Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul Swinge you
Speaker 1: along with my co host Lisa brahma Witz. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. It was a huge case for Qualcom.
Speaker 1: Apple and Qualcom have been in a dispute for months,
Speaker 1: if not years, over patents of Qualcomm's. The suit was
Speaker 1: dropped after a settlement came into place. Apple paid some
Speaker 1: undisclosed amount to Qualcom. Qualcom shares absolutely surging here to
Speaker 1: explain the whole situation to us, it's a non screen
Speaker 1: of Austin. He's senior semi conductor and hardware analyst for
Speaker 1: Bloomberg Intelligence. So now let's just set this up with
Speaker 1: what was at the heart of this legal dispute. So, uh,
Speaker 1: if you step back and look at the technologies that
Speaker 1: Qualcom has invented in Paul pularized commercialized over the last
Speaker 1: decade plus, this is basically the engine of the phone
Speaker 1: that allows it to communicate very effectively over cellular networks.
Speaker 1: They invented this technology, the commercialize this technology both on
Speaker 1: the device side as well as the infrastructure side. They
Speaker 1: monetize it predominantly through a chip in the device and
Speaker 1: through hands at royalties. They believe that they have the
Speaker 1: best chip in the business, but that their technologies are
Speaker 1: encompassed in more than just the chip. So how do
Speaker 1: they monetize that? They say to every handset maker, while
Speaker 1: you're using my technology, whether you use my chip or not,
Speaker 1: so you've got to pay me a piece of that action.
Speaker 1: So for every smartphone sold in the world, they get
Speaker 1: a piece of that pie. And in addition to that,
Speaker 1: if the smartphone so happens to use their cellular chip,
Speaker 1: they monetize that as well. So enter several handset makers
Speaker 1: over the past decade have sued Qualcom to try and
Speaker 1: reduce the rate, to make sure to minimize the the
Speaker 1: sort of the expanding nature of their IP technology so
Speaker 1: that they can pay the least amount possible to Qualcomm. Right.
Speaker 1: Apple has had a problem with that and expanded it
Speaker 1: to a philosophical problem, saying, well, guess what, I'm not
Speaker 1: going to use your chips anymore. I'm going to go
Speaker 1: to Intel, and I do not believe your intellectual property
Speaker 1: is that valuable. I'm not going to pay you for
Speaker 1: your intellectual property. So since late seventeen, they stopped or
Speaker 1: reduced their dependence on Qualcom chips and stopped paying the
Speaker 1: UM royalties for their intellectual property. UM. So this settlement
Speaker 1: says many many things. Number one, that Qualcom's intellectual property
Speaker 1: is valid and that it is applicable to more than
Speaker 1: just the chip and the and the most important handset
Speaker 1: maker has now said that. Number Two, it clearly controls
Speaker 1: the calendar for five G development, puts it back in
Speaker 1: Apple's control, doesn't sort of make them depend on a
Speaker 1: second tier providers such as Intel which is lagging in
Speaker 1: cellular development, and gives them back control so they can
Speaker 1: launch the five G iPhone when they're ready. So it's interesting.
Speaker 1: So I get you know, Qualcom start. This is great
Speaker 1: for Qualcom that stocks up thirty five including today over
Speaker 1: the past to todays. Just amazing. I'm actually a little
Speaker 1: surprised that Apple hasn't risen more on this news, maybe
Speaker 1: by just simply saying now Apple has a clearer path
Speaker 1: to develop their I you know, their five G iPhone.
Speaker 1: What's going on the Apple side of so, So that's
Speaker 1: a great point, right, ones is the handset business is
Speaker 1: becoming rather blase. Right, so the question is are you
Speaker 1: now willing to pay a thousand dollars phone phone? The
Speaker 1: Qualcom impact of that might be dominimus. So, but now
Speaker 1: are you going to go from two hundred and seventeen
Speaker 1: million units that you shipped in Fisco eighteen to fifty
Speaker 1: to just because there's a new five G technology? Um
Speaker 1: and the likelihood of that is low. The hands at
Speaker 1: market is slowing, so and pose Bread is more buttered
Speaker 1: on the services side where it's trying to expand its
Speaker 1: revenue footprint. Right. Uh, Intel, Intel is a big surprise
Speaker 1: to me. So Intel would be a loser on the
Speaker 1: face of it, right because Apple had been turning to
Speaker 1: Intel for this wireless capacity, the cellular connectivity and hardware.
Speaker 1: Now they're going to go back to Qualcom. And you
Speaker 1: would think that would be a negative for Intel, right,
Speaker 1: But no, the shares are up by more than three percent.
Speaker 1: What gives Yeah? So yeah, Sammy's Sammy's working double Derivative's. Look,
Speaker 1: this has been a bad business for Intel, right, So
Speaker 1: the fact that they wanted to get into this business, UM,
Speaker 1: that they want to expand their silicon footprint from more
Speaker 1: than just processors to memory, to connectivity to other technologies
Speaker 1: and other devices. That's been Intel soly girl, it's not
Speaker 1: been good at that, right. They've been good at microprocesses
Speaker 1: across PCs, across servers, and they're slowly expanding their footprint
Speaker 1: of the data centers in UM, in storage and in networking,
Speaker 1: but when it comes to low power devices, consumer devices UM,
Speaker 1: on the connectivity side, on the processing side, their presence
Speaker 1: is diminimous and their product portfolio is to be quite
Speaker 1: honest week right. So, and this Apple was their only
Speaker 1: major customer, if not only their only customer, and they
Speaker 1: were barely breaking them in in this business applying to Apple.
Speaker 1: So the fact that they've gotten out of this business
Speaker 1: allows them to improve their profits and redirect. We wrote
Speaker 1: that the re engineering was imminent, we just didn't think
Speaker 1: it was two hours imminent. Uh so, um, and they've
Speaker 1: shut down the business. They're going to keep their infrastructure
Speaker 1: side of their their development, but they're losing their punting
Speaker 1: on the handset side, which I think is a very
Speaker 1: very smart move. Lisa We are so lucky we have
Speaker 1: Entrene of us in here, because you know this, all
Speaker 1: the stuff that's on tech is just that. The chips,
Speaker 1: the phones, the all the litigation is just extraordinary and
Speaker 1: it's huge business. And honestly, I love this idea that
Speaker 1: Intel lost and yet they want because their shareholders were like, you, guys,
Speaker 1: why were you in that business to begin with? It
Speaker 1: was a money loser second time around? Yeah, exactly. On
Speaker 1: a Shrine Boston, Senior Semiconductor and Harder annalyst for Bloomberg Intelligence.
Speaker 1: Well Spring is here, which means it is home buying season.
Speaker 1: Taking an update on the residential real estate market. Return
Speaker 1: to Doug Duncan, Senior Vice president chief economist for Fannie May,
Speaker 1: based in Washington, d C. But joining us live here
Speaker 1: in our Bloomberg Interactive Broker studio. Doug welcome. So again,
Speaker 1: interest rates are down. Does that mean that it is
Speaker 1: a hot real estate market? Good morning? Not hot. In fact,
Speaker 1: we think in our theme for this year, we say
Speaker 1: the economy is slowing, the FED slowed, and housing plateaued.
Speaker 1: So what that means is we think two thousand nineteen
Speaker 1: total sales will look very much like two thousand eighteen
Speaker 1: total sales. So the peak this cycle will have been
Speaker 1: two thousand seventeen. But we're getting a little comeback because
Speaker 1: rates have come back down, so it's going to be
Speaker 1: stronger later in the year than it's been at the
Speaker 1: beginning of the year. So the peak will be two
Speaker 1: thousand seventeen. So can you fast forward for us? What
Speaker 1: will the trough look like? Well, one of the salvations
Speaker 1: of supply being constrained at the entry level is, let's
Speaker 1: suppose we go into a recession. We're building two thousand
Speaker 1: less units than we should be today. So if on
Speaker 1: the side on the starter side, that's right, and boomers
Speaker 1: are not moving, So the existing home supply adjusted for
Speaker 1: population is that thirty year lows. That's your supply problem.
Speaker 1: In a recession, rates are gonna come down. House prices
Speaker 1: are going to slow if unemployment doesn't go beyond seven
Speaker 1: seven and a half percent in a mile, just as
Speaker 1: housing is the cushion for that and comes out the
Speaker 1: other side looking good. So, duncan you said that the
Speaker 1: builders aren't building as many starter homes maybe as the
Speaker 1: market demands. Is that because millennials aren't buying homes and
Speaker 1: are renting longer there's living in their parents basements. Well,
Speaker 1: there's still a lot of them living in their parents basement.
Speaker 1: That's housing to come. But for the last three years
Speaker 1: they've been the driver of the demand curve. The problem
Speaker 1: is their entry level borrowers. And since the boomers are
Speaker 1: not moving, those existing homes aren't available on the supply,
Speaker 1: and builders are having a hard time building profitably at
Speaker 1: the entry level because of the adjustments regulatorially in the
Speaker 1: in the market. So builders have not had a hard
Speaker 1: time building for the upper ends of the market. And
Speaker 1: so what's the trough going to look like? Uh? For
Speaker 1: the middle to upper segment. That's that's a great question
Speaker 1: we would expect already we're seeing the upper end slow
Speaker 1: all across the country. And we tend to look at
Speaker 1: the market by dividing each market into thirds. If no
Speaker 1: matter what market you look at, the top third is
Speaker 1: either flat or falling, the middle third is increasing but
Speaker 1: not rapidly. What are we talking about in terms of
Speaker 1: price points for these Okay, let's talk about Atlanta for example.
Speaker 1: In the in the bottom third, you're probably talking to
Speaker 1: fifty and below middle third. Maybe I'm guessing I don't
Speaker 1: have the numbers in front of me, uh to fifty
Speaker 1: to five fifty or six hundred, something like that. And
Speaker 1: then above that top piece only appreciated about four percent
Speaker 1: last year, the middle piece about six and a half,
Speaker 1: the bottom twelve percent. That's the same story all across
Speaker 1: the country. How about certain certain regions. I remember coming,
Speaker 1: you know, going into the financial crisis when the housing
Speaker 1: bubble burst. Boy, there were some markets that were just ugly,
Speaker 1: whether it's you know, Phoenix or Vegas or the sound
Speaker 1: started and think things like that. Do we have any
Speaker 1: regional pockets of bubbles that you're seeing out there in
Speaker 1: the marketplace. Well, it's difficult to call something a bubble
Speaker 1: when you have strong demand and no supply. That was
Speaker 1: the opposite for the crisis. We had overbuilding. There were
Speaker 1: speculators were flipping houses. There wasn't the sustainable demand are
Speaker 1: not there's in some markets there are investors who are
Speaker 1: a piece of that market, but it's over sold in
Speaker 1: terms of the share of those investors. Although there has
Speaker 1: been there have been pockets of overbuilding. No there, Yeah,
Speaker 1: we would we would agree that, um that the markets
Speaker 1: are saturated in a few places, but not overbuilt. Probably
Speaker 1: Midwest where you're not seeing as strong a growth on
Speaker 1: the on the employment side as you're seeing some of
Speaker 1: the coastal spaces. Just to give you an example how
Speaker 1: you you need to differentiate between markets. I was here
Speaker 1: about a month ago and UH spoke with a young lady.
Speaker 1: I was sitting having a bite to eat. She sat down.
Speaker 1: I asked, are you in town for business? She said yes.
Speaker 1: I said where from? She said San Jose. I said, okay,
Speaker 1: I'm in housing. I want to hear about San Jose.
Speaker 1: So I said, do my I'll be get real personal.
Speaker 1: I said, can I ask how much money you make?
Speaker 1: She said, wow, I'm impressed. She said, said I make
Speaker 1: two and fifty I said, are you married? She said no,
Speaker 1: but I'm engaged. I said, how much does your fancy
Speaker 1: makes the strategy work? I'm an economist. People expect this
Speaker 1: kind of stuff to you can make that excuse. Go
Speaker 1: up to someone house. Do you make I'm an economist?
Speaker 1: Go on, So he also makes two and fifty thousand.
Speaker 1: They work for salesforce. That's five In San Jose. A
Speaker 1: starter home is one and a quarter to one and
Speaker 1: a half million. The rule of thumb and housing is
Speaker 1: you can afford house three times your annual income. That
Speaker 1: hundred and fifty million and a half house is three
Speaker 1: times their annual income in San Jose. That makes sense
Speaker 1: from a supply demand perspective. That would not make sense
Speaker 1: in Indianapolis. So that's why we look at prices in
Speaker 1: a hundred and ten different markets, because it's a diverse country.
Speaker 1: Doug Duncan one of the bravest men I've ever met
Speaker 1: in my entire life. We could go up to a
Speaker 1: woman that he just sees sitting there having her lunch
Speaker 1: and say, how much money do you make? Are you married?
Speaker 1: Do you plan to buy a home? How's your how's
Speaker 1: your how's your medical history? Don Duncan, chief economist at
Speaker 1: Fannie May, joining us here in our bluebrig interactive at
Speaker 1: Broker's Studios. Netflix shares are little changed after reporting earnings
Speaker 1: after the bell yesterday, and I gotta say, Paul, I
Speaker 1: am left wondering was this a good earnings report or
Speaker 1: a bad earnings report? To answer that question, we have
Speaker 1: to note movie he has CFR, a researches media and
Speaker 1: entertainment analysts joining us by phone. So give us a
Speaker 1: sense is your take on this? Was it good? Was
Speaker 1: this good or bad? For Netflix. Well, I said, the
Speaker 1: the Q one numbers are actually better than expected, both
Speaker 1: on the revenue growth and the EPs headline number. Uh.
Speaker 1: The one thing that we were taken aback, as was
Speaker 1: most investors, is actually the Q two guidance, which came
Speaker 1: in latter than expected about five million subscribers. Um. But
Speaker 1: I would point out that Q two is the seasonally
Speaker 1: slow quarter, and um the end of the year, we
Speaker 1: still expecting Netflix subscriber addition to h to be a
Speaker 1: record number. So Ton, clearly the big issue for Netflix,
Speaker 1: you know, has been competition and the rising level of competition.
Speaker 1: And and as I know you well know, Disney unveiled
Speaker 1: its streaming plus, the Disney Plus streaming service last week.
Speaker 1: What is your view of the competitive landscape for Netflix
Speaker 1: given the uh, you know, entrance of Disney and some
Speaker 1: of the other big media players. Thanks for the question, Paul,
Speaker 1: So I mean, I think this year probably will be
Speaker 1: the most um kind of you know what I'd say,
Speaker 1: intensely competitive year. Yet for the streaming landscape, you know,
Speaker 1: just a large part of what it is due to
Speaker 1: the on veiling of the details of the of the
Speaker 1: Disney Plus offering. What's pretty clear is that with Apple
Speaker 1: and water Media and Comcast also rating their own offerings.
Speaker 1: We do expect that um, there is going to be
Speaker 1: UM you know, you know, it's kind of a ratcheted
Speaker 1: level of competition, also considering Disney's um aggressive pricing for
Speaker 1: its product at six UM. But I think, UM, what
Speaker 1: warries is is a little bit uh the likelihood of
Speaker 1: price competition as the space gets more and more crowded. UM.
Speaker 1: On the positive note, we think we're still in the
Speaker 1: relatively early innings, so there should be several uh potential winners.
Speaker 1: Let's go over the good points and the bad points
Speaker 1: point by points. So's some of the good points. They
Speaker 1: did post improving margins and they are spending a little
Speaker 1: bit less on content. Can you put those particular aspects
Speaker 1: into perspective for us as far as how important those
Speaker 1: positive attributes of the herding statement were? Right? So they
Speaker 1: came in at ten point percent operating margins, which was,
Speaker 1: you know, nevertheless above expectations. They have real firm their
Speaker 1: outlook for about thirteen percent operating margins this year, which
Speaker 1: would be three hundred business points expansion. But what's happening
Speaker 1: is that you know, this year they should actually ratchet
Speaker 1: up their content spending, the dialing back a little bit
Speaker 1: on the marketing side, but we do expect that, um,
Speaker 1: you know, the margin expection is going to be driven
Speaker 1: by UH you know, subscriber growth, a large part of
Speaker 1: which is coming from international markets. So as long as
Speaker 1: they can continue to grow their top line over and
Speaker 1: above their content and marketing expenses, that's what's gonna drive
Speaker 1: the underlying margin expansion projected for this year. Now, in
Speaker 1: the cash basis, I think we know that they're going
Speaker 1: to be another is burned north of three point five
Speaker 1: billion this year, which over the next few years should
Speaker 1: improve successively. We're looking for about three year inflection point
Speaker 1: when they should be self funding to be able to
Speaker 1: generate positive free cash flow, at which point I think
Speaker 1: Street is going to take a much more traditional approach
Speaker 1: to evaluation. Yeah so too. I'm glad you you brought
Speaker 1: up the negative free cash flow of UH. I guess
Speaker 1: more than three point five billion this year. And I
Speaker 1: guess if you look on a Bloomberg terminal, the streets
Speaker 1: kind of looking for a free casual positive maybe by
Speaker 1: twenty two something like that. But in a rising competitive world,
Speaker 1: one could argue, I guess a bear case would be
Speaker 1: whatever you guys are penciling in for programming investments. Netflix
Speaker 1: has got to spend more because look, who's coming. How
Speaker 1: do you view that. That's a great point, Paul, and
Speaker 1: and there's really no way out of you know, spending
Speaker 1: a lot more. In a case of Netflix, I think
Speaker 1: they've made the point that, you know, they've got to
Speaker 1: ramp up their original slate even more, not just on
Speaker 1: the television series but also on the feature side. And
Speaker 1: that's why you see them, you know, kind of getting
Speaker 1: ready for UM you know, Disney and others pulling off
Speaker 1: their content as more and more of these UM providers
Speaker 1: kind of launched their own offerings. But um, you know,
Speaker 1: I do believe that there's a tremendous appetite out there,
Speaker 1: uh for quality content, and that's why you see a
Speaker 1: lot of these companies rotchetting up, you know, the levels
Speaker 1: of their spending. An in the kids of Netflix, they've
Speaker 1: been able to pretty much justify that their spending the
Speaker 1: context of growth in viewing hours also a retire investment.
Speaker 1: We're speaking with two NOTEMBI cfr A researchers, media and
Speaker 1: entertainment analysts to not I don't know how many people
Speaker 1: you know who share Netflix accounts, But I know a
Speaker 1: lot of people one Netflix accounts you run with. I
Speaker 1: run with a pretty road group. I mean, honestly, I
Speaker 1: just I hear about it all the time from people
Speaker 1: who are not in my very very assiduous group of
Speaker 1: people friends into their address or have they addressed this
Speaker 1: at all, the fact that one subscription supplies maybe fifteen
Speaker 1: people in some cases with Netflix content. Yeah, I mean,
Speaker 1: you know, I think they've come to live with the
Speaker 1: fact that passwords sharing is is somehow inevitable, and um,
Speaker 1: you know, I think what they've done it's kind of
Speaker 1: to somewhat kind of building some price uh increase in
Speaker 1: the model UM partly to mitigate some of that. I
Speaker 1: think we just saw that this quarter. UM. But to
Speaker 1: the extent that um, you know, passwords sharing, I don't
Speaker 1: think it's frankly an overwriting concern for them at this point, because, UM,
Speaker 1: when you look at the subscriber trends and and UM
Speaker 1: and the revenue growth that they're just still north of
Speaker 1: and remember, UM, you know, we're talking about UM rising
Speaker 1: operating leverage. So all indicators point towards that this isn't
Speaker 1: an overwriting concern, So so Tune, I know you also
Speaker 1: cover the Walt Disney Company and have a strong by
Speaker 1: on that stock. What is your take on Disney Plus.
Speaker 1: Do you think that's a product that can really compete
Speaker 1: against Netflix and some of the other players in the market.
Speaker 1: I do believe Disney Plus is going to give Netflix
Speaker 1: a very good run for its money. Um. We we're
Speaker 1: kind of watching the presentation like everyone else, and Kima
Speaker 1: were quite impressed. I think the company had accomplished a
Speaker 1: mission which is pretty much to uh position, you know,
Speaker 1: kind of convey uh you know, Disney Plus. That's a
Speaker 1: very formidable platform, and the pricing was certainly aggressive. So
Speaker 1: I do believe that, Um, you know, as we kind
Speaker 1: of look out in terms of the ramp up of
Speaker 1: the slate in Disney Plus, UM, I think you have
Speaker 1: another viable and potentially groundbreaking, um you know, a player here.
Speaker 1: We've never seen a major studio like Disney decided to
Speaker 1: go that route. So this is something that it's going
Speaker 1: to be pretty closely watched. And but having said that,
Speaker 1: I think, as I alluded to earlier, it's stially growing pie.
Speaker 1: I don't see that being a major near term concern
Speaker 1: for Netflix. Red Hitch is also alluded to on the call,
Speaker 1: Great Tuna Mobile, thank you so much for your thoughts
Speaker 1: on Netflix and Disney and your whole streaming business. Tuna
Speaker 1: is a media and entertainment analysts for c f R,
Speaker 1: a research based in New York City, joining us on
Speaker 1: the phone. Uh, it's interesting you take a look at
Speaker 1: those Netflix numbers and again the stock is kind of unchanged.
Speaker 1: Today's investors try to balance um kind of some of
Speaker 1: the subscriber growth that came in a little bit lighter
Speaker 1: than expected for the second quarter, but really try to
Speaker 1: think about where the streaming business is going long term
Speaker 1: as it gets more crowded. It's not just Netflix now,
Speaker 1: we've got some of the big Hollywood studios coming into
Speaker 1: the business. Well, it looks like the next hot tech
Speaker 1: I p O is about to hit the market. Pinterest
Speaker 1: is going to be priced after the close tonight. It's
Speaker 1: being reported in The Walsh Journal is also reporting that
Speaker 1: the company is likely to price it shares above the
Speaker 1: proposed range of fifteen the seventeen dollars per share. To
Speaker 1: get the latest on this new tech I p O,
Speaker 1: we turned to the tender Warral. He is a senior
Speaker 1: analysts covering internet and consumer products companies for Bloomberg Intelligence.
Speaker 1: He's joining us from the Bloomberg nine sixties studio in
Speaker 1: San Francisco. Age Tender, Thanks for joining us. So you know,
Speaker 1: we've got Facebook, We've got Snap, we've got Twitter. Where
Speaker 1: does Pinterest fit into the scheme here of social media companies? Yeah, Interestingly,
Speaker 1: they're not pitching themselves as the next Facebook or or
Speaker 1: the next big social media platform. They're sort of pivoting to,
Speaker 1: you know, their strengths, which is a good thing. So
Speaker 1: you know, the way Pinterest is really positioned, Paul here
Speaker 1: is it is a product discovery platform for the undecided buyer.
Speaker 1: So if you look at the users off the platforms,
Speaker 1: more than seventy of them actually have some sort of
Speaker 1: purchase interests and purchase intent. And if you look at
Speaker 1: the searches that they doing, most of these searches are unbranded,
Speaker 1: so they don't know what they're what they want to buy,
Speaker 1: what brand they want to go after. So when you
Speaker 1: sort of marry the demand that we are seeing in
Speaker 1: e commerce advertising, in direct consumer brands trying to get
Speaker 1: their products in front of consumers, this audience really jells
Speaker 1: well with that So if you look at the average
Speaker 1: revenue per user right now, you know it's about three dollars,
Speaker 1: Twitters at eight dollars, Facebook's at twenty four. The international
Speaker 1: revenue is minimal, So there's a lot of opportunities for
Speaker 1: this company if they can execute on them, uh for
Speaker 1: revenue growth. So use a growth will slow in the
Speaker 1: US because it's it's a niche, But as as as
Speaker 1: if it remains a niche and keeps like focusing on
Speaker 1: its strength and not be Facebook, not be any other
Speaker 1: social media platform, then this could be a good revenue
Speaker 1: growth story long term. Gendra, I have to wonder. You
Speaker 1: said that it was a good thing that it's not
Speaker 1: trying to define itself as a social media company or
Speaker 1: search engine, and yet I'm not hearing a message as
Speaker 1: to what they are, you know, And I have to
Speaker 1: wonder whether that will eventually work against them, because people
Speaker 1: are inevitably going to compare them against social media giants
Speaker 1: and search engines because people naturally look for something to
Speaker 1: compare them to. The revenue growth aspect of things that
Speaker 1: would be compared as far as the user growth aspect
Speaker 1: of things is concerned, I mean, it's best that they
Speaker 1: don't pitch the user growth story much because it will
Speaker 1: slow uh and it cannot scale to that level any
Speaker 1: which ways. But as far as they can show that, look,
Speaker 1: we can match the profitability of what social media companies do.
Speaker 1: We can match that, you know, long term double digit
Speaker 1: revenue growth playing into our segment with what the other
Speaker 1: social media companies do. If they if they stick to that,
Speaker 1: then they would deserve that evaluation longer term. But the
Speaker 1: next six months are very risky for this company, and
Speaker 1: there there are three reasons behind that. The number one
Speaker 1: reason being how they make money right now. So basically
Speaker 1: you you're seeing that they are strong. Revenue growth in
Speaker 1: eighteen came with strong growth and spending uh in man marketing,
Speaker 1: so basically you know they are not. The self served
Speaker 1: platform is very nascent. They have to hire people to
Speaker 1: sort of like sell advertising to fuel large advertisers. Unlike
Speaker 1: you know what Google and Facebook are doing with the
Speaker 1: self self platform. Snap is trying to do with the
Speaker 1: self self platform. So because of that scaling issue, you know,
Speaker 1: there could be some disappointment in terms of how fast
Speaker 1: they can grow because then it's a function of how
Speaker 1: fast they can hire, right, so it'll take a year
Speaker 1: or so for the self served platform to come up.
Speaker 1: The second thing is Google the indexing uh pinterest landing pages.
Speaker 1: So if you can't be part of Google Search, then
Speaker 1: it sort of hurts the user growth. So this happened
Speaker 1: in one Q eighteen they saw some deceleration user growth
Speaker 1: because of that. The story continues, but because the monetization
Speaker 1: level of the current customer basis so low, uh even
Speaker 1: if the user group slows down a bit, it won't
Speaker 1: it should not impact revenue growth. And lastly, the last
Speaker 1: risk for them is if you look at I P
Speaker 1: O s as as you mentioned, with any most big
Speaker 1: Internet I he os and and Keenan and IPS for
Speaker 1: the last decade, we've seen a lot of volatility in
Speaker 1: the first six months. And that's happening because you know,
Speaker 1: there's a delta between what the private market things the
Speaker 1: value of the companies with the public market things about
Speaker 1: the value of the companies. And there's also this show
Speaker 1: me phase if you may that, hey, this is a
Speaker 1: growth that I'm valuing at and can you really deliver?
Speaker 1: And because of the Skillington I've talked about, you know,
Speaker 1: those misses and it's could happen. So because of those
Speaker 1: those risks need to be kept in mind with interest, right,
Speaker 1: so you know, one of the things that I think
Speaker 1: is holding the lift stock back and again lifts about
Speaker 1: the fifty seven dollars to share right now below it's
Speaker 1: seventy two doll i p O prices. That you know,
Speaker 1: the lack of visibility to profitability is that something that
Speaker 1: pinterest also has as a risk, And should investors be
Speaker 1: concerned about a path to profitability? Less concerned because the
Speaker 1: path to profitability is visible over here, uh and the
Speaker 1: other two scenarios. It's it's not visible, and it's visible
Speaker 1: because you know, the end market here is advertising. They
Speaker 1: are making progress in terms of you know, cutting the
Speaker 1: law us is and we expect them to be on
Speaker 1: adjusted a bit basis profitable this year. On a gap basis,
Speaker 1: it will take multiple years based on how the stock
Speaker 1: based compensation expense and other growth stories plays out with
Speaker 1: international expansion and things like that, but on adjust basis,
Speaker 1: just a basis, they should be profitable this year. So
Speaker 1: longer term they will try to line up with other
Speaker 1: social media companies in terms of profitability. But at least
Speaker 1: there's a path too profitable with here that is visible
Speaker 1: And one more thing that's sort of different about interests
Speaker 1: in terms of cost is the usage. So if you
Speaker 1: look at daily users of any other platform, Pinterest has
Speaker 1: the lowest frequency of use because people are coming there
Speaker 1: only when they need to, you know, find a new
Speaker 1: product or service. And because of that, the cloud costs
Speaker 1: are lower. Right, So, when when daily users on Snapchat
Speaker 1: are posting, sharing, using the platform a lot more for
Speaker 1: for the activities, the cloud costs would be higher for them,
Speaker 1: But because of the frequency of use and the purpose
Speaker 1: of using different and and lower uh, the cloud cost
Speaker 1: would also be lower. So that helps them, um, you know,
Speaker 1: from profitability to tender or all. Thank you so much
Speaker 1: for being with us. General Wall, senior NALYS covering the
Speaker 1: Internet and consumer products sectors for Bloomberg Intelligence, joining us
Speaker 1: UH to talk about that Pinterest ip O. Thanks for
Speaker 1: listening to the Bloomberg P and L podcast. You can
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Speaker 1: podcast platform you prefer. Paul Sweeney, I'm on Twitter at
Speaker 1: pt Sweeney. I'm Lisa abram Woyds. I'm on Twitter at
Speaker 1: Lisa A. Bram wits one. Before the podcast, you can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio