaker 1: it happens. How have we been doing this? Yeah? All right,
Speaker 1: shares of alphabet Google's parents down two point three percently
Speaker 1: after our certainly one of the names we'll be watching
Speaker 1: in the Tuesday trade. Alright, So we talked a lot
Speaker 1: about fashion, apparel retail here on this program, Carol Masster,
Speaker 1: and so we're delighted to have Chris Rickabono here with us.
Speaker 1: He's the founder of untucked. You've probably seen their ads,
Speaker 1: you've probably seen their shirts. You might have seen their
Speaker 1: store here in New York City, and you're about to
Speaker 1: see it in the UK. Here's here with us in
Speaker 1: our Bloomberg Interactor Broker studio. Chris, great to have you here.
Speaker 1: Thanks for having me. All right, so tell us about
Speaker 1: I mean, let's go back to the beginning, if we can,
Speaker 1: just briefly, so to the creation, the creation story, the
Speaker 1: creation myth. It's always interesting here. You are a corporate guy,
Speaker 1: you're a Columbia business school guy. How do you get
Speaker 1: into the shirt business? It was the greatest idea that
Speaker 1: an entrepreneur can have, is that I needed it to
Speaker 1: solve my personal problem. All my shirts were too long.
Speaker 1: I remember going to Las Vegas and I had three
Speaker 1: shirts and I wore the same one every single day
Speaker 1: because it was the only one that fit me at
Speaker 1: the right length, and it seemed to be an issue
Speaker 1: for everyone I talked to. And the rest is history.
Speaker 1: I mean, it was as simple as that. Right, solve
Speaker 1: a problem, but tell me about it, because I'm just
Speaker 1: trying to imagine the pitch to either investors or something.
Speaker 1: They're like, yeah, we don't need that. The pitch to
Speaker 1: investors was almost impossible because I would go to all
Speaker 1: my dad's friends and people who typically invest in things.
Speaker 1: This is ten years ago, and when I went in
Speaker 1: and said, they said, you're gonna make a shorter shirt
Speaker 1: and you want me to invest, you know, And I said,
Speaker 1: all right, I'm gonna do it. I'm gonna do it
Speaker 1: with the without you. And so how do you find?
Speaker 1: Clearly the market is there, You've got a couple dozen
Speaker 1: now a few dozen retail stores, but how did you
Speaker 1: find the market? And maybe how did you find how
Speaker 1: to get to that market? So we launched eCOM only
Speaker 1: in two thousand and eleven, and at that time most
Speaker 1: people said brick and mortar was going to slowly go away.
Speaker 1: We found out right away that was not the case,
Speaker 1: especially because our demographic is twenty five to seven years old.
Speaker 1: It's massive and the older you are, you want to
Speaker 1: touch and feel the product. So we opened up a
Speaker 1: pop up in Soho in September two fifteen and the
Speaker 1: response was just amazing. Um, everyone who had heard our
Speaker 1: ads over and over but never went online to bias
Speaker 1: would walk by the store and come in excited. So
Speaker 1: we opened up twenty two thirty stores the following year,
Speaker 1: twenty five the following year after that, so really fast expansion. Um,
Speaker 1: we're profitable. Uh, the long term value of the customer
Speaker 1: goes up when they come into a store, they get
Speaker 1: more attached to the brand. And um, so the brick
Speaker 1: and mortars slash eCOM omni experience is what has worked
Speaker 1: for us. It's men and women, right, men and women.
Speaker 1: We were men only, and when we had about fifty stores,
Speaker 1: women would come in with your boyfriend or husband and say,
Speaker 1: what are we supposed to look at? So we came
Speaker 1: out with a women's line and it's actually one of
Speaker 1: our fastest growing segments. So wait, so dig into the
Speaker 1: numbers a little bit. I'd love to know if how
Speaker 1: much you can share with us in terms of growth rate,
Speaker 1: you're profitable, I'm assuming we're We've been profitable since day one,
Speaker 1: which is much different than than the typical brand the
Speaker 1: next because we didn't have a choice, we had we
Speaker 1: raised a hundred thousand dollars friends and family money. We
Speaker 1: had to be profitable. UM, so it kind of became
Speaker 1: our d n A. We have eighty six plus stores.
Speaker 1: We are doing we will do north of two hundred
Speaker 1: million dollars this year. Um going into we have five
Speaker 1: stores in Canada which have done very well and now
Speaker 1: we're going into the UK. All right, So how much
Speaker 1: do you worry about sort of the trend going away
Speaker 1: from you? You know this notion that everybody's been like,
Speaker 1: you know what, I'm thinking of my parents when I
Speaker 1: was groat tuck in your shirt? You don't you look sloppy?
Speaker 1: Tuck in your shirt? How do you sort of not
Speaker 1: only against that? Yes, the first thing I did was
Speaker 1: pull out old pictures of my father when I launched
Speaker 1: back into the six season seventies, and guess what everyone's
Speaker 1: shirts were on tuck. The difference where they were floral
Speaker 1: patterns right with huge lapels and so it's a different style.
Speaker 1: But you can only wear your shirt one way or
Speaker 1: the other. There's about I don't know, five to ten
Speaker 1: percent of men who just simply will not on tuck.
Speaker 1: But at the end of the day, when there's only
Speaker 1: two ways to do it, you're gonna be doing it.
Speaker 1: Either on the weekend or during at some point, and
Speaker 1: now everything looks so much nicer. Clothing in general. You
Speaker 1: can wear really high end jeans, high end sneakers, a
Speaker 1: sports jacket, and an untucked shirt and go into the
Speaker 1: best restaurant in Manhattan and fit in. I gotta ask you,
Speaker 1: because we talk a lot about this, We were talking
Speaker 1: about it earlier in the show. This this backlash which
Speaker 1: I think is good against fast fashion the way things
Speaker 1: are made, uh, bad for the environment, labor laws, etcetera.
Speaker 1: What's your story there and and how do you think
Speaker 1: about making the product in a way that appeals to
Speaker 1: those who care about sustainability, who care about where it
Speaker 1: comes from. Sustain Ability is huge for I mean, in
Speaker 1: order to exist these days, you have to be focused
Speaker 1: on that. We only luckly, we only work with the
Speaker 1: best factories in the world. And I say luckily because
Speaker 1: we happened to come into the business when retail was struggling, right,
Speaker 1: so as we grew, everyone wanted to work with us.
Speaker 1: I always think about, what donce we came in and
Speaker 1: and retail was humming. Would we even have been able
Speaker 1: to get into these factories? So we kind of get
Speaker 1: to choose which factories want to work with manufacturing I'm
Speaker 1: assuming overseas as Yeah, we're in We're in China, We're
Speaker 1: in Vietnam, We're in Mauritius, we're in Peru. We have
Speaker 1: a small factory that we do work that we work
Speaker 1: within the US, So we are everywhere and obviously now
Speaker 1: we need as many options as possible. But our factories
Speaker 1: are we check them, we visit them, they're they're the
Speaker 1: best that there are. Chris, just thirty seconds. Is the
Speaker 1: trade war impacting you, guys? Impacting in the fact that
Speaker 1: we just have to be more strategic and we are
Speaker 1: moving stuff around into different countries outside of China just
Speaker 1: to be prepared. But it's not going to have a
Speaker 1: major impact on us. But you do you believe you'll
Speaker 1: stay in China or is there a day where you'll
Speaker 1: be out of China? Potentially I think there could be
Speaker 1: a day we'll be out of China. Okay, all right,
Speaker 1: you'll have to come back and talk to us again.
Speaker 1: This was great to catch up with you. A great
Speaker 1: story and a product well known and clearly fast growing
Speaker 1: into the UK, most notably in the near future. Chris
Speaker 1: Ricabona is the founder of untucked here with us in
Speaker 1: New York City today, idea, but I end up just
Speaker 1: tying them, as you know, and I travel. That's right. Yeah,
Speaker 1: I'm not sure this this exact thing would work for you.
Speaker 1: Try it. I might try, all right. So we've been
Speaker 1: talking a lot about private equity here on this program
Speaker 1: here at Bloomberg. We've been talking a lot about private
Speaker 1: equity across the country. And you know who else has
Speaker 1: been talking about private equity. A lot of Democratic candidates
Speaker 1: for president. Our next guest, he talks about it a
Speaker 1: lot too. He's Drew Maloney, presidency of the American Investment Council,
Speaker 1: the top guy for the industry in Washington, talking to lawmakers,
Speaker 1: regulators and all of them. Drew, Great to have you
Speaker 1: with us, Great to be with you this afternoon. All right.
