WEBVTT - Musk Hinges Twitter Deal on Bot Claims 0:00:01.800 --> 0:00:04.440 This is Bloomberg Business Week. I'm Carol Masser and I'm 0:00:04.440 --> 0:00:07.280 Bloomberg Quick Takes Tim Stanovk. We're here every day bringing 0:00:07.280 --> 0:00:09.840 you the latest news from the world of business and finance, 0:00:09.840 --> 0:00:13.640 plus technology, politics, economics, all purtnising the power of Business 0:00:13.640 --> 0:00:17.119 Week reporters and editors, not to mention our journalists and 0:00:17.160 --> 0:00:20.000 analyst in more than one twenty countries. You can download 0:00:20.000 --> 0:00:23.239 Bloomberg Business Week at iTunes, SoundCloud, or Bloomberg dot com. 0:00:23.400 --> 0:00:25.160 You can also listen to our radio show at two 0:00:25.160 --> 0:00:27.840 pm Eastern Time on Bloomberg Radio, or watch us on 0:00:27.880 --> 0:00:32.640 YouTube search Bloomberg Global News. Well, it's the saga that's 0:00:32.760 --> 0:00:34.640 playing out in real time, and a big part of 0:00:34.680 --> 0:00:38.160 it is because, well, Elon Musk, he just cannot stop 0:00:38.200 --> 0:00:41.400 tweeting about it. Just this afternoon, Musk suggested via Twitter, 0:00:41.600 --> 0:00:44.720 of course, that the SEC should investigate whether Twitter's claim 0:00:44.800 --> 0:00:47.159 that only five p of its users are bots, This 0:00:47.280 --> 0:00:49.559 coming just a day after he said the idea was 0:00:49.560 --> 0:00:53.080 on hold until he got more information on said bots. 0:00:53.080 --> 0:00:55.760 And in the meantime, Twitter is just hemorrhaging senior employees, 0:00:55.760 --> 0:00:58.400 three more leaving the company. According to our team at 0:00:58.520 --> 0:01:02.000 Bloomberg News, let's get into it with Bloomberg Intelligent senior 0:01:02.000 --> 0:01:04.840 technology analyst Man Deep saying, who joins us live in 0:01:04.840 --> 0:01:08.479 the Bloomberg Interactive Broker studios in New York. Man Deep, 0:01:09.200 --> 0:01:11.840 I don't know about you, but it just seems like 0:01:12.200 --> 0:01:14.960 each day that passes, this deal is looking less and 0:01:15.040 --> 0:01:18.080 less likely. Well, so you have to look at it 0:01:18.120 --> 0:01:21.520 from two different aspects. One is the funding aspect. So 0:01:21.760 --> 0:01:25.360 from a funding perspective, Ellen was by himself and he 0:01:25.360 --> 0:01:28.000 announced the deal. Now he has six point five billion 0:01:28.040 --> 0:01:31.840 dollars of commitment from Cope Partners. Now that's not a 0:01:31.840 --> 0:01:34.320 big deal because he still needs to raise, you know, 0:01:34.760 --> 0:01:38.440 an additional twelve point five billion to offset that margin loan. 0:01:38.520 --> 0:01:40.920 So he doesn't want to do the margin loan anymore. 0:01:41.280 --> 0:01:43.759 And that is where he's struggling because he has said 0:01:43.959 --> 0:01:47.200 he's not going to sell additional Testla stock. So there 0:01:47.280 --> 0:01:49.480 is that funding gap. But at least he has got 0:01:49.520 --> 0:01:52.160 that six point five billion additional commitment, So that's a 0:01:52.280 --> 0:01:56.240 positive in terms of his ability to close. The other 0:01:56.320 --> 0:02:00.680 aspect is he waved the due diligence claw and now 0:02:00.760 --> 0:02:04.520 he's you know, talking about bots. But okay, yes, he 0:02:04.560 --> 0:02:08.120 waived officially waived the due diligence clause. But anyone who's 0:02:08.160 --> 0:02:11.440 read anything about Twitter in public filings you don't necessarily 0:02:11.440 --> 0:02:13.720 need due diligence to do that, has seen the language 0:02:13.760 --> 0:02:15.680 that Twitter has talked about when it comes to five 0:02:15.680 --> 0:02:18.720 percent of its users or bots. Well, so now they're 0:02:18.760 --> 0:02:22.799 talking about very fine things. Is the number of accounts 0:02:22.840 --> 0:02:25.280 equal to the number of m d A use And 0:02:25.320 --> 0:02:28.640 they're saying the m d A use the monthly daily 0:02:28.680 --> 0:02:31.640 active users. Yes, five percent, our bods. But if you 0:02:31.760 --> 0:02:34.800 compared to the total number of accounts, and he specifically 0:02:34.800 --> 0:02:38.680 took the example that the most like tweet on Twitter 0:02:39.080 --> 0:02:42.120 has about five million likes, so the total m d 0:02:42.280 --> 0:02:45.960 YE use around two dred ten million. How can it 0:02:46.080 --> 0:02:48.520 not be more than five million? Five million? I heard 0:02:48.560 --> 0:02:51.320 him say this at this tech event yesterday, the summit, 0:02:51.400 --> 0:02:54.280 and my immediate thought was, well, maybe only five million 0:02:54.320 --> 0:02:59.000 people like the tweet. Okay, So if you compared to YouTube, 0:02:59.280 --> 0:03:03.320 YouTube has one billion daily active users, the most like 0:03:03.720 --> 0:03:06.520 video on YouTube has got a lot more like, so 0:03:06.600 --> 0:03:11.000 he does views as well. I mean again, now we're 0:03:11.000 --> 0:03:16.040 getting into very fine distinction between saying yesterday, So that's 0:03:17.040 --> 0:03:20.240 this is the point about diligence, Like now he's saying 0:03:20.360 --> 0:03:23.320 total number of accounts isn't equal to the total number 0:03:23.360 --> 0:03:27.560 of daily active users, and then he's trying to kind 0:03:27.560 --> 0:03:30.239 of tie it with the number of followers, so that 0:03:30.680 --> 0:03:33.840 we are playing with the different terms here and and 0:03:33.880 --> 0:03:37.280 that is where the fine language the contract, the agreement 0:03:37.360 --> 0:03:41.320 he signed comes into play to create Well, I was 0:03:41.320 --> 0:03:43.000 going to say, aren't just supposed to do your due 0:03:43.000 --> 0:03:46.720 diligence before you make the offer? You've covered M and before. Yeah, 0:03:46.760 --> 0:03:49.840 but look, I mean this the way this deal was 0:03:49.880 --> 0:03:53.760 signed was like, you know, one fine day the board said, oh, 0:03:54.000 --> 0:03:57.480 we're instituting a poison pill. The next weekend they said, 0:03:57.760 --> 0:04:01.440 we are, you know, merging with We're accepting his offer. 0:04:01.560 --> 0:04:04.200 So I don't think there was a lot of diligence 0:04:04.240 --> 0:04:07.280 downe from either side. But we are at a point 0:04:07.320 --> 0:04:10.160 where the language really matters, and he may have to 0:04:10.240 --> 0:04:13.960 pay the one billion you know, breakup fee, but then 0:04:14.040 --> 0:04:16.760 he should be able to renegotiate it at a lower 0:04:16.800 --> 0:04:20.240 price because the market valuations have compressed so much. Look 0:04:20.279 --> 0:04:23.600 at Snapchat trading at thirty five thirty seven billion. How 0:04:23.640 --> 0:04:26.240 do you justify paying forty four billion for Twitter? Well, 0:04:26.320 --> 0:04:28.240 let's bring it back to Twitter here and talk about 0:04:28.240 --> 0:04:31.479 the fundamentals, because it's not just about the daily users 0:04:31.480 --> 0:04:33.159 and and the likes and and the tweets and all 0:04:33.160 --> 0:04:35.680 of that. It's also about how many people you actually 0:04:35.680 --> 0:04:37.760 have at the company. We talked about some senior level 0:04:37.800 --> 0:04:41.400 officials up leaving and resigning, but I believe there was 0:04:41.440 --> 0:04:44.560 a round of layoffs before that as well. Is Twitter 0:04:44.640 --> 0:04:48.080 downsizing ahead of this potential deal. Yeah, so a lot 0:04:48.400 --> 0:04:51.839 was made about, you know, their bloated cost structure and 0:04:51.920 --> 0:04:56.760 how their revenue per employee was much lower than the competitors. 0:04:57.160 --> 0:05:00.000 So just while you said bloated cost structure, really quickly 0:05:00.080 --> 0:05:02.520 let you finish. But we did actually have headlines from Netflix, 0:05:02.560 --> 0:05:05.560 by the way, also saying that they're addressing their own 0:05:05.760 --> 0:05:08.400 cost growth and they let around a hundred fifty employees 0:05:08.400 --> 0:05:10.960 go today. But back to your point, So, I think 0:05:11.000 --> 0:05:14.360 that's a great point that every tech company is thinking about, 0:05:14.480 --> 0:05:17.599 are we overhired right now? And look, this is not 0:05:17.680 --> 0:05:21.720 a high growth environment anymore. So companies that are not profitable, 0:05:22.160 --> 0:05:24.200 or in the case of Twitter, if they're issuing more 0:05:24.240 --> 0:05:26.960 dead they have to think about interest payments and free 0:05:26.960 --> 0:05:31.279 cash flow. Now suddenly you're thinking about optimizing the cost structure, 0:05:31.400 --> 0:05:34.160 and that just goes to show that Twitter won't be 0:05:34.200 --> 0:05:37.320 a high growth company even if it goes private. They'll 0:05:37.320 --> 0:05:40.360 be focused on optimizing the free cash flow. That just 0:05:40.440 --> 0:05:43.479 means they're not going to grow. But that's what he 0:05:43.560 --> 0:05:46.640 said in his slide deck to potential investors recently, was 0:05:46.720 --> 0:05:49.560 that he wants to see Twitter users grow. And forgive me, 0:05:49.600 --> 0:05:52.320 but I think in four years to a billion up 0:05:52.320 --> 0:05:55.520 from two million today. Yeah, so that's an ambitious plan. 0:05:55.600 --> 0:05:59.680 It's centered around growing subscription revenue, which is again not 0:05:59.800 --> 0:06:02.880 the norm when it comes to you know, social media companies. 0:06:03.400 --> 0:06:06.880 And look, I think a time will only tell whether 0:06:06.920 --> 0:06:09.599 he will be successful. But I find it hard to 0:06:09.640 --> 0:06:13.080 imagine that if Twitter has thirteen billion dollars of debt 0:06:13.440 --> 0:06:16.000 and it has to make all these interest payments, that 0:06:16.120 --> 0:06:18.840 they will continue to invest so aggressively in all these 0:06:18.839 --> 0:06:22.360 new initiatives even if they go private. So, Man, Deep 0:06:22.360 --> 0:06:24.159 by no time will tell you just said that, but 0:06:24.200 --> 0:06:25.800 I gotta put you on the spot. Here does the 0:06:25.839 --> 0:06:27.920 deal still happen? And if you ask what what price? 0:06:28.680 --> 0:06:31.599 I think he's going to pay a breakup fee of billion, 0:06:32.000 --> 0:06:35.880 then the deal happens at around thirty to thirty five billion, 0:06:36.440 --> 0:06:40.200 and uh it will involve more co partners, so he 0:06:40.279 --> 0:06:42.719 still needs to address that funding gap. But if the 0:06:42.760 --> 0:06:45.640 price comes down, then at least the margin loan is 0:06:45.680 --> 0:06:48.560 taken care of and he needs more private equity partners 0:06:48.560 --> 0:06:51.640 to pitch in with the remainder amount. There you have it, well, man, 0:06:51.720 --> 0:06:55.440 Deep it's trading right now at about a thirty point 0:06:55.480 --> 0:06:59.039 two billion dollar market cap, so uh yeah, this is 0:06:59.040 --> 0:07:01.920 about where you think the deal. We'll go through Mandy Sing, 0:07:02.120 --> 0:07:06.000 a senior technology analyst for Bloomberg Intelligence, joining us live 0:07:06.000 --> 0:07:09.080 in the Bloomberg Interactive Broker's studio in New York. You're 0:07:09.080 --> 0:07:12.600 listening to Bloomberg Radio, and this is Bloomberg Business Week. 0:07:13.400 --> 0:07:17.000 You're listening to Bloomberg Business Week with Carol Messer and 0:07:17.080 --> 0:07:21.520 Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Just in 0:07:21.560 --> 0:07:23.640 the last hour, we learned that Netflix is laying off 0:07:23.640 --> 0:07:26.160 a hundred and fifty employees. The company is saying that's 0:07:26.160 --> 0:07:29.080 slowing revenue growth means that it's also having to slow 0:07:29.280 --> 0:07:32.360 its cost growth as a company. In recent weeks, we've 0:07:32.360 --> 0:07:35.200 seen layoffs at robin Hood, hiring freezes and Rescented offers 0:07:35.200 --> 0:07:37.640 a Twitter and a focus on cash flow at Uber. 0:07:37.880 --> 0:07:40.800 All of this to say, the belt is tightening and 0:07:40.880 --> 0:07:43.560 startups are no exception after years of easy money and 0:07:43.560 --> 0:07:45.760 big growth during the pandemic. Well, in the words of 0:07:45.800 --> 0:07:48.960 one venture capitalist, the world is falling apart and we 0:07:49.000 --> 0:07:52.400 need to act accordingly. Joe Weber is editor at Bloomberg 0:07:52.480 --> 0:07:55.200 business Week. He's with us in the Bloomberg Interactive Broker studio. 0:07:55.480 --> 0:07:59.280 Lizett Chapman is the author of Today's Big Take. Also, 0:07:59.440 --> 0:08:02.320 her store is featured in the upcoming issue of Business 0:08:02.320 --> 0:08:05.600 Week magazine. You can read it now at Bloomberg dot 0:08:05.640 --> 0:08:08.200 com and on the Bloomberg terminal. Is that, his technology 0:08:08.200 --> 0:08:10.600 reporter at Bloomberg News was that joins us on the 0:08:10.600 --> 0:08:13.640 phone from San Francisco, Joel, I want to start with you, 0:08:13.880 --> 0:08:16.760 what is the temperature like in Silicon Valley right now? 0:08:17.160 --> 0:08:19.520 It was kind of balmy, and then all of a 0:08:19.560 --> 0:08:22.840 sudden it got a little more frigid. And you know, 0:08:22.840 --> 0:08:25.360 when you when you think about what's been happening in 0:08:25.360 --> 0:08:27.120 the markets here today, and I was like, this is 0:08:27.160 --> 0:08:30.240 should not come as a total surprise. But I think 0:08:30.440 --> 0:08:33.360 what Lazette got into here was like exactly what the 0:08:33.400 --> 0:08:35.880 mood has been like there's a there's a ton of money, 0:08:36.520 --> 0:08:38.920 still a lot of dry powder, and yet there's you know, 0:08:38.960 --> 0:08:42.240 the VC world and how they interface with startups has 0:08:42.280 --> 0:08:45.679 slