WEBVTT - Netflix Forecast Comes Up Short, Apple's New AI Tools

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<v Speaker 1>Good morning. I'm Brian Curtiz. Here are the stories we're

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<v Speaker 1>following today. Netflix shares fell after the company reported second

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<v Speaker 1>quarter of sales that missed estimates. The company also issued

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<v Speaker 1>a third quarter forecast that fell short of expectations. It's

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<v Speaker 1>partly due to foreign exchange rates and the price cuts

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<v Speaker 1>in some markets. The shortfall overshadowed solid subscriber growth. Netflix

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<v Speaker 1>added five point eight nine million customers in the prior quarter.

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<v Speaker 1>That was more than double what Wall Street was looking for.

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<v Speaker 1>We heard from Dan Morgan at Sunovistrust.

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<v Speaker 2>It's kind of interesting. They're obviously adding new subscribers. We

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<v Speaker 2>don't know if this is due to some of their

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<v Speaker 2>lower cost initiatives like Basic with advertising, which is six

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<v Speaker 2>ninety nine a month, all the initiatives they've had going

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<v Speaker 2>on to try to get rid of people that are

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<v Speaker 2>sharing passwords and so forth. So it looks like they're

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<v Speaker 2>starting to get these people on board, but unfortunately, the

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<v Speaker 2>average revenue per user of the amount that they're gas

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<v Speaker 2>other for that additional subscriber seems like it's dropping off

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<v Speaker 2>a little bit.

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<v Speaker 1>Netflix raised its twenty twenty three forecast for free cash

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<v Speaker 1>flow from at least three point five to five billion dollars.

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<v Speaker 1>It's the result of a strike by writers and actors

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<v Speaker 1>that has shuttered production and cut spending, so expenses down

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<v Speaker 1>there a little bit. Netflix shares at the moment off

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<v Speaker 1>six point nine percent in late trading. Meantime, Tesla reported

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<v Speaker 1>second quarter earnings in revenue that beat estimates, but gross

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<v Speaker 1>margins trailed Wall Street expectations. The electric vehicle maker's margins

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<v Speaker 1>are being squeezed by months of price cutting. It's a

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<v Speaker 1>response to tighter household budgets and a wave of new

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<v Speaker 1>EV competitors. We've heard from David Traynor, CEO of New Constructs.

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<v Speaker 3>The law of competition means that whatever margins Tesla is

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<v Speaker 3>able to achieve now are probably not sustainable, and we're

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<v Speaker 3>seeing their market share decline precipitously China and in Europe.

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<v Speaker 3>We think the same will happen in the US. And

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<v Speaker 3>this is ultimately an industrial manufacturing business. It's not going

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<v Speaker 3>to have the kind of margins that Tesla has now,

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<v Speaker 3>and certainly not the kind of return on invested capital.

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<v Speaker 3>We're talking about a stock price that's implying returns on

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<v Speaker 3>investor capital upward of seventy eighty percent for Tesla right,

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<v Speaker 3>that's just not going to happen.

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<v Speaker 1>Tesla also blamed it shrinking margins on the cost of

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<v Speaker 1>ramping up output of new battery cells, the cyber truck

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<v Speaker 1>as well and other large projects. The automaker said it

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<v Speaker 1>expects future hardware related profits to be accompanied by an

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<v Speaker 1>acceleration of AI. Goldbn Sachs's second quarter profit tumbling fifty

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<v Speaker 1>eight percent. The bank was hit by a slump in investment,

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<v Speaker 1>banking and deal making. On the earnings call, CEO David

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<v Speaker 1>Solomon said that the bank is now making some tough

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<v Speaker 1>decisions that are driving the evolution of the firm.

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<v Speaker 4>Our results were impacted by several items related to businesses

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<v Speaker 4>we're executing on a strategic transition and positioning the firm

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<v Speaker 4>for the future, in particular shifting our asset and wealth

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<v Speaker 4>management business to a less capital intensive model and the

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<v Speaker 4>pivot our consumer ambition.

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<v Speaker 1>Goldman's equity trading revenue was one bright spot. It came

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<v Speaker 1>in ahead of the firm's major rivals at three billion

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<v Speaker 1>dollars analysts who are looking at two point four seven billion.

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<v Speaker 1>Goldman has now clinched the top rank in the business

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<v Speaker 1>in three of the past four quarters. In business trading well.

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<v Speaker 1>Apple is quietly working on artificial intelligence tools that could

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<v Speaker 1>challenge those of Open Ai, Google, at Alphabet, and others.

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<v Speaker 1>We get more here from Bloomberg's Mark German.

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<v Speaker 5>Today, we've learned that Apple is going all in on LMS,

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<v Speaker 5>or large language models. That's the heart of the AI

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<v Speaker 5>technology that powers Chat, GPT, Microsoft Being Ai, Google Bard

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<v Speaker 5>and all of these fancy new AI tools we've been

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<v Speaker 5>hearing about. So they've developed their own underlying framework at

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<v Speaker 5>Apple called ajax to power its own next generation LMS,

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<v Speaker 5>and it's also built an internal chat GPT like tool

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<v Speaker 5>for use among its employees that operates very similar to

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<v Speaker 5>the tools seeing from others today.

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<v Speaker 1>Apple executives haven't yet decided on how to release the

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<v Speaker 1>AI tools to consumers. Onto China, the country has issued

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<v Speaker 1>a new pledge to improve conditions for the country's private sector.

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<v Speaker 1>Bloomberg's Joan Wong has more from Hong Kong.

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<v Speaker 6>The pledge appears to be a signal that Beijing wants

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<v Speaker 6>to help lift corporate confidence as growth wayans. The statement

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<v Speaker 6>is notable and that it was issued as a joint

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<v Speaker 6>commitment by both a communist party and the government. The

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<v Speaker 6>policy vows to treat private companies the same as state

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<v Speaker 6>owned enterprises. Local governments are encouraged to invite entrepreneurs for

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<v Speaker 6>consultation before drafting policies. China has shifted its tone recently

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<v Speaker 6>toward the private sector after wrapping up a crackdown on

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<v Speaker 6>tech firms. Some analysts are skeptical that this is a

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<v Speaker 6>major policy shift, but they say it will be welcomed

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<v Speaker 6>by the private sector. In Hong Kong, Joan Wang Bloomberg Day, Brigaisia.

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<v Speaker 1>I'm Brian Curtis here in Hong Kong. A couple of

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<v Speaker 1>other stories we'll be looking at. Beijing says it will

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<v Speaker 1>retaliate if the USA imposes new limits on technology and

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<v Speaker 1>capital exports to China. China's Ambassador to the Chiefhong said

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<v Speaker 1>Beijing will not sit on its hand. So that's one story.

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<v Speaker 1>And also Alibaba injecting eight hundred and forty five million

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<v Speaker 1>dollars into Lazada, its online retail business in Southeast Age

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<v Speaker 1>lots of competition there and that is a big cash boost.

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<v Speaker 1>Now it's time for global news. The US is saying

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<v Speaker 1>that more time is needed to break ground on a

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<v Speaker 1>climate agreement. At Baxter has Global News in the nine

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<v Speaker 1>to sixty news room in San Francisco.

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<v Speaker 7>Ed, Yeah, that's exactly right. Doesn't look like much progress,

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<v Speaker 7>Brian just Flatley. This after three days of meetings between

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<v Speaker 7>John Kerry and She Shinwa. Carrie says, not finished finding

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<v Speaker 7>the pathway with clarity.

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<v Speaker 1>We came here to break new ground, which we think

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<v Speaker 1>is important at this stage, and it is clear that

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<v Speaker 1>we are going to need a little he says.

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<v Speaker 7>Both sides agree it is doable, but not yet and

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<v Speaker 7>as evidence of the lack of any real progress, President

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<v Speaker 7>Chi Shinping says China will follow its own carbon reduction path.

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<v Speaker 7>China's top diplomat says the US needs more Kissinger style

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<v Speaker 7>diplomatic wisdom and Nixon style political courage. Wang Yi says

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<v Speaker 7>China's development has a strong internal driving force and is

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<v Speaker 7>historically inevitable. Kissinger says it is important the two countries

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<v Speaker 7>maintain engagement in any attempt to isolate the other is unacceptable.

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<v Speaker 7>Donald Trump has failed another black eye and a legal

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<v Speaker 7>cases in court. Hiss attempt to get get the e

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<v Speaker 7>Gene Carroll award tossed. He'll have to pay the five

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<v Speaker 7>million dollars a jury awarded her Meanwhile, Republican contender Chris

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<v Speaker 7>Christi is vowing today on Bloomberg to keep the pressure

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<v Speaker 7>up and to have Trump tell the truth.

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<v Speaker 8>And Republican primary voters to serve the truth. They haven't

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<v Speaker 8>gotten it from Joe Biden as president, and they haven't

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<v Speaker 8>gotten it from Donald Trump either, and so part of

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<v Speaker 8>it is just about telling the truth. So you'll see today,

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<v Speaker 8>whatever's issues you asked me about, I'm going to just

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<v Speaker 8>hit it right between the eyes and let you know

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<v Speaker 8>what I think.

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<v Speaker 7>Yeah, and as well issues involving Obamacare, immigration, national debt,

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<v Speaker 7>all policies in which he says Trump promised Republicans and failed.

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<v Speaker 7>Whitehouse says it is working on finding out the condition

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<v Speaker 7>of the American soldier who crossed to North Korea. Spokes

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<v Speaker 7>when Karina Jean Pierre is asked about whether China was helping.

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<v Speaker 9>I don't have any engagement with China to read out

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<v Speaker 9>to you at this time, but I can tell you

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<v Speaker 9>for certain that South Korea and Sweden we have engaged

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<v Speaker 9>with them.

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<v Speaker 7>We're learning today that Private King was going to be

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<v Speaker 7>on his way to Texas, where he faced further discipline

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<v Speaker 7>for an assault charge before he charged North across the border,

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<v Speaker 7>the number of researchers of social media and saying that

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<v Speaker 7>today that Elon Musk's takeover in policy changes since then,

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<v Speaker 7>Twitter is seeing a surgeon harmful content which is causing

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<v Speaker 7>a buried or advertisers. Bloomberg So Sarah Friars says, it

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<v Speaker 7>is a large, big pile of research.

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<v Speaker 9>From the Anti Defamation League, the Center of for Countering

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<v Speaker 9>Digital Hate, media matters, universities across the board looking at

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<v Speaker 9>issues like anti LGBT content, racist slurs against African Americans,

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<v Speaker 9>anti submitted content, QAnon support.

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<v Speaker 7>Twitter answers new CEO London, your Caarino, saying that it

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<v Speaker 7>is not true and that they find harmful content and

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<v Speaker 7>only one percent of posts. But Sarah says, advertising sales

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<v Speaker 7>are down about half over the concern we've.

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<v Speaker 9>Been hearing for the last few months from brands saying,

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<v Speaker 9>you know, I don't really know if I want to

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<v Speaker 9>start spending again on Twitter. It's become kind of assess pool,

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<v Speaker 9>it's become dangerous.

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<v Speaker 7>And she says Bloomberg reporters were skeptical, but what we're

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<v Speaker 7>hearing is that it's true. A super challenge for Twitter revenue.

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<v Speaker 7>Global news powered by more than twenty seven hundred journalist

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<v Speaker 7>and less over one hundred and twenty countries in San Francisco.

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<v Speaker 7>I'm Ed Baxter, and this is Bloomberg.

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<v Speaker 1>This is Bloomberg Daybreak Asia. I'm Brian Curtis here in

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<v Speaker 1>Hong Kong. Let's get to Carl Tannenbaum, executive vice president

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<v Speaker 1>and chief economists at Northern Trust. Carl, great to have

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<v Speaker 1>you on the program. Simple question, Has the risk of

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<v Speaker 1>recession dropped at the same time that inflation, or at

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<v Speaker 1>least parts of it, has received it.

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<v Speaker 10>Brian, Great to be with you. Yes, I do think

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<v Speaker 10>that the odds of a recession are coming down. We've

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<v Speaker 10>seen that highlighted and researched pieces from a number of houses.

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<v Speaker 10>I think that's marking to market what we've seen in

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<v Speaker 10>economic activity here in the United States, where we've had

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<v Speaker 10>three quarters in a row that have exceeded expectations, and

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<v Speaker 10>the now casts for the second quarter we'll get full

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<v Speaker 10>accounting on that in a few weeks shows growth of

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<v Speaker 10>two and a half percent. That plus the persistent strength

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<v Speaker 10>of the American labor market certainly doesn't make it seem

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<v Speaker 10>as if we're going to fall off to the other

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<v Speaker 10>side anytime. Soon. The good news is that we are

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<v Speaker 10>seeing some categories of inflation show some moderation. But the challenge, Brian,

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<v Speaker 10>is that some of the core elements, shelter and core

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<v Speaker 10>services in particular, are receiving only very slowly, and so.

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<v Speaker 1>So that will Yeah, that'll keep the FED on the case.

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<v Speaker 1>And do you think that there is the risk there

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<v Speaker 1>of maybe going past one or two rate hikes from here.

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<v Speaker 10>That's a great segue. They'll get together next week to

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<v Speaker 10>add up all the data. I do think that they'll

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<v Speaker 10>hike obviously this month. We have a second twenty five

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<v Speaker 10>basis point increase in our forecast for September. I think

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<v Speaker 10>they're going to be frustrated. Even with some preliminary signs

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<v Speaker 10>of easing, inflation is still well above the target. I'm

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<v Speaker 10>not sure that they trust their models to give them

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<v Speaker 10>confidence that things will settle naturally. They certainly, Brian, do

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<v Speaker 10>not want to find themselves at the end of this

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<v Speaker 10>year have to hit play again after having pause, and

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<v Speaker 10>so better to front load the restraint by completing the

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<v Speaker 10>process this summer.

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<v Speaker 1>Yeah, more conservative people probably are hoping for a little

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<v Speaker 1>pause to reflect, to see about the lagged defect of

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<v Speaker 1>these rate hikes, and I suppose one thing that will

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<v Speaker 1>show is consumer spending. I think a big question here

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<v Speaker 1>is the consumer getting close to being tapped out?

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<v Speaker 10>I don't think so. There puts in takes here, But

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<v Speaker 10>the most important one, as you know, Brian, is that

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<v Speaker 10>the most powerful support for consumer spending is wage income.

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<v Speaker 10>We have very low levels of unemployment, new highs in

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<v Speaker 10>prime aged labor force participation, and as well, now that

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<v Speaker 10>the headline rate of inflation is down to three percent

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<v Speaker 10>according to the CPI, we are now seeing real wage

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<v Speaker 10>gains of over one percent for those who are working,

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<v Speaker 10>and that's going to give additional wherewithal to spending, not

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<v Speaker 10>to mention in the fact that the stock market has

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<v Speaker 10>rallied very nicely over the last number of months, creating

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<v Speaker 10>wealth effects for those who own shares.

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<v Speaker 1>Yeah. Yeah, we put it all together. It seems like

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<v Speaker 1>sort of steady as she goes. Recession doesn't seem all

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<v Speaker 1>that likely. But I'm curious the relationship between consumer spending

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<v Speaker 1>and jobs which one breaks first. I mean, do companies

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<v Speaker 1>keep everybody employed or do they start to think that

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<v Speaker 1>they can get out in front so do they move first,

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<v Speaker 1>or do consumers and their spending move first.

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<v Speaker 10>Well, spending and employment obviously are very closely correlated and

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<v Speaker 10>have effects on each other, with economic activity not only

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<v Speaker 10>ebbing a little bit, but in doubt for most of

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<v Speaker 10>the last twelve months, I think it's been quite a

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<v Speaker 10>mystery why more firms have not taken the step of

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<v Speaker 10>lightening their labor forces. I think the challenge of achieving

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<v Speaker 10>talent levels during the post pandemic period has a lot

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<v Speaker 10>of company hoarding a little bit, or perhaps thinking that

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<v Speaker 10>if we have only a mild recession that they would

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<v Speaker 10>prefer not to do a round trip into these tight

0:13:07.280 --> 0:13:12.040
<v Speaker 10>labor markets. But certainly the fact that labor is in

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<v Speaker 10>short supply in many cases and has some power is

0:13:15.400 --> 0:13:18.040
<v Speaker 10>producing the kind of wage gains that are helping with spending.

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<v Speaker 1>Yep, How are companies managing their costs away from the

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<v Speaker 1>labor cost.

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<v Speaker 10>For most of the last year, they didn't have to

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<v Speaker 10>do that quite as much. Brian pricing power on the

0:13:31.080 --> 0:13:34.320
<v Speaker 10>part of large and small businesses was really quite high

0:13:34.679 --> 0:13:37.679
<v Speaker 10>up until about six months ago. We've now seen a

0:13:37.840 --> 0:13:40.400
<v Speaker 10>change of tone both in the small business survey here

0:13:40.400 --> 0:13:43.079
<v Speaker 10>in the United States as well as from some large corporates,

0:13:43.559 --> 0:13:46.080
<v Speaker 10>and so they're really going to have to find productivity

0:13:46.120 --> 0:13:49.160
<v Speaker 10>avenues in order to compensate for the rising cost of wages,

0:13:49.200 --> 0:13:53.960
<v Speaker 10>which is among the many reasons why artificial intelligence as

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<v Speaker 10>an avenue to higher productivity growth is getting so much

0:13:57.000 --> 0:13:59.640
<v Speaker 10>attention right now, Yeah.

0:14:00.000 --> 0:14:02.560
<v Speaker 1>Why is productivity kind of languishing?

0:14:03.400 --> 0:14:07.120
<v Speaker 10>There are many suggestions. You know, adoption is slow, but

0:14:07.200 --> 0:14:10.200
<v Speaker 10>I think the transformational nature and the ease of use

0:14:10.240 --> 0:14:13.360
<v Speaker 10>of generative AI may change that story in the years ahead.

0:14:14.280 --> 0:14:17.120
<v Speaker 1>This is Bloomberg Daybreak Asia, your morning brief on the

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