Speaker 1: So let's get to a new study that was just released,
Speaker 1: because you guys are clearly hoping to get the message
Speaker 1: out about the role that private equity plays in terms
Speaker 1: of employment in the United States. What you find, Well,
Speaker 1: it was a great study, as you said, that we
Speaker 1: just put out last week, and I think the highlights
Speaker 1: are that private equity supports more than twenty six million
Speaker 1: US jobs and if you look at that and you
Speaker 1: break it down, it's eight point eight million in direct jobs.
Speaker 1: And then we also looked at the indirect jobs and
Speaker 1: related consumer spending, and if you add that up to
Speaker 1: get you another seventeen million jobs. I would say that
Speaker 1: the other point of the two points of the study
Speaker 1: is it shows a diversity of investment. I mean, we're
Speaker 1: investing and everything from personal services, business services, manufacturing, information, construction.
Speaker 1: We invest across the entire economy, and I think that's
Speaker 1: a very important point that we're trying to make to
Speaker 1: policy makers, as well as the last point, which is
Speaker 1: the federal, state and tax revenue numbers that were contributing um.
Speaker 1: I think that final number was a hundred and seventy
Speaker 1: four billion dollars in tax revenue that private equity contributes.
Speaker 1: So in terms of net net, I mean there are
Speaker 1: some jobs lost right as a result of private equity
Speaker 1: buying up firms, maybe in like industries, and consolidating them
Speaker 1: and then ultimately selling them again. So there's that argument.
Speaker 1: It's safe to say that there are some jobs though
Speaker 1: that get lost in the process. Now, I mean, I
Speaker 1: think you have to look at it as the whole,
Speaker 1: and I think a recent study looked at this and
Speaker 1: said it depends what kind of what kind of companies
Speaker 1: that you're buying. If you're buying more mature public companies,
Speaker 1: there may be some initial downsizing and restructuring of the
Speaker 1: company in the first couple of years, but over time
Speaker 1: those jobs grow. And if you're buying growth companies, you
Speaker 1: know they're starting at a at a at a at
Speaker 1: a smaller number and they're growing over time, or you're
Speaker 1: adding other companies to it. Alright, So, Drew, you are
Speaker 1: a veteran of Washington. You understand the way the town works,
Speaker 1: You understand politics, you understand policy, and the all important
Speaker 1: third pe, you understand perception. Why is this not resonating?
Speaker 1: Why are people not really in as it sounds like
Speaker 1: you're saying, sort of fully understanding the economic and especially
Speaker 1: the job picture here because you are, I think it's
Speaker 1: safe to say, right in the crosshairs of Elizabeth Warren
Speaker 1: and a number of others who are running for president.
Speaker 1: As you know, in Washington, there is a lot of
Speaker 1: volume and a lot of noise, and I think one
Speaker 1: of the things what we've found is that we have
Speaker 1: to be a contributor to that conversation. So members of Congress,
Speaker 1: members of the administration, every different industry is trying to
Speaker 1: make their their cases to each of these different policymakers.
Speaker 1: And that's why it's incumbent upon us to do a
Speaker 1: better job of telling our story. And that's I think
Speaker 1: exactly what we're doing with this e Y report that
Speaker 1: just came out this week. And it's also a reason
Speaker 1: why before every one of the presidential debate we put
Speaker 1: out on social media we highlight the jobs, the investment,
Speaker 1: and the pension returns in those states right before the debates. Yeah,
Speaker 1: and to be fair, I was just doing some research. Um.
Speaker 1: You know in Harvard Business School did a paper. Um.
