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Speaker 1: We're talking about Bowick shares it Boeing once again hitting
Speaker 1: some turbulence, down more than three percent as we speak,
Speaker 1: down more than four percent of its lows today, but
Speaker 1: right now about a three point two percent loss. This
Speaker 1: is after the US Justice Department opened a criminal investigation
Speaker 1: into the mid air blowout of a fuselage panel on
Speaker 1: a seven thirty seven Max nine in January, something we've
Speaker 1: been talking about when it comes to Boeing all year, and.
Speaker 3: Just yesterday, US Transportation Secretary Pete boodage Edge said the
Speaker 3: FAA will rigorously assess Bowing after the blowout of that fuselage. Meantime,
Speaker 3: the head of Delta Airlines telling Bloomberg on Sunday Carrol
Speaker 3: that he expects from the delays of the yet to
Speaker 3: be certified seven thirty seven Max ten variant.
Speaker 1: All right now, Boeing shares for the year as we
Speaker 1: said under pressure, they're down about thirty percent year to date. Meantime,
Speaker 1: For the little contrast here, folks, the eight hors of
Speaker 1: Airbus tim they're up about eleven percent year today.
Speaker 3: Well, you bring up Airbus, Carrol because Boeing stumbles and
Speaker 3: struggles are an opportunity for its loan major competitor, and
Speaker 3: that of course is Airbus. That is the topic of
Speaker 3: a story in the current new issue of Bloomberg Business Week.
Speaker 3: We have Business Week's assistant managing editor, Jim Ellis joining
Speaker 3: us here in the studio. Jim, good to see you.
Speaker 3: Thanks for joining us on this a great story that's
Speaker 3: in the current issue of Bloomberg Business Week. To what
Speaker 3: extent are Boeing's troubles gains for Airbus Because we know
Speaker 3: that these airlines, they don't necessarily have a ton of
Speaker 3: choice when it comes to what they're buying. Their pilots
Speaker 3: are trained on certain equipment, their maintenance crew are trained
Speaker 3: on things.
Speaker 4: It's to change aircraft makers is a big deal for
Speaker 4: the airline. But we've gotten to a moment now where
Speaker 4: there's so much, I don't know, a lot of bad news.
Speaker 4: There is a lot of questioning about the quality of
Speaker 4: Boeing's equipment right now. That it comes at a particularly
Speaker 4: bad time for Boeing simply because a lot of people
Speaker 4: are starting to think of a lot of airlines are
Speaker 4: starting to think about the next generation of aircraft. And
Speaker 4: you know a lot of people say, well, you know
Speaker 4: things are happening. Now, everybody's going to jump and run
Speaker 4: to Boeing. It's very run away from gooing. It's very
Speaker 4: difficult to do simply because you know, as you said,
Speaker 4: your crews are trained on that, and you've made these
Speaker 4: multi billion dollar investments. But what's at stake here is
Speaker 4: the next generation of planes. What happens is that because
Speaker 4: in the airline business you can use a piece of
Speaker 4: aircraft for decades, you don't make these decisions to change lightly.
Speaker 4: So instead it's time to think about the next generation.
Speaker 4: And so what air Bus is doing now is they're
Speaker 4: going to have some room to go ahead and say
Speaker 4: I'm going to come up with a new plane at
Speaker 4: a time when Boeing is so so you know, sort
Speaker 4: of troubled, and so can consumed with thinking about how
Speaker 4: can it deal with its quality problems? How can it
Speaker 4: also deal with its balance sheet problems? I mean Boeing
Speaker 4: is in the point right now where it doesn't have
Speaker 4: a lot of financial flexibility to build a new plane,
Speaker 4: and so Airbus, however, is probably about a fifty billion
Speaker 4: dollar advantage over it from a dead standpoint, and so
Speaker 4: they can move ahead and start planning for the next
Speaker 4: generation and sort of seal this dominance that they're probably
Speaker 4: gonna have with the aircraft business.
Speaker 1: Jim tell us how fortunes can change. And I love
Speaker 1: how the story starts, and you guys go back to
Speaker 1: nineteen eighty seven. If we can all remember back then,
Speaker 1: it's a while. It's a while, but talk about what
Speaker 1: happened and how that may be set the stage for
Speaker 1: where Airbus is today.
Speaker 4: Yeah, I mean what happened is a lot of people
Speaker 4: thought when Airbus decided to bring out its A three
Speaker 4: twenty narrow body airline airliner, the people thought, oh, we're
Speaker 4: gonna do that. I mean, we've got the seven thirty seven.
Speaker 4: The seven thirty seven was rules the skies, and they
Speaker 4: come out with this a three twenty. They have a
Speaker 4: great party, they have, you know, sort of Prince Charles
Speaker 4: at that time with Lady Diana. I mean, it's big,
Speaker 4: big deal, fireworks and everything, and everybody says that's not
Speaker 4: going anywhere. You know, you cannot beat them. They and
Speaker 4: at that time Boeing had ten times as many seven
Speaker 4: thirty sevens popping out than A three twenties. Fast forward
Speaker 4: to today, and the A three twenty has become the
Speaker 4: best selling commercial aircraft of all time. I mean, that's
Speaker 4: that's a big deal, given that Boeing had commanded that
Speaker 4: market for so long, and the seven thirty seven has
Speaker 4: been a major player in aircraft for almost a half century.
Speaker 1: How much of that is the mistakes and problems that
Speaker 1: Boeing has had. How much of is it just folks
Speaker 1: started to kind of really like the A three twenty
Speaker 1: and shit their ordering books.
Speaker 4: A lot of it is that the A three twenty
Speaker 4: just sort of came in with a lot of innovations
Speaker 4: that you know, customers connected with what they call fly
Speaker 4: by wire, that sort of joystick, sort of all electronic cockpit,
Speaker 4: the idea that it was a slightly larger plane, which
Speaker 4: then set off this whole thing of continually making these
Speaker 4: planes bigger and bigger and bigger and bigger.
Speaker 1: I'm measure how big my seed is.
Speaker 4: I don't know about you guys, know, it turned out
Speaker 4: that they were in the right place at the right time.
Speaker 4: But they are also extremely you know, because they didn't
Speaker 4: have an older model that they were basically just retrofitting,
Speaker 4: they could think differently. They sort of took it and
Speaker 4: they ran with it, and now they're in a position
Speaker 4: to think about the next generation of airplanes that can
Speaker 4: fly on sustainable fuel, that can do all sorts of
Speaker 4: you know, sort of electronic things in the cockpit, but
Speaker 4: also can take structures of airliners in a different way.
Speaker 4: They're planning a plane now for this next generation that
Speaker 4: has a wing that's shaped like a bird's wing that
Speaker 4: can actually change its shape and flight. And also because
Speaker 4: airports weren't built for these new giant planes that we're
Speaker 4: building now, they're going to have aircraft with the wingtips
Speaker 4: that fold up so you can still put it in
Speaker 4: the same place. But you know, and then we pulled
Speaker 4: away from the onto the Tormac flip the wings out.
Speaker 4: It's I mean, they are basically taking advantage of what
Speaker 4: they have right now, which is a lot of money
Speaker 4: as well as not the look of all the stock
Speaker 4: markets saying, oh my god, you're a terrible company, you know,
Speaker 4: which is what Boeing has to deal with right now.
Speaker 3: Well, just like in the late nineteen eighties when Airbus
Speaker 3: was the upstart against Boeing, now there's another upstart out
Speaker 3: there that should have what, for practical purposes is a
Speaker 3: duopoly between Airbus and Boeing right but may not be forever.
Speaker 3: Enter what China.
Speaker 4: Has KOMAC, China's China's Aircraft Company, which a lot of
Speaker 4: people in the West don't know because it has only
Speaker 4: so far built planes for Chinese carriers. But the thing
Speaker 4: that remember is that Chinese carriers have become major purchasers
Speaker 4: of Western aircraft. Most of the aircraft flown by the
Speaker 4: big three Chinese airlines or you know Boeing or Airbus,
Speaker 4: and however a big percentage of the order books for
Speaker 4: these American and European companies come from Chinese airlines. Now
Speaker 4: China has decided it wants to be a player in
Speaker 4: the aircraft business. It feels like, why are they giving
Speaker 4: all this money to the West. They want to basically
Speaker 4: be able to They want to take that doopoly and
Speaker 4: make it into a triopoly, and that has got to
Speaker 4: be a frightening thing for Boeing especially.
Speaker 3: Can they pull that off? Outside of China in that
Speaker 3: wood regulators in the US and Europe, well, you know, foreseeably,
Speaker 3: uh approve that that's the question.
Speaker 4: And part of that is, you know, safety issue. Part
Speaker 4: of that is just engineering issue, and part of that
Speaker 4: is a political issue, you know, in the sense that
Speaker 4: you know, can China build an aircraft that flies? I
Speaker 4: mean they're doing it now. They're doing it for Chinese
Speaker 4: airlines and they finally have gotten non Chinese airline though
Speaker 4: it's to bed air you know, that's but then they
Speaker 4: are also marketing it now to West aircraft and they
Speaker 4: will find some sales there. But the issue becomes one
Speaker 4: of whether they want to take more of their own
Speaker 4: cares and sort of persuade them to buy Chinese And
Speaker 4: if they do that, that takes away a lot of
Speaker 4: the sort of extra stuff in the art of books
Speaker 4: of the Western aircraft makers.
Speaker 1: I think what's so interesting too is you don't have
Speaker 1: Airbus coming out and being like snap, you know, we've
Speaker 1: got this all down because a three.
Speaker 4: Eighty, right, and they understand that You've got to be
Speaker 4: very careful to sort of make fun of somebody else
Speaker 4: having a problem, because people will just turn it around
Speaker 4: and say, well, you've screwed up before you made the
Speaker 4: A three eighty, which sounded like a great plane. You know,
Speaker 4: passengers loved it, double decker, it's really cool. The issue
Speaker 4: was it was too late. It came to the market
Speaker 4: at a time when people decided, well, when airlines decided,
Speaker 4: we don't need a five hundred, five hundred and fifty
Speaker 4: seed aircraft to take people back and forth. Instead, we
Speaker 4: want smaller aircraft that can take people on what they
Speaker 4: call long thin routes. Fuel efficiency, that's it, yea and
Speaker 4: four engines that you know, that plane had four engines.
Speaker 4: That's a lot of fuel. And so instead two engine
Speaker 4: is what people want in wide bodies nowadays. And so
Speaker 4: that plane lost money.
Speaker 3: That brings us back to the narrow body seven thirty
Speaker 3: seven A three twenty, which is certainly the bulk of
Speaker 3: the market.
Speaker 4: Yeah, that's the workhords share of the airline markets where
Speaker 4: eighty percent of the planes go. And so every you
Speaker 4: will either succeed or fail based on how you do
Speaker 4: in the narrow body market. And the reason that Airbus
Speaker 4: was able to sustain basically a losing program in the
Speaker 4: A three eighty, you know that ed years before they
Speaker 4: had planned it to end and didn't make any money
Speaker 4: for them in the long haul, is because they made
Speaker 4: so much money on the A three twenty. Because the
Speaker 4: narrow body market is the bread and butter of flying,
Speaker 4: and if they can figure out a way to command
Speaker 4: the next generation of those and not split that market
Speaker 4: with Boeing, then they could have dominance of that market
Speaker 4: for years to come.
Speaker 1: At the same time, Boeing can think about its way
Speaker 1: out of this is to be dominant in that in
Speaker 1: kind of the next wave as well. Right well, that's
Speaker 1: of the talent and the engineers.
Speaker 4: And that's also the counterintuitive thing. A lot of people say,
Speaker 4: why should Boying just say, you know, I'm done, I'm done.
Speaker 4: You know what, maybe Boying can say, I don't care
Speaker 4: that I don't really have the money to pursue a program.
Speaker 4: Maybe I should you go ahead and do it now
Speaker 4: because I don't have that big of an order book.
Speaker 4: It's very difficult for Airbusts to do anything very quickly,
Speaker 4: simply because it's sold out in its current eight three
Speaker 4: twenties all the way through this decade into the next decade.
Speaker 1: It's so popular, great visibility, but it also kind of hands.
Speaker 4: It handcuts you, because basically you can't walk away from
Speaker 4: a winner.
Speaker 1: Great stuff, great history into kind of understanding what really
Speaker 1: is a duopoly when it comes to airplanes. Jim ellis,
Speaker 1: as always, we so appreciate it, Assistant Managing editor our
Speaker 1: Bloomberg Business Week. Right here in studio, you're.
Speaker 2: Listening to the Bloomberg Business Week podcast. Can't Just Live
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Speaker 1: Folks, We've pretty much done with the earnings. We had
Speaker 1: a little bit of names trickling out last week, but
Speaker 1: you might recall from the earnings wrap up how Meta
Speaker 1: is still the king of digital advertising. The social media
Speaker 1: giant overcame grim expectations for its advertising business, in part
Speaker 1: due to high spending by China based advertisers and AI
Speaker 1: generated video content. Users on apps such as Facebook and
Speaker 1: Instagram spend twenty five percent more time watching videos. So
Speaker 1: it's a thing Tim as.
Speaker 3: Anyone who uses any of these apps, of course, it's
Speaker 3: a thing well. Companies including Meta platforms, Amazon, Alphabet and
Speaker 3: many more competing big time when it comes to the space.
Speaker 3: Our next guest has a unique window into the digital
Speaker 3: ads space. So let's get to the interview with us.
Speaker 3: As Mark Zagorski, CEO of the publicly held double Verify,
Speaker 3: it's a five point five billion dollar market cap company
Speaker 3: does application software and digital media measurement. Customers of the company, Carol,
Speaker 3: include a who's who of corporate America. You got Colgate, Palm, Olive, Ford,
Speaker 3: Mandoli's Netflix, TikTok Twitter, and that's a cute according to
Speaker 3: the Bloomberg supply chain function.
Speaker 1: Mark, So great to have you here with us. First step,
Speaker 1: so everyone understands your chief business kind of lay it
Speaker 1: out for us because you do work with who's who
Speaker 1: of corporate America.
Speaker 5: Yeah, so it's great being here. As you noted, we
Speaker 5: work with some of the biggest brands on the planet,
Speaker 5: and what we do is we help them ensure that
Speaker 5: their ads spend is delivered in a brand safe environment,
Speaker 5: that it's actually viewable by human and it's not fraud,
Speaker 5: and that those transactions are secure. So think of us
Speaker 5: as kind of advertising security software. But we see across
Speaker 5: social across the open web, across mobile, across connected television.
Speaker 5: If there's someplace that has ads, we're measuring or verifying
Speaker 5: across it.
Speaker 3: How do you know if something is brand safe or not?
Speaker 5: So we look at a lot of different factors. So
Speaker 5: if it's video, we can look at the actual video
Speaker 5: that's running. We can listen to the audio track and
Speaker 5: analyze it. We can look at the context or metadata
Speaker 5: around it. So we basically look at all of different
Speaker 5: contextual clues that we see, and we do this in
Speaker 5: real time, and we're able to report back to our
Speaker 5: advertisers whether or not their ads are running environments that
Speaker 5: are aligned with what they want their brand to represent.
Speaker 3: A lot mark has been made over the past year
Speaker 3: or so about what's happened to the company formerly known
Speaker 3: as Twitter X of course, and the way that the
Speaker 3: content on the platform has changed. Is X to you
Speaker 3: still considered brand safe? Really?
Speaker 5: You know, we look across all the different social platforms
Speaker 5: and you know, we make a call. We categorize content.
Speaker 5: It's up to our advertisers to determine whether or not
Speaker 5: that content fits what they consider suitable or safe.
