Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg business Week inside from the reporters and
Speaker 2: editors who bring you America's most trusted business magazine, plus
Speaker 2: global business finance and tech news. The Bloomberg Business Week
Speaker 2: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 3: We want to get to a couple of tech companies
Speaker 3: for you. One that is sliding. In today's session, Tim,
Speaker 3: we are talking about salesforce.
Speaker 4: Yeah, sure, sliding by the most in close to two decades.
Speaker 4: This after the company projected the slowest quarterly sales growth
Speaker 4: in its history, renewing concerns that the company will be
Speaker 4: left behind in the AI boom. The outlook heightening investors'
Speaker 4: fears over salesforces sliding sales growth in the past year
Speaker 4: as the company has turned its attention to bolstering profit.
Speaker 4: Joining us now is on arog Rana, Bloomberg Intelligence Senior
Speaker 4: technology analyst. He joins us from Chicago. Honourah, good to
Speaker 4: have you with us. It was interesting because as soon
Speaker 4: as these numbers came out yesterday, we were covering it
Speaker 4: live on TV and radio. We started we started to
Speaker 4: see the selloff start, but it really gained momentum when
Speaker 4: people really started to see what that second quarter outlook
Speaker 4: would mean for the company. What's the big concern here
Speaker 4: when it comes to salesforce.
Speaker 5: See, the big concern is the size of salesforce is
Speaker 5: too big that it's not immune to any macro slowdown.
Speaker 5: And that's what we're seeing right now. What is happening
Speaker 5: is corporations are spending a lot more money on hardware
Speaker 5: and chips right now, and they're reallocating their budgets from
Speaker 5: the bucket of other areas such as software and consulting
Speaker 5: and services, and they are buying you know, hardware equipment
Speaker 5: with it, and that's really having an impact on not
Speaker 5: just salesforce. It's is not the only one. We saw.
Speaker 5: The same thing happened with Workday a few days ago,
Speaker 5: and you know, we envision this is going to be
Speaker 5: the same story that plays out in July when other
Speaker 5: software companies report, whether it says p Service Now Microsoft,
Speaker 5: although we think it's going to be a lot less
Speaker 5: for Microsoft and SAP, but this is going to be
Speaker 5: a common theme of prolonged spending for the entire group.
Speaker 4: You mentioned Service Now and other software companies not being
Speaker 4: immune to this service now down twelve percent. Carol in
Speaker 4: sympathy with this.
Speaker 3: Hey listen, so Anna rug, is it just a case
Speaker 3: of delayed purchasing. So in other words, we're spending on
Speaker 3: you know, hardware, we're spending on chips big, big time
Speaker 3: right now. But eventually we're going to get to the
Speaker 3: software and we'll be spending down the road.
Speaker 5: Yeah, and again, you know what had happened is we
Speaker 5: saw some signs of recovery a couple of quarters ago
Speaker 5: with this entire group for sales, for example, you know,
Speaker 5: their leading indicator is a metric called CRPO. It went
Speaker 5: from eleven percent growth to thirteen and thirteen and yesterday
Speaker 5: dropped down to ten. So what happens is we were
Speaker 5: baking in a recovery in the second half in terms
Speaker 5: of the growth rates picking up. Now that's probably a
Speaker 5: twenty twenty five story. So for the next six months,
Speaker 5: not a whole lot happening in the space. So people
Speaker 5: are basic saying, let me go find value somewhere. That's
Speaker 5: what's really happening. We still believe long term software still
Speaker 5: has a long way to go in terms of total
Speaker 5: addressable market. I think AI helps the space, but it's
Speaker 5: not going to be as quick and as easy to
Speaker 5: see as let's say in video. It's going to take
Speaker 5: some time.
Speaker 4: Is there a cyclical nature to this? On a rock
Speaker 4: with the idea that Okay, maybe we won't see spending
Speaker 4: on software and services right now, but we'll start to
Speaker 4: see it pick up again once these companies have purchased
Speaker 4: the hardware that they need to sort of make the
Speaker 4: transition to AI.
Speaker 5: Yeah, that is actually the waterfall effect. It's usually semiconductor
Speaker 5: and hardware first, then it trickles down to software subscriptions,
Speaker 5: then it trickles down to services. We have seen this
Speaker 5: game over the last twenty twenty five years. It's not
Speaker 5: the first time, but we were surprised by the degree
Speaker 5: of this what happens. And I think in addition to
Speaker 5: the reallocation of budgets, I think the macroeconomic situation because
Speaker 5: of the geopolitical concerns, probably also force CIOs and CFOs
Speaker 5: to say, you know what, let's wait and wait for
Speaker 5: that you know, million dollar software purchase or expanding our
Speaker 5: footprint right now.
Speaker 3: Hey, we just want to mention a headline crossing the
Speaker 3: Bloomberg terminal. This is coming from routers TikTok is preparing
Speaker 3: a US copy of the app's core algorithm. So again
Speaker 3: this is coming from Router's Hey, anaag before we move
Speaker 3: on to another company. Any thoughts, I know this isn't
Speaker 3: necessarily your world, but to hear that again coming from
Speaker 3: routers TikTok preparing a US copy of the app's core algorithm.
Speaker 3: We talk so much about the importance of that algorithm
Speaker 3: to TikTok.
Speaker 6: Any thoughts, I.
Speaker 5: Think this is a lot more about politics than that's
Speaker 5: actually technology. So you know, well, let's leave it at that.
Speaker 5: But I think you know this story is not going
Speaker 5: to come to an end very soon. It's going to
Speaker 5: be dragged out, all right.
Speaker 6: Good to know.
Speaker 3: Hey, listen and appreciate you weighing in on Salesforce. Salesforce
Speaker 3: and rag Rana is Bloomberg Intelligence senior technology analyst.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch Just
Speaker 2: Live weekday afternoons from two pm Eastern Listen on Apple
Speaker 2: car Play and then brout Auto with a Bloomberg Business
Speaker 2: app or wants us live on YouTube.
Speaker 4: So you know this Inn Muss, who's the bus of Tesla,
Speaker 4: the world's largest ev maker, Tesla though in disarray. Layofs
Speaker 4: are mounting, morale shattered, stock cratering, sales are anemic. Here's
Speaker 4: the thing. Carol Musk also runs five other companies, SpaceX
Speaker 4: X formerly known as Twitter Xai, that Ai intell, that
Speaker 4: Ai Venture, the Boring Company, It's the Tunnel Company, and
Speaker 4: then the brain machine startup Neuralink.
Speaker 3: Yeah, he's got his hands in a lot of different pots.
Speaker 3: He oversees more one hundred and thirty thousand people around
Speaker 3: the world.
Speaker 6: That's a lot.
Speaker 3: And while he burns brightly at the center of this
Speaker 3: corporate universe, a less visible coterie of consultants, fixers, board
Speaker 3: and family members really orbit around him. Which it gets
Speaker 3: us to today's Bloomberg Big Take, which I highly recommend
Speaker 3: you check out on the Bloomberger at Bloomberg dot com
Speaker 3: because it's interactive and fun.
Speaker 6: To check out.
Speaker 4: Yet it is one of the most read stories on
Speaker 4: the terminal, and it maps out the people who make
Speaker 4: Elon's galaxy of companies run. The story by Bloomberg News
Speaker 4: senior technology reporter Dana Hull and Bloomberg News technology reporter
Speaker 4: Kurt Wagner. Dana joins us from San Francisco. Kurt out
Speaker 4: there in Denver. Kurt also the author of Battle for
Speaker 4: the Bird, Jack Dorsey elon Musk in the forty four
Speaker 4: billion dollar Fight for twitters Soul. Check out this story
Speaker 4: and more from the Bloomberg Big Take on the Bloomberg
Speaker 4: Terminal and at Bloomberg dot Com Slash Big Take. Great
Speaker 4: to have you both with us. As Carol mentioned, it's
Speaker 4: a fun interactive piece that you should definitely check out
Speaker 4: online and click around a little bit because you can
Speaker 4: learn a lot with your cursor. Dana, I want to
Speaker 4: start with you, and I want you to set the
Speaker 4: scene here from the Tesla perspective, just how bad are
Speaker 4: things at Tesla and in the musconermy, I.
Speaker 7: Mean they're pretty bad. You know, to lose thirty percent
Speaker 7: of your you know, to be down thirty percent at
Speaker 7: this point in the year is pretty significant. And we've
Speaker 7: seen globally sort of a slow down and ev sale
Speaker 7: and Tesla you know, got rid of nearly twenty percent
Speaker 7: of its workforce in April, so just a lot has happened.
Speaker 7: LinkedIn is full of people talking about how disappointed they
Speaker 7: are at the way the layoffs went down, and simultaneously,
Speaker 7: Musk is like out raising money for his latest startup,
Speaker 7: So there's this kind of growing consternation that he's not
Speaker 7: fully focused on what's happening at Tesla.
Speaker 3: All right, Kurt, come on into the conversation, because you know,
Speaker 3: we think there's six different companies, right, and I guess
Speaker 3: they're not. They all maybe don't seem compatible. But what
Speaker 3: really matters, right is what's going on in Tesla and
Speaker 3: the profitability. Because if things are going well, maybe investors
Speaker 3: and individuals look elsewhere. But when things start to go wrong,
Speaker 3: Tesla the money maker, if you will, things are maybe
Speaker 3: looked at differently.
Speaker 8: I mean, we're seeing this right now in terms of
Speaker 8: the complaints that we're hearing from Tesla investors about Elon's time,
Speaker 8: Elon being distracted right when the company. When Tesla's doing well,
Speaker 8: when the stock's going up, Elon's allowed to sort of
Speaker 8: tinker with all these other businesses that he's running, and
Speaker 8: people sort of just accept that and they let him
Speaker 8: do that. But when things at Tesla aren't going well,
Speaker 8: all of a sudden, his time is called into question,
Speaker 8: his attentions called into question. And you have to remember
Speaker 8: almost all of Elon's wealth is tied up in Tesla too, right,
Speaker 8: So when the stock was doing bad, that effects the
Speaker 8: loans that he takes out of That affects his liquidity,
Speaker 8: his ability to finance some of these other businesses. So
Speaker 8: Tesla truly is like the engine behind this entire universe,
Speaker 8: and so when things are going poorly there, it really
Speaker 8: does have a trickle effect.
Speaker 3: All right, So, Dana, how did you guys figure out
Speaker 3: I've been playing with this. Tim's been playing them with
Speaker 3: this online.
Speaker 4: Trying to count how many names we lost.
Speaker 3: We lost track, right, and some of them work for
Speaker 3: him directly, some of them don't. So how did you
Speaker 3: guys kind of figure out how many or who you
Speaker 3: wanted to put on this list?
Speaker 5: Yeah?
Speaker 7: So, I mean Kurt and I spent a lot of
Speaker 7: time kind of going back and forth with this spreadsheet
Speaker 7: of names, and it was tricky because it's by no
Speaker 7: means definitive, right, And you know, if you did a
Speaker 7: traditional ORG chart for X or Tesla or even SpaceX,
Speaker 7: it would be obsolete in like a week because executives
Speaker 7: come and go, there's layoffs. So we didn't want to
Speaker 7: publish something that was going to be immediately stale, and
Speaker 7: so we really kind of tried to focus on the
Speaker 7: key executives at each company, but more than that, the
Speaker 7: kind of stable of investors, family members, advisors, legal strategists,
Speaker 7: people like Jared Birchall, who oversees Musk's family office. Kind
Speaker 7: of like these long time loyalists who are with Musk
Speaker 7: through thick and thin and pop up over and over again.
Speaker 7: And then we just sort of had the idea, well,
Speaker 7: let's make it a solar system that's kind of fluid
Speaker 7: and dynamic with Elon at the center. And I think
Speaker 7: it turned out really well. You know, I think you
Speaker 7: can learn a lot about a lot.
Speaker 6: Of these people.
Speaker 7: I mean, Kurt knows this as well as I do
Speaker 7: from working on his book. A lot of these names
Speaker 7: come from trials, depositions, you know, a lot of them.
Speaker 7: Like when Musk was first thinking about buying Twitter. I mean,
Speaker 7: there was a trial transcript that had all these text
Speaker 7: messages from all of these friends, and so, you know,
Speaker 7: we pulled these names from a lot of public records.
Speaker 4: Okay, So I want to go through some of the
Speaker 4: names here and then start with the folks who are
Speaker 4: closest to Elon's orbit.
Speaker 9: Danny.
Speaker 4: You mentioned Jared Birchall. Kurt, I want to ask you
Speaker 4: about Kimball Musk, Elon's brother. By the way, there are
Speaker 4: a few folks on this list who have the same
Speaker 4: last name as Elon, which we'll talk about in a minute.
Speaker 4: But Kimball someone who's been close to Musk his entire life,
Speaker 4: and he's also served on boards various boards of various companies.
Speaker 8: Kurt, that's right, And I think he's one of those people,
Speaker 8: one of the few people probably in this orbit who
Speaker 8: has been known to push back on Elon right and
Speaker 8: actually call him out in certain things. We know that
Speaker 8: when Elon was looking to buy Twitter, for example, Kimball
Speaker 8: was there basically saying, are you sure you want to
Speaker 8: do this? Like this feels like a bad idea, And
Speaker 8: that's not the kind of thing that Elon hears very often.
Speaker 8: And so I think having someone you know, who is
Speaker 8: a family member, who obviously is a huge supporter of
Speaker 8: his brother, you know, Kimball is certainly an ally, but
Speaker 8: at the very least, is you know, willing to sort
Speaker 8: of challenge some of his ideas, I think makes him
Speaker 8: sort of a unique person within this orbit. Dana could
Speaker 8: correct me if I'm wrong, but I feel like that's
Speaker 8: a unique role that he sort of plays as compared
Speaker 8: to some of these other folks.
Speaker 7: Oh for sure. I mean, you know, the sort of
Speaker 7: wrap on Elon is that he's surrounded by yes men,
Speaker 7: and that Kimball, as his brother, is like one of
Speaker 7: the few people who can actually tell him no or
Speaker 7: feels confident in telling him no.
Speaker 2: Yeah.
Speaker 4: I also should note Kimball makes a pretty good steak.
Speaker 4: I was out in Colorado a few weeks ago and
Speaker 4: I went to one of his restaurants, just randomly. A
Speaker 4: friend wanted to.
Speaker 6: Go there, you touch, Yeah, this should I try.
Speaker 4: To expense the meal? I think I should. I was
Speaker 4: doing some serious Kimball was not there. I did ask
Speaker 4: the bartender if he comes in much, and she did
Speaker 4: say he's been known to make an appearance. Remember he
Speaker 4: is a chef. Okay, okay, I'm getting off topic here
Speaker 4: a little bit.
Speaker 6: That's okay.
Speaker 9: We like that.
Speaker 6: It just shows, you know, interesting folks in.
Speaker 3: Elon's orbit, Dana, who would you consider when Elon has
Speaker 3: to think something through beyond maybe Kimball?
Speaker 6: Like who does he go to?
Speaker 7: Well, that's a really good question, and I think it
Speaker 7: depends on for what. So if it's if we're talking
Speaker 7: about geopolitics, or the twenty twenty four presidential campaign, it's
Speaker 7: probably people like David Sachs. If we're talking about a lawsuit,
Speaker 7: it's probably Alex Spiro. If we're talking about raising money
Speaker 7: for xat Ai or one of his other adventures, it's
Speaker 7: probably Jared Birshall. So I think it sort of depends
Speaker 7: on what the topic is. But you know, I think
Speaker 7: what's interesting to think through about Elon is that this
Speaker 7: is a guy who became a millionaire when he was
Speaker 7: in his twenties. I mean, he made his first millions
Speaker 7: when he sold his PayPal shares and started SpaceX back
Speaker 7: in twenty two thousand and three, I think for two
Speaker 7: thousand and two, and then you know, when you become
Speaker 7: very wealthy at a very young age. I think it's
Speaker 7: hard to trust people, and so the people that Elon
Speaker 7: trusts tend to be people that he's known for quite
Speaker 7: a long time, and a lot of these friendships date
Speaker 7: back to those very early days.
Speaker 9: Kurt.
Speaker 3: And one of the things I was thinking about is
Speaker 3: we went through this story that you guys put together,
Speaker 3: is that often.
Speaker 6: When we bring up anything to do.
Speaker 3: With Elon's orbit, we talk about Elon, but there are
Speaker 3: really important you know, I think about the cover story
Speaker 3: I think that was on BusinessWeek about SpaceX a few
Speaker 3: years ago that really talked about, you know, Gwen and
Speaker 3: how much she was behind kind of the.
Speaker 6: Success of it.
Speaker 3: And I just wonder, I think about our audience who
Speaker 3: they should know about in Elon's orbit to kind of
Speaker 3: build on what Dana just said.
Speaker 8: Yeah, I mean, I think the whole reason we did
Speaker 8: this project is he was running six companies. You can't
Speaker 8: actually run six companies and be president all the time, right,
Speaker 8: So there are people like Gwen Shotwell who you alluded to,
Speaker 8: that are sort of, you know, holding down the fort
Speaker 8: when Elon's out and about, and so I think Gwen
Speaker 8: is certainly a great example. It's Linda Yakerino is the
Speaker 8: CEO of X. We've talked about her often and she
Speaker 8: is on the list. So I think, you know, Dana
Speaker 8: has a handful of Tesla executives that are very prevalent
Speaker 8: and important to keep that company running when Elon's off
Speaker 8: to another thing. So the whole purpose of this project
Speaker 8: really was to give people a sense of like who
Speaker 8: is running the day to day of these companies when
Speaker 8: Elon is is at one of his other businesses and
Speaker 8: they are very important, very relevant people on this list,
Speaker 8: and so I think it's you know, for people who
Speaker 8: care about Musk or the muscotomy. As you mentioned, it's
Speaker 8: a good you know, it's a good universe to have
Speaker 8: a familiarity with.
Speaker 6: Is it also important?
Speaker 3: I think it was the Wall Street Journal that was
Speaker 3: talking about inside Donald Trump and Elon Musk's growing alliance,
Speaker 3: and you know, Dana, do we need to be thinking
Speaker 3: that maybe Elon could find himself in some kind of
Speaker 3: significant position in the White House and so these people
Speaker 3: become even more important in terms of Elon's businesses.
Speaker 7: Yeah, I mean the Wall Street Journal story was fascinating.
Speaker 7: Pushed back on that a little bit today early he
Speaker 7: tweeted earlier today that there is there has been no
Speaker 7: discussion about a role for me in a Trump white House.
Speaker 7: But you know, the election is still several months away,
Speaker 7: and clearly Musk is going to have some kind of influence,
Speaker 7: whether that's a cabinet position or just being an informal advisor.
Speaker 7: I mean, we already know that Musk served on President
Speaker 7: Trump's business councils during the first administration, so it would
Speaker 7: not be unprecedented for him to play some kind of role,
Speaker 7: even though Musk seems to be sort of throwing cold
Speaker 7: water on that idea. But yeah, I mean I think
Speaker 7: I think that Musk's role in the election is going
Speaker 7: to be key. You know, we know that David Sachs,
Speaker 7: who's a friend of Musk's, is hosting a fundraiser for
Speaker 7: Trump here in San Francisco next week. And you know
Speaker 7: this is I mean, influential people tend to influence each
Speaker 7: other in all kinds of ways. And you know, again,
Speaker 7: we just really hope that people will take time with
Speaker 7: this interactive graphic and get to know these other names,
Speaker 7: because if you're an investor, or an employee or a
Speaker 7: customer of any of these companies, she should really get
Speaker 7: to know the people beyond Elon who have a lot
Speaker 7: to do with how the company is operating.
Speaker 4: I was struck by the two names around Neuralink. Chavon Zillis,
Speaker 4: who would be familiar to two people who've been following
Speaker 4: Elon closely for a couple of years, because she doesn't
Speaker 4: just work at Neuralink, She's also connected to Elon in
Speaker 4: another important way.
Speaker 7: Kurt.
Speaker 8: Yeah, she's the mother of I believe two of Elon's children,
Speaker 8: and so it just kind of goes to show you,
Speaker 8: you know, the relationships that he has with these people
Speaker 8: oftentimes are much broader or much deeper than just the
Speaker 8: business aspect of things. And I think one of the
Speaker 8: you know, if you read the accompanying story with this graphic,
Speaker 8: what Dan and I tried to do was give people
Speaker 8: a sense of like, if you work for Elon or
Speaker 8: if you have a relationship with Elon in one capacity,
Speaker 8: you sort of are expected to show up in all
Speaker 8: of the other areas of his life where he might
Speaker 8: need you. And so we saw that probably most prominently
Speaker 8: with the Twitter takeover. Right he shows up, walks in
Speaker 8: the building with the sink, and all of a sudden,
Speaker 8: all of these people from the various corners of his
Speaker 8: universe show up with him. And you know, Chavan's a
Speaker 8: unique example, not everyone's, you know, having children with Elon,
Speaker 8: of course, but the point being is that it's not
Speaker 8: just like a one relationship thing. You know, if you
Speaker 8: work with Elon at SpaceX, you might have to help
Speaker 8: out at Tesla X in the future. And that seems
Speaker 8: to be a pattern that we've noticed over the years.
Speaker 3: We're going to ask you to of you and I'm
Speaker 3: going to start with you first, Kurt. One name you
Speaker 3: want to leave kind of our audience with, because you
Speaker 3: guys have done the homework in a big way and
Speaker 3: put out names that we don't typically maybe talk about
Speaker 3: when we're talking about Elon's orbit. So just you know,
Speaker 3: thirty forty seconds here one name.
Speaker 8: Sure, this is a little bit of a well known one,
Speaker 8: but I just think he's so important. Which is Jared Birchall.
Speaker 8: And I was just literally writing a story last night. He's,
Speaker 8: as Dana mentioned, Elon's sort of money guy, his business manager.
Speaker 8: And I was just writing a story last night. He's
Speaker 8: been named in lawsuits alongside Elon. He anything that's to
Speaker 8: do with money and Elon, Jared's involved, and so I
Speaker 8: just think, you know, he is so incredibly important to
Speaker 8: understanding the broader universe.
Speaker 4: Here, okay, Dana, same question over to you. One name
Speaker 4: you want to leave our audience with?
Speaker 7: Oh Mead afshar So. Oh Meied works for Elon and
Speaker 7: like he's he's like this kind of like chief of
Speaker 7: staff role. He was at Tesla. He oversaw the construction
Speaker 7: of the Tesla gigafactory. Then he was on like a
Speaker 7: weird leave of absence, and he popped up at SpaceX
Speaker 7: as like a vice president and he's just always around like,
Speaker 7: oh Mead. Is is kind of like the new Sam
Speaker 7: Teller if you remember who Sam Teller was, but Omeed
Speaker 7: has a very influential role.
Speaker 6: Love this.
Speaker 3: This is gonna be a go to I know for
Speaker 3: us as we go through different Elon related stories.
Speaker 4: Maybe Elon Inc. Also, this is like epitomize.
Speaker 9: This is great.
Speaker 6: So appreciate it, you guys, Thank you so much. Danah Hall.
Speaker 3: She's senior Technology reporter at Bloomberg News in our San
Speaker 3: Francisco bureau, along with Kurt Wagner, Technology reporter at Bloomberg News,
Speaker 3: also author Excuse Me, A Battle for the Bird. Joining
Speaker 3: us from Denver.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
Speaker 2: each weekday starting at two pm Eastern on Apple car
Speaker 2: Play and Android Auto with the Bloomberg Business app. You
Speaker 2: can also listen live on Amazon Alexa from our flagship
Speaker 2: New York station, Just Say Alexa, playing Bloomberg eleven thirty.
Speaker 3: It is time to tell the tale of Charlie Mullins,
Speaker 3: from a working class background and working in a toy
Speaker 3: car factory to living in a multimillion dollar London penthouse
Speaker 3: with a view of the Thames and I'm la along
Speaker 3: the way kind of building a very very successful plumbing
Speaker 3: business that employed many in his own family. And then
Speaker 3: Timmy ended up cashing in when private equity came along.
Speaker 3: He made lots of money.
Speaker 4: Okay, so life is good?
Speaker 9: Right?
Speaker 3: Yeah?
Speaker 6: Sounds like it or is it?
Speaker 4: The story Carol among our most read on the Bloomberg
Speaker 4: terminal and in the latest issue of Bloomberg Markets magazine,
Speaker 4: co written by Saba Mettings and Michael Sasso of Bloomberg
Speaker 4: with More.
Speaker 6: Michael joins us.
Speaker 3: He is Bloomberg News Economy reporter in our Atlanta bureau
Speaker 3: alone at Bloomberg Market's features editor John Hecknuer, who edited
Speaker 3: the story, he is in Boston. Mike, let's start with
Speaker 3: you. You reported it out. Tell us about Charlie Mullins and
Speaker 3: his success story.
Speaker 9: Yeah, well that was largely does by my colleague Sabbah
Speaker 9: in London. But yeah, she found him. He is quite
Speaker 9: the presence in the UK. I understand he's a bit
Speaker 9: of a personality, has some controversial comments on political topics often,
Speaker 9: but yeah he does. He came from a very working
Speaker 9: class background, built the largest plumbing business in the UK.
Speaker 9: I think it. He sold it for something like over
Speaker 9: one hundred million pounds or so, and he's I guess,
Speaker 9: living the life. He has a penthouse in London. I
Speaker 9: think he lived near Tom Jones, the singer I love. Yeah,
Speaker 9: a plumber just down down on below Tom Jones. So
Speaker 9: very interesting. Yeah.
Speaker 4: Okay, So Michael, why why does private equity want to
Speaker 4: you know, quote unquote roll up home service businesses because
Speaker 4: these are businesses that I think have been pretty tough
Speaker 4: to scale historically. Whether or not you have you know,
Speaker 4: four folks working on air conditionings on your team or
Speaker 4: four hundred, you still got to send them all to
Speaker 4: homes and offices to work on those air conditioners.
Speaker 9: Yeah, well that's true. But there's a few things working
Speaker 9: in their favor. There, there's a there. It's a very
Speaker 9: fragmented industry. I mean, you don't have a dominant player
Speaker 9: like a McDonald's or a Starbucks, and so imagine it's
Speaker 9: kind of low barriers to entry. You can buy you know,
Speaker 9: a plumber or an h VAC company in Phoenix for example,
Speaker 9: and then add you know, just add onesie twosie around
Speaker 9: the country, and certain some you've taken a small company
Speaker 9: in Phoenix and built it into a fairly large company.
Speaker 9: There's a firm I interview based in Atlanta that went
Speaker 9: from one acquisition, built up twenty six or twenty seven.
Speaker 9: Suddenly it's a one point five billion dollar a year company.
Speaker 9: So it's it's it actually can be scaled. It's it's
Speaker 9: so it's a very fragmented, and it's so low barriers
Speaker 9: to entry.
Speaker 3: As I said, well, John, I mean, Michael, you know,
Speaker 3: talk to us a little bit more about like I
Speaker 3: feel like this is something that we see private equity do,
Speaker 3: whether it's vets, whether it's you know, as you report
Speaker 3: on plumbers, kind of these home service companies, hospitality. I mean,
Speaker 3: we have seen private equity go into these industries, you know,
Speaker 3: doctor's practices, right, and kind of roll them up into
Speaker 3: one big business.
Speaker 9: Yeah. Yeah, Well it has happened in a lot of industries,
Speaker 9: and for for sure the last several years, it's caught
Speaker 9: fire in the home services industry, and we don't know
Speaker 9: how it's going to play out. As we mentioned in
Speaker 9: the story, there's some concern about are these your taping
Speaker 9: a family business that has a personal relationships with with
Speaker 9: with thousands of customers, millions of customers around the country
Speaker 9: and the UK, and you're creating corporatizing it, and so
Speaker 9: there is some pushback. There's some some of these owners
Speaker 9: are kind of angry. They think that when they went
Speaker 9: corporate or they're bought out, sometimes the service is not
Speaker 9: what it once was. Certainly that's what mister Mullen's in
Speaker 9: the UK thinks. Here in the US a little bit
Speaker 9: too early to say. I talked to a number of
Speaker 9: owners who are fairly happy so far. They think that
Speaker 9: they like some of the changes that have been made.
Speaker 3: But what I'm saying is that this is something we
Speaker 3: see private equity do.
Speaker 7: Right.
Speaker 3: They find industries that are often kind of just separate
Speaker 3: small business owners, if you will. Whether it's veterinarians. I've
Speaker 3: seen it with our vet they became part of a
Speaker 3: large practice and then private equity got involved. I've seen
Speaker 3: it with healthcare folks. You know, where there are individual
Speaker 3: practices and then all of a sudden you see private
Speaker 3: equity buying up. And they're doing that with plumbers, right
Speaker 3: or you know, electricit putricians like these are areas that
Speaker 3: they are finding opportunities we're seeing this increasingly.
