Speaker 1: Hello, and welcome to another episode of the odd Lot Podcast.
Speaker 1: I'm Joe Watson Ball and I'm Tracy ellowit Tracy. You know,
Speaker 1: we're right in the middle of one of my favorite
Speaker 1: times of the year. Do you know what that is? Uh?
Speaker 1: Super Bowl? I don't know. It's not the super Bowl,
Speaker 1: and it was the super Bowl last night for those listening,
Speaker 1: we're recording this the day after the super Bowl. I
Speaker 1: didn't even watch it, and from what I understand, it
Speaker 1: was really boring, So I guess I didn't miss out
Speaker 1: in anything. I mean, it is February, but February is
Speaker 1: not one of my favorite times of the year because
Speaker 1: the weather is pretty miserable. No, we are in uh,
Speaker 1: the middle or maybe slightly later part of the middle
Speaker 1: of earning season. What makes you like earning season so much?
Speaker 1: Well so, for those who don't know, and probably everyone does,
Speaker 1: most companies report their earnings uh four times a year,
Speaker 1: and they tend to cluster over the span of a
Speaker 1: few weeks. And so much of the time we talk macro,
Speaker 1: we talk about the FED, we'll talk about trade, inflation,
Speaker 1: economic data or whatever. And then every once in a
Speaker 1: while we get to pause and actually hear from the
Speaker 1: companies themselves and really get a sort of a corporate
Speaker 1: perspective on how things are going. And of course, from
Speaker 1: an investor perspective, this is what really matters, because you
Speaker 1: can sort of have these broad movements and other times
Speaker 1: of the year, but if you want to know how
Speaker 1: a sort of specific investment in companies are doing, this
Speaker 1: is when you glean the most as sort of raw information.
Speaker 1: So I'm going to take the other side of this
Speaker 1: and say that I normally don't get that excited about
Speaker 1: earning season. However, I'm willing to admit that this time
Speaker 1: around it is slightly more interesting than usual. But because
Speaker 1: we have a lot of really broad sort of macro
Speaker 1: economic themes that everyone is currently talking about. So a
Speaker 1: couple that spring to mind. You know, we have to
Speaker 1: slow down in China, whether or not that's actually affecting
Speaker 1: US companies earnings, and we've seen some really heavy hitters,
Speaker 1: including Caterpillar and Apple sort of blame things on a
Speaker 1: slowdown in China. We have the retail apocalypse in the
Speaker 1: US as well, this idea that bricks and mortars stores
Speaker 1: are doing worse than other types of stores. So some big,
Speaker 1: big thematic issues and questions currently running through earning season. Yeah, absolutely,
Speaker 1: and especially the violence sell off that we saw at
Speaker 1: the end of a lot of people. You know, people
Speaker 1: adjust their future expectations based on what just happened. We
Speaker 1: saw earnings estimates comes down for a lot of companies,
Speaker 1: and everybody wanted to know because in the end fundamentals
Speaker 1: in theory or with drive markets, was that just a
Speaker 1: blip or companies really seeing a decline in profits? And
Speaker 1: the other thing that I think is interesting from a
Speaker 1: sort of sectoral perspective is that for the last couple
Speaker 1: of years, especially a handful of really red hot tech
Speaker 1: stocks that everyone was about have just dominated markets. If
Speaker 1: you own them, you've done really well. Of course, I'm
Speaker 1: talking about companies like Amazon and Facebook and Netflix and
Speaker 1: so on, Apple of course, and each one of them
Speaker 1: has sort of stumbled a little bit for different reasons,
Speaker 1: and they've come well off their highs from last summer,
Speaker 1: and I think going forward there's still this big question
Speaker 1: like are they just gonna go back to dominating their
Speaker 1: respective industries like they did in or did the sharp
Speaker 1: rewriting of these stocks sort of represent something fundamental where
Speaker 1: they're just not going to be able to put up
Speaker 1: numbers like they did in the past, right, the famous
Speaker 1: fang stocks which led the market higher basically for the
Speaker 1: past few years and then suddenly let it very, very
Speaker 1: sharply lower in the latter half of last year. And
Speaker 1: to your point about a sharp rerating, you kind of
Speaker 1: have to wonder what happened to make everyone sort of
Speaker 1: collectively wake up and realize that their expectations for all
Speaker 1: these companies were sort of out of lack of the fundamentals. Like,
Speaker 1: it's a bit chicken and egg, isn't it. Is it
Speaker 1: the market or is it actually that the fundamental picture
Speaker 1: has changed? Well, Uh, that's very well put. And today's
Speaker 1: guest on the out Lots podcast, I think is someone
Speaker 1: very well positioned to talk about it. We talked to
Speaker 1: him a lot on TV around earnings time, and I thought, Okay,
Speaker 1: I want to have a longer discussion about some of
Speaker 1: these companies. So today we're going to be talking to
Speaker 1: Lead Rogan. He is the founder and CEO of Estimized,
Speaker 1: which is a company that collects by side estimates for earnings.
Speaker 1: But he's also incredibly knowledgeable about the market overall, about
Speaker 1: the business models of these big tech companies, about why
Speaker 1: investors either get excited or lose excitement towards these companies,
Speaker 1: and so just a great perspective hopefully to answer some
Speaker 1: of the questions that we've posed right now. I've been
Speaker 1: you follow him on Twitter. He's been covering the trend
Speaker 1: we're seeing for years and years, and I think we'll
Speaker 1: have a lot to say about this topic. So Lee,
Speaker 1: thank you very much for joining us. That's that's way
Speaker 1: too kind and introduction. No, but I'm serious because often,
Speaker 1: like well, I think we tend to speak about these
Speaker 1: companies and sort of we abstract them. And so Facebook
Speaker 1: is online advertising and social media, or Apple they have
Speaker 1: to sell a lot of iPhones. And one of the
Speaker 1: things that I really enjoy talking to you about is
Speaker 1: you really seem to have a very good understanding of
Speaker 1: sort of where the where the levers are and where
Speaker 1: the hinges are and these companies that make them tick
Speaker 1: and get investors excited, and what is it about one
Speaker 1: that is more exciting and appealing to investors that have
Speaker 1: given time? And uh, I feel like we you can
Speaker 1: drill in to a level on on some of these
Speaker 1: companies in a way that most people I talk to
Speaker 1: you can't. I Admittedly, personally, I think live maybe five
Speaker 1: years in the future with like my interest in technology,
Speaker 1: but my experience as a PM and an analyst on
Speaker 1: the equity hedge fund side kind of draws me back
Speaker 1: into like, what is the rational expectation for the next
Speaker 1: you know, quarter year, two years in these stocks? So
Speaker 1: it kind of converges at some point there. But uh, yeah,
Speaker 1: we live in a time now when there's so much
Speaker 1: creative destruction in tech, and the kind of destruction disruption
Speaker 1: multiple has increased so much for both new technology companies
Speaker 1: that get disrupted by other new technology companies as well
Speaker 1: as old industrial companies and healthcare companies that get disrupted too.
Speaker 1: So yeah, it's it's interesting all around. Okay, So here's
Speaker 1: my first question, based on the interaction that you and
Speaker 1: Joe has had. Joe said, you're very very good at
Speaker 1: pulling out the different parts of different tech companies. Should
Speaker 1: we be lumping all these different companies under the umbrella
Speaker 1: term tech? Like for instance, we talked about the Fang stocks,
Speaker 1: which is a particular subset of tech it do they
Speaker 1: actually share much in common? What do we mean when
Speaker 1: we say tech or thing? So the biggest thing that
Speaker 1: I think is going on in a macro sense. And uh,
Speaker 1: we saw it when Schumer and um Um and Sanders
Speaker 1: came out and said, basically, we don't want you know,
Speaker 1: companies doing buy backs. You need to provide you know
Speaker 1: a certain amount of uh you know, uh upward revision
Speaker 1: to your labor kind of cost. And what's going on
Speaker 1: is that technology throughout the entire ecosystem is driving gross
Speaker 1: margins because you need less people to generate that same
Speaker 1: revenue dollar. So I think that there actually is a
Speaker 1: general thing across the entire spectrum that goes on. Now.
Speaker 1: Of course, you know, the business models are different, but overall,
Speaker 1: the leverage that capital has on labor at this point
Speaker 1: is just it's expanding so quickly. I have a friend
Speaker 1: who used to be a a PM and energy PM
Speaker 1: at a hedge fund here New York moved home to Austin,
Speaker 1: Texas to build a energy services technology company, right because
Speaker 1: he recognized that it's just so inefficient at this point,
Speaker 1: even in that industry. Um and I think that's happening
Speaker 1: across the board with you know, large companies and small companies.