Speaker 3: Does it seem like the companies are now saying it's
Speaker 3: less safe than it previously was.
Speaker 5: We have seen more advertisers move away from Twitter than
Speaker 5: move toward it or X, but there are still advertisers
Speaker 5: who are putting a hefty amount of spend against it.
Speaker 5: It's about really threading that needle and X has worked
Speaker 5: with us in a really positive way and saying, you know,
Speaker 5: let's give the advertisers to tools to be able to
Speaker 5: slice andize the content the way they want it.
Speaker 1: Well, in terms of platforms that are out there, we
Speaker 1: mentioned meta, but you know you got alphabet. Where is
Speaker 1: it that you kind of see clients most likely to
Speaker 1: put out some kind of a digital ad if you will,
Speaker 1: and link it to their brand obviously.
Speaker 5: Yeah, so we see social and I think you just
Speaker 5: mentioned earlier video social video is really eating up the
Speaker 5: Internet right now. About seventy percent of social engagement now
Speaker 5: is with video short form things like reels, YouTube, shorts, TikTok.
Speaker 5: They're exploding. They're eating up a significant portion of consumer
Speaker 5: time as we know, and that means that's where advertisers
Speaker 5: are going. So, you know, we try to verify all transactions,
Speaker 5: whether they're open web social against CTV, but we're seeing
Speaker 5: more and more of those advertiser dollars and you know
Speaker 5: heading towards you know, short form social video like TikTok. Yes, yeah,
Speaker 5: TikTok's TikTok created the revolution, but reels and shorts are
Speaker 5: really part of it as well now.
Speaker 1: But I do wonder just to follow up though, on
Speaker 1: what Tim brought up about some of the concerns around
Speaker 1: X and whether it's TikTok. You know, between certainly US
Speaker 1: China relations that these companies, increasingly Chinese based companies are
Speaker 1: on regulators and policymakers here in the US on their radar.
Speaker 1: Do you continue to expect that to kind of play
Speaker 1: out here and what does that mean then in terms
Speaker 1: of some of your clients where they're going to choose
Speaker 1: to kind of put their ads.
Speaker 5: Yeah, I mean there's no doubt that advertisers want to
Speaker 5: be where consumers are, right, and if consumers can't go
Speaker 5: to one platform, they're going to go to another. Consumers
Speaker 5: love short form video, So if for some reason a
Speaker 5: platform loses favor because of government regulations or any other reason,
Speaker 5: the advertisers are going to chase those consumers. So you
Speaker 5: know the beneficiaries of a TikTok. You know, ban in
Speaker 5: this country here is going to be Facebook and Google,
Speaker 5: no doubt.
Speaker 3: Do you think it's realistic that the US could possibly
Speaker 3: force ByteDance to divest.
Speaker 5: That that's a question above my pay grade. I would
Speaker 5: never want to try to discern on what's going.
Speaker 3: But is it on your radar? Like this is a
Speaker 3: real risk to not just to your business, but to
Speaker 3: the space.
Speaker 5: I mean, I think, you know, for the first time,
Speaker 5: this is probably getting a bit more serious than it
Speaker 5: has been in the past. Advertisers are pretty nimble though,
Speaker 5: you know, if anything happens on one platform, the beauty
Speaker 5: of digital is they can move very quickly to another platform.
Speaker 5: I mean, they're looking for engagement, and they're looking for
Speaker 5: deep engagement, and social video provides that no matter where.
Speaker 3: It is, where's the best engagement right now?
Speaker 5: You know, we you know, we don't look at kind
Speaker 5: of time spent on each platform, but we know where
Speaker 5: dollars are being spent, and dollars are being spent, you know,
Speaker 5: pretty heavily across all the three that I mentioned in
Speaker 5: short form video, so across across YouTube, shorts, and across
Speaker 5: TikTok right now.
Speaker 3: So the other another way to ask that question is
Speaker 3: who who's struggling right now? Where's where's the money not going?
Speaker 5: I think you're seeing more and more dollars and move
Speaker 5: away from open web into more walled gardens, more social
Speaker 5: into retail media networks, which are really benefiting right now.
Speaker 5: So you know, powered by folks like Amazon, Walmart, Kroger, Macy's.
Speaker 5: This is an entirely new emerging area where advertisers, you know,
Speaker 5: love the data that those retail media networks produce and
Speaker 5: they're able to see kind of a really strong closed
Speaker 5: loop performance environment.
Speaker 1: What's top of mine is we get ready for the
Speaker 1: November election cycle. I mean, it's often running and we
Speaker 1: know it's underway, and I mean I'm curious about what
Speaker 1: is the balance if there is one among a brand,
Speaker 1: a company with high recognition that's looking for the clicks
Speaker 1: right in terms of people viewing their ad but at
Speaker 1: the same time not necessarily wanting to be next to
Speaker 1: questionable content or you know, content that's going to either
Speaker 1: amplify potentially things that they would rather not be associated with.
Speaker 5: Yeah, it's a great question. I mean, you know, political
Speaker 5: season always brings up a relatively challenging environment for advertisers.
Speaker 5: They certainly want to be around where people are engaged.
Speaker 5: People are engaged with political content. There's no doubt about it. However,
Speaker 5: there's definitely topics that they don't want to be associated with.
