WEBVTT - Apple Settlement Validates Qualcomm's IP: Srinivasan 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl Podcast. I'm Paul Swinge you 0:00:05.360 --> 0:00:07.680 along with my co host Lisa brahma Witz. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:26.880 at Bloomberg dot com. It was a huge case for Qualcom. 0:00:26.920 --> 0:00:30.120 Apple and Qualcom have been in a dispute for months, 0:00:30.200 --> 0:00:34.519 if not years, over patents of Qualcomm's. The suit was 0:00:34.760 --> 0:00:38.720 dropped after a settlement came into place. Apple paid some 0:00:38.800 --> 0:00:42.559 undisclosed amount to Qualcom. Qualcom shares absolutely surging here to 0:00:42.560 --> 0:00:44.600 explain the whole situation to us, it's a non screen 0:00:44.640 --> 0:00:47.640 of Austin. He's senior semi conductor and hardware analyst for 0:00:47.760 --> 0:00:51.000 Bloomberg Intelligence. So now let's just set this up with 0:00:51.320 --> 0:00:55.400 what was at the heart of this legal dispute. So, uh, 0:00:55.640 --> 0:00:58.120 if you step back and look at the technologies that 0:00:58.200 --> 0:01:01.960 Qualcom has invented in Paul pularized commercialized over the last 0:01:02.280 --> 0:01:06.320 decade plus, this is basically the engine of the phone 0:01:06.360 --> 0:01:10.000 that allows it to communicate very effectively over cellular networks. 0:01:10.360 --> 0:01:13.399 They invented this technology, the commercialize this technology both on 0:01:13.440 --> 0:01:16.480 the device side as well as the infrastructure side. They 0:01:16.560 --> 0:01:20.320 monetize it predominantly through a chip in the device and 0:01:20.400 --> 0:01:25.240 through hands at royalties. They believe that they have the 0:01:25.240 --> 0:01:28.880 best chip in the business, but that their technologies are 0:01:29.040 --> 0:01:32.000 encompassed in more than just the chip. So how do 0:01:32.040 --> 0:01:35.040 they monetize that? They say to every handset maker, while 0:01:35.080 --> 0:01:37.520 you're using my technology, whether you use my chip or not, 0:01:37.600 --> 0:01:39.440 so you've got to pay me a piece of that action. 0:01:39.760 --> 0:01:42.840 So for every smartphone sold in the world, they get 0:01:42.880 --> 0:01:45.679 a piece of that pie. And in addition to that, 0:01:45.840 --> 0:01:48.960 if the smartphone so happens to use their cellular chip, 0:01:49.280 --> 0:01:53.880 they monetize that as well. So enter several handset makers 0:01:53.920 --> 0:01:57.360 over the past decade have sued Qualcom to try and 0:01:57.400 --> 0:02:02.320 reduce the rate, to make sure to minimize the the 0:02:02.520 --> 0:02:05.360 sort of the expanding nature of their IP technology so 0:02:05.360 --> 0:02:08.840 that they can pay the least amount possible to Qualcomm. Right. 0:02:08.880 --> 0:02:11.360 Apple has had a problem with that and expanded it 0:02:11.360 --> 0:02:14.400 to a philosophical problem, saying, well, guess what, I'm not 0:02:14.480 --> 0:02:16.560 going to use your chips anymore. I'm going to go 0:02:16.639 --> 0:02:20.080 to Intel, and I do not believe your intellectual property 0:02:20.120 --> 0:02:21.960 is that valuable. I'm not going to pay you for 0:02:22.000 --> 0:02:28.080 your intellectual property. So since late seventeen, they stopped or 0:02:28.120 --> 0:02:32.440 reduced their dependence on Qualcom chips and stopped paying the 0:02:32.600 --> 0:02:38.160 UM royalties for their intellectual property. UM. So this settlement 0:02:38.480 --> 0:02:42.480 says many many things. Number one, that Qualcom's intellectual property 0:02:42.600 --> 0:02:46.480 is valid and that it is applicable to more than 0:02:46.600 --> 0:02:49.320 just the chip and the and the most important handset 0:02:49.320 --> 0:02:53.720 maker has now said that. Number Two, it clearly controls 0:02:53.800 --> 0:02:57.040 the calendar for five G development, puts it back in 0:02:57.240 --> 0:03:01.200 Apple's control, doesn't sort of make them depend on a 0:03:01.280 --> 0:03:04.720 second tier providers such as Intel which is lagging in 0:03:04.800 --> 0:03:08.600 cellular development, and gives them back control so they can 0:03:08.840 --> 0:03:13.200 launch the five G iPhone when they're ready. So it's interesting. 