Speaker 1: So then when we talk about the facebooks and the
Speaker 1: Amazons and the Netflix of the world. Where do they
Speaker 1: fit into this trend? Is it that they are essentially
Speaker 1: the most leveraged in terms of capital to labor or
Speaker 1: are they facilitating other entities in their drive to be
Speaker 1: uh more efficient? Honestly, I think it's the former. UM.
Speaker 1: I believe I could be wrong with this, but I
Speaker 1: believe Facebook is the company that has the highest revenue
Speaker 1: dollars per employee in history. Now they've increased headcount over
Speaker 1: the last year pretty substantially. I don't know if that's
Speaker 1: true anymore, but it definitely used to be uh. And
Speaker 1: you see that across the board. UM, it's pretty amazing
Speaker 1: what's going on, honestly, UH. And then you get things
Speaker 1: like Tinder, right which have just exploded in an entire
Speaker 1: industry of what people care about, right, Like, what is
Speaker 1: one of the most fundamental things that you have to
Speaker 1: do is you find somebody to fall in love with
Speaker 1: and marry and and be with. And these platforms have
Speaker 1: just made life so much more efficient for people. And
Speaker 1: the leverage that they have on people's dollars and time.
Speaker 1: I think the other thing that people haven't quite graphed yet,
Speaker 1: and it started with kind of the online games and
Speaker 1: remember it from like Zinga and stuff, but it was
Speaker 1: just such the like the front end of this massive
Speaker 1: trend is people are generally bored. People need to find
Speaker 1: things to do with their time. And the algorithms that
Speaker 1: we've developed that started as linear models and now our
Speaker 1: machine learning models, and the massive amounts of data that
Speaker 1: we collect on people and their behavior inside of these platforms,
Speaker 1: whether it's Amazon with their shopping habits, or Facebook with
Speaker 1: their reading habits, or or Tinder with their you know,
Speaker 1: swiping habits. It's it's on one hand, amazing and the
Speaker 1: other hand, I find incredibly dangerous that these models are
Speaker 1: managing people's behavior so well at this point that I'm
Speaker 1: not quite sure people really understand are they getting something
Speaker 1: good out of these platforms? Are they getting something but
Speaker 1: out of these platforms with the platforms are are are
Speaker 1: massaging their behavior so much And that's obviously flowing through
Speaker 1: to their you know, are poo their average revenue per user,
Speaker 1: which Facebook was up another like sevent this quarter. Um,
Speaker 1: So they have so much leverage with the technology and
Speaker 1: the data on our behavior now that that's only going
Speaker 1: to increase that these models get better. So aside from
Speaker 1: the potential societal damage. I mean, I think you just
Speaker 1: enunciated the goal case. Sorry, yeah, it is of bol case.
Speaker 1: It's also the like, yeah, it's fearful societally, but it
Speaker 1: is the bool case, right. So the bool case is
Speaker 1: sort of this, um, you know, technology and the capital
Speaker 1: that tech has basically has this huge amount of leverage
Speaker 1: on labor costs and that's a big advantage in today's market,
Speaker 1: and so they're sort of accruing all these various benefits
Speaker 1: through that. I'm curious what you think happened in the
Speaker 1: fourth quarter and sort of late third quarter of last
Speaker 1: year when we did have that big sort of sudden
Speaker 1: disappointment or disbelief in the tech companies that had previously
Speaker 1: been leaders of the market. I honestly think, you know,
Speaker 1: looking at our entire data set UM, we collect estimates
Speaker 1: on on everything in the US public markets as well
Speaker 1: as the economic estimate data, and I think the number
Speaker 1: one thing that we saw was that financial has actually
Speaker 1: led to the downside, not technology. And what that said
Speaker 1: to me, along with the fact that the credit markets
Speaker 1: were literally frozen, the corporate credit markets stopped everything for
Speaker 1: like a month and a half, that it was actually
Speaker 1: more of a macro thing than it was a technology thing.
Speaker 1: And the second those credit markets on froze, we got
Speaker 1: this huge rebound in everything. So as things freeze up,
Speaker 1: the higher beta names obviously get hit harder, and those were,
Speaker 1: you know, the tech names, and portfolio managers that you
Speaker 1: know have to liquidate things tend to liquidate the things
Speaker 1: that have been performing best, which is not a good
Speaker 1: strategy because you're supposed to hold your winners and sell
Speaker 1: your losers. But that's just what happens in hedge fund
Speaker 1: and asset management world. Um So the rerating of the
Speaker 1: multiple for these names, I don't think it was a
Speaker 1: fundamental thing. Yes, growth is slowing, obviously we are probably
Speaker 1: going to have an earnings recession in f y nineteen,
Speaker 1: But I don't think this was a technology specific thing.
Speaker 1: I think it was just when you look at the
Speaker 1: beta of some of these names, when people sold everything
Speaker 1: across the board and what was kind of a slow
Speaker 1: motion panic because of the credit markets. Yeah, these things
Speaker 1: got hit the hardest. Nonetheless, we have seen some of
Speaker 1: these big companies clearly run into some idiosyncratic stumbles and
Speaker 1: it started actually not at the end of last year,
Speaker 1: but in the middle of last year. The first bomb
Speaker 1: was Facebook. I think it was one of the biggest
Speaker 1: single day market cap losses any day, and they're like, yes,
Speaker 1: we're going to have to spend a lot more money
Speaker 1: than we thought. What is going on, Let's start with them.
Speaker 1: So what is going on with Facebook right now? Because obviously,
Speaker 1: as you said, if not currently at some point, the
Speaker 1: greatest revenue in history per employee. But we also know
Speaker 1: that there's numerous scandals. It's unclear the degree to which
Speaker 1: they're really hitting the business model or if it's just
Speaker 1: a thing that media people like to talk about. But
Speaker 1: what is going on with Facebook's business model right now?
Speaker 1: So as it is with the other kind of social
Speaker 1: media companies, I think the market still has some PTSD
Speaker 1: from the tech boom or the tech bubble, because in
Speaker 1: the tech bubble you're talking about the one. Yeah, I don't,
Speaker 1: I don't consider this last round. Um. I think people
Speaker 1: are worried that as the user growth trails off, that
Speaker 1: as it was in the tech bubble, that the business
Speaker 1: will trail off as well, and the growth will trail off.
Speaker 1: I think that is PTSD because it doesn't seem like
Speaker 1: that's actually going to happen this time. Largely because we've
Speaker 1: learned a lot, or they've learned a lot that by
Speaker 1: buying and bundling these other platforms like WhatsApp and and
Speaker 1: the rest, that they've kind of locked people into this ecosystem,
Speaker 1: especially on the social side, brilliant model using oh off
Speaker 1: to have people log into all their other stuff for
Speaker 1: for almost forever, you couldn't do Tinder without logging in
Speaker 1: via Facebook, right, they became the social graph instead of
Speaker 1: just another social platform. So I think people were and
Speaker 1: still are, in a sense worried that as the growth
Speaker 1: trails off to sub ten percent, you over your kind
Speaker 1: of user growth rates, um that they're kind of leverage
Speaker 1: on that revenue stream kind of goes away. But the
Speaker 1: r POO numbers keep growing so quickly that they keep
Speaker 1: showing that they can just turn the dial on you
Speaker 1: know what, people, what they get out of people. The
Speaker 1: regulatory side, I think is serious and that's probably what
Speaker 1: re rated the multiple because the growth hasn't slowed too much,
Speaker 1: and I think that that's, uh, it's fair. Do I
Speaker 1: really think that the government is going to clamp down
Speaker 1: too much on this, No, probably not. We probably don't
Speaker 1: have the you know, the gumption to do that politically
Speaker 1: we should, but we don't. There's too many other you know,
Speaker 1: cross currents going on there um. But I do think
Speaker 1: that people on the BYE side assume that there is
Speaker 1: more risk than upside at this point given the growth rate,
Speaker 1: because there are so many other companies that are growing
Speaker 1: so quickly, especially in the enterprise tech space, that they
Speaker 1: could just rotate into. If we were in a situation
Speaker 1: where we weren't in this big kind of enterprise technology
Speaker 1: CAPEC supercycle, maybe Facebook would have held its multiple a
Speaker 1: little bit better. But at this point, uh, you know,
Speaker 1: you can rotate into a lot of other things. So
Speaker 1: before we get into specific companies, um too much for
Speaker 1: for Facebook or for any other tech stock, or I
Speaker 1: should say, for any of the big tech stalks like
Speaker 1: the Fang stocks. Do you think the share prices that
Speaker 1: we saw before, say the middle of last year were
Speaker 1: justified by the earnings outlook or were they overly optimistic? Yeah?
Speaker 1: I mean, I think given the growth rates in the
Speaker 1: you know, thirties, forties fift for some of these big
Speaker 1: companies on the revenue side, the multiples are certainly not outlandish,
Speaker 1: and given their ability to use their balance sheets and
Speaker 1: stock to buy other high growth names. I don't see
Speaker 1: why those multiples are not sustainable. UM Now when you
Speaker 1: take a look at something like Apple, which relies on
Speaker 1: a whole different kind of set of things that is
Speaker 1: more um you know, sale of iPhones based the you
Speaker 1: know when they got over a trillion dollars in market cap. Yeah,
Speaker 1: there's some law of large numbers coming in there with
Speaker 1: just literally how many of these widgets can you sell
Speaker 1: every quarter every year? And what is the growth rate
Speaker 1: for them? And where are you in terms of UH
Speaker 1: saturation of the market. But Facebook isn't Facebook is not
Speaker 1: really growing their user base anymore. It's us How good
Speaker 1: can the platform get? How much leverage they have on
Speaker 1: the people there already? And I don't see that going
Speaker 1: away if and he's done an incredible job of just
Speaker 1: creating this universe of things that you're locked into. I
Speaker 1: want to get to Apple in a second, but before
Speaker 1: I want to go back to what you said about
Speaker 1: the sort of enterprise software upgrade supercycle in these UH
Speaker 1: enterprise software cloud names, because actually in Q four, while
Speaker 1: we saw this big sell off, there were a handful
Speaker 1: of tech companies that almost seemed completely unaffected by it.
Speaker 1: UM you know companies like work Day, which probably not
Speaker 1: a lot I think not a lot of people are
Speaker 1: probably that familiar with. But I think they're kind of
Speaker 1: like a salesforce type company. What is this class of
Speaker 1: companies that people got really excited about and why didn't
Speaker 1: they get caught up in the down draft to the
Speaker 1: same degree they did? Uh, they weren't down, they were
Speaker 1: down again high beata names. If you listen to Mark
Speaker 1: being off sale for CEO on his earnings calls the
Speaker 1: last two years, basically he has been dead on right
Speaker 1: about the fact that he believes there is a supercycle
Speaker 1: going on in capex for enterprise technology. Basically, we got
Speaker 1: the tax legislation and that freed up a lot of
Speaker 1: money for investment, supposedly right now for really large companies.
Speaker 1: We kind of saw them do share buy backs. But
Speaker 1: also when you look at the financial sector, they hadn't
Speaker 1: gone through a huge CAPEX cycle in a long time,
Speaker 1: a lot of legacy technology sitting around there. They did
Speaker 1: take the money and invest a lot in software. I
Speaker 1: think one of the reasons why people may not see
Speaker 1: as much CAPEX that they thought they would or should
Speaker 1: have happened because of those tax cuts. UM is because
Speaker 1: it doesn't cost as much money anymore to do the
Speaker 1: cap expending because a lot of it's not it's it's
Speaker 1: not physical things, right, it's it's software driving your business. Um,
Speaker 1: it's not hiring a hundred thousand people, right, it's hiring
Speaker 1: a couple of people to manage the software. And so
Speaker 1: we are seeing this massive investment in new software products
Speaker 1: sas products right that you don't have to software software
Speaker 1: is a service that you don't have to spend a
Speaker 1: ton of money to simply buy and install your you know,
Speaker 1: you're spending money every every month, every every year, right,
Speaker 1: it's not this massive investment up front and being off
Speaker 1: has been right, and it is driving everything from uh,
Speaker 1: you know HR which is kind of the workday thing,
Speaker 1: and updating how you manage your people to how you
Speaker 1: manage your you know, internal systems, how you manage your logistics,
Speaker 1: how you manage your payment network. Square is on fire
Speaker 1: right now because every you know, every store that you
Speaker 1: go to, every juice bar is now running a Square machine. Right.
Speaker 1: And and then on top of that, it's amazing that
Speaker 1: companies like this now they have all the data and
Speaker 1: they can offer that juice bar owner debt right and
Speaker 1: to you know, invest in their company and you know,
Speaker 1: kind of sidestep the whole regular financial system. So it's
Speaker 1: all adding up to a lot of leverage for these
Speaker 1: companies that are small and makecap companies mostly, but their
Speaker 1: growth rates are incredible and there's really no reason those
Speaker 1: growth rates should slow significantly unless we get a real
Speaker 1: economic downturn. Okay, I'm gonna jump in and steal Joe's
Speaker 1: idea for the next question. Uh, much like any tech entrepreneur, really, um, Apple,
Speaker 1: We're going to talk about Apple. Lots of concerns around
Speaker 1: Apple at the moment. Is it going to be able
Speaker 1: to sell as many phones in the future. Are its
Speaker 1: current phones too expensive or not innovative enough to make
Speaker 1: people buy new models? Plus you have the sort of
Speaker 1: glaring um issues around China and this notion that maybe
Speaker 1: Chinese nationals just aren't buying as many phones as they
Speaker 1: used to. Maybe they're buying from um, non Apple competitors,
Speaker 1: like you know, domestic manufacturers. Where do you stand on
Speaker 1: Apple and which concerns do you think are sort of
Speaker 1: justified at the moment. I think there's some near term
Speaker 1: concerns and some long term concerns that are much bigger. Um.
Speaker 1: I think near term the risks aren't that high. The
Speaker 1: Apple multiple is already pretty low. The installed user base,
Speaker 1: you know, for the phones isn't going away tomorrow. It's
Speaker 1: gonna take at least at least two to three years
Speaker 1: to really turn over that installed base if something else
Speaker 1: were to come out to kind of subsume the market. Um.
Speaker 1: Near term though, the risk is China really, which has
Speaker 1: been driving a lot of the growth. They were down
Speaker 1: twenty year over year and revenue this quarter this past quarter,
Speaker 1: and I think Tim Cook has a little bit less
Speaker 1: visibility than he used to on his revenue because of
Speaker 1: the fact that China is is such a question mark. UM.
Speaker 1: So I think investors have to look at that. But
Speaker 1: it's very hard to believe that they're going to be
Speaker 1: able to push the multiple for Apple down too much further.
Speaker 1: It's already a pretty cheap stock as it goes. I think,
Speaker 1: you know, people look at the services side of the company,
Speaker 1: which is growing very quickly, which has a higher margin,
Speaker 1: and say, hey, you know, this company should have a
Speaker 1: higher multiple. I don't necessarily believe that's the case, and
Speaker 1: I think the market agrees as it hasn't given the
Speaker 1: company that higher multiple. I think that that services revenue
Speaker 1: is also more at risk than people think if the
Speaker 1: installed base of hardware kind of disappears long term. The
Speaker 1: risk is basically this, The AI is coming, and it's
Speaker 1: coming to consumers. You know, Alexa is great for Amazon
Speaker 1: in terms of their ability to collect data on what
Speaker 1: you want. It's God knows, it's listening to me in
Speaker 1: my living room because I get ads like five minutes
Speaker 1: later for things my wife and I are talking about
Speaker 1: that we have never searched for at all. They're definitely listening.
Speaker 1: But that that AI is not the A I'm talking about.
Speaker 1: I'm talking about something that probably comes out of Google
Speaker 1: or some left field place the Google buys. That completely
Speaker 1: changes the paradigm for your interaction. Is the operating system.
Speaker 1: And if somebody gets there before Apple, when a lot
Speaker 1: of a lot of companies are investing in this stuff,
Speaker 1: specifically Google, the Chinese companies are obviously investing heavily, and
Speaker 1: they have tremendous amounts of data that drives all of this.
Speaker 1: If they get there before Apple, which has notoriously been
Speaker 1: bad in this specific space and has not had success
Speaker 1: as Syria as a disaster if they get there before
Speaker 1: Apple risks the hardware not becoming important anymore if it's
Speaker 1: just the software. I want to talk about this a
Speaker 1: little bit further, this idea of the hardware becoming less
Speaker 1: important to software, because something I think you pointed out
Speaker 1: during a TV appearance recently is how in China, whereas
Speaker 1: in the US we think of iOS as being the
Speaker 1: main platform for that we use, we download ad from
Speaker 1: the app store and so forth, that it's really we
Speaker 1: chat and the software that is the main thing that
Speaker 1: people interact with, and then people can add all kinds
Speaker 1: of services onto that. So I want you to explain that.
Speaker 1: But also a story that's emerged recently in the US,
Speaker 1: or just immerged recently period is some of these fights
Speaker 1: between Apple and Facebook and Apple and Google referring to
Speaker 1: developer access, and I'm wondering if there's a connection there
Speaker 1: where Apple is starting to worry that even in the US,
Speaker 1: that these services from the likes of Facebook and Google
Speaker 1: could essentially become the user's main home rather than iOS.
Speaker 1: So explain this issue, because I don't think maybe people
Speaker 1: totally understand it and and say, is this kind of
Speaker 1: what we're seeing the battle now playing in the US. Yeah,
Speaker 1: so I'll explain it from my own personal perspective. Frankly, um,
Speaker 1: I switched over to Apple from BlackBerry in two thousand
Speaker 1: five something like that, right to get an iPhone, and
Speaker 1: I've refused to switch over to Google, which all of
Speaker 1: my other productivity apps are on Gmail Calendar, just like
Speaker 1: every Google docs everything, because they don't the Android operating system.
Speaker 1: Apple just simply, I think, has a better operating system,
Speaker 1: the apps work better, it's more seamless, all of these things.
Speaker 1: So I am stuck in that operating system. But in
Speaker 1: China and I don't care about the hardware anymore. The
Speaker 1: Google's hardware just as good as Apple's hardware. At this point.
Speaker 1: In China, they've now gone to the next step above
Speaker 1: that where we chat and we pay are an ecosystem
Speaker 1: in and of themselves. So people just go into these
Speaker 1: apps and they have all sorts of amazing utilities inside
Speaker 1: of it. It's they're literally paying for everything. It's stores
Speaker 1: inside of these apps. They've got their email that it's everything,
Speaker 1: and so the the operatings doesn't even matter anymore because
Speaker 1: it's subsumed inside of the app. You have to know
Speaker 1: that Google is thinking about this with kind of the
Speaker 1: ecosystem that they've built. Uh. And and there are others
Speaker 1: an Apple, which is not good at building software outside
Speaker 1: of the os Like what's the last piece of software
Speaker 1: that you love from Apple? Right, Maps was a disaster,
Speaker 1: and so Apple risks seriously falling way behind and having
Speaker 1: the Harvard is not matter at all. It could be
Speaker 1: that we get to a payments place in the U
Speaker 1: S which we're way behind on, where one of these
Speaker 1: apps subsumes it. It could be it could be it
Speaker 1: could be something else, could be a social thing. It
Speaker 1: could be whether Facebook has tried to bundle all these
Speaker 1: things together but like you know, I don't think it's
Speaker 1: worked that well instead of one app, or it could
Speaker 1: be an AI. So it could be any of these
Speaker 1: things that just rips Apple's revenue flow away from it
Speaker 1: from selling you know, this hardware which a thousand dollars
Speaker 1: for a phone right where you can get a good
Speaker 1: one for like two d h um. So, you mentioned
Speaker 1: the possibility of an earnings recession. I think you said
Speaker 1: this year in nineteen So is there a risk that
Speaker 1: part of that earnings recession comes from tech companies as
Speaker 1: a whole, or are we going to see weakness in
Speaker 1: one firm, say an Apple, offset by strength in another
Speaker 1: firm like a Google Goal to the point you were
Speaker 1: just making about a sort of closed software ecosystem. And secondly,
Speaker 1: if we get an earnings recession, how disastrous is that
Speaker 1: for the market's given that earnings have been pretty strong
Speaker 1: for a few years now. Yeah, So on the first question,
Speaker 1: I think it's the latter. I think it's gonna be
Speaker 1: a bit more idiosyncratic. The the enterprise market is going
Speaker 1: to continue to be really strong unless the general economy
Speaker 1: falls off a cliff, which I think is you know,
Speaker 1: on like maybe we get a recession in you know,
Speaker 1: late nineteen twenty something like that. But I just don't
Speaker 1: think it will matter too much for that cycle. At
Speaker 1: some point, that cycle will come to an end, but
Speaker 1: it doesn't seem to be ending anytime soon right now. Yeah,
Speaker 1: certain companies will have their own issues, but I don't
Speaker 1: think a broader earnings recession will come about because of tech.
Speaker 1: The way that we're seeing the numbers, it looks like
Speaker 1: if it happens, it's going to happen because of two things.
Speaker 1: One industrials because of China and to the consumer in
Speaker 1: the US. We think consumer estimates are still too high
Speaker 1: for nineteen UM. You have a great UH analyst over here,
Speaker 1: Seema Shah. I think we're in agreement there that we're
Speaker 1: probably on the back part of the you know, top
Speaker 1: of the hill for consumer growth, and the risk there
Speaker 1: is that those estimates and actuals continue to come down. Further.
Speaker 1: We're seeing in our data set, which tends to lead
Speaker 1: the cell side data set in either direction up and down,
Speaker 1: that estimates have come down quite a bit. And and
Speaker 1: we're right now we would be projecting an earnings recession
Speaker 1: for UM, which would mix between Q one and Q
Speaker 1: two um fy nineteen. Well, on that cheery note of
Speaker 1: expecting an earning it won't matter. It's not to the
Speaker 1: second question. Sorry, I don't think it's gonna matter that
Speaker 1: much unless you get another credit market issue or or
Speaker 1: some other macro issue. Just because you're negative on you know,
Speaker 1: the earnings numbers. Again, market's gonna look forward a year,
Speaker 1: right and the numbers right now, you know people are
Speaker 1: taking that into considerations. All right. Well, on that positive note, Lee,
Speaker 1: Drogen really appreciate you on I was very excited to
Speaker 1: have a chance to talk to you for a longer
Speaker 1: time than we get on TV, and I really just, uh,
Speaker 1: I learned a lot, So thank you very much. Yeah,
Speaker 1: thanks for having I love the odd Lots name for
Speaker 1: the five it's thanks, I think than thanks. Thank Tracy.
Speaker 1: I always learn a lot talking from Lee, and I
Speaker 1: feel like even in that short conversation, some of these ideas,
Speaker 1: like about the platform wars, how I could really up
Speaker 1: end how we interact with the Internet and our computers.
Speaker 1: Um why people are so excited about some of these
Speaker 1: enterprise cloud companies. I feel like I just learned a
Speaker 1: ton about the current landscape of tech and tech investing. Yeah,
Speaker 1: it was a great conversation. But you know what I
Speaker 1: always wonder when we're whenever we're talking about tech, I
Speaker 1: always wonder if tech, more than other industries, is something
Speaker 1: of a wild card when it comes to making earnings
Speaker 1: estimates or forecasts for the future, just because I mean,
Speaker 1: technology is basically all about searching for the next paradigm
Speaker 1: or the next breakthrough in business, and it seems so
Speaker 1: hard to figure out what that might be, and so
Speaker 1: I don't know, I just find it more difficult than
Speaker 1: than a lot of other things. I also think It's
Speaker 1: interesting too that I think a lot of the people
Speaker 1: who are running these companies come from sort of non
Speaker 1: traditional backgrounds where maybe they don't feel beholding to this
Speaker 1: idea of like, oh, we gotta like hit this estimate.
Speaker 1: And Jeff Bezos is probably the most famous in this
Speaker 1: respect of not thinking about the court, thinking about each
Speaker 1: quarter's numbers as being important to hit. So there are
Speaker 1: just a lot of wild cards in the industry, both
Speaker 1: short term and long term. And yeah, as you said,
Speaker 1: like whatever is that. You know, there was one day
Speaker 1: when it looked like IBM head ultimate lock in and
Speaker 1: then no one even like talks about them anymore. So
Speaker 1: absolutely there's short term and long term volatility in terms
Speaker 1: of where all this is going. Yeah, and for every
Speaker 1: Jeff Bezos, I guess there's a sort of Elizabeth Holmes right,
Speaker 1: who made far too outlandish promises and basically, um, well
Speaker 1: uh didn't make it. Let's put it that way. Um,
Speaker 1: But anyway, earnings recession in ten, that'll be something interesting
Speaker 1: and that'll be a story we're watching on that happy note. Yes,
Speaker 1: um okay, So this has been another edition of the
Speaker 1: All Thoughts podcast. I'm Tracy Alloway. You can follow me
Speaker 1: on Twitter at Tracy Alloway and I'm Joe Wisn't thal
Speaker 1: You could have follow me on Twitter at the Stalwart
Speaker 1: and you should definitely follow Lee on Twitter He's at
Speaker 1: l Droken. Also be sure to follow our producer topor
Speaker 1: Brehead he's at or His Tea, as well as the
Speaker 1: Bloomberg head of podcast Francesca leaving at Francesca Today. Thanks
Speaker 1: for listening.