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Speaker 2: We're going to go next to Carmen Rennicke. She is
Speaker 2: a Bloomberg News equities reporter here with us, and she's
Speaker 2: going to talk about super Microcomputer.
Speaker 3: Oh my gosh, that stock has.
Speaker 2: Been on a wild ride.
Speaker 3: What are you watching?
Speaker 4: It has had an absolutely crazy week. I was just looking.
Speaker 4: Shares right now are up about eleven percent. This is
Speaker 4: on track to gain more than seventy five percent this week,
Speaker 4: which is the best week ever for this stock, which
Speaker 4: has also just had a completely crazy up and down year.
Speaker 4: So what happened this week is on Monday, the company,
Speaker 4: which had fallen out of impliance for listing on the Nasdaq,
Speaker 4: submitted to the Nasdaq a plan to regain compliance, which
Speaker 4: means filing some delayed ten k's and ten cues. It
Speaker 4: also announced that it has a new auditor, BDO USA,
Speaker 4: And I think this is really the piece that people
Speaker 4: were excited about and the traders are trading on because
Speaker 4: this is it just means that it will be easier
Speaker 4: for the company to actually file those filings and get
Speaker 4: back into compliance to stay listed on the Nasdaq.
Speaker 5: The fact that they actually found someone who agreed to
Speaker 5: testify that their numbers aren't fraudulent, Like, if that's the bar,
Speaker 5: it's pretty low, right, So.
Speaker 2: Yeah, well, and that's the thing.
Speaker 4: I mean, this is a company that's burned through a
Speaker 4: few auditors in the past few years. It's one of
Speaker 4: the reasons that it delayed filing its ten K was
Speaker 4: a short seller report from Hindenburg Research came out sort
Speaker 4: of calling into questions some accounting Ernst and Young. It's
Speaker 4: previous auditors stepped down in October, citing issues with govern
Speaker 4: and instant transparency. So yeah, finding a new auditor is
Speaker 4: a big deal, and it kind of remains to be
Speaker 4: seen what exactly, you know, what will happen next. The
Speaker 4: Nasdaq still hasn't accepted super Micro's plan.
Speaker 3: So they filed.
Speaker 4: They said, we have a plan to stay compliant. The
Speaker 4: Nasdaq now has to say yes or no to that.
Speaker 4: It's assumed that it'll take two to five weeks for
Speaker 4: any anything to come out on that, and then if
Speaker 4: the Nasdaq does accept the plan, it has until February
Speaker 4: to file these reports, which as as I've reported this out,
Speaker 4: it seems like is not the easiest lift, right, Like
Speaker 4: it's this is still sort of a truncated timeline to potentially,
Speaker 4: you know, deal with these kinds of issues. Still, that
Speaker 4: being said, some analysts seem to think that this really
Speaker 4: has removed an overhang from the stock and as we
Speaker 4: can see, you know, more more buyers than sellers today.
Speaker 2: So what would happen to super micro if it was
Speaker 2: delisted from the Nasdaq?
Speaker 4: Yeah, so, I mean it would be taken off the exchange,
Speaker 4: it would go over the counter. It would also be
Speaker 4: removed from the NASDAQ one hundred and s and P
Speaker 4: five hundred, which had just joined this year. So that's
Speaker 4: a huge deal. Obviously, it would mean a big rebalance
Speaker 4: for a lot of people, and yeah, a lot of
Speaker 4: a lot of trading.
Speaker 6: It's pretty amazing.
Speaker 5: I mean, it's still a twenty billion dollar company, you know.
Speaker 5: And if you're auditor, one of the most respected orders
Speaker 5: in the world says peace out, like we can't have
Speaker 5: our names even associated with your books, that should be
Speaker 5: a black mark, right, but if you look over the
Speaker 5: last five years, I always default of five years because
Speaker 5: they use the comp function a lot. On the Bloomberg
Speaker 5: the stock is up one four and seventy one percent.
Speaker 4: It has had an incredible run. It's obviously gotten a
Speaker 4: huge lift from the AI wave. It's you know, it's
Speaker 4: it's a sort of a scene as a trading peer,
Speaker 4: at least to Nvidia, and it actually got a shout
Speaker 4: out this week on in Vidia's earnings call. Nvidia said,
Speaker 4: you know, this is one of our most reliable partners,
Speaker 4: and so, yeah, we've seen this stock really really take off.
Speaker 2: What is the precedence for companies being delisted? Like, have
Speaker 2: we ever seen a company then return after delisting and
Speaker 2: come back to the good christage?
Speaker 4: I mean, companies do get delisted. Super Micro itself has
Speaker 4: previously been delisted and come back onto the exchange. So yes,
Speaker 4: that's certainly something that happens. I don't know of an
Speaker 4: instance where a company has done it twice, but yeah,
Speaker 4: it is is definitely something that happens.
Speaker 3: We'll have to look.
Speaker 5: Into that match the Yeah, no, actually I was just
Speaker 5: starting to look into it. I'm like typing away and
Speaker 5: doing some research over here. One of the things I
Speaker 5: did is pull up SPLC, which is one of my
Speaker 5: favorite functions on the terminal for a company like this especially,
Speaker 5: It shows you the supply chain and you can see
Speaker 5: their biggest suppliers and VideA right at the top of
Speaker 5: that list.
Speaker 6: Their biggest customers.
Speaker 5: I note Big Blue is one of those which you know,
Speaker 5: back in my day, IBM was the most reputable tech company.
Speaker 5: Obviously it's dropped a little bit in terms of, uh,
Speaker 5: you know, it's size and weight, but still is a
Speaker 5: company that people know and certainly trust SMCI, I guess
Speaker 5: their earnings hasn't really been slowed down by the change
Speaker 5: from EY to bdo not.
Speaker 4: I think it's too early to really say so. They
Speaker 4: did maybe a few weeks ago at this point, give
Speaker 4: sort of an update.
Speaker 3: They called it a business update.
Speaker 4: It was essentially an earnings report, and they gave I
Speaker 4: think a little bit of a weaker forecast than people
Speaker 4: had expected. So shares were actually sort of under pressure
Speaker 4: from that. If I remember correctly, I.
Speaker 5: Should say the revenue has just been soaring, right you
Speaker 5: look back at twenty twenty, they were making like three
Speaker 5: billion in revenue, and now we're talking about twenty.
Speaker 6: Five, just five years, four years later.
Speaker 5: Carmen, great having it here with us, Thanks so much
Speaker 5: for joining us in the Bloomberg Business Week studio. Carmen
Speaker 5: Ryanicky there from our print team. Matt Miller here with
Speaker 5: Emily Graffeo filling in for Tim and Carroll on this Friday.
Speaker 5: We'll be back in just a moment with the CFO
Speaker 5: of Home Depot.
Speaker 6: This is Bloomberg.
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Speaker 5: Matt Miller here in the Bloomberg BusinessWeek studio with Emily Graffeo,
Speaker 5: and we have a special guest. As I said, the
Speaker 5: CFO of Home Depot joins us, Richard McPhail as well
Speaker 5: as Nina Trentman. She runs the Bloomberg CFO briefing. So
Speaker 5: it's great to have both of you with us. And
Speaker 5: I guess I'll just kick it off with one to
Speaker 5: Richard as we kind of gauge the strength of the
Speaker 5: US consumer and the housing market. You're in a perfect
Speaker 5: position to give us an outlook on both. How do
Speaker 5: we look, you know, four days ahead of Black Friday.
Speaker 7: Well, Matt and Emily, Nina, thank you for having me.
Speaker 2: So.
Speaker 8: Look, as we've said now for the last year or two,
Speaker 8: the US consumer remains healthy and strong and engaged in
Speaker 8: him improvement. We had a third quarter that just ended
Speaker 8: in October where we actually saw performance better than expected.
Speaker 8: Now we attribute most of that to the fact that
Speaker 8: weather was exceptional across the country. We also had some
Speaker 8: impact from hurricanes obviously, but you know.
Speaker 7: It's a good sign when the sun is out.
Speaker 9: Our customers are engaged and outdoors doing projects.
Speaker 7: So we think we think the customer mindset is healthy now.
Speaker 9: You know, you ask about the state of housing, there
Speaker 9: is some interplay here with home improvement.
Speaker 7: You know, if you think about the.
Speaker 9: Last five years, since twenty nineteen, we've seen unprecedented increases
Speaker 9: in home values and home equity. Home values up right
Speaker 9: around fifty percent since twenty nineteen, home equity positions up
Speaker 9: or right around eighty percent, and so you've seen unprecedented
Speaker 9: wealth creation.
Speaker 7: And what's interesting about that is typically that.
Speaker 9: Drives human improvement demand and hume improvement spend as homeowners
Speaker 9: invest in their homes. What our customers tell us though,
Speaker 9: is that the interest rate and environment is still sticky.
Speaker 9: You know, we actually saw mortgage rates increase since the
Speaker 9: September FED meeting, So that's led to a dis incentive
Speaker 9: for folks to move and.
Speaker 7: Do projects that are oriented with moving.
Speaker 9: And if you think about those larger remodeling projects that
Speaker 9: are oftentimes financed by debt drawn against home equity positions,
Speaker 9: our customers tell us, while those rates are decreasing slightly,
Speaker 9: they're still around eight and four to eight and a
Speaker 9: half percent, and so they're saying, look, we're just gonna
Speaker 9: we're deferring large projects for the moment until.
Speaker 7: We see what happens with rates.
Speaker 9: So you have a healthy customer with a deferral mindset
Speaker 9: when it comes to larger projects.
Speaker 10: Richard, maybe I can follow up on that. During our interview,
Speaker 10: we also talked about the impact of your business potentially
Speaker 10: simming from to as the new administration comes in next year.
Speaker 10: Talk to us a little bit about that, how you
Speaker 10: navigated that in twenty nineteen, and also how are you
Speaker 10: thinking about that going into next year.
Speaker 7: Sure, well, first, it's too early to speculate.
Speaker 8: On what the administration might might be thinking here, So
Speaker 8: we don't want to speculate in particulars. In twenty seventeen,
Speaker 8: we saw tariffs of significant degree in certain classes of goods.
Speaker 7: There were some.
Speaker 9: Appliances classes that saw tariff supworbs of twenty five percent. Look,
Speaker 9: that's something that we sit down with our supplier base
Speaker 9: and work through it. And so we've got a lot
Speaker 9: of experience in this and we are ready for whatever
Speaker 9: inner environment we're going to be operating in.
Speaker 7: Again, too early.
Speaker 9: To speculate, but you know, we feel like if there's
Speaker 9: anybody who can manage through this weekend and you know,
Speaker 9: unique to the home deeper, perhaps over half of our
Speaker 9: products are actually manufacturer in the.
Speaker 7: United States, and so if you think about the kind
Speaker 7: of the.
Speaker 9: Less than half that is manufactured or sourced from foreign countries,
Speaker 9: we've been diversifying our countries of origin really for the
Speaker 9: last fifteen years. We're in a different position than we
Speaker 9: were in twenty seventeen in respect to diversification. That's something
Speaker 9: we're going to continue.
Speaker 2: So, Richard, I'm wondering what is the strategy to grow
Speaker 2: the business right now when we're in an environment where
Speaker 2: home sales are at the lowest level in over a decade,
Speaker 2: how does home Depot kind of combat that?
Speaker 8: Well, you know, Emily, there's so much improvement we can
Speaker 8: make in our current model. We have the fifth largest
Speaker 8: e commerce business in the United States, even though folks don't.
Speaker 9: Normally think about that, but the uniqueness of that business
Speaker 9: is it is interconnected with our stores. Virtually all of
Speaker 9: our customers who shop online shop in our stores as well.
Speaker 9: But there still there are too many points of friction
Speaker 9: when you think about customer returns, order modifications, and the
Speaker 9: delivery experience. We're making huge gains and taking friction out
Speaker 9: of the process for our customer, but we're nowhere near
Speaker 9: where we want to be. We know if we begin
Speaker 9: to delight customers more, that absolutely translates into higher sales.
Speaker 9: Another huge opportunity for the home depot is what the
Speaker 9: professional contractor. Roughly half of our sales are come from
Speaker 9: that professional contractor who's working on behalf of the homeowner.
Speaker 9: We've made significant investments in an ecosystem to really drive
Speaker 9: into that larger remodel and so while the market is
Speaker 9: solvedware remodeling, our ability to capture market share really shouldn't
Speaker 9: depend on what the external environment is.
Speaker 7: We've invested in a.
Speaker 9: Digital experience, in rolling out a salesforce across the nation,
Speaker 9: and filment assets and capabilities, networks of platbed distribution centers
Speaker 9: that will be in seventeen markets this year where we
Speaker 9: can get products straight to the job site, not even
Speaker 9: touching the store, straight to the job site same day,
Speaker 9: next day. And the uniqueness of Home Depot is, while
Speaker 9: there are plenty of companies serving the pro like that,
Speaker 9: we're the only one who can serve them across all
Speaker 9: product categories, so we can simplify the pros lives and
Speaker 9: they turn to us because they know that they can
Speaker 9: rely on us. And I should say, actually, and one
Speaker 9: thing that I think is unique to the Home Depot,
Speaker 9: you know, we're building stores again.
Speaker 8: We really stopped in any material sense building stores in
Speaker 8: two thousand and eight. In twenty twenty three, we announced
Speaker 8: an eighty store build that will roll out over five years.
Speaker 7: By the end of this.
Speaker 9: Year, we will have built twenty five of those new stores,
Speaker 9: and we're so excited about what we're already seeing.
Speaker 7: It's one of the best investments. We can actually make
Speaker 7: it Home Depot.
Speaker 6: All right, Richard.
Speaker 5: Great to have a little bit of time with you,
Speaker 5: and I hope we can get you back either here
Speaker 5: on Bloomberg Business Week or you join me on my
Speaker 5: show every day nine to eleven on Bloomberg Open Interest.
Speaker 5: David McPhail there, the CFO of Home Depot. Sorry, need,
Speaker 5: I'm kind of stealing your guests.
Speaker 10: Yes here stealing my thunder you.
Speaker 5: Well, you have a lot of it, so there's nothing
Speaker 5: go around. You talked to a lot of important CFOs
Speaker 5: for the CFO briefing, one of them recently CFO of
Speaker 5: Saudi Ramco, and what did he have to say?
Speaker 10: Yeah, so that was earlier this week in Boston. I
Speaker 10: got to catch up with him there. We covered quite
Speaker 10: a range of topics sort of ranging from their dividends, spending, debt,
Speaker 10: financing plans CAPEX. So yeah, I was quite pleased to
Speaker 10: secure that interview. Amongst the things that we talked about
Speaker 10: was their plans to spend over one hundred and twenty
Speaker 10: billion this year on dividends, which is of course a
Speaker 10: mind boggling number. There is a lot of talk around
Speaker 10: sort of how much Saudio Ramco will keep spending on
Speaker 10: on dividends going forward. I think the main point there
Speaker 10: is that they have a performance led portion of that dividend,
Speaker 10: which they implemented in starting last year when basically they realized, Okay,
Speaker 10: we're generating a lot of returns from high energy prices
Speaker 10: following the invasion of Ukraine through Russia. This performance led
Speaker 10: portion will be reset at the end of this year,
Speaker 10: and the question is very much okay, well, what will
Speaker 10: this company be spending on dividends going forward, because they
Speaker 10: moved from having a lot of surplus cash into actually
Speaker 10: moving into a debt position at the at the end
Speaker 10: of the past quarter, and so there's been a lot
Speaker 10: of questions around that that the CFO received.
Speaker 5: Yeah, very interesting stuff, and I know he is an
Speaker 5: MIT alarm.
Speaker 6: He was there in Boston.
Speaker 5: Giving a speech and some protesters made such a racket
Speaker 5: that he actually had to leave the event and not
Speaker 5: come back. You can see all of that and more
Speaker 5: in Nina's CEO briefing.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 5: All right, holiday season quickly approaching, and we want to
Speaker 5: get our finger on the pulse of the consumer. To
Speaker 5: do that, we go over to Katie Thomas. She's from
Speaker 5: the Carney Consumer Institute. They've recently done a study of
Speaker 5: fourteen thousand choppers. She joins us from Pittsburgh, in the
Speaker 5: middle of America, where the normal people live. Katie, thanks
Speaker 5: so much for joining us. How do the normal people
Speaker 5: feel right now?
Speaker 11: The normal people are actually feeling okay going into the
Speaker 11: holiday season. There's a lot of optimism. Even talking to
Speaker 11: folks post election, people are surprisingly willing to spend. They
Speaker 11: say they're feeling better about the economy, or conversely, they're anticipating.
Speaker 11: In some retail therapy, they're concerned teariff prices will drive
Speaker 11: up the cost of electronics and other items. So I'm
Speaker 11: anticipating a healthy holiday season, even though it's a little
Speaker 11: bit shortened giving the late Thanksgiving timing. Like you guys said,
Speaker 11: Black Friday sales have been going on for weeks already,
Speaker 11: so I think we're gonna have a strong season.
Speaker 2: And what are these consumers buying. Are they going to
Speaker 2: the big ticket items or are they being a little
Speaker 2: bit choosier and just finding maybe smaller luxuries.
Speaker 11: Yeah, I think right now we're seeing people still feel
Speaker 11: pretty thoughtful. I think we thought this in the last
Speaker 11: couple of weeks with earnings, right Walmart coming through with
Speaker 11: really strong price value. And that's what you're seeing with
Speaker 11: consumers in general. And that starts to tie into some
Speaker 11: of the work that we just wrapped up around tensions
Speaker 11: consumers are facing. So you see them wanting to spend.
Speaker 11: People love to spend around the holiday, but they do
Speaker 11: still have these lingering concerns around how their wallet looks,
Speaker 11: and they don't want to overspend and start the year
Speaker 11: off on the wrong foot.
Speaker 7: Yeah.
Speaker 5: I don't love to spend around the holiday. I just
Speaker 5: feel like I have no choice, right, I mean, you
Speaker 5: got to buy people presents, you got to get plane tickets,
Speaker 5: you got to hire more staff or whatever.
Speaker 6: I mean, I don't have I don't know.
Speaker 5: I'm just trying to think of the things that he
Speaker 5: might want to be spending money on for the holidays.
Speaker 5: Are people feeling like their wages have really kept up
Speaker 5: with inflation, because it seems to me I get one
Speaker 5: answer from one economist and a different answer from another.
Speaker 5: So you know, how are we doing in terms of
Speaker 5: keeping up with higher prices?
Speaker 11: Yeah, I mean I think objectively speaking, when you look
Speaker 11: at data rolled up, that is what you see, Matt,
Speaker 11: that technically wages are outpaced inflation. But to your exact point,
Speaker 11: we run some analytics with what we call the consumer
Speaker 11: stress Index. We have seen a slow uptick in concerns
Speaker 11: around cost of living as well as concerns about personal
Speaker 11: job security, which is a little bit concerning, even though
Speaker 11: you're not seeing that that much in the employment in
Speaker 11: job growth numbers right now. People feeling concerned that if
Speaker 11: they lost their job they might not be able to
Speaker 11: find one, or that they could lose their job. That
Speaker 11: could be something meaningful that drives kind of a pullback
Speaker 11: and spend and a resistance to spend. But when it
Speaker 11: comes specifically to the holidays, people do typically like to
Speaker 11: spend on gifts and on gifts for themselves, and then
Speaker 11: what you'll see is a bit of a slowdown in
Speaker 11: the new year.
Speaker 2: You mentioned demographics in the notes that you sent over,
Speaker 2: and I'm wondering what your research is showing about just
Speaker 2: how different different demographics are spending and how they act
Speaker 2: as a consumer. I imagine the gen zs are getting
Speaker 2: a lot of their favorite brands from TikTok and social media,
Speaker 2: and I'm wondering if that kind of spans across all ages.
Speaker 3: Now, you know, we're.
Speaker 11: Certainly seeing a pick up there. One of the things
Speaker 11: we see though, is it's hard to slice just by
Speaker 11: demographics alone. So we ask consumers in our work. For instance,
Speaker 11: one question is are you living paycheck to paycheck? And
Speaker 11: we you know, like two out of three consumers actually
Speaker 11: say yes. It's self reported, so that could mean a
Speaker 11: lot of different things, but we well, we split that
Speaker 11: into paycheck to paycheck and then living within means we
Speaker 11: actually see a lot more similarities there in terms of
Speaker 11: behaviors and stressors than if we cut by just income alone.
Speaker 11: So we are seeing people kind of you know, it
Speaker 11: depends a little bit on more of those attitudinal psychographics,
Speaker 11: so not necessarily gen Z on TikTok, but just your
Speaker 11: likelihood to be engaging on a social media platform.
Speaker 2: Matt.
Speaker 11: To your point at the top, there are folks across
Speaker 11: the country who are who are not all that engage
Speaker 11: or all that online, as some of the rest of
Speaker 11: us are, So it really kind of depends on what
Speaker 11: your media consumption looks like.
Speaker 6: Oh, they're so lucky, you know what.
Speaker 5: Speaking of psychographic I noticed this sentence in the survey packet,
Speaker 5: just time for the holidays. This nuanced meta economic and
Speaker 5: psychographic view is based on a unique set of macroeconomic
Speaker 5: data and proprietary CASEI research. Are you sure you're in
Speaker 5: Pittsburgh because I don't know what that Those.
Speaker 11: Are the notes I sent over, So I'm gonna have
Speaker 11: to That's a lot of a bit of a word
Speaker 11: salad there, matt.
Speaker 5: But I think, what do you mean when you say psychographic?
Speaker 11: Well, it is it's just really capturing the lifestyle of
Speaker 11: a consumer. So this research was really grounded and the
Speaker 11: fact that consumers have continued to see this proliferation of choice.
Speaker 11: You guys were actually talking about it with the mattresses.
Speaker 11: We have more options than ever, more access to information
Speaker 11: than ever. And then we tend to get lost in
Speaker 11: this narrative that consumers are increasingly demanding more and more options,
Speaker 11: when in fact, in most categories, consumers are overwhelmed by
Speaker 11: what's out there, are simply satisfied. They don't feel like
Speaker 11: they need this constant influx of options, so the psychographics
Speaker 11: there will really gets It's the devils in the details.
Speaker 11: We have to understand the push pull dynamic that's happening
Speaker 11: there within consumers, in between consumers and brands.
Speaker 2: So how does the how does a brand kind of
Speaker 2: build success off of that? Because I mean, yeah, the mattresses.
Speaker 2: Ultimately it came down to there was a mac, there
Speaker 2: was an avocado store around where I was. I laid
Speaker 2: on the mattress. I was like, this is good. I
Speaker 2: don't want to think about this anymore because there are
Speaker 2: so many options. So how does a brand figure out
Speaker 2: how to stand out?
Speaker 11: Yeah, well, Emily, I think it's just that. So it's thinking.
Speaker 11: We we like to sometimes call it relevant choice rather
Speaker 11: than more or less choice. It comes down to portfolio strategy,
Speaker 11: growth strategy, innovation planning, and like if brands are really
Speaker 11: innovating for the right reason. So you think, for instance
Speaker 11: of grocery, sometimes innovation happens simply so they can hold
Speaker 11: the place on shelf. When you think of you know,
Speaker 11: any kind of mall retailer, it's just like a classic
Speaker 11: merchandising calendar and just this continued churn or perhaps sometimes
Speaker 11: it's in response to competition. It's really starting to ask
Speaker 11: upper questions there. Do we need these additional options? Do
Speaker 11: we need to cause more confusion? Do we really like
Speaker 11: for instance, yogurt. Yogurt has over three hundred skews on
Speaker 11: most shelves, but the most popular flavors have been the
Speaker 11: same five for the last like fifty years. So even
Speaker 11: though some new flavors are nice, it's just really finding
Speaker 11: the right balance.
Speaker 5: Key Lime Pie, that's one of those five, right, That
Speaker 5: one's Tom.
Speaker 3: I'm not sure.
Speaker 5: Katie, Thanks so much for joining us. Always the pleasure
Speaker 5: talking to you and hearing from the Carney consumer, and too,
Speaker 5: Katie Thomas there out of Pittsburgh talking to us about
Speaker 5: how consumers in the US are feeling this holiday season.
Speaker 5: Avocado is a brand I had.
Speaker 6: Never heard of before.
Speaker 5: I thought I was being pretty new and you know,
Speaker 5: young and fashionable with Satfa, But what is Avocado?
Speaker 2: I actually hadn't heard of it either, But I was
Speaker 2: in Williamsburg and they had a store. You're gonna you're
Speaker 2: gonna hate this, so they had kombucha and cold brew
Speaker 2: on tap complimentary for the customers.
Speaker 5: It almost seems like it's a joke, like in Williamsburg
Speaker 5: there's a mattress vendor called Avocado that has kombucha and
Speaker 5: cold brew in the store.
Speaker 2: Their their pitch. I don't know that much about the mattress,
Speaker 2: but I ultimately bought it again because I laid on it.
Speaker 2: It was comfortable. I needed a mattress. I didn't want
Speaker 2: to think about it. But they have a green pitch
Speaker 2: as well. They talk about like how their mattress is
Speaker 2: more environmentally.
Speaker 6: It's so sustainable.
Speaker 5: Yeah, that's good, so you feel good about yourself as
Speaker 5: you're sleeping on it.
Speaker 2: I again, that pitch didn't allurd me in as much
Speaker 2: as just I need a mattress and this is.
Speaker 6: Here all right. I need some tires.
Speaker 5: So if you see anybody with Continental Extreme Contact DSW
Speaker 5: six plus tires on sale, I need to set it
Speaker 5: for those for my Dodge Challenger, which is not at
Speaker 5: all sustainable.
Speaker 2: I don't think they have kob four Leader.
Speaker 6: V eight No, definitely, definitely not just cold black coffee.
Speaker 5: When we come back, we'll talk to Jenny Rook from
Speaker 5: the Genoa Ventures firm about strategies for investing in early stage,
Speaker 5: high growth companies.
Speaker 1: You're listening to the Bloomberg Business Week Podcast. Listen live
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Speaker 2: We're joining now by Jenny Rook, founder and managing director
Speaker 2: of Genoa Venture. She's here in the Bloomberg Interactive Brokers studio,
Speaker 2: usually in San Francisco, but here today in New York.
Speaker 2: Before we get to the companies and the investments that
Speaker 2: you're doing right now, because Genoa focuses on biotech and healthcare,
Speaker 2: what's your background.
Speaker 12: Ah, I'm a scientist at heart. I was studying physics
Speaker 12: and software engineering when I fell in love with genetics,
Speaker 12: went and got my PhD there, and so I really
Speaker 12: am excited about how those things are coming together. Let's
Speaker 12: technicalologies in biology, and then have spent.
Speaker 3: A career trying to figure out how to put that
Speaker 3: to work.
Speaker 6: All right, So.
Speaker 5: Wall Street, I guess, is the one place that you
Speaker 5: could go to try and put that to work. Did
Speaker 5: you hit that street before sand Hill Road?
Speaker 12: It's not really no, I kind of I walked through first.
Speaker 12: I guess my closest path to Wall Street was really
Speaker 12: consulting to very large pharma companies.
Speaker 3: I spent some time at McKinsey.
Speaker 12: It was a great way to get familiar with what
Speaker 12: the big strategy questions were to the companies that matter
Speaker 12: to Wall Street. And so that's great perspective in working
Speaker 12: with startups to think about how they're going to bring
Speaker 12: innovation to Wall Street eventually.
Speaker 5: And is there a more specific theme than biotech healthcare?
Speaker 5: I mean, I note that you funded, for example, two
Speaker 5: female Nobel Laureates so far.
Speaker 12: Yeah, we're trying to keep funding the great Nobel laureates.
Speaker 12: Keep keep more one per fund is my goal.
Speaker 5: But the reason I think it's interesting is that I know,
Speaker 5: crazy small figure like only two percent of total VC funding.
Speaker 6: Goes to women.
Speaker 5: So the fact that you've funded too already puts you
Speaker 5: kind of head.
Speaker 6: Of the pack by far.
Speaker 3: I think, yes, I'm proud of that.
Speaker 12: I think it comes down to you just looking at
Speaker 12: the fundamentals and really asking what are the needs in
Speaker 12: healthcare and beyond, and how do the innovations that are
Speaker 12: happening in the laboratory address those needs and really understanding
Speaker 12: what's happening at the fundamental level.
Speaker 2: Okay, so tell us about some of the companies right
Speaker 2: now that you're invested in that you're currently excited about.
Speaker 11: Yeah.
Speaker 12: Well, so we're excited at companies that are bringing together
Speaker 12: biology and technology in untraditional ways. And so often they
Speaker 12: bring together founders who some might be coming from healthcare,
Speaker 12: but you might have a collaborator coming from electrical engineering
Speaker 12: or data science. Is really mushing those together in new ways.
Speaker 12: A great example is a company called Epitel. They are
Speaker 12: really bringing innovations to how we detect and monitor seizures.
Speaker 12: If you've ever seen anyone try to get an EEG
Speaker 12: with a bunch of wires and leads coming off of
Speaker 12: their heads, it's a little bit difficult to bring that
Speaker 12: into people's everyday lives. So what Epatel is doing is
Speaker 12: making a small wearable version of a detector that patients
Speaker 12: can wear in the hospital, moving around even in their
Speaker 12: home eventually, which really changes how we can help those people.
Speaker 5: So you can monitor I'm guessing that comes from epilepsypel,
Speaker 5: and you can monitor what how often the seizures are,
Speaker 5: how serious they are when they occur, and so on
Speaker 5: and so forth.
Speaker 6: And try and help those people live better lives.
Speaker 12: Yeah, And I think it's an extension of things that
Speaker 12: we all know well, which is continuous monitoring, whether you've
Speaker 12: got an iPhone or an Apple watch or an oral ring.
Speaker 12: Like these ideas of the more data you can connect
Speaker 12: collect continuously for a person, the more information you can
Speaker 12: give people to make better choices.
Speaker 2: I'm thinking about an or ring for Christmas, you're considering. Yeah,
Speaker 2: Just as an aside, my wife.
Speaker 5: Loves her or ring and constantly tells me when it's
Speaker 5: my turn to take care of the kids because she
Speaker 5: hasn't gotten.
Speaker 3: Better choices for everyone driven by better data.
Speaker 6: AI is a theme that we've all been focused on
Speaker 6: as well.
Speaker 5: I know Emily recently was at a conference and talking
Speaker 5: about VC. I was recently at a conference talking about AI,
Speaker 5: and you're I guess investing in AI as well. I
Speaker 5: see it mentioned for Symbiosis, which is a company that
Speaker 5: you've invested in. What a treatment support a tool for
Speaker 5: even with breast cancer.
Speaker 12: The category is called clinical decision support. It's providing clinicians
Speaker 12: for physicians better tools to make better decisions for patients
Speaker 12: and patient care. And that's more and more important these days.
Speaker 12: When we have a profusion of different types of say
Speaker 12: drugs and interventions, how do you make the best decision
Speaker 12: for each person with more and more information? And so
Speaker 12: the AI is a way too, as you know, from
Speaker 12: other fields, different kinds of information of different sorts and
Speaker 12: sources into a single unified view. And so that's increasingly
Speaker 12: important to patient care as well.
Speaker 2: How are you seeing AI being used in healthcare? Is
Speaker 2: it more just a tool to help professionals, because I
Speaker 2: have to I went to a doctor and there was
Speaker 2: an AI, Like I guess it wasn't a robot, but
Speaker 2: it was a phone that he held up and it
Speaker 2: was taking notes. But I've also heard about, you know,
Speaker 2: AI being used as a diagnostic tool reading MRI images.
Speaker 2: What are some of the surprising ways that AI is
Speaker 2: being applied into healthcare that excite you?
Speaker 12: Well, so you gave some great examples, and so that's
Speaker 12: at the delivery of healthcare in but way up at
Speaker 12: the beginning where scientists are looking for new insights, AI
Speaker 12: is helping them in a similar way, pull together a
Speaker 12: bunch of different information about the science they're studying, come
Speaker 12: up with new insights and ask the next question. So
Speaker 12: it's accelerating the pace of basic research that gives rise
Speaker 12: to all these innovations that eventually show up in the
Speaker 12: healthcare setting.
Speaker 5: So going through basically mountains of data that would take
Speaker 5: you and your team probably months or years, and AI
Speaker 5: can do that in a matter of hours or days.
Speaker 12: Yeah, And it's bringing all that together in a way
Speaker 12: and helping us visualize it also in ways that our novels,
Speaker 12: so you can kind of poke and prod at it
Speaker 12: from different directions and come up with new insights, which
Speaker 12: is what's so critical for science.
Speaker 5: So when you find these companies or these founders and
Speaker 5: decide that you want to invest in them, how.
Speaker 6: Much further do you take it?
Speaker 5: I mean, do you work with them to do you know,
Speaker 5: other things that are necessary that maybe they wouldn't be
Speaker 5: good at as you know scientists. Since you have a
Speaker 5: consulting background, do you find people to help them do
Speaker 5: the kind of back end stuff that a lot of
Speaker 5: us can't do. I mean, how far along do you
Speaker 5: hold their hands?
Speaker 3: Yeah, I really appreciate this question.
Speaker 12: Genoa was born because I'm also a next startup operator.
Speaker 12: So as everybody on our team, we love building these
Speaker 12: kinds of companies and helping other people build these kinds
Speaker 12: of companies. So we're builders for builders, and as you
Speaker 12: can imagine, the kinds of innovators who may come up
Speaker 12: with the latest thing in AI for bio may not
Speaker 12: also know about cap tables or preference stacks in the
Speaker 12: startup setting and ventures, so we like to bring that
Speaker 12: knowledge to them to help them on their way as well.
Speaker 2: How do you think about valuations right now?
Speaker 3: Very carefully, I think it's the answer. Yeah.
Speaker 12: I think obviously it's been a tough couple of years
Speaker 12: in the markets, which is having an impact on valuations
Speaker 12: up and down the stack. But I think probably a
Speaker 12: pretty healthy reset. Things did get a little out of control,
Speaker 12: you know, twenty twenty twenty one.
Speaker 5: But what was the Is that because you know SVB collapsed,
Speaker 5: or because everybody would rather invest in nvideo?
Speaker 3: Well multifactorial now, I.
Speaker 5: Mean, what's made it tough? Because I've heard that also
Speaker 5: from other vcs and I've heard my friend Jesse Draper
Speaker 5: from Haligen talks about a recession and I'm like, what recession?
Speaker 6: You know, But a lot of businesses I know are
Speaker 6: feeling it well.
Speaker 12: I think you do get this kind of circular situation
Speaker 12: where investors are working very closely with the companies in
Speaker 12: their portfolio, helping them through a tough time. Even just
Speaker 12: the bandwidth to look at the next thing, much less
Speaker 12: the capital is a little bit lacking. But as I
Speaker 12: think the macros start to trend positive, we're starting to
Speaker 12: see signs of things moving around a little bit. Liquidity
Speaker 12: is the word on everyone's lips. We really need to
Speaker 12: see some of the big exits in companies that have
Speaker 12: stayed private quite a lot longer. As the IPO window
Speaker 12: opens up, as we see more acquisitions, we think that
Speaker 12: moves through the whole stack.
Speaker 5: But I imagine in this sector, I mean, I just
Speaker 5: look at the companies that you are investing in, and
Speaker 5: I think, why does an Apple just that you know,
Speaker 5: so it doesn't have to be an IPO.
Speaker 3: No, it doesn't.
Speaker 12: And historically in bio, most of the exits were predominantly
Speaker 12: in M and A. You know, you have really market
Speaker 12: leaders in each of these different bio segments, whether it's healthcare, pharma, agriculture,
Speaker 12: industrial bio. We're not talking just healthcare that many many
Speaker 12: trillion dollar sectors depend on bio, and historically the exits
Speaker 12: have been by M and A to those leaders who
Speaker 12: are looking for the innovation and the technology to put
Speaker 12: into their commercialization. Part of why we started Genoa when
Speaker 12: we did is that we really believe that the impact
Speaker 12: of bio is now significant enough that more and more
Speaker 12: of these companies deserve to be freestanding, publicly traded, and
Speaker 12: so we're excited about those as well.
Speaker 2: How do you distinguish between I guess how does your
Speaker 2: background help you distinguish between something like AI hype and
Speaker 2: an actual piece of value.
Speaker 12: Yeah, It's part of why we like to go very early,
Speaker 12: because do you have to have the expertise to look
Speaker 12: at the raw data? You know, we read papers, we
Speaker 12: read grants, we look at posters at scientific conferences, and
Speaker 12: back to that sense of going to the fundamentals and
Speaker 12: not just believing the story is really important for making
Speaker 12: a distinction.
Speaker 3: There.
Speaker 5: I'm just looking at you know, your CV and listening
Speaker 5: to you talk.
Speaker 6: Are you from Georgia.
Speaker 12: Or I spent it for a bit of time in Georgia? Yeah,
Speaker 12: my undergrad was at Georgia Tech. My family's still.
Speaker 5: There Georgia and then Yale and now San Francisco. What
Speaker 5: is it like in San Francisco right now?
Speaker 12: San Francisco is a really unique geography. I moved there
Speaker 12: deliberately to find these kinds of companies because it's truly
Speaker 12: a melting pot for different kinds of science and technical
Speaker 12: disciplines as well as different types of businesses, people from
Speaker 12: all over the world, and so you get this culture
Speaker 12: of really free flowing ideas, a kind of yes, and
Speaker 12: let's try it, as opposed to I would say most
Speaker 12: other places in the world that tend to be a
Speaker 12: little bit closed skeptical, which is healthy, but it's helpful
Speaker 12: in that laboratory to have a culture of trying things.
Speaker 2: The venture capitalist that I interviewed last night Michael mcdono
Speaker 2: from Light Speed. He's New York. All in weird, Yeah.
Speaker 10: He.
Speaker 2: Said, New York, but he does more consumer facing.
Speaker 12: Companies, so it makes sense different different spaces. Yeah, I
Speaker 12: love New York. I lived here for three years when
Speaker 12: I was at McKenzie and then moved to Boston, which
Speaker 12: is where I got into biotech, which I think suffers
Speaker 12: by comparison to New York, and so I spent a
Speaker 12: lot of time back here. It's it's the best city
Speaker 12: in the world. However, thank you to do the work
Speaker 12: that I need to do for right now. It needs
Speaker 12: to be set up in San Francisco, and then I
Speaker 12: have the joy of coming.
Speaker 5: Back and visiting you cool.
Speaker 6: Well, we really appreciate it.
Speaker 5: He'll you come back think because it's fascinating stuff. Jenny Rook,
Speaker 5: their founder managing director at Genoa Ventures, talking to us
Speaker 5: about early stage high growth investment.
Speaker 6: The journal.
Speaker 5: Now about you let me drive? Oh no, no, no, no, who's
Speaker 5: gone to drive?
Speaker 6: Alright? Please, I'll do the travels. I want to drive.
Speaker 7: It's the question.
Speaker 1: This is the drive to the clothes.
Speaker 7: I'm timer thick. We'll drive up Chela.
Speaker 6: Don on Bloomberg Radio.
Speaker 5: All right, Matt Miller here in the Bloomberg Interactive Brokers
Speaker 5: studio with Emily Graffeo, Carol and Tim are off today.
Speaker 5: I'm looking at a market, Emily, that continues to climb higher.
Speaker 5: The Dow Jones Industrial Average up to forty and thirty six,
Speaker 5: only reading that off the top of my WI screen.
Speaker 5: But the S and P it's only up two tenths
Speaker 5: of one percent. However, it's up for the week. HCP
Speaker 5: space W shows me that the S and P is
Speaker 5: up one and a half percent this week after a
Speaker 5: two percent drop last week, and that was.
Speaker 2: After a four point six percent rise the week before that,
Speaker 2: and then a one point three percent dropped the week
Speaker 2: before that. So it has been a wild fall.
Speaker 5: Matt Miller, Yeah, absolutely, But fifty nine to sixty is
Speaker 5: the level we're looking at now, so we're really only
Speaker 5: forty points away from the big round six thousand number.
Speaker 5: We pierced it obviously in the week after the election,
Speaker 5: but came right back down. Let's get over right now
Speaker 5: to George Young. He is a portfolio manager at Villary Funds,
Speaker 5: and George, let me get your take on just first
Speaker 5: the broader market here. There was a huge bout of
Speaker 5: optimism after Donald Trump won and Republicans took the House
Speaker 5: and the Senate. It seems to have calmed down a
Speaker 5: little bit, but we're still at very high levels. Do
Speaker 5: we continue going up into the end of the year.
Speaker 10: I think we do.
Speaker 13: It's sort of a tail of two cities, however, because
Speaker 13: what you've seen in the past year or two has
Speaker 13: been the dominance of Magnificent seven. I'm sure all you
Speaker 13: listeners are keenly aware of that, but those of us
Speaker 13: who play in the small cap MidCap world have not
Speaker 13: really seen those benefits. Magnificent seven has dominated things.
Speaker 6: The S and P is up ten.
Speaker 13: Percent per year for each of the last three years.
Speaker 13: Small cap world Russell two thousand base been flat for
Speaker 13: three years. So all of a sudden in the last
Speaker 13: six months and pronounced, especially in the last ten days
Speaker 13: or so, we've seen more credibility and more viability in
Speaker 13: the small cap sector, which is great for us, those
Speaker 13: of us who are in there.
Speaker 2: Tell us about the small cap thesis here, because you're right.
Speaker 2: We saw a big rally in small caps after the election.
Speaker 2: I write about ETFs and there were a ton of
Speaker 2: people piling into ETFs that track small caps, so just
Speaker 2: a lot of money and I guess optimism here. But
Speaker 2: what is I guess the case here for buying small caps.
Speaker 13: Well, the case here is that you want to buy
Speaker 13: what's cheap, and that's nothing new. You want to buy
Speaker 13: low and sell high. And you also don't want to
Speaker 13: fall in love with the doctor. There's an old add
Speaker 13: don't fall in love with a stock. It won't love
Speaker 13: you back. Nonetheless, people have taken the magnificent seven, and
Speaker 13: I'll pick on Nvidia in particular, which happen to be
Speaker 13: down today. People are saying things like I'd never sell
Speaker 13: mind video, I love Envidio, that sort of thing. You
Speaker 13: can love grandma's pearl necklace that you inherited, but when
Speaker 13: it comes to a stock, don't fall in love with it.
Speaker 13: It's just not something that should be that emotional. It
Speaker 13: should be a very objective sort of game. You look
Speaker 13: at pe ratios, you look at any objective measures that
Speaker 13: will make a difference in what the market's going to
Speaker 13: do in the future.
Speaker 1: That's very important.
Speaker 2: Talk to us about how you're thinking about the rise
Speaker 2: in treasury yields, because that could also dent I guess
Speaker 2: small cap stocks, any stocks. Really, if we do see
Speaker 2: treasure yields continue to climb, we're now over about well,
Speaker 2: I can't pull it up, but about four point four
Speaker 2: percent on the tenure right now, right right, right.
Speaker 13: So the ten year is very liquid. You're sticking your
Speaker 13: neck out a little far buying a tenure, but that
Speaker 13: is sort of a proxy for the bond market. And
Speaker 13: remember that if you're going to buy a corporate bond,
Speaker 13: take a little bit more risk. You can get let's
Speaker 13: call it a five percent yield right now in recognizable
Speaker 13: corporate names. So that's a very big challenge for the
Speaker 13: stock market. Bond market yields are attractive right now in
Speaker 13: contrast to where they were two or three years ago,
Speaker 13: where you were buying two percent bonds, nothing to get
Speaker 13: excited about, but you wanted stability during COVID, and that
Speaker 13: made perfect sense. Now what's happened is the bond market
Speaker 13: is offering attractive yields. And it's interesting because, yes, you
Speaker 13: now know the election's over, we know who won, we
Speaker 13: know who controls the both houses of Congress, you know
Speaker 13: what the policies are like that to be, you don't
Speaker 13: quite know what the effect's going to be on the market.
Speaker 13: That's all good from a domestic standpoint, but the bond market,
Speaker 13: the US bond market is international in scope and has
Speaker 13: huge impacts worldwide. Everybody around the world trust the US
Speaker 13: treasury market, so when you see yields going up, that
Speaker 13: needs it's a harder bar for stocks. Stocks have to
Speaker 13: return more to get people to invest in them. So
Speaker 13: if the objective measures are there, then you want to
Speaker 13: buy what is compelling value right now. We see that
Speaker 13: in the small cap stocks.
Speaker 5: I saw at one point last week, I think stocks
Speaker 5: and bonds were yielding just about the exact same thing.
Speaker 5: I have a chart with both of those two lines,
Speaker 5: and they collided. I was thinking, though, you'd probably be
Speaker 5: much smarter to invest in stocks over bonds if you
Speaker 5: had to pick one or the other going into Donald
Speaker 5: Trump's second term, because he's much more likely to be
Speaker 5: passing market friendly policies. Does that make sense that something
Speaker 5: you agree with?
Speaker 7: Not exactly.
Speaker 13: I'd say some people might be better off with stocks,
Speaker 13: some people might be better off with bonds. Remember, there's
Speaker 13: a huge panoply of different investors out there. You've got
Speaker 13: the long term trust fund baby, I'll say you've got
Speaker 13: the widow that's got a limited amount of funds. What's
Speaker 13: right for everybody, it's a little bit different, but universally,
Speaker 13: i'd say introduce some bonds into your portfolio right now,
Speaker 13: specifically some corporate bonds that have some liquidity, some Ginny mays, whatever,
Speaker 13: it may be something that can respond to this potential
Speaker 13: or likely I'm going to say rise in interest.
Speaker 6: Rates so versus.
Speaker 5: Us stocks versus the rest of the world mscix us
Speaker 5: or versus bonds over a longer term chart.
Speaker 1: I get it.
Speaker 5: If you're a widow, if you're living on a fixed income,
Speaker 5: that's a different story. But for someone who's going to
Speaker 5: be invested for the medium to long term, is there
Speaker 5: really any reason to diversify. Don't you just buy us
Speaker 5: stocks and make money.
Speaker 13: Well, let's go back to the beginning of twenty twenty two,
Speaker 13: and if we've made that statement, at the beginning of
Speaker 13: twenty twenty two, the only safe, safe place to hide
Speaker 13: that year was in cash or in gold stocks. Terrible,
Speaker 13: bonds terrible. I don't care if your short term, long
Speaker 13: term bonds. You had your head handed to you.
Speaker 6: It was a tough year.
Speaker 13: I'm not saying that's going to happen again. But anytime
Speaker 13: anything looks like a certainty, that's when you need to
Speaker 13: be cautious about things. So I'd err on the side
Speaker 13: of a bit of caution, and I'd say to most listeners, Yeah,
Speaker 13: take a little, a little, a few chips off the
Speaker 13: table and put some bonds in there. It makes sense.
Speaker 2: We don't have a ton of time left, George. But
Speaker 2: I did want to ask you about Lineage. This is
Speaker 2: a company that owns four hundred and eighty two global
Speaker 2: cold storage warehouses. Why do you like to invest in
Speaker 2: that company?
Speaker 13: Well, a couple of things we went to visit one
Speaker 13: of their facilities on Monday, so I feel like I
Speaker 13: know it pretty well. They have the state of the
Speaker 13: art technology. They have a Federal inspector in their office
Speaker 13: who houses there because they know how much shipment goes
Speaker 13: through their facility. Anything that you eat has to be
Speaker 13: maintained correctly, and they learned during COVID how to turn
Speaker 13: inventory and get food in and get out. Think chicken,
Speaker 13: think vegetables, et cetera. And these can be a light
Speaker 13: freeze means it's still nice and healthy. But they dominate
Speaker 13: the landscape. They just went public in July. New company.
Speaker 13: It's based as an aerit so it has a two
Speaker 13: percent yeld right now, that's eniacrease. So unlike most reach
Speaker 13: and have you're caken it too. You get growth and
Speaker 13: you get income.
Speaker 7: I think it's a great.
Speaker 3: Company, all right.
Speaker 2: George Young, partner and portfolio manager at Villary and Co.
Speaker 2: On Zoom from New Orleans. Thank you for joining us.
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