Speaker 9: Yeah. Well, like I said, some of that goes back
Speaker 9: to the fragmented nature of it. It's hard to go
Speaker 9: into an establ a business where there are huge businesses,
Speaker 9: dominant businesses, and to roll them up. It's a lot
Speaker 9: easier when it's a fragmented industry. And also money has
Speaker 9: been a little bit tighter in recent years with a
Speaker 9: higher interest rates and whatnot, and so it's a little
Speaker 9: bit easier to digest a company that you're maybe a
Speaker 9: fifty or one hundred million dollar plumbing or h vac
Speaker 9: shop than it is acquiring a multi billion dollar company.
Speaker 9: So interest rates kind of play a role in this
Speaker 9: a little bit.
Speaker 4: Hey, Michael, I'm curious in terms of the reporting that
Speaker 4: you did around the United States what you heard from
Speaker 4: the large home services providers slash mom and pop home
Speaker 4: services providers you spoke to about why they've resisted selling
Speaker 4: to private equity or to a larger company.
Speaker 9: Yeah, that's interesting. There's a fella here in Atlanta where
Speaker 9: I am, Jake Cunningham. He owns a very large plumbing
Speaker 9: services firm called Superior Plumbing, and he has resisted multiple times.
Speaker 9: In fact, he says he gets offers, you know, sometimes
Speaker 9: once a week, sometimes more to sell out. And he's frankly,
Speaker 9: he's got five members of his family working for Superior Plumbing.
Speaker 9: He's concerned. He's concerned that these companies will will slash heads. Uh,
Speaker 9: you know, basically overly corporatized things, take out, you know,
Speaker 9: take local control out of local people's hands. And he
Speaker 9: told me he pays one of his top people, his
Speaker 9: general manager, a half million a year. You know, would
Speaker 9: would one of these corporate firms see this person as
Speaker 9: a cuttable overhead?
Speaker 10: Uh?
Speaker 9: And he's worried about at least he said, he's worried
Speaker 9: about his people.
Speaker 3: John heckinjer we want to bring you into the conversation
Speaker 3: you edited this story. I was talking, you know, we
Speaker 3: were talking with Michael about this idea of how this
Speaker 3: is kind of out of the pe playbook of finding
Speaker 3: an industry there's opportunity and kind of rolling it up
Speaker 3: into maybe a larger holding, investment holding. I am curious
Speaker 3: how this story came on everybody's radar and and you
Speaker 3: know how you guys wanted to report it out.
Speaker 6: Walk us through a little bit of that.
Speaker 10: Well, Mike had had sort of identified this trend last
Speaker 10: year and did sort of sort of a shorter story
Speaker 10: about what was going on in the US, and then
Speaker 10: when Slappa came on to the story of Charlie Mullins,
Speaker 10: it was sort of it was irresistible. It's rare that
Speaker 10: you can have a photo of a guy with the
Speaker 10: Rod Stewart haircutt in a purple suit, and Business magazine
Speaker 10: were we were delighted that he was he was available,
Speaker 10: he wanted to talk about it, and also that he
Speaker 10: would very openly talk about his regrets. It's not easy
Speaker 10: to get people in the industry who've sold out to
Speaker 10: say what it's what it's really like. And he had
Speaker 10: hoped that his children would work at the company, as
Speaker 10: many founders do once they're bought up by private equity firms,
Speaker 10: but they found that the culture just changed too much
Speaker 10: and it wasn't a place for them anymore. So they're
Speaker 10: actually deciding to open up a business to compete with
Speaker 10: KKR headquarters right down the street. So he's not giving up.
Speaker 4: Hey, John, I'm wondering if to you this sort of
Speaker 4: signals any kind of pushback to private equity or our
Speaker 4: trend that we're starting to see. I mean, I was
Speaker 4: struck because early this morning there was an article publishing
Speaker 4: the Wall Street Journal and the column heard on the
Speaker 4: street about the headline is you can thank private equity
Speaker 4: for that enormous doctor's bill. And I'm wondering if we're
Speaker 4: starting to see some sort of pushback here to private equity.
Speaker 3: Well, there has been some, all right, we have some
Speaker 3: problems with John's line, so we're gonna see if we
Speaker 3: can fix that out.
Speaker 6: Michael.
Speaker 3: Going back to you, though, it is interesting right as
Speaker 3: Tim brought up in terms of some of the blowback,
Speaker 3: I do feel like we've covered some of this blowback
Speaker 3: in terms of private egy.
Speaker 5: Yeah.
Speaker 4: I want to send the same question over to you, Mike,
Speaker 4: because you know, talking about this today, we're you know,
Speaker 4: a sixty million dollar check for a plumber, a plumber
Speaker 4: in Atlanta as a pretty darn good payday, and you
Speaker 4: have to have some serious conviction to not accept a
Speaker 4: check like that that could you know, set somebody up
Speaker 4: for life with truly generational wealth. And I'm wondering if
Speaker 4: you're starting to see any sort of pattern when it
Speaker 4: comes to the folks that you're speaking to that they're like, okay, well,
Speaker 4: you know, an exit would be nice, but not this
Speaker 4: type of exit.
Speaker 9: I did. I did get some of that, some of
Speaker 9: your certainly, mister Cunningham. I will say I spoke to
Speaker 9: some people, let's say, privately, off the record, who had
Speaker 9: some concerns they did sell out, you know, maybe they
Speaker 9: didn't feel comfortable kind of telling, but they did have
Speaker 9: some reservations about some of the ways that their people
Speaker 9: were being treated. Again, they were reluctant. Some frankly, most
Speaker 9: of these people that I think we're under some kind
Speaker 9: of no disclosed, non disclosure agreements so that we're not creatives.
Speaker 9: But there certainly is there's a lot within the industries.
Speaker 9: There's a deep reservation. You will, it's very split. You
Speaker 9: could talk to people who have not sold out, and
Speaker 9: there's almost the feeling like this person, this competitor caved
Speaker 9: or sold out within this coder this continued that have
Speaker 9: not sold out yet.
Speaker 3: Yeah, and I will point out in your story, you know,
Speaker 3: the Wall Street controlled companies who are doing this and
Speaker 3: picking up some of these companies say they're professionalizing these
Speaker 3: businesses while preserving their.
Speaker 6: Connection with customers. So just putting out anyway.
Speaker 3: There's a lot of fun details in this story, including
Speaker 3: mister Mullin's custom.
Speaker 6: Made red Stoneway piano.
Speaker 3: So I highly recommend you read this story. Michael Sasa,
Speaker 3: thank you so much, and of course our thanks to
Speaker 3: John Heckinger.
Speaker 6: This is among our most read the journal.
Speaker 9: How about you let me drive?
Speaker 2: Oh no, no, no, no.
Speaker 8: All right please, I'll do gravel.
Speaker 3: I want to drive.
Speaker 5: It's a question.
Speaker 2: This is the drive to the globe. Well, bother it
Speaker 2: on Bloomberg Radio.
Speaker 3: All right, everybody, eighteen minutes left to today's trading session.
Speaker 3: Shortly we're gonna head over to our TV colleagues. Caun't
Speaker 3: you down to the clothes on this Thursday. In the meantime, Charlie,
Speaker 3: of course.
Speaker 6: Just breaking down the numbers. What do you laughing?
Speaker 9: As?
Speaker 4: This is like the longest shortest week ever.
Speaker 6: It's like, come on, yeah, there's a lot.
Speaker 4: I mean, look, there's a lot happening. Tomorrow we get
Speaker 4: PC it's the Fed's preferred measure of inflation.
Speaker 3: Yeah.
Speaker 4: Yeah, And our next guy says that getting inflation to
Speaker 4: the two percent target is going to be a challenge
Speaker 4: over the next year without some real deterioration in the economy.
Speaker 4: Sorry I cut you off here, you know, I.
Speaker 6: Kind of cut you and I. You know, that's kind
Speaker 6: of the kind of day we're happening.
Speaker 3: But it does feel like FED speakers or was it
Speaker 3: former New York Fed President Bill Dudley questioning maybe that
Speaker 3: target right, Yeah, yeah, maybe it's not. Maybe it's not
Speaker 3: two percent. I don't know, and others maybe that two
Speaker 3: percent isn't real. Let's see what Brooke May has to say.
Speaker 3: She's managing partner at the wealth management firm Evans Maywealth.
Speaker 3: They've got about a billion dollars in assets under management,
Speaker 3: and she joins us from Indiana. Hey, Brook, good to
Speaker 3: have you here with us. I don't know, it's a
Speaker 3: funky little week. It's a funky little environment. Top of
Speaker 3: mind for your customers, your clients when they are thinking
Speaker 3: about their assets, their money to invest.
Speaker 1: Right now, they want to know where the economy is heading.
Speaker 1: There's a lot of mixed messages out there, a lot
Speaker 1: of mixed signals, and just trying to decipher through the
Speaker 1: noise and figure out what direction are we going really
Speaker 1: weighs heavily for investors right now. As you alluded to,
Speaker 1: you know, we don't think that getting to two percent
Speaker 1: is going to be very achievable in the near term.
Speaker 1: When we look at pce it's kind of plateaued. It
Speaker 1: was on a steady decline for a prolonged period of time,
Speaker 1: and just recently it's kind of settled at that two
Speaker 1: point seven two point eight percent level. That's where we
Speaker 1: expect it to come in tomorrow, and we think it's
Speaker 1: going to be a grind from here to get to
Speaker 1: two percent. So if we see two and a half
Speaker 1: percent on PCEE, we think that the Fed could feel
Speaker 1: comfortable starting to indicate at least that rate cuts are
Speaker 1: coming in somewhat iminent.
Speaker 4: Brook How long of a grind is it going to
Speaker 4: be to get to two percent.
Speaker 1: It'd be a while, you know, it could be another
Speaker 1: twelve to eighteen, maybe twenty four months. We do see
Speaker 1: inflation starting to slow down. When you look at CPI,
Speaker 1: for example, there are quite a few components that have
Speaker 1: really settled and aren't really giving us issues. But you've
Speaker 1: got housing, for example, that makes up about thirty percent
Speaker 1: of CPI and shelters up I think about five and
Speaker 1: a half percent year every year. So it's kind of
Speaker 1: a story of a bifurcation within the economy. Some areas,
Speaker 1: you know, have settled in our tame and others will
Speaker 1: continue to be hot.
Speaker 3: Londa Fed President Raphael Bostic indicated last week that officials
Speaker 3: are rethinking their estimate estimates of neutral end quote. There
Speaker 3: may be reasons to think the baseline steady state is higher.
Speaker 3: John Williams of the New York Fed, his predecessor at
Speaker 3: the New York Fed, Bill Dudley, did write earlier in
Speaker 3: a Bloomberg column that he believed the neutral rate had
Speaker 3: risen substantially. I guess the big important discussion to have
Speaker 3: around this brooke is not will it get there?
Speaker 6: Will it not?
Speaker 3: But if we are seeing growing narrative around that it's
Speaker 3: going to be maybe above two percent, how does that
Speaker 3: make you rethink how to invest? Does it really change
Speaker 3: strategy a lot?
Speaker 8: It does.
Speaker 1: There are clearly areas of the market that are more
Speaker 1: sensitive to interest rates than others. And if we're going
Speaker 1: to be in a higher for longer camp, there are areas,
Speaker 1: for example, like small caps Russell two thousand companies that
Speaker 1: you may want to be light on in this environment
Speaker 1: or be very selective about. Forty percent of small cap
Speaker 1: companympanies are not profitable. Therefore they're relying heavily on debt
Speaker 1: and a significant portion of Russell two thousand companies have
Speaker 1: floating rate debt versus the SMP companies that have only
Speaker 1: about ten percent floating rate debt, So that weighs heavily
Speaker 1: on earnings, and we don't think small caps are going
Speaker 1: to be the leadership over the next twelve to eighteen months.
Speaker 1: Doesn't mean you won't make money, but we do think
Speaker 1: that there are going to be companies that have stronger
Speaker 1: earnings growth and a clear path forward that are going
Speaker 1: to do better.
Speaker 4: I'm wondering what you're seeing in terms of asset allocation,
Speaker 4: or what you're going to do in terms of asset allocation,
Speaker 4: given that this is your outlook, this is what you're
Speaker 4: seeing over the next year or so, how does it
Speaker 4: change the way that you position your.
Speaker 1: Clients individual companies, not necessarily sectors. There's clearly a bifurcation,
Speaker 1: not just in the market, not just in the economy,
Speaker 1: but within specific sectors. Retail is a great example. You
Speaker 1: look at Walmart, Costco, Coal's, Amazon Target, They're all telling
Speaker 1: very different stories and it's clear that some corporate management
Speaker 1: has been able to navigate this environment better than others.
Speaker 1: We know, for example, the low income consumer is struggling
Speaker 1: more so than the middle of class and high income consumer.
Speaker 1: And so you would assume that Walmart is struggling, and
Speaker 1: they're not.
Speaker 6: They're doing well.
Speaker 1: And so you have to be very selective in this
Speaker 1: environment and really take a bottoms up perspective. We want
Speaker 1: companies that have strong free cash flow, low leverage, and
Speaker 1: really strong balance sheets.
Speaker 6: Yeah, that's a really good point.
Speaker 3: We've definitely seen that in a big way in the
Speaker 3: retail sector in terms of some that have done well,
Speaker 3: some that have not. Tells you a lot about kind
Speaker 3: of what's top of mind for consumers, and you're right, fundamentally,
Speaker 3: you got to look at what their businesses and how
Speaker 3: it's doing, because you can't kind of throw them all
Speaker 3: in one bucket. Having said that, you do like Amazon,
Speaker 3: tell us about your thoughts on that one, and I
Speaker 3: mean the Beheamoth.
Speaker 6: It feels like when it comes to retail.
Speaker 1: It is it is, and you know, it's very broadly
Speaker 1: held when you look at Amazon, though historically it's really
Speaker 1: it's gone through trading ranges and then it's broken out,
Speaker 1: and then a trading range and it's broken out breaking out.
Speaker 1: And so when we look at Amazon. It's trading right
Speaker 1: now at the same level that it was in twenty
Speaker 1: twenty one. And so when you peel it back and
Speaker 1: you look at the different divisions with an Amazon, they're
Speaker 1: all hitting on and they're hitting on all cylinders. Aws.
Speaker 1: For example, we expect sales to be up seventeen percent
Speaker 1: year every year. We see expanding margins in the e
Speaker 1: commerce business, and for their digital advertising, we expect it
Speaker 1: to be up twenty four percent year every year. So
Speaker 1: Amazon's doing a lot of things right, And if you
Speaker 1: don't already own it, we think you should.
Speaker 4: Okay, no, it's not you don't think it's too late.
Speaker 1: No, No, Amazon, it's trading around forty times forward earnings.
Speaker 1: And again it's trading at the same level that it
Speaker 1: was in twenty twenty one. Amazon's always trading at at
Speaker 1: an expensive multiple. It doesn't mean you won't make money
Speaker 1: in it.
Speaker 3: Yeah, it's an interesting chart, right, I'm just pulling it
Speaker 3: up on the Bloomberg and just to paint a picture.
Speaker 6: It's kind of a v chart.
Speaker 3: If you will, you look at where it was back
Speaker 3: in twenty twenty one, you're right, like, we're back at
Speaker 3: the levels we are today, and it took a big
Speaker 3: hit going all the way down to kind of late
Speaker 3: last year, which we saw with a lot of names
Speaker 3: certainly kind of bottoming out last year, and then we've
Speaker 3: seen it come up, so a.
Speaker 4: Real v if you will, can you give us thirty
Speaker 4: seconds on Goldman Sachs real quick?
Speaker 8: Goldman's one of.
Speaker 1: Our top pics right now. When you look at CEO sentiment,
Speaker 1: it's improving. A year ago, three quarters of CEOs thought
Speaker 1: that we would see a recession in the next twelve months.
Speaker 1: Now less than a third believe so. So when we
Speaker 1: see M and A and IPO activity pickup, Goldman is
Speaker 1: going to be a beneficiary. They're already doing well on
Speaker 1: earnings from their advisory business, and we think that that
Speaker 1: activity will spur additional growth.
Speaker 6: It's cheap.
Speaker 1: It's only trading at about twelve times earnings and about
Speaker 1: one point one times changeable book value, so we think
Speaker 1: it's a good investment.
Speaker 6: Just a basic metric.
Speaker 3: It's up about sixteen percent so far here in twenty
Speaker 3: twenty five. I look at the KDW Bank Index. Not
Speaker 3: always apples to apples, but none else. It's only up
Speaker 3: about seven percent. There's a lot more names in there,
Speaker 3: including some of the kind of maybe smaller players. All right,
Speaker 3: Canna leave it there, Hey Brook, Thank you. Brook May
Speaker 3: managing partner at the wealth management firm Evans May Wealth
Speaker 3: a billion in assets under management, joining us from Indiana firm.
Speaker 2: This is the Bloomberg Business Week podcast, available on Apple, Spotify,
Speaker 2: and anywhere else you get your podcasts. Listen live weekday
Speaker 2: afternoons from two to five pm Eastern on Bloomberg dot com,
Speaker 2: the iHeartRadio app tune In, and the Bloomberg Business App.
Speaker 2: You can also watch us live every weekday on YouTube
Speaker 2: and always on the Bloomberg Joermalone