Speaker 5: And you know as recently as earlier this year, between
Speaker 5: January and February, we saw a twenty two percent increase
Speaker 5: in hate speech, for example, and that's just starting off
Speaker 5: the year. So we know as the campaign gets more
Speaker 5: and more cted up, we're going to see more instances
Speaker 5: of what we call inflammatory news and political content, and
Speaker 5: that's things like cyber bulleying, it's things like hate speech
Speaker 5: and misinformation disinformation, So that will heat up, and hopefully
Speaker 5: what we're able to do is give advertisers the ability
Speaker 5: to avoid some of the content that they don't want
Speaker 5: to be around, but still be part of the news engagement,
Speaker 5: still be part of the stuff that that folks think
Speaker 5: is important without having to avoid news or relevant content altogether.
Speaker 1: Yeah, it's complicated, hate listen, Mark, I feel like we
Speaker 1: covered a lot of ground but also scratched the surface
Speaker 1: in some way. So hopefully you'll come back soon. Mark Sigurski,
Speaker 1: CEO of the publicly held company double Verify, stuck by
Speaker 1: the way down about twelve percent so far year to date,
Speaker 1: by trending a little bit higher in today's session.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 1: Reddit disclosing for their details of what is set to
Speaker 1: be one of the year's biggest IPOs, with the company
Speaker 1: and some existing shareholders seeking to raise as much as
Speaker 1: seven hundred and forty eight million dollars.
Speaker 3: And Reddit and the holders are planning to sell twenty
Speaker 3: two million shares for about thirty one to thirty four
Speaker 3: dollars each. That's what the social media platform said in
Speaker 3: a filing today. About fifteen point three million of those
Speaker 3: shares will be sold by the company and the rest
Speaker 3: by investors who are Reddit employees.
Speaker 1: It's been quite a slog though, to get to this point,
Speaker 1: so let's get to it. And keep in mind that
Speaker 1: what Tim just laid out the top of at the
Speaker 1: top of the range, Reddit would have a market value
Speaker 1: of five point four billion dollars, So that's a real
Speaker 1: market cap if you will.
Speaker 3: Yeah, let's get it over to Amy or she's a
Speaker 3: Bloomberg News equity capital markets reporter and she's here in
Speaker 3: the Bloomberg Interactive broker's studio. Just for context, Amy Snap
Speaker 3: is about a nineteen point five billion dollar company Meta
Speaker 3: platforms of course much much bigger.
Speaker 1: Is that really apples to apples there?
Speaker 3: But look, they're no. I mean it is because these
Speaker 3: are both supported by advertisers. Like we spoke to earlier
Speaker 3: in our program, the bulk of the advertising money is
Speaker 3: going to these short form videos. And then here comes
Speaker 3: Reddit with essentially a technology and a product that is
Speaker 3: what at this point almost two decades old, hitting the
Speaker 3: capital markets.
Speaker 6: Yeah, but then a lot of people are looking back
Speaker 6: at read it and like comparing it to Meta when
Speaker 6: it was still Facebook, when it first listed on the
Speaker 6: US doop market, and then that was a time when
Speaker 6: it was about to go profitable, and then this was
Speaker 6: the time as well. I read it as well, So
Speaker 6: there are some comparisons, but it's also like it's interesting to.
Speaker 3: Okay, I just want to point this out. Meta platforms now,
Speaker 3: the company formerly known as Facebook was started in two
Speaker 3: thousand and four. Reddit was started in two thousand and five. Yes,
Speaker 3: so they're almost the exact same age, so it's hard.
Speaker 3: It's hard for me to make that comparison that this
Speaker 3: is Facebook, you know, pre ipo.
Speaker 1: Yeah, so here's what I'm interested in, amy is what
Speaker 1: is the business that is Reddit? Because Tim, didn't you
Speaker 1: say you're back in Reddit.
Speaker 3: I'm liking Reddit for the first time over the last
Speaker 3: few months. I find it like, so you're too late.
Speaker 6: For the direction.
Speaker 1: But you bring it up in the newsroom and people
Speaker 1: are like, oh, yeah, I'm on Reddit, like you know,
Speaker 1: like people go to it for answers, right or exactlys
Speaker 1: and like minded people niche.
Speaker 3: It's super niche, Like you can find like plumbers to
Speaker 3: help you with plumbing, you can find drywall people to
Speaker 3: help you with drywall, like it's crazy, all right.
Speaker 6: A lot of people are sticky users of the platform
Speaker 6: as well. But then it's also funny how half of
Speaker 6: the users do not have a lock in. They also,
Speaker 6: like me, I would not go on to Reddit. On Reddit,
Speaker 6: google it, and then it will leadst I do. And
Speaker 6: especially because Reddit has a lot of original content. So
Speaker 6: like Google with this se O and all will really
Speaker 6: direct traffic with se The social search.
Speaker 3: Engine optimization thank you is that is that helpful to
Speaker 3: reddits bottom line. Carol and I were going through the
Speaker 3: s one earlier. They said, we get substantially all of
Speaker 3: our advertising. I think is the exact of our revenue
Speaker 3: from advertising.
Speaker 2: Yeah, it is tough.
Speaker 6: It is tough, but also it also it helps and
Speaker 6: not helps at the same time, because while it benefits,
Speaker 6: there are also peers. When Google or Facebook or other
Speaker 6: places where essentially it will lead to Reddit may change
Speaker 6: is tools and like the parameters and then that might hit.
Speaker 6: So like it's good and bad, but also the company
Speaker 6: is diversifying itself outside of advertising. So at the end
Speaker 6: of the day, the company CEO said, everything on Reddit
Speaker 6: is at the end of the day linked to buying
Speaker 6: and selling a lot, like whether it's people actually shopping
Speaker 6: new shoes, yes, but well search for things that will
Speaker 6: lead to advertising. So if you're buying a new pair
Speaker 6: of running shoes and then you want to see which
Speaker 6: model fits a long distance running better or anything in particular,
Speaker 6: people have really niche as you said, niche needs for
Speaker 6: things and then they will go to Reddit. But it's
Speaker 6: also like the company is diversifying beyond just advertising.
Speaker 3: What does that look like?
Speaker 6: It's it's selling licensing some of the data that it's
Speaker 6: been kind of doing for twenty years.
Speaker 1: That's what I find interesting in your story the Reddit
Speaker 1: saying it's in the early stages of allowing third parties
Speaker 1: to license access to data on the platform, including to
Speaker 1: train artificial intelligence models. So is it you know, is
Speaker 1: that what it's going to be all about? That they
Speaker 1: have a lot of people like Tim and others who
Speaker 1: are spending some time there sharing their data. That's valuable.
Speaker 6: That's very valuable, and especially it's not only just for
Speaker 6: Google for AI to learn, but also for companies like
Speaker 6: to actually see what are the trend or hitchebonds, to
Speaker 6: see what people are talking about like, so there are
Speaker 6: many uses of those data, but whether.
Speaker 1: There is that a business? But is that a business?
Speaker 6: Well, they've got sixty million for a one year runway
Speaker 6: for with the with a deal with Google, so it's actually, yeah,
Speaker 6: a pretty penny.
Speaker 3: Twitter used to do this and make money through selling
Speaker 3: the fire hose of data, and I don't know if
Speaker 3: they're still doing it. This is a private company, so
Speaker 3: it's hard to know. But this was a big selling
Speaker 3: point of Twitter back in the day that was like, hey,
Speaker 3: we have real time information they would actually sell to
Speaker 3: news organizations that makes sense, and they would say, okay,
Speaker 3: well we have you know, people all over the world
Speaker 3: who are monitoring what's going on on the ground. If
Speaker 3: we see signals of some breaking news event, we can
Speaker 3: get that to you before other people know about it.
Speaker 1: Well, I'm glad you brought that up, because that's what
Speaker 1: I was. You know, Tim and I were talking the
Speaker 1: news room about the same and just I'm trying to say,
Speaker 1: is it like Twitter, like we all loved it or
Speaker 1: love it? Maybe still x and found it really useful
Speaker 1: certainly for those of us in the news industry like
Speaker 1: to find information, and yet the business model has struggled.
Speaker 1: Is that the same story for Reddit?
Speaker 6: It's well, it's similar, Like you said, it takes eighteen
Speaker 6: nineteen years for it to become profitable, so long run,
Speaker 6: that's a very long one rate. But then at this
Speaker 6: particular point in time, there are a lot of like tailwinds.
Speaker 6: So yeah, it's really up to the investor whether they
Speaker 6: actually believe in the growth going forward and not looking
Speaker 6: back and saying you take it so long.
Speaker 3: What does it say about the IPO market that this
Speaker 3: could be one of the year's.
Speaker 6: Biggest IPOs, So right now, the IPO market is still
Speaker 6: pretty subdued so far this year, only seven billion raised,
Speaker 6: Like this is already like Martians.
Speaker 1: So big fish, little pond, little fish, big pond.
Speaker 6: Yeah, and then we also had like one of the
Speaker 6: best few weeks in ACM market just secondary share offering
Speaker 6: walk trays, convertible bonds. Those were huge and IPO hasn't
Speaker 6: actually benefited that much. So hopefully this will get people
Speaker 6: talking and then create that buzz, and I guess read
Speaker 6: it wants to create that buzz with a direk share
Speaker 6: sale as well.
Speaker 3: Remind us ARMS IPO was almost five billion dollars.
Speaker 6: Yeah, and then it went up like one hundred and
Speaker 6: forty percent.
Speaker 3: Since then, So okay, so seven hundred it is. But
Speaker 3: I'm just saying if that, if this is the biggest
Speaker 3: IPO of twenty twenty four, then yeah, you know, yeah,
Speaker 3: it's a respective fraction of what ARM was.
Speaker 6: We also had like earlier this year in January there
Speaker 6: were two a billion dollar share sale as well, amer
Speaker 6: Sports and also CASSPI, which is just a secondary listing
Speaker 6: from UK. So it's up there, but not top tops.
Speaker 1: Still a subdued market, yes, overall, all right, great stuff,
Speaker 1: so appreciate it, Amy or Equity Capital Markets to putter
Speaker 1: at Bloomberg News joining us here in our interactive broker's studio.
Speaker 1: Thank you, Amy, mark.
Speaker 4: A journal.
Speaker 7: How about you let me drive? No, no, no, no, who's.
Speaker 4: Going to drive?
Speaker 7: Honey?
Speaker 3: Please?
Speaker 4: How do the riding gravels?
Speaker 1: Let's mate, I want to try it.
Speaker 3: It's a good question time. This is the drive to
Speaker 3: the Globe dot com thing.
Speaker 2: Well by around yoga don on Bloomberg Radio.
Speaker 1: All right, everybody, just about eighteen and a half minutes
Speaker 1: left in today's trading session, Carol Master along with Tim's standup,
Speaker 1: and you just had Charlie uh breaking down the trade here.
Speaker 1: And you know there's a great story Tim that's on
Speaker 1: the Bloomberg terminal.
Speaker 3: Yes, which one is it?
Speaker 1: It has to do with Magnificent the Magnificent seven, right,
Speaker 1: which is something we talk a lot about it.
Speaker 3: They're still all magnificent and well.
Speaker 1: JP Morgan's coming out with a call the ranks of
Speaker 1: Wall Streets strategist playing down concerns about a bubble in
Speaker 1: US technology mega cap stocks. We're seeing the play down
Speaker 1: and saying, don't worry. That's growing. Team over at JP
Speaker 1: Morgan Chase was the latest flag that valuations of the
Speaker 1: seven tech giants that have powered the record breaking rally
Speaker 1: on Wall Street are currently lower relative to the rest
Speaker 1: of the S and P five hundred than the average
Speaker 1: of the past five years.
Speaker 3: Okay, here's what the analyst wrote. Quote, there is a
Speaker 3: concern over the very strong performance of the Mags seven,
Speaker 3: but we note that the group is currently trading less
Speaker 3: stretch than a few years ago given earnings delivery. This
Speaker 3: is not to say that the group is immune to
Speaker 3: profit disappointments ahead, but in the case of general earnings disappointments,
Speaker 3: these stocks could still hold out better than traditional cyclicals
Speaker 3: that are reliant on the economy. This again not my words,
Speaker 3: not Bloomberg News as words. These are coming from the
Speaker 3: team over at Jpmorton Chase.
Speaker 1: The Magnificent seven stocks you know who they are. We're
Speaker 1: talking about Apple, Google parent Alphabet, Amazon, Facebook owner, Meta platforms,
Speaker 1: Microsoft and Vidia, and Tesla. These Magnificent seven had driven
Speaker 1: the biggest gains in the S and P five hundred
Speaker 1: last year. The benchmark index has scaled all time highs
Speaker 1: in twenty twenty four, we've seen it continue, but the
Speaker 1: performance of those megacaps has diverged more recent Tesla Yeah.
Speaker 3: For example, Well, right, Carol, just since the start of
Speaker 3: the year.
Speaker 1: Meantime, you've got Ai, Darling and Vidia at a record high,
Speaker 1: or of has sword to record high, and I think
Speaker 1: I believe.
Speaker 3: Seventy four percent this year.
Speaker 1: Yeah, and I think it's your top performer once again
Speaker 1: in the S and P five hundred. It was last year,
Speaker 1: and we've seen it a top the list again this year.
Speaker 1: Apple shares entered a technical correction. We talked about that
Speaker 1: with Abigail earlier, a technical correction entering that this month
Speaker 1: concerns about slumping iPhone sales and regulatory pressure, so that
Speaker 1: one's been under pressure as well.
Speaker 3: Okay, let's go get to our drive to the closed
Speaker 3: guest Michael Sheldon, executive director at RDM Financial, joining us
Speaker 3: on the phone in Connecticut. Michael, good to have you
Speaker 3: with us.
Speaker 2: How are you good?
Speaker 7: Thanks very much, pleasure being with you.
Speaker 3: Yeah, it's always good to have you with us. Hey,
Speaker 3: I wanted to just I don't know if you had
Speaker 3: a chance to listen to what we were talking about
Speaker 3: about the Magnificent seven. But on one hand, on the
Speaker 3: one hand, you have all this uh all these questions
Speaker 3: from people about whether or not we're in some sort
Speaker 3: of bubble. And then on the other hand, you have
Speaker 3: companies like JP Morgan coming.
Speaker 1: Out that sacks that are below the technology.
Speaker 3: Coming on saying that that valuations are actually okay. How
Speaker 3: do you see things?
Speaker 7: Well, there's definitely been some concentration among the top stocks
Speaker 7: in the market over the past say the year or so,
Speaker 7: and that's kind of got turbocharged a little bit with
Speaker 7: all the excitement about artificial intelligence. So, I mean, artificial
Speaker 7: intelligence is definitely real. We're probably in the early stages
Speaker 7: of this. But I think if you look at the valuation,
Speaker 7: the markets come pretty far over a relatively short period
Speaker 7: of time since the October lows of last year. So
Speaker 7: if you look at the markets right now, we're trading
Speaker 7: at about twenty one times forward earnings for the S
Speaker 7: and P, which is about twenty three percent above its
Speaker 7: long term average. But if you look beneath the surface
Speaker 7: a little bit, the median stock, so half are above
Speaker 7: and half are below, the median stock is only trading
Speaker 7: at about fourteen percent above its long term average. So
Speaker 7: a small number of stocks are trading it above average valuations.
Speaker 7: Many times that's warranted by the growth they're producing. But
Speaker 7: that can get they can get a little bit ahead
Speaker 7: of themselves. But there are stocks under the surface that
Speaker 7: are worth investigating.
Speaker 1: And that's the point, right, If you broaden out and
Speaker 1: really look at the entire S and P five hundred universe,
Speaker 1: you find out that there's a few that are skewing
Speaker 1: it once again in terms of valuations.
Speaker 7: Yeah, that's a really good point. I mean, we've been
Speaker 7: looking for the market to broaden out for some time
Speaker 7: and it really hasn't happened. So, I mean, if you
Speaker 7: look at if you take a step back over the
Speaker 7: last ten years or so, ten plus years, which is
Speaker 7: a long time, growth is outperformed value, large is outperformed small,
Speaker 7: and the US is outperformed far and for much of
Speaker 7: the past ten plus years. So a lot of people,
Speaker 7: ourselves included, have been sort of we've been overweight those things.
Speaker 7: But on the surface, we've been waiting for other parts
Speaker 7: in the market to participate. So I'll tell you one
Speaker 7: other thing that the RSP, which is the equal weighted
Speaker 7: S and P five hundred, over the past few days
Speaker 7: it hit a new all time high.
Speaker 3: Yeah, I was just gonna ask about that first.
Speaker 7: Time, but that's the first time in five hundred and
Speaker 7: forty four days, which is the third longest period since
Speaker 7: nineteen ninety.
Speaker 3: So does that tell you doesn't that tell you that
Speaker 3: it's broadening out now?
Speaker 7: Finally, yeah, I think over the past few weeks only
Speaker 7: if you look at the S and P five hundred
Speaker 7: versus the equal weighted RSP, for example, over the past
Speaker 7: one week and over the past one month, the RSP
Speaker 7: equal weighted indexes outperformed the S and P five hundred.
Speaker 7: But it's kind of a little bit early to say
Speaker 7: that's the beginning of a real sea change just yet.
Speaker 1: But it's good to see a broadening out, even the
Speaker 1: early signs of it.
Speaker 7: Right Absolutely, parts of the market could we're getting somewhat overheated,
Speaker 7: and I think it's good to see broader participation, and
Speaker 7: really that would reflect that the market itself is doing better,
Speaker 7: The economy is reasonably well, people's forecast four profits going
Speaker 7: forward is more positive. So those are all positive things,
Speaker 7: all right.
Speaker 1: Broaden out, broaden out, broaden out. This is what we
Speaker 1: like to do. So the rustle two thousands up only
Speaker 1: and not even quite two percent this year, How significant
Speaker 1: or how closely. Do you watch also what's going on
Speaker 1: with small caps, which are going to be probably more tied,
Speaker 1: much more closely tied to what goes on in the
Speaker 1: US economy.
Speaker 7: Yeah, that's a big part of the picture as well.
Speaker 7: So small caps, as they continue to rise, will really
Speaker 7: play catch up. And the question is do you want
Speaker 7: to be in the market leaders, which are the large
Speaker 7: cap growth stocks, or do you want to play for
Speaker 7: a rebound. So we think you want to have your
Speaker 7: sort of you want to have some diversification because again,
Speaker 7: if the RSP equal weight it is doing better, that
Speaker 7: means people are more optimistic. They're willing to sort of
Speaker 7: maybe get involved in some of the parts of the
Speaker 7: market that have lagged so far. So it's definitely too
Speaker 7: early to say that small caps have started to outperform.
Speaker 7: You also have to keep in mind if you look
Speaker 7: at the Russell two thousand, for example, more than forty
Speaker 7: percent of those stocks are currently unprofitable, so you do
Speaker 7: have to be wary of that.
Speaker 3: Hey, Michael, hell, how do are we for a pullback
Speaker 3: right now?
Speaker 7: I wouldn't be surprised to see some sort of pullback
Speaker 7: or correction over the next few weeks. The market's been
Speaker 7: up sixteen of the last nineteen weeks, for example. And
Speaker 7: if you look at things like sentiment surveys, for example,
Speaker 7: like the American is Asociation of Individual investors or intelligence
Speaker 7: the investors' intelligence numbers, they're kind of frothy right now.
Speaker 7: So I wouldn't be surprised see somewhat of a pullback
Speaker 7: or a correction over the next few weeks. But I
Speaker 7: think you have to keep your sort of eye on
Speaker 7: the ball. As long as the economy is doing reasonably well.
Speaker 7: People have jobs and they're spending. Inflation is trending lower,
Speaker 7: which is important. It's not going to happen. It's not
Speaker 7: going to come down every month, and the earnings outlook
Speaker 7: continues to be positive. I think that will help the
Speaker 7: market over the intermediate term.
Speaker 1: You mentioned inflation tomorrow an important CPI report, another inflation
Speaker 1: print which we know came in hot last time. How
Speaker 1: much of what comes if it comes in hot again tomorrow,
Speaker 1: how much of what we're hearing from you today could
Speaker 1: change a little bit And just kind about thirty seconds.
Speaker 7: Yeah, I think if the inflation numbers really come in higher,
Speaker 7: say two tenths or more, I think that could be
Speaker 7: a short term setback for interest rates and the markets.
Speaker 7: But some of that's already reflected in the market, the
Speaker 7: fact that that inflation's not coming down as quickly as expected,
Speaker 7: and you're seeing that in lower interest rates and a
Speaker 7: lower dollar over the past few weeks.
Speaker 1: I think, all right, conn of leave it there, Hey listen.
Speaker 1: Always appreciate it, Michael, take care, I have a great week.
Speaker 1: Michael Sheldon, executive director of OURDM Financial Group, joining us
Speaker 1: on the phone here.
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