Speaker 1: I think they looked at target companies acquired from five
Speaker 1: and they found that did destroy jobs initially, um, and
Speaker 1: that they find that over the longer term, Um, the
Speaker 1: net effect is that job losses are ultimately less than
Speaker 1: a one percent of initial employment. So they are showing
Speaker 1: that it's not as negative. UM. Okay, So you've got
Speaker 1: this report you're putting out. I have to say, to
Speaker 1: be fair, I feel like, you know, folks are gonna say, okay, yeah,
Speaker 1: it's private equity putting out one of their own reports
Speaker 1: saying hey, we saved jobs. How do you how do
Speaker 1: you I don't know, you know, change that conversation even
Speaker 1: more so that there are other entities, you know, looking
Speaker 1: at the industry and really kind of telling the story. Well,
Speaker 1: I would say two things. One, that's why we partnered
Speaker 1: with e Y because they did the analysis to determine
Speaker 1: the number of jobs and across what industries that were
Speaker 1: supporting and looked at what the tax revenue base would be.
Speaker 1: And I would say back to your Harvard study, that
Speaker 1: was only one piece of the study, and that was
Speaker 1: the piece that looked at the large public companies that
Speaker 1: went private, and that's when you had some initial job
Speaker 1: loss because as we all know, when those companies are
Speaker 1: usually in a more distressed situation. If you look at
Speaker 1: the rest of the study, when you're buying, you know,
Speaker 1: taking private companies and you're and you're selling in private
Speaker 1: to private, you saw job gains and the other interesting
Speaker 1: aspect of it. Even with those big, large public companies
Speaker 1: that needed to be restructured, you saw eight percent productivity
Speaker 1: gains once they were owned by private equity. And so, Drew,
Speaker 1: do you feel like you're starting to sort of get
Speaker 1: some audiences that are that are changing minds because I
Speaker 1: think back to just last week, you know, a really
Speaker 1: terrific investigation by Bloomberger, chilling investigation in many ways into
Speaker 1: home healthcare, where it really paints a picture of sort
Speaker 1: of profits over people. And we're at this time where
Speaker 1: folks are starting to say, look, I want companies to
Speaker 1: make money. I want to make money as an investor.
Speaker 1: But even the Business Roundtable is saying, we have to
Speaker 1: think more holistically about this. How do you get that
Speaker 1: message across that this is the approach, if indeed it
Speaker 1: is that that private equity is ultimately taking well, I
Speaker 1: would say that, um, you know, one of the aspects
Speaker 1: and you wrote about it in your book is everywhere
Speaker 1: you look there is private equity investment around you. But
Speaker 1: I think that the channel with that is most policy
Speaker 1: makers have no idea that private equity owns the Popeyees,
Speaker 1: or private equity owns the Hearties, or private equity owned
Speaker 1: a Hilton, which is now that you know, one of
Speaker 1: the number one places in America to work. So I
Speaker 1: think it's incumbent upon us to tell those stories because
Speaker 1: you're right, you're always going to have a handful of
Speaker 1: sensational stories and antidotes that paint a brush that's not
Speaker 1: really true of the industry across the board. So, Drue,
Speaker 1: I mean, have you had to sit down with Senator Warren,
Speaker 1: you know, her criticism and the rules that she did,
Speaker 1: the new rules she wants to impose on PE. Just
Speaker 1: got about forty five seconds left. Have you had to
Speaker 1: sit down with her to really talk about the industry. Well,
Speaker 1: as you know, she's fairly busy on the presidential trail
Speaker 1: right now, so uh, probably not a whole lot of
Speaker 1: time to speak with us, um. But I think the
Speaker 1: concern about her plan is that it would hurt jobs,
Speaker 1: workers and retirees. And I think, as that Harvard study
Speaker 1: you reference said, one size fits all legislation doesn't work
Speaker 1: for private equity because of the diversity of our investment.
Speaker 1: All right, we will continue this conversation in the future.
Speaker 1: I know we will, Drew Maloney, we really appreciate it.
Speaker 1: Good to catch up with you, President, CEO of the
Speaker 1: American Investment Council. As we said, really on the front
Speaker 1: lines there in a very important politics, political and policy
Speaker 1: debate there in Washington and beyond. And I will say
Speaker 1: the universe as well, as some other investors can take
Speaker 1: a distress property and put the money in to revitalize
Speaker 1: it and ultimately prevent a company from shutting down. Is important.
Speaker 1: Is a great example of that. All right for Jason Kelly.
Speaker 1: I'm Carol Master. This is Bloomberg Business Week, and you've
Speaker 1: been listening to Bloomberg Radio.