WEBVTT - Elon Musk Call Was Reminiscent Of The 2001 Enron Call: Johnson 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg P M L 0:00:20.840 --> 0:00:33.400 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Tesla 0:00:33.479 --> 0:00:37.839 Automobiles they do not burn fossil fuel. Tesla, the company 0:00:38.000 --> 0:00:40.000 burns a lot of cash. Here to tell us more 0:00:40.000 --> 0:00:44.519 about the company is Gordon Johnson, Managing Director, Alternative Energy, Metals, 0:00:44.720 --> 0:00:49.040 Mining and Equipment Analyst for Vertical Group. Gordon Johnson, always 0:00:49.040 --> 0:00:51.959 a pleasure. You were listening into the call yesterday. Why 0:00:51.960 --> 0:00:54.920 don't you share with our listeners what you heard and 0:00:54.960 --> 0:00:57.400 what you took away from it? Yeah, I mean, so 0:00:57.440 --> 0:01:00.880 what we heard on the call um UM, Surprisingly, I 0:01:00.920 --> 0:01:03.960 think not just to us, but many was a very 0:01:04.000 --> 0:01:09.040 defensive um management team from Tesla, specifically Elon Musk. And 0:01:09.080 --> 0:01:11.760 you know, historically they've been very open to taking questions, 0:01:11.760 --> 0:01:14.959 and it seems like very important questions with respect to 0:01:15.760 --> 0:01:20.840 surprisingly low April Model three deliveries. UM, what's going on 0:01:20.920 --> 0:01:24.000 with the deposits on the Model three given U the 0:01:24.080 --> 0:01:28.160 cars have been delayed significantly. UM. Questions around these items 0:01:28.160 --> 0:01:32.160 were essentially deemed boring UM, and they turned it over 0:01:32.240 --> 0:01:35.600 to a YouTube blogger UM who says he owns fifty 0:01:35.600 --> 0:01:39.480 four shares UM. So when you're shutting UH analysts from 0:01:39.520 --> 0:01:44.480 the institutions that you are heavily relying on and heavily 0:01:44.520 --> 0:01:47.880 rely on to do your business, it's it's very concerning. 0:01:48.120 --> 0:01:50.640 You know, it's reminiscent to us of you know, in 0:01:50.640 --> 0:01:53.080 the second quarter of two thousand one when Jeff skilling 0:01:53.560 --> 0:01:57.520 Um called an analyst on our areas call Um, when 0:01:57.520 --> 0:01:59.080 the stock was at fifty five and by the end 0:01:59.120 --> 0:02:01.320 of the year was at nine. Not we're not saying 0:02:01.360 --> 0:02:04.360 Tesla is in ron, but we are saying that this 0:02:04.480 --> 0:02:09.040 is a definite shift in tone from from management at 0:02:09.080 --> 0:02:13.440 at Tesla. So Gordon, given given that shift, why aren't 0:02:13.440 --> 0:02:17.400 the shares of Tesla down more? They're down more than six, yes, 0:02:18.200 --> 0:02:20.960 but still somewhat elevated. If you really think that that 0:02:21.080 --> 0:02:24.240 this is about to collapse, yeah, I mean it's because 0:02:24.320 --> 0:02:28.480 you have literally this is this is not a you know, 0:02:28.520 --> 0:02:32.560 an analysis type of stock or fundamentals based stock. It's 0:02:32.600 --> 0:02:35.799 literally a faith based stock. It's almost a religion um. 0:02:35.880 --> 0:02:37.560 And I think that a lot of the holders know. 0:02:37.600 --> 0:02:40.600 If you look at the proxy statement of Tesla, you'll 0:02:40.639 --> 0:02:44.000 see that Elon Musk is predds thirteen million shares of 0:02:44.080 --> 0:02:48.040 stock for different debts that the company has. So we 0:02:48.080 --> 0:02:52.120 don't know exactly what the key levers are to call that. 0:02:52.280 --> 0:02:55.440 You know the essentially when that stock will be called. 0:02:55.840 --> 0:02:58.400 But you know if this stock drops to a certain level, 0:02:58.480 --> 0:03:01.720 it's going to accelerate down. As you know, the death 0:03:01.760 --> 0:03:05.760 holders um essentially forced Elon Musk to sell stock to 0:03:05.760 --> 0:03:08.240 to cover those debts. Okay, so let's talk about the 0:03:08.280 --> 0:03:11.600 death holders and the capital raise that Elon Musk says 0:03:11.639 --> 0:03:14.480 that he doesn't need to do. He said that they're 0:03:14.520 --> 0:03:17.680 going to stop burning cash later this year and start 0:03:17.720 --> 0:03:22.639 turning a profit. Um. How much credibility is there at 0:03:22.639 --> 0:03:25.600 this point with those pledges And is it true that 0:03:25.680 --> 0:03:27.560 you think that he won't need to raise capital again 0:03:27.600 --> 0:03:31.160 in the next time? I don't know nine months. Let's 0:03:31.240 --> 0:03:34.440 raise the facts, right, they burnt over a billion dollars 0:03:34.440 --> 0:03:36.880 of free cash. The cash balance dropped by nearly a 0:03:36.880 --> 0:03:40.200 billion dollars in a quarter. This is the third largest 0:03:40.280 --> 0:03:43.480 cash burn free cash flow cash burn in any single quarter. 0:03:43.880 --> 0:03:46.320 I want to be clear here, Elon Musk is saying 0:03:46.360 --> 0:03:49.040 that he is not and will not raise equity. He 0:03:49.080 --> 0:03:51.920 has said that before you go back to fifteen, he 0:03:51.960 --> 0:03:54.720 said the company will never need to raise equity again. 0:03:54.800 --> 0:03:56.920 Since then, I think they've done in six to seven times. 0:03:58.280 --> 0:04:00.680 We think they will need to raise and let me 0:04:00.720 --> 0:04:03.040 be more specific, we think they're gonna do it this quarter, 0:04:03.200 --> 0:04:05.800 which means over the next two months. Is it gonna 0:04:05.840 --> 0:04:07.880 be equity? I'm sorry, we think they need to raise capital. 0:04:07.920 --> 0:04:09.240 Is it gonna be equity? Is gonna be dead? We 0:04:09.240 --> 0:04:11.520 don't know, but we do think they need to raise 0:04:11.600 --> 0:04:14.000 capital if they're going to hit their uh, you know, 0:04:14.040 --> 0:04:17.280 production plans um And that's where we stand, and that's 0:04:17.320 --> 0:04:19.880 what our analysis suggests, and we stand by that. This 0:04:19.960 --> 0:04:22.880 quarter affirms that not not not not pushing us further 0:04:22.920 --> 0:04:26.160 away from that. Gordon, what are some of the specific 0:04:26.320 --> 0:04:29.120 issues that the Tesla has to deal with in order 0:04:29.160 --> 0:04:31.640 to let's say, get this model three out the door 0:04:31.880 --> 0:04:36.040 and onto onto the road. Yeah, so if you look 0:04:36.040 --> 0:04:38.400 at the electric which is very well respected, they're saying 0:04:38.440 --> 0:04:41.960 the giga factor is only complete UM. If you look 0:04:42.040 --> 0:04:45.600 at some of the care downs that respected UM auto 0:04:45.720 --> 0:04:48.200 analysts have done, and these these on sell side analysts, 0:04:48.360 --> 0:04:51.120 you know, financialists, these are these are engineers. Uh. They 0:04:51.160 --> 0:04:55.000 said that the Model three has been built very um UH. 0:04:55.200 --> 0:04:57.760 I don't want to use their word poorly, but certain 0:04:57.839 --> 0:05:01.520 items and certain key steps have and skipped. So think 0:05:01.520 --> 0:05:05.039 about this, Kim, right you have Tessa said that you 0:05:05.120 --> 0:05:09.640 hate Model three Model threes that have been produced in 0:05:09.680 --> 0:05:12.360 the first half of April UM and they said there 0:05:12.360 --> 0:05:16.320 were two thousand Model threes in transit, so that's roughly 0:05:16.360 --> 0:05:20.440 six thousand Model threes. Yet inside EVS is saying they 0:05:20.480 --> 0:05:25.159 only delivered fifty. So and then if you use the 0:05:25.160 --> 0:05:27.760 Brewer numbers the which they tracked the VIN numbers for 0:05:27.839 --> 0:05:30.200 the Model threes, there was ten thousand produced in April. 0:05:30.839 --> 0:05:34.000 So it looks like there's thousands of Model threes sitting 0:05:34.000 --> 0:05:36.920 out there that either are in transit to be the Lute, 0:05:36.960 --> 0:05:39.400 which it doesn't take long to deliver these cars, that's 0:05:39.440 --> 0:05:42.640 one option, or you know they have issues. I either 0:05:42.720 --> 0:05:45.240 have been poorly constructed and they're still waiting to be 0:05:45.279 --> 0:05:48.680 finalized so they're not really produced UM, or they're just 0:05:48.720 --> 0:05:52.720 sitting in inventory. Um either three of those scenarios is scary. 0:05:52.839 --> 0:05:55.279 So to your question, what needs to be done, Uh, 0:05:55.320 --> 0:05:57.120 it seems like quite a bit needs to be done. 0:05:57.240 --> 0:05:59.320 And we need to get more color on these production 0:05:59.400 --> 0:06:02.159 numbers that they're pitting out there, because the deliveries numbers 0:06:02.160 --> 0:06:04.440 from inside EVS And keep in mind this this is 0:06:04.440 --> 0:06:07.440 a third party um U analytical company, but you know, 0:06:07.600 --> 0:06:10.520 very well respected, a very spot on so far over 0:06:10.520 --> 0:06:13.360 the years with the sector Tesla deliveries on a monthly basis. Uh, 0:06:13.600 --> 0:06:16.359 they don't match up with Tesla's production numbers. So what 0:06:16.400 --> 0:06:18.120 do they need to do? Probably spend a lot more 0:06:18.160 --> 0:06:21.839 CAPEX to get their production facilities up to snuff UM 0:06:22.279 --> 0:06:24.240 And that's clearly not what the company is indicating. They 0:06:24.279 --> 0:06:26.440 actually cut their cap X numbers. Well if they don't 0:06:26.480 --> 0:06:29.960 have the capital to expand. Gordon Johnson, thank you so 0:06:30.040 --> 0:06:33.360 much for joining us today. Gordon Johnson is Managing director, 0:06:33.560 --> 0:06:37.760 Alternative Energy, Metals, Mining and Equipment Analyst at Vertical Group 0:06:37.880 --> 0:06:41.200 in New York. Uh some strong words that the call 0:06:41.400 --> 0:06:44.839 yesterday that Ellen Musk held with investors reminded him after 0:06:44.960 --> 0:06:48.520 the two thousand and one n RON call, and that 0:06:48.600 --> 0:06:51.559 Tesla would have to raise capital within the next few 0:06:51.600 --> 0:06:53.680 months in order to keep going. We will keep an 0:06:53.720 --> 0:06:56.040 eye on the shares which are down about six and 0:06:56.040 --> 0:07:13.480 a half percent right now. Bermuda is an economy that 0:07:13.560 --> 0:07:16.800 depends heavily on tourism from the United States as well 0:07:16.840 --> 0:07:19.520 as its desk as it's a it's a well known 0:07:20.120 --> 0:07:23.600 profile of being a destination for businesses. Here to talk 0:07:23.720 --> 0:07:27.320 about the nation is the Honorable David Burt, Premier of 0:07:27.480 --> 0:07:31.080 the Government of Bermuda. He is the youngest ever he 0:07:31.160 --> 0:07:33.320 joins us now he is thirty eight years old. You 0:07:33.360 --> 0:07:37.720 went to George Washington University UH and graduated with a 0:07:37.760 --> 0:07:40.600 business degree, and so I want to talk with you. 0:07:40.280 --> 0:07:43.040 You've been in the position for about nine months now. 0:07:43.200 --> 0:07:47.200 SMP just upgraded UH. The outlook to for Bermuda to 0:07:47.480 --> 0:07:50.680 UH positive outlook. What do you see as the main 0:07:50.760 --> 0:07:54.280 challenge going forward in the near term for Bermuda. Oh, well, 0:07:54.320 --> 0:07:57.080 good morning, it's Elie saying good morning. It's him a 0:07:57.080 --> 0:07:59.640 good morning to your listening audience. I mean, the challenge 0:07:59.640 --> 0:08:02.840 for Uda is to translate what we've done well for 0:08:02.880 --> 0:08:06.040 so long into a new future and what that world 0:08:06.040 --> 0:08:08.360 will look like. So Bermuda has always been a center 0:08:08.400 --> 0:08:11.480 of innovation and the reason for our success in the 0:08:11.520 --> 0:08:15.200 insurance spaces that we were able to bring together regulators, 0:08:15.200 --> 0:08:18.680 the lawmakers and the business sector to figure out regulation 0:08:18.720 --> 0:08:20.840 that was smart and that could work and that could 0:08:20.960 --> 0:08:24.440 allow industries to grow. And so from that perspective, our 0:08:24.520 --> 0:08:28.760 challenges to translate that into new areas of the economy 0:08:28.880 --> 0:08:31.240 and our the global economy. So whether or not that's 0:08:31.280 --> 0:08:33.840 dealing um in the space of digital assets, or whether 0:08:33.840 --> 0:08:36.160 that's dealing in the space of how we're going to 0:08:36.200 --> 0:08:39.160 look to play a role in what the global economy 0:08:39.160 --> 0:08:42.160 will be, that's what Bermuda and that's how Bermuda is 0:08:42.160 --> 0:08:45.360 trying to position itself. Speak if you can about the 0:08:45.400 --> 0:08:50.440 actual structure of Bermuda. It is a British overseas territories. 0:08:51.160 --> 0:08:54.720 What does that mean in terms of its governance, its 0:08:54.840 --> 0:08:59.120 laws and its relationship with the United Kingdom. Bermuda as 0:08:59.200 --> 0:09:02.520 a over these territory, we have the most advanced constitution 0:09:02.559 --> 0:09:05.199 out of all the United Kingdom overseas territories and it's 0:09:05.200 --> 0:09:08.400 a constitution of which we're actually celebrating our fiftieth and 0:09:08.440 --> 0:09:12.080 adversary ever, thank you very much this year, actually this 0:09:12.160 --> 0:09:17.000 month uh to be precise. But what our relation is 0:09:17.040 --> 0:09:19.280 that we have full internal self government. So we make 0:09:19.320 --> 0:09:20.680 all of our own laws and we set all of 0:09:20.679 --> 0:09:23.680 our own procedures, and the United Kingdom is responsible for 0:09:24.120 --> 0:09:29.520 internal security, UM, external affairs and defense. Okay, I'm wondering 0:09:29.600 --> 0:09:33.000 you're talking about how insurance companies and other businesses have 0:09:33.040 --> 0:09:36.720 gravitated to the territory. I want to talk about a 0:09:36.880 --> 0:09:40.240 new UK law that will go into effect I believe 0:09:40.600 --> 0:09:44.520 in twenty twenty that will force UH different companies to 0:09:44.559 --> 0:09:47.360 disclose where they file their taxes. That might butchering this, 0:09:47.440 --> 0:09:50.880 but basically people are concerned that this will give less 0:09:50.880 --> 0:09:53.960 of a benefit to certain corporations who file in Bermuda. 0:09:54.240 --> 0:09:56.240 What's your take on this and can you please, you know, 0:09:56.440 --> 0:09:59.360 give it more detailed. How I'm then what I just 0:09:59.400 --> 0:10:02.240 tried to do, No problem, I'll be I'll be happy 0:10:02.280 --> 0:10:05.600 to do that. Let me start by saying that uh 0:10:05.640 --> 0:10:08.800 in from the Bermuda perspective, we make our own laws. 0:10:08.960 --> 0:10:11.920 And so for the first time in the fifty years 0:10:11.960 --> 0:10:14.680 that we've seen an internal squabble which is taking place 0:10:14.720 --> 0:10:17.200 the United Kingdom get to a point where there was 0:10:17.240 --> 0:10:19.839 an amendment that was passed to a bill where the 0:10:20.200 --> 0:10:23.480 parliament seems to think that it can pass laws for 0:10:23.640 --> 0:10:26.920 people that don't have representation inside their parliament. So that 0:10:27.080 --> 0:10:29.920 is a completely separate issue and that's something that UM 0:10:29.960 --> 0:10:33.720 I think UM is unfortunate. But in from the Bermuda perspective, 0:10:33.760 --> 0:10:36.360 we do not recognize the right of the United Kingdoms 0:10:36.360 --> 0:10:39.079 who set um our laws because we have full internal 0:10:39.080 --> 0:10:41.559 self government and the only thing the United Kingdom actually 0:10:41.600 --> 0:10:46.600 has responsibility for his external affairs internal security and defense. However, 0:10:47.280 --> 0:10:49.800 because I don't want to conflate the issues, what they 0:10:49.800 --> 0:10:52.400 had spoken about was an issue of having a public 0:10:52.559 --> 0:10:56.400 register of beneficial owners of companies, which is not the 0:10:56.440 --> 0:11:00.560 global standard of which exists. Bermuda has, unlike many countries, 0:11:00.600 --> 0:11:04.360 for over seventy years, had a central register of beneficial ownership, 0:11:04.600 --> 0:11:07.160 so we know all the persons who owned the companies 0:11:07.200 --> 0:11:09.920 that are registered in Bermuda. And what we also have 0:11:10.160 --> 0:11:12.439 is that we are we are compliant with the international 0:11:12.480 --> 0:11:14.319 standards which is set by the o E c D 0:11:14.720 --> 0:11:18.360 of making sure that we exchange that information UM with 0:11:18.960 --> 0:11:21.840 authorities UM around the world who are looking to get that. 0:11:22.080 --> 0:11:25.319 So Bermuda has has led the charge. We are one 0:11:25.320 --> 0:11:29.360 of the leaders UM in international tax transparency and compliant. 0:11:29.440 --> 0:11:31.760 So we are the first overseas territory to have an 0:11:31.800 --> 0:11:35.040 agreement with Her Majesty's Revenue Customs in the UK and 0:11:35.080 --> 0:11:37.280 the first overseas territory to have an agreement with the 0:11:37.400 --> 0:11:41.280 U s UM Internal Revenue Service here UM in uh 0:11:41.320 --> 0:11:44.640 IN in the United States. So we UM have led 0:11:44.640 --> 0:11:46.840 the space in this charge. But Bermuda is not a 0:11:46.880 --> 0:11:49.960 tax play. Bermuda is a regulatory play as well, and 0:11:50.000 --> 0:11:52.640 so what you see for the insurance companies, A lot 0:11:52.640 --> 0:11:55.760 of the insurance companies that are actually in Bermuda UM 0:11:55.800 --> 0:11:58.600 have taken a eight to get too technical, a nine 0:11:58.679 --> 0:12:02.000 fifty three election on their UM tax return. So they 0:12:02.040 --> 0:12:06.000 actually file taxes as a US taxpayer, but they're in 0:12:06.080 --> 0:12:10.280 Bermuda because we have a unique regulatory environment that allows 0:12:10.400 --> 0:12:12.800 us too, that allows them to deal with one regulator 0:12:12.960 --> 0:12:15.600 to access insurance markets the United States as opposed to 0:12:15.640 --> 0:12:17.880 the fifty different regulators that are in all of these 0:12:17.880 --> 0:12:20.760 states here in the US. I wish we had more 0:12:20.760 --> 0:12:22.319 time because the one question I want to ask you 0:12:22.400 --> 0:12:24.000 has to do with same sex marriage. I don't like, 0:12:24.040 --> 0:12:26.400 can you do that in twenty seconds? What's the status 0:12:26.480 --> 0:12:29.679 UM I'm perfectly happy to discuss that. Bermuda. We uh, 0:12:29.960 --> 0:12:33.719 we are the first UK Overseas Caribbean UK overseas territory 0:12:33.800 --> 0:12:36.920 to give full legal recognition to same sex couples. It 0:12:37.040 --> 0:12:39.960 is something that did not exist in Bermuda before our 0:12:40.000 --> 0:12:43.360 government passed it and we are welcoming to all persons 0:12:43.720 --> 0:12:46.080 on our shores. We are proud of the records which 0:12:46.080 --> 0:12:48.680 we have. Uh. If you want to say five years 0:12:48.720 --> 0:12:51.839 ago there was nothing, but now we recognize um all 0:12:51.920 --> 0:12:54.360 same sex couples. Thank you very much for being with us. 0:12:54.480 --> 0:12:57.440 The Premier Bermuda, David Burt, thank you very much. And 0:12:57.520 --> 0:13:02.800 the happy birthday and congratulations on the constitution anniversary. Absolutely, 0:13:02.800 --> 0:13:21.480 thank you Bermuda, much appreciated. Amazon just has to hint 0:13:21.600 --> 0:13:23.960 that it is thinking of getting into an industry to 0:13:24.040 --> 0:13:28.280 scare shareholders away from all potential competitors in that sector. 0:13:28.320 --> 0:13:31.160 Here to talk about the skirmish that happened yesterday in 0:13:31.240 --> 0:13:35.040 the payments sector is David Ritter, Payments and specialty finance 0:13:35.040 --> 0:13:38.000 analyst with Bloomberg Intelligence. Dave, thank you so much for 0:13:38.040 --> 0:13:42.440 being with us. Bloomberg News reported that Amazon said that 0:13:42.480 --> 0:13:46.960 it was more aggressively getting into payments processing to compete 0:13:46.960 --> 0:13:50.760 with the likes of PayPal, Visa, MasterCard, Square. There was 0:13:50.760 --> 0:13:53.280 a fierce reaction tell us, what is Amazon exactly thinking 0:13:53.320 --> 0:13:56.000 of doing? Well, it's interesting. I mean, this is a 0:13:56.120 --> 0:13:59.920 topic that I've written about, actually going back many months, 0:14:00.000 --> 0:14:04.400 the possibility that uh, they might decide to sharply cut 0:14:04.440 --> 0:14:08.520 their rates to and sent merchants to accept their Amazon 0:14:08.640 --> 0:14:12.199 Pay service. So, I mean, just think about it. Between 0:14:12.200 --> 0:14:14.920 what are the two hundred million Prime users now, so 0:14:15.080 --> 0:14:19.080 that's two hundred million stored payment credentials plus non Prime 0:14:19.200 --> 0:14:22.880 users have their payment credentials stored there. But the challenge 0:14:22.960 --> 0:14:25.800 has been you know, Amazon has been trying to crack 0:14:25.920 --> 0:14:29.920 this market for many years, and the difficulty that they 0:14:29.960 --> 0:14:34.880 have is number one. Obviously, they sell merchandise themselves, so 0:14:34.920 --> 0:14:38.400 they're competing against merchants. And you know, ever since paypals 0:14:38.400 --> 0:14:42.520 split away from eBay, uh, their growth has accelerated because 0:14:42.520 --> 0:14:46.240 that concern that merchants had by doing business with PayPal 0:14:46.560 --> 0:14:50.360 has gone away. So, I mean, I think the reaction 0:14:50.480 --> 0:14:53.320 is overdone. I mean, I feel PayPal has been beating 0:14:53.320 --> 0:14:57.000 back all competitors and its growth has been accelerating in 0:14:57.040 --> 0:15:01.920 recent years. Of anything David, can you explain this sort 0:15:01.920 --> 0:15:05.880 of the finances behind doing this. Let's say that someone 0:15:05.920 --> 0:15:09.800 listening is a producer of a product and they wish 0:15:09.880 --> 0:15:13.280 to sell it through Amazon. How much does it cost 0:15:13.400 --> 0:15:18.400 for Amazon to take care of the transaction? Yeah? Amazon, 0:15:18.720 --> 0:15:21.480 you know, they don't publish their specific cost, but you 0:15:21.520 --> 0:15:24.760 can assume just like any other very large merchant like 0:15:24.920 --> 0:15:29.280 Walmart or Target for example, they are getting favorable rates 0:15:30.080 --> 0:15:33.880 from the credit card processors to process credit and debit 0:15:33.960 --> 0:15:40.600 card transactions on their site. So they do have that advantage. Um. 0:15:41.200 --> 0:15:43.480 But right now, the way it works is, you know 0:15:43.520 --> 0:15:48.040 they're going to charge a merchant, say three rate to 0:15:48.240 --> 0:15:52.360 process and transaction, just like PayPal does. But then you 0:15:52.400 --> 0:15:55.520 know they have to turn around. They're they're basically acting 0:15:55.720 --> 0:15:58.240 as the merchant in that case, so they have to 0:15:58.280 --> 0:16:01.040 turn around and pay the cost back through the payment 0:16:01.040 --> 0:16:05.040 card network to take that transaction. So um, so they're 0:16:05.040 --> 0:16:07.280 not making a full margin on it. And that's where 0:16:07.360 --> 0:16:11.040 PayPal differs in one key respect is that a lot 0:16:11.040 --> 0:16:13.680 of folks keep a balance in their PayPal account, so 0:16:14.600 --> 0:16:17.160 you use that balance to pay, or you use your 0:16:17.440 --> 0:16:20.440 link to checking account to pay. There's little or no 0:16:20.560 --> 0:16:23.240 cost in that transaction to PayPal and they're making that 0:16:23.440 --> 0:16:27.160 full margin from the merchant rate that they're charging. Okay, 0:16:27.160 --> 0:16:30.720 well that goes that dovetails perfectly into another Amazon initiative 0:16:30.760 --> 0:16:34.560 people have talked about, speculated frankly, that Amazon will try 0:16:34.600 --> 0:16:39.440 to get into the customer deposits business, perhaps to compete 0:16:39.440 --> 0:16:42.320 more directly with the PayPal on this matter. Do you 0:16:42.320 --> 0:16:47.760 think that they can make inroads into that effect? Yeah, 0:16:47.840 --> 0:16:51.640 I mean, what's really surprising is how important trust is 0:16:52.360 --> 0:16:57.160 in this business. Um PayPal consistently ranks right up there 0:16:57.160 --> 0:17:00.960 with major banks in terms of trust in holding their 0:17:01.000 --> 0:17:03.520 money and handling their money, which is not something you 0:17:03.640 --> 0:17:06.040 necessarily think would be the case. But when you've been 0:17:06.080 --> 0:17:08.600 at it, you know, for twenty years like they have. 0:17:09.560 --> 0:17:12.040 It sounds silly to say that's an old company, but 0:17:12.080 --> 0:17:15.520 in the tech world it is. Um you know, they 0:17:15.720 --> 0:17:18.439 they had that built in advantage. I'm not sure that 0:17:18.560 --> 0:17:21.880 Amazon people think of it the same way they think 0:17:21.880 --> 0:17:25.280 of as a neat place to buy stuff. And you know, 0:17:25.359 --> 0:17:29.480 Amazon's pretty successfully provided a lot of financial services very 0:17:29.520 --> 0:17:32.480 well through third parties. You know, they have a card 0:17:32.480 --> 0:17:34.560 with Synchrony and they have a card with Chase that 0:17:34.640 --> 0:17:39.000 pays a big five percent rebate. That's real popular. Um, 0:17:39.080 --> 0:17:41.200 you know, I'm not I'm not sure. And there's plenty 0:17:41.200 --> 0:17:44.919 of ways to add cash into your Amazon account. You know, 0:17:44.960 --> 0:17:48.359 you just go, you just go buy a prepaid card 0:17:48.440 --> 0:17:51.320 and moad that money in. And um, you know they 0:17:51.320 --> 0:17:54.280 have for a debit rewards program now too, So I 0:17:54.359 --> 0:17:56.359 kind of feel like they're already doing a lot of 0:17:56.400 --> 0:17:59.879 these things, Dave. What's been the response of Visa and MasterCard? 0:18:00.040 --> 0:18:06.159 They gonna go the PayPal route? Uh? In terms of well, 0:18:06.200 --> 0:18:09.679 you know, Visa and master Card have their own, um 0:18:10.080 --> 0:18:12.639 call them alternative pay buttons that they've been trying to 0:18:12.720 --> 0:18:16.080 push in recent years, and none of them have really 0:18:16.119 --> 0:18:18.680 gotten any traction. And you can also throw Apple pay 0:18:18.720 --> 0:18:22.640 and Samsung Paying, these other alternatives into the mix. Um, 0:18:22.720 --> 0:18:25.160 at least in the US, they really struggled to gain 0:18:25.960 --> 0:18:28.720 gain traction. Whereas you know, PayPal's got coming up on 0:18:28.760 --> 0:18:32.400 twenty million global merchants that excepted as payment. It's really 0:18:32.440 --> 0:18:35.840 pretty astounding. Amazon, of course, has a hundred million Prime 0:18:35.840 --> 0:18:38.359 members though, And I want to just home in quickly 0:18:38.440 --> 0:18:41.600 on the trust issue. Are you implying that consumers don't 0:18:41.600 --> 0:18:46.080 trust Amazon? No, I'm not employing. They don't trust Amazon, 0:18:46.119 --> 0:18:49.720 but it's it's one thing. If you're looking to expand 0:18:49.760 --> 0:18:53.040 further into financial services and holding people's money, I think 0:18:53.040 --> 0:18:56.080 you're crossing into a little bit different area than Look, 0:18:56.119 --> 0:18:58.399 I know I'm paying for something and I'm using my 0:18:58.400 --> 0:19:00.399 my credit card, but that credit card it is from 0:19:00.520 --> 0:19:04.160 Chase and they're the ones providing the the actual relationship 0:19:04.200 --> 0:19:06.480 behind that. All right, we want to leave it there, 0:19:06.480 --> 0:19:08.920 but thanks very much for sharing this information. But it's 0:19:09.000 --> 0:19:12.159 very interesting and Lisa, as you describe it, the Amazon effect, 0:19:12.680 --> 0:19:14.240 all they have to do is sort of mention that 0:19:14.240 --> 0:19:16.919 they're going to be getting into some particular industry. In 0:19:16.960 --> 0:19:20.280 the stocks of the competitors all react. Yeah. Although it's 0:19:20.280 --> 0:19:23.280 interesting because when I listened to Dave ritt Or, it 0:19:23.359 --> 0:19:26.159 really I realized that perhaps this offers up some opportunities 0:19:26.160 --> 0:19:28.560 to people who are still bullish on specific companies if 0:19:28.600 --> 0:19:31.480 they think that the if the effect is overdone right indeed, 0:19:31.520 --> 0:19:34.440 and taking a look at the shares of PayPal, for example, 0:19:34.960 --> 0:19:39.600 they are down about one percent right now after falling 0:19:39.680 --> 0:19:42.679 up more than four percent and yesterday's trading. Thanks very 0:19:42.760 --> 0:19:46.320 much to Dave Ritter, our senior analysts for payments, financial 0:19:46.359 --> 0:20:05.080 Technology and specialty finance or Bloomberg Intelligence. The world of 0:20:05.119 --> 0:20:09.000 advertising changes as technology and consumers change their taste, but 0:20:09.160 --> 0:20:13.320 some things don't change, and that's the emphasis on creativity. 0:20:13.680 --> 0:20:16.600 John Cyford is the worldwide chairman and the chief executive 0:20:16.640 --> 0:20:19.919 of Ogilvie and Mather. He joins US now Ogilvie and 0:20:20.000 --> 0:20:23.760 Mather one of the many companies under the overall corporate 0:20:23.800 --> 0:20:26.440 banner of w PP Group. John, thank you very much 0:20:26.440 --> 0:20:29.119 for coming into the studio. Much appreciated. Could you just 0:20:29.240 --> 0:20:32.360 give people a little sort of maybe a thirty second 0:20:32.480 --> 0:20:35.680 history of Ogilvie and Mather because they may not recall 0:20:36.359 --> 0:20:40.080 that they came up with the Dove soap commercial that 0:20:40.200 --> 0:20:42.439 was kind of that was one of the hallmarks of 0:20:42.440 --> 0:20:47.200 your agency. But the history goes back to eighteen fifty. Yeah, 0:20:47.240 --> 0:20:50.879 it's a it's an amazing history. Um. I remember it 0:20:50.960 --> 0:20:54.920 really in the context of that's when David Ogilvie started 0:20:55.280 --> 0:20:58.399 Ogilvie and May there in New York. We'll celebrate our 0:20:58.400 --> 0:21:02.520 seventieth anniversary this coming September, and uh, you know, I'm 0:21:02.520 --> 0:21:04.679 the ninth chairman and CEO of the company. I'll be 0:21:04.720 --> 0:21:06.919 the last one to have been mentored by all the 0:21:06.920 --> 0:21:10.359 previous eight, including David. So it's a founder brand that 0:21:10.440 --> 0:21:14.560 I have huge passion and heart for. In terms of background, 0:21:14.680 --> 0:21:17.200 we've David had a list of the clients that he 0:21:17.240 --> 0:21:20.200 wanted to work for, and uh, he pretty much ticked 0:21:20.200 --> 0:21:22.119 off everybody on that list. He wanted to work for 0:21:22.160 --> 0:21:24.680 the Campbell soup company, he wanted to work for Lever Brothers. 0:21:24.760 --> 0:21:28.600 Dove has been a valued client of ours for right 0:21:28.640 --> 0:21:31.880 from the beginning. American Expressican Express, which is a client 0:21:32.000 --> 0:21:35.040 that I've worked with for the last thirty years. You know, 0:21:35.200 --> 0:21:39.320 David was told that American Express was too small by 0:21:39.480 --> 0:21:42.760 his president at the time, and David ignored that advice 0:21:42.800 --> 0:21:44.520 and said, no, I think they're I think these people 0:21:44.520 --> 0:21:47.640 will do something special, and they certainly did. So. There's 0:21:47.680 --> 0:21:49.760 been a lot of changes just in the way that 0:21:49.880 --> 0:21:53.840 people absorbed media in the past two decades. I'm wondering, Uh, 0:21:54.040 --> 0:21:56.440 just in the past few years, what do you view 0:21:56.640 --> 0:21:59.399 as the biggest changed for you in your business as 0:21:59.400 --> 0:22:02.080 far as just reading the message of a brand. Well, 0:22:02.119 --> 0:22:05.800 we call this the era era of great fragmentation. There 0:22:05.800 --> 0:22:08.639 have been never been more ways to reach people than 0:22:08.680 --> 0:22:12.920 ever before. Obviously, the digital revolution has ushered in all 0:22:13.040 --> 0:22:16.360 sorts of new way ways to engage consumers, and one 0:22:16.400 --> 0:22:19.480 of the paradoxes of all that choice is that many 0:22:19.560 --> 0:22:23.199 of our clients are are less confident in what works. 0:22:23.960 --> 0:22:26.200 And so we're in an era right now where there's 0:22:26.240 --> 0:22:29.480 lots of experimentation, lots of new ways to build brands 0:22:29.560 --> 0:22:36.040 through digital engagement, through new new media sources, through personalization, 0:22:36.240 --> 0:22:38.520 through the big data, and how that can be applied 0:22:38.560 --> 0:22:41.439 to customizing products just to the particular need of a 0:22:41.480 --> 0:22:44.720 given customer. But at the same time, many clients are saying, 0:22:44.960 --> 0:22:47.520 what's how does it all work together? How much should 0:22:47.520 --> 0:22:50.000 I pay for it? And what's the real value that 0:22:50.000 --> 0:22:51.560 I'm going to get at the end of the day. 0:22:51.600 --> 0:22:54.840 And so it's never been more complicated to help clients 0:22:55.040 --> 0:22:59.720 navigate this this new era. In navigating this new era, 0:22:59.840 --> 0:23:04.960