0:03:13.200 --> 0:03:15.080 So I get you know, Qualcom start. This is great 0:03:15.080 --> 0:03:18.280 for Qualcom that stocks up thirty five including today over 0:03:18.320 --> 0:03:20.799 the past to todays. Just amazing. I'm actually a little 0:03:20.840 --> 0:03:24.680 surprised that Apple hasn't risen more on this news, maybe 0:03:24.680 --> 0:03:27.760 by just simply saying now Apple has a clearer path 0:03:27.840 --> 0:03:30.720 to develop their I you know, their five G iPhone. 0:03:30.760 --> 0:03:32.480 What's going on the Apple side of so, So that's 0:03:32.480 --> 0:03:35.400 a great point, right, ones is the handset business is 0:03:35.480 --> 0:03:39.040 becoming rather blase. Right, so the question is are you 0:03:39.040 --> 0:03:42.560 now willing to pay a thousand dollars phone phone? The 0:03:42.680 --> 0:03:45.360 Qualcom impact of that might be dominimus. So, but now 0:03:45.400 --> 0:03:47.320 are you going to go from two hundred and seventeen 0:03:47.360 --> 0:03:50.880 million units that you shipped in Fisco eighteen to fifty 0:03:51.000 --> 0:03:55.600 to just because there's a new five G technology? Um 0:03:55.840 --> 0:03:58.200 and the likelihood of that is low. The hands at 0:03:58.200 --> 0:04:01.840 market is slowing, so and pose Bread is more buttered 0:04:01.880 --> 0:04:04.320 on the services side where it's trying to expand its 0:04:04.360 --> 0:04:09.280 revenue footprint. Right. Uh, Intel, Intel is a big surprise 0:04:09.320 --> 0:04:12.560 to me. So Intel would be a loser on the 0:04:12.560 --> 0:04:14.840 face of it, right because Apple had been turning to 0:04:14.920 --> 0:04:20.280 Intel for this wireless capacity, the cellular connectivity and hardware. 0:04:20.600 --> 0:04:23.280 Now they're going to go back to Qualcom. And you 0:04:23.320 --> 0:04:25.320 would think that would be a negative for Intel, right, 0:04:25.640 --> 0:04:28.120 But no, the shares are up by more than three percent. 0:04:28.400 --> 0:04:34.040 What gives Yeah? So yeah, Sammy's Sammy's working double Derivative's. Look, 0:04:34.160 --> 0:04:36.720 this has been a bad business for Intel, right, So 0:04:36.760 --> 0:04:39.680 the fact that they wanted to get into this business, UM, 0:04:39.800 --> 0:04:43.720 that they want to expand their silicon footprint from more 0:04:43.760 --> 0:04:48.320 than just processors to memory, to connectivity to other technologies 0:04:48.360 --> 0:04:51.680 and other devices. That's been Intel soly girl, it's not 0:04:51.800 --> 0:04:55.280 been good at that, right. They've been good at microprocesses 0:04:55.320 --> 0:04:58.840 across PCs, across servers, and they're slowly expanding their footprint 0:04:58.880 --> 0:05:02.520 of the data centers in UM, in storage and in networking, 0:05:02.839 --> 0:05:08.159 but when it comes to low power devices, consumer devices UM, 0:05:08.240 --> 0:05:12.480 on the connectivity side, on the processing side, their presence 0:05:12.560 --> 0:05:15.520 is diminimous and their product portfolio is to be quite 0:05:15.560 --> 0:05:19.000 honest week right. So, and this Apple was their only 0:05:19.040 --> 0:05:22.599 major customer, if not only their only customer, and they 0:05:22.640 --> 0:05:25.840 were barely breaking them in in this business applying to Apple. 0:05:26.160 --> 0:05:28.760 So the fact that they've gotten out of this business 0:05:28.800 --> 0:05:32.440 allows them to improve their profits and redirect. We wrote 0:05:32.480 --> 0:05:35.120 that the re engineering was imminent, we just didn't think 0:05:35.120 --> 0:05:39.000 it was two hours imminent. Uh so, um, and they've 0:05:39.000 --> 0:05:41.480 shut down the business. They're going to keep their infrastructure 0:05:41.480 --> 0:05:45.200 side of their their development, but they're losing their punting 0:05:45.200 --> 0:05:46.920 on the handset side, which I think is a very 0:05:47.000 --> 0:05:49.600 very smart move. Lisa We are so lucky we have 0:05:49.800 --> 0:05:51.800 Entrene of us in here, because you know this, all 0:05:51.800 --> 0:05:54.440 the stuff that's on tech is just that. The chips, 0:05:54.520 --> 0:05:57.919 the phones, the all the litigation is just extraordinary and 0:05:57.960 --> 0:06:01.200 it's huge business. And honestly, I love this idea that 0:06:01.279 --> 0:06:05.119 Intel lost and yet they want because their shareholders were like, you, guys, 0:06:05.240 --> 0:06:07.120 why were you in that business to begin with? It 0:06:07.200 --> 0:06:10.280 was a money loser second time around? Yeah, exactly. On 0:06:10.360 --> 0:06:13.920 a Shrine Boston, Senior Semiconductor and Harder annalyst for Bloomberg Intelligence. 0:06:28.480 --> 0:06:31.719 Well Spring is here, which means it is home buying season. 0:06:32.040 --> 0:06:34.920 Taking an update on the residential real estate market. Return 0:06:35.000 --> 0:06:38.919 to Doug Duncan, Senior Vice president chief economist for Fannie May, 0:06:38.960 --> 0:06:41.000 based in Washington, d C. But joining us live here 0:06:41.000 --> 0:06:44.719 in our Bloomberg Interactive Broker studio. Doug welcome. So again, 0:06:45.080 --> 0:06:47.919 interest rates are down. Does that mean that it is 0:06:47.960 --> 0:06:52.479 a hot real estate market? Good morning? Not hot. In fact, 0:06:52.520 --> 0:06:54.840 we think in our theme for this year, we say 0:06:54.880 --> 0:06:58.800 the economy is slowing, the FED slowed, and housing plateaued. 0:06:58.920 --> 0:07:01.960 So what that means is we think two thousand nineteen 0:07:02.000 --> 0:07:04.880 total sales will look very much like two thousand eighteen 0:07:04.920 --> 0:07:08.279 total sales. So the peak this cycle will have been 0:07:08.360 --> 0:07:11.480 two thousand seventeen. But we're getting a little comeback because 0:07:11.560 --> 0:07:13.440 rates have come back down, so it's going to be 0:07:13.480 --> 0:07:15.320 stronger later in the year than it's been at the 0:07:15.320 --> 0:07:17.440 beginning of the year. So the peak will be two 0:07:17.520 --> 0:07:21.440 thousand seventeen. So can you fast forward for us? What 0:07:21.520 --> 0:07:26.880 will the trough look like? Well, one of the salvations 0:07:26.960 --> 0:07:31.080 of supply being constrained at the entry level is, let's 0:07:31.120 --> 0:07:34.280 suppose we go into a recession. We're building two thousand 0:07:34.400 --> 0:07:39.080 less units than we should be today. So if on 0:07:39.160 --> 0:07:42.440 the side on the starter side, that's right, and boomers 0:07:42.440 --> 0:07:46.120 are not moving, So the existing home supply adjusted for 0:07:46.160 --> 0:07:50.400 population is that thirty year lows. That's your supply problem. 0:07:50.440 --> 0:07:54.520 In a recession, rates are gonna come down. House prices 0:07:54.560 --> 0:07:57.840 are going to slow if unemployment doesn't go beyond seven 0:07:58.000 --> 0:08:00.080 seven and a half percent in a mile, just as 0:08:00.280 --> 0:08:02.360 housing is the cushion for that and comes out the 0:08:02.360 --> 0:08:05.320 other side looking good. So, duncan you said that the 0:08:05.400 --> 0:08:08.520 builders aren't building as many starter homes maybe as the 0:08:08.560 --> 0:08:12.240 market demands. Is that because millennials aren't buying homes and 0:08:12.280 --> 0:08:16.200 are renting longer there's living in their parents basements. Well, 0:08:16.240 --> 0:08:18.280 there's still a lot of them living in their parents basement. 0:08:18.320 --> 0:08:21.360 That's housing to come. But for the last three years 0:08:21.400 --> 0:08:24.040 they've been the driver of the demand curve. The problem 0:08:24.080 --> 0:08:28.720 is their entry level borrowers. And since the boomers are 0:08:28.760 --> 0:08:31.800 not moving, those existing homes aren't available on the supply, 0:08:31.920 --> 0:08:35.360 and builders are having a hard time building profitably at 0:08:35.400 --> 0:08:38.920 the entry level because of the adjustments regulatorially in the 0:08:39.120 --> 0:08:41.440 in the market. So builders have not had a hard 0:08:41.480 --> 0:08:44.520 time building for the upper ends of the market. And 0:08:44.559 --> 0:08:47.000 so what's the trough going to look like? Uh? For 0:08:47.200 --> 0:08:50.079 the middle to upper segment. That's that's a great question 0:08:50.160 --> 0:08:53.480 we would expect already we're seeing the upper end slow 0:08:53.559 --> 0:08:56.080 all across the country. And we tend to look at 0:08:56.080 --> 0:09:00.240 the market by dividing each market into thirds. If no 0:09:00.280 --> 0:09:03.000 matter what market you look at, the top third is 0:09:03.040 --> 0:09:07.160 either flat or falling, the middle third is increasing but 0:09:07.280 --> 0:09:09.120 not rapidly. What are we talking about in terms of 0:09:09.160 --> 0:09:12.360 price points for these Okay, let's talk about Atlanta for example. 0:09:13.520 --> 0:09:16.400 In the in the bottom third, you're probably talking to 0:09:16.720 --> 0:09:20.280 fifty and below middle third. Maybe I'm guessing I don't 0:09:20.280 --> 0:09:23.079 have the numbers in front of me, uh to fifty 0:09:23.240 --> 0:09:26.280 to five fifty or six hundred, something like that. And 0:09:26.280 --> 0:09:31.200 then above that top piece only appreciated about four percent 0:09:31.280 --> 0:09:33.680 last year, the middle piece about six and a half, 0:09:33.760 --> 0:09:37.360 the bottom twelve percent. That's the same story all across 0:09:37.360 --> 0:09:40.040 the country. How about certain certain regions. I remember coming, 0:09:40.080 --> 0:09:42.240 you know, going into the financial crisis when the housing 0:09:42.280 --> 0:09:45.800 bubble burst. Boy, there were some markets that were just ugly, 0:09:45.800 --> 0:09:48.800 whether it's you know, Phoenix or Vegas or the sound 0:09:48.880 --> 0:09:51.320 started and think things like that. Do we have any 0:09:51.400 --> 0:09:54.600 regional pockets of bubbles that you're seeing out there in 0:09:54.600 --> 0:09:58.480 the marketplace. Well, it's difficult to call something a bubble 0:09:58.600 --> 0:10:01.520 when you have strong demand and no supply. That was 0:10:01.600 --> 0:10:05.960 the opposite for the crisis. We had overbuilding. There were 0:10:06.200 --> 0:10:12.040 speculators were flipping houses. There wasn't the sustainable demand are 0:10:12.080 --> 0:10:15.200 not there's in some markets there are investors who are 0:10:15.200 --> 0:10:17.600 a piece of that market, but it's over sold in 0:10:17.679 --> 0:10:20.439 terms of the share of those investors. Although there has 0:10:20.480 --> 0:10:24.559 been there have been pockets of overbuilding. No there, Yeah, 0:10:24.800 --> 0:10:28.600 we would we would agree that, um that the markets 0:10:28.640 --> 0:10:32.320 are saturated in a few places, but not overbuilt. Probably 0:10:32.360 --> 0:10:35.240 Midwest where you're not seeing as strong a growth on 0:10:35.280 --> 0:10:37.240 the on the employment side as you're seeing some of 0:10:37.280 --> 0:10:40.920 the coastal spaces. Just to give you an example how 0:10:40.960 --> 0:10:44.280 you you need to differentiate between markets. I was here 0:10:44.960 --> 0:10:48.280 about a month ago and UH spoke with a young lady. 0:10:48.280 --> 0:10:50.760 I was sitting having a bite to eat. She sat down. 0:10:50.840 --> 0:10:54.000 I asked, are you in town for business? She said yes. 0:10:54.200 --> 0:10:56.400 I said where from? She said San Jose. I said, okay, 0:10:56.400 --> 0:10:58.400 I'm in housing. I want to hear about San Jose. 0:10:59.080 --> 0:11:01.079 So I said, do my I'll be get real personal. 0:11:01.440 --> 0:11:03.040 I said, can I ask how much money you make? 0:11:03.440 --> 0:11:08.280 She said, wow, I'm impressed. She said, said I make 0:11:08.320 --> 0:11:11.160 two and fifty I said, are you married? She said no, 0:11:11.280 --> 0:11:14.040 but I'm engaged. I said, how much does your fancy 0:11:14.040 --> 0:11:18.880 makes the strategy work? I'm an economist. People expect this 0:11:19.000 --> 0:11:21.960 kind of stuff to you can make that excuse. Go 0:11:22.040 --> 0:11:24.920 up to someone house. Do you make I'm an economist? 0:11:25.440 --> 0:11:29.280 Go on, So he also makes two and fifty thousand. 0:11:29.320 --> 0:11:33.960 They work for salesforce. That's five In San Jose. A 0:11:34.080 --> 0:11:36.560 starter home is one and a quarter to one and 0:11:36.559 --> 0:11:39.720 a half million. The rule of thumb and housing is 0:11:39.800 --> 0:11:42.840 you can afford house three times your annual income. That 0:11:43.000 --> 0:11:45.640 hundred and fifty million and a half house is three 0:11:45.679 --> 0:11:49.520 times their annual income in San Jose. That makes sense 0:11:49.800 --> 0:11:53.000 from a supply demand perspective. That would not make sense 0:11:53.160 --> 0:11:56.920 in Indianapolis. So that's why we look at prices in 0:11:56.920 --> 0:12:00.600 a hundred and ten different markets, because it's a diverse country. 0:12:01.000 --> 0:12:03.720 Doug Duncan one of the bravest men I've ever met 0:12:03.800 --> 0:12:05.920 in my entire life. We could go up to a 0:12:05.920 --> 0:12:08.720 woman that he just sees sitting there having her lunch 0:12:08.760 --> 0:12:11.200 and say, how much money do you make? Are you married? 0:12:11.800 --> 0:12:15.360 Do you plan to buy a home? How's your how's 0:12:15.400 --> 0:12:18.520 your how's your medical history? Don Duncan, chief economist at 0:12:18.520 --> 0:12:21.440 Fannie May, joining us here in our bluebrig interactive at 0:12:21.520 --> 0:12:43.880 Broker's Studios. Netflix shares are little changed after reporting earnings 0:12:43.920 --> 0:12:47.040 after the bell yesterday, and I gotta say, Paul, I 0:12:47.080 --> 0:12:49.920 am left wondering was this a good earnings report or 0:12:50.000 --> 0:12:52.760 a bad earnings report? To answer that question, we have 0:12:52.800 --> 0:12:55.719 to note movie he has CFR, a researches media and 0:12:55.880 --> 0:12:59.599 entertainment analysts joining us by phone. So give us a 0:12:59.640 --> 0:13:01.240 sense is your take on this? Was it good? Was 0:13:01.280 --> 0:13:04.880 this good or bad? For Netflix. Well, I said, the 0:13:04.880 --> 0:13:07.680 the Q one numbers are actually better than expected, both 0:13:07.720 --> 0:13:11.640 on the revenue growth and the EPs headline number. Uh. 0:13:11.679 --> 0:13:13.920 The one thing that we were taken aback, as was 0:13:14.040 --> 0:13:17.000 most investors, is actually the Q two guidance, which came 0:13:17.080 --> 0:13:21.200 in latter than expected about five million subscribers. Um. But 0:13:21.280 --> 0:13:23.600 I would point out that Q two is the seasonally 0:13:24.040 --> 0:13:26.760 slow quarter, and um the end of the year, we 0:13:26.880 --> 0:13:30.640 still expecting Netflix subscriber addition to h to be a 0:13:30.640 --> 0:13:35.280 record number. So Ton, clearly the big issue for Netflix, 0:13:35.440 --> 0:13:38.479 you know, has been competition and the rising level of competition. 0:13:38.559 --> 0:13:41.760 And and as I know you well know, Disney unveiled 0:13:41.760 --> 0:13:45.040 its streaming plus, the Disney Plus streaming service last week. 0:13:45.559 --> 0:13:49.400 What is your view of the competitive landscape for Netflix 0:13:49.440 --> 0:13:52.280 given the uh, you know, entrance of Disney and some 0:13:52.320 --> 0:13:55.720 of the other big media players. Thanks for the question, Paul, 0:13:55.760 --> 0:13:58.520 So I mean, I think this year probably will be 0:13:58.559 --> 0:14:01.760 the most um kind of you know what I'd say, 0:14:01.960 --> 0:14:05.920 intensely competitive year. Yet for the streaming landscape, you know, 0:14:06.080 --> 0:14:07.960 just a large part of what it is due to 0:14:08.040 --> 0:14:10.880 the on veiling of the details of the of the 0:14:10.920 --> 0:14:15.040 Disney Plus offering. What's pretty clear is that with Apple 0:14:15.360 --> 0:14:19.880 and water Media and Comcast also rating their own offerings. 0:14:20.240 --> 0:14:23.040 We do expect that um, there is going to be 0:14:23.240 --> 0:14:25.040 UM you know, you know, it's kind of a ratcheted 0:14:25.160 --> 0:14:30.800 level of competition, also considering Disney's um aggressive pricing for 0:14:30.840 --> 0:14:34.480 its product at six UM. But I think, UM, what 0:14:34.600 --> 0:14:37.680 warries is is a little bit uh the likelihood of 0:14:37.720 --> 0:14:41.840 price competition as the space gets more and more crowded. UM. 0:14:41.960 --> 0:14:44.480 On the positive note, we think we're still in the 0:14:44.600 --> 0:14:49.720 relatively early innings, so there should be several uh potential winners. 0:14:50.400 --> 0:14:52.480 Let's go over the good points and the bad points 0:14:52.520 --> 0:14:54.720 point by points. So's some of the good points. They 0:14:54.760 --> 0:14:58.240 did post improving margins and they are spending a little 0:14:58.240 --> 0:15:02.240 bit less on content. Can you put those particular aspects 0:15:02.760 --> 0:15:06.440 into perspective for us as far as how important those 0:15:06.880 --> 0:15:11.000 positive attributes of the herding statement were? Right? So they 0:15:11.040 --> 0:15:13.760 came in at ten point percent operating margins, which was, 0:15:14.080 --> 0:15:17.840 you know, nevertheless above expectations. They have real firm their 0:15:17.880 --> 0:15:22.240 outlook for about thirteen percent operating margins this year, which 0:15:22.240 --> 0:15:26.080 would be three hundred business points expansion. But what's happening 0:15:26.320 --> 0:15:29.240 is that you know, this year they should actually ratchet 0:15:29.320 --> 0:15:31.840 up their content spending, the dialing back a little bit 0:15:31.880 --> 0:15:35.440 on the marketing side, but we do expect that, um, 0:15:35.480 --> 0:15:38.680 you know, the margin expection is going to be driven 0:15:38.960 --> 0:15:42.200 by UH you know, subscriber growth, a large part of 0:15:42.200 --> 0:15:45.120 which is coming from international markets. So as long as 0:15:45.160 --> 0:15:47.200 they can continue to grow their top line over and 0:15:47.240 --> 0:15:51.600 above their content and marketing expenses, that's what's gonna drive 0:15:51.680 --> 0:15:55.480 the underlying margin expansion projected for this year. Now, in 0:15:55.480 --> 0:15:58.360 the cash basis, I think we know that they're going 0:15:58.440 --> 0:16:01.400 to be another is burned north of three point five 0:16:01.400 --> 0:16:04.440 billion this year, which over the next few years should 0:16:04.440 --> 0:16:08.240 improve successively. We're looking for about three year inflection point 0:16:08.280 --> 0:16:10.680 when they should be self funding to be able to 0:16:10.720 --> 0:16:13.440 generate positive free cash flow, at which point I think 0:16:13.480 --> 0:16:15.800 Street is going to take a much more traditional approach 0:16:15.840 --> 0:16:18.400 to evaluation. Yeah so too. I'm glad you you brought 0:16:18.480 --> 0:16:21.400 up the negative free cash flow of UH. I guess 0:16:21.440 --> 0:16:23.560 more than three point five billion this year. And I 0:16:23.560 --> 0:16:26.080 guess if you look on a Bloomberg terminal, the streets 0:16:26.160 --> 0:16:28.680 kind of looking for a free casual positive maybe by 0:16:29.560 --> 0:16:33.480 twenty two something like that. But in a rising competitive world, 0:16:33.680 --> 0:16:36.280 one could argue, I guess a bear case would be 0:16:36.840 --> 0:16:40.600 whatever you guys are penciling in for programming investments. Netflix 0:16:40.640 --> 0:16:42.920 has got to spend more because look, who's coming. How 0:16:42.920 --> 0:16:46.200 do you view that. That's a great point, Paul, and 0:16:46.200 --> 0:16:49.120 and there's really no way out of you know, spending 0:16:49.160 --> 0:16:51.960 a lot more. In a case of Netflix, I think 0:16:51.960 --> 0:16:54.040 they've made the point that, you know, they've got to 0:16:54.240 --> 0:16:56.840 ramp up their original slate even more, not just on 0:16:56.920 --> 0:17:00.480 the television series but also on the feature side. And 0:17:00.560 --> 0:17:03.160 that's why you see them, you know, kind of getting 0:17:03.200 --> 0:17:06.119 ready for UM you know, Disney and others pulling off 0:17:06.160 --> 0:17:09.560 their content as more and more of these UM providers 0:17:09.600 --> 0:17:11.520 kind of launched their own offerings. But um, you know, 0:17:11.560 --> 0:17:15.160 I do believe that there's a tremendous appetite out there, 0:17:15.560 --> 0:17:19.320 uh for quality content, and that's why you see a 0:17:19.400 --> 0:17:22.359 lot of these companies rotchetting up, you know, the levels 0:17:22.359 --> 0:17:24.320 of their spending. An in the kids of Netflix, they've 0:17:24.359 --> 0:17:27.399 been able to pretty much justify that their spending the 0:17:27.560 --> 0:17:30.800 context of growth in viewing hours also a retire investment. 0:17:31.119 --> 0:17:34.159 We're speaking with two NOTEMBI cfr A researchers, media and 0:17:34.240 --> 0:17:36.960 entertainment analysts to not I don't know how many people 0:17:37.200 --> 0:17:40.719 you know who share Netflix accounts, But I know a 0:17:40.880 --> 0:17:44.200 lot of people one Netflix accounts you run with. I 0:17:44.280 --> 0:17:46.800 run with a pretty road group. I mean, honestly, I 0:17:47.080 --> 0:17:49.160 just I hear about it all the time from people 0:17:49.160 --> 0:17:51.800 who are not in my very very assiduous group of 0:17:52.240 --> 0:17:56.399 people friends into their address or have they addressed this 0:17:56.480 --> 0:18:00.560 at all, the fact that one subscription supplies maybe fifteen 0:18:00.640 --> 0:18:06.000 people in some cases with Netflix content. Yeah, I mean, 0:18:06.200 --> 0:18:08.080 you know, I think they've come to live with the 0:18:08.080 --> 0:18:12.160 fact that passwords sharing is is somehow inevitable, and um, 0:18:12.200 --> 0:18:13.960 you know, I think what they've done it's kind of 0:18:14.080 --> 0:18:19.399 to somewhat kind of building some price uh increase in 0:18:19.440 --> 0:18:22.119 the model UM partly to mitigate some of that. I 0:18:22.119 --> 0:18:25.320 think we just saw that this quarter. UM. But to 0:18:25.359 --> 0:18:28.720 the extent that um, you know, passwords sharing, I don't 0:18:28.720 --> 0:18:33.560 think it's frankly an overwriting concern for them at this point, because, UM, 0:18:33.600 --> 0:18:36.720 when you look at the subscriber trends and and UM 0:18:36.800 --> 0:18:39.440 and the revenue growth that they're just still north of 0:18:40.760 --> 0:18:44.560 and remember, UM, you know, we're talking about UM rising 0:18:44.680 --> 0:18:48.480 operating leverage. So all indicators point towards that this isn't 0:18:48.880 --> 0:18:52.440 an overwriting concern, So so Tune, I know you also 0:18:52.480 --> 0:18:54.440 cover the Walt Disney Company and have a strong by 0:18:54.520 --> 0:18:57.440 on that stock. What is your take on Disney Plus. 0:18:57.480 --> 0:19:00.320 Do you think that's a product that can really compete 0:19:00.320 --> 0:19:02.600 against Netflix and some of the other players in the market. 0:19:03.720 --> 0:19:06.720 I do believe Disney Plus is going to give Netflix 0:19:06.760 --> 0:19:09.040 a very good run for its money. Um. We we're 0:19:09.160 --> 0:19:12.280 kind of watching the presentation like everyone else, and Kima 0:19:12.359 --> 0:19:15.280 were quite impressed. I think the company had accomplished a 0:19:15.320 --> 0:19:18.760 mission which is pretty much to uh position, you know, 0:19:18.840 --> 0:19:21.680 kind of convey uh you know, Disney Plus. That's a 0:19:21.840 --> 0:19:27.600 very formidable platform, and the pricing was certainly aggressive. So 0:19:27.680 --> 0:19:30.920 I do believe that, Um, you know, as we kind 0:19:30.920 --> 0:19:32.919 of look out in terms of the ramp up of 0:19:32.960 --> 0:19:35.879 the slate in Disney Plus, UM, I think you have 0:19:36.200 --> 0:19:42.640 another viable and potentially groundbreaking, um you know, a player here. 0:19:42.760 --> 0:19:45.439 We've never seen a major studio like Disney decided to 0:19:45.520 --> 0:19:47.960 go that route. So this is something that it's going 0:19:48.040 --> 0:19:51.720 to be pretty closely watched. And but having said that, 0:19:51.840 --> 0:19:55.280 I think, as I alluded to earlier, it's stially growing pie. 0:19:55.800 --> 0:19:59.160 I don't see that being a major near term concern 0:19:59.280 --> 0:20:02.720 for Netflix. Red Hitch is also alluded to on the call, 0:20:03.400 --> 0:20:06.040 Great Tuna Mobile, thank you so much for your thoughts 0:20:06.119 --> 0:20:09.080 on Netflix and Disney and your whole streaming business. Tuna 0:20:09.280 --> 0:20:11.720 is a media and entertainment analysts for c f R, 0:20:11.840 --> 0:20:14.679 a research based in New York City, joining us on 0:20:14.720 --> 0:20:17.199 the phone. Uh, it's interesting you take a look at 0:20:17.200 --> 0:20:20.240 those Netflix numbers and again the stock is kind of unchanged. 0:20:20.280 --> 0:20:23.199 Today's investors try to balance um kind of some of 0:20:23.200 --> 0:20:25.320 the subscriber growth that came in a little bit lighter 0:20:25.320 --> 0:20:27.520 than expected for the second quarter, but really try to 0:20:27.560 --> 0:20:30.600 think about where the streaming business is going long term 0:20:30.640 --> 0:20:33.760 as it gets more crowded. It's not just Netflix now, 0:20:33.800 --> 0:20:36.600 we've got some of the big Hollywood studios coming into 0:20:36.600 --> 0:20:52.920 the business. Well, it looks like the next hot tech 0:20:53.119 --> 0:20:55.639 I p O is about to hit the market. Pinterest 0:20:55.920 --> 0:20:58.959 is going to be priced after the close tonight. It's 0:20:59.000 --> 0:21:01.199 being reported in The Walsh Journal is also reporting that 0:21:01.400 --> 0:21:03.919 the company is likely to price it shares above the 0:21:03.960 --> 0:21:07.760 proposed range of fifteen the seventeen dollars per share. To 0:21:07.800 --> 0:21:09.960 get the latest on this new tech I p O, 0:21:10.040 --> 0:21:12.600 we turned to the tender Warral. He is a senior 0:21:12.640 --> 0:21:16.440 analysts covering internet and consumer products companies for Bloomberg Intelligence. 0:21:16.640 --> 0:21:19.280 He's joining us from the Bloomberg nine sixties studio in 0:21:19.320 --> 0:21:23.560 San Francisco. Age Tender, Thanks for joining us. So you know, 0:21:23.600 --> 0:21:27.080 we've got Facebook, We've got Snap, we've got Twitter. Where 0:21:27.080 --> 0:21:32.919 does Pinterest fit into the scheme here of social media companies? Yeah, Interestingly, 0:21:33.000 --> 0:21:36.560 they're not pitching themselves as the next Facebook or or 0:21:36.680 --> 0:21:40.280 the next big social media platform. They're sort of pivoting to, 0:21:40.600 --> 0:21:42.560 you know, their strengths, which is a good thing. So 0:21:42.680 --> 0:21:45.760 you know, the way Pinterest is really positioned, Paul here 0:21:45.960 --> 0:21:49.919 is it is a product discovery platform for the undecided buyer. 0:21:50.280 --> 0:21:52.720 So if you look at the users off the platforms, 0:21:52.760 --> 0:21:55.600 more than seventy of them actually have some sort of 0:21:55.600 --> 0:21:59.159 purchase interests and purchase intent. And if you look at 0:21:59.160 --> 0:22:02.800 the searches that they doing, most of these searches are unbranded, 0:22:02.800 --> 0:22:05.040 so they don't know what they're what they want to buy, 0:22:05.040 --> 0:22:07.080 what brand they want to go after. So when you 0:22:07.119 --> 0:22:09.159 sort of marry the demand that we are seeing in 0:22:09.320 --> 0:22:13.520 e commerce advertising, in direct consumer brands trying to get 0:22:13.560 --> 0:22:17.119 their products in front of consumers, this audience really jells 0:22:17.160 --> 0:22:18.919 well with that So if you look at the average 0:22:18.920 --> 0:22:21.480 revenue per user right now, you know it's about three dollars, 0:22:21.760 --> 0:22:25.199 Twitters at eight dollars, Facebook's at twenty four. The international 0:22:25.280 --> 0:22:28.520 revenue is minimal, So there's a lot of opportunities for 0:22:28.560 --> 0:22:32.479 this company if they can execute on them, uh for 0:22:32.640 --> 0:22:34.760 revenue growth. So use a growth will slow in the 0:22:34.880 --> 0:22:37.840 US because it's it's a niche, But as as as 0:22:38.119 --> 0:22:40.840 if it remains a niche and keeps like focusing on 0:22:40.880 --> 0:22:43.840 its strength and not be Facebook, not be any other 0:22:43.880 --> 0:22:46.679 social media platform, then this could be a good revenue 0:22:46.680 --> 0:22:49.879 growth story long term. Gendra, I have to wonder. You 0:22:49.920 --> 0:22:51.520 said that it was a good thing that it's not 0:22:51.600 --> 0:22:55.240 trying to define itself as a social media company or 0:22:55.400 --> 0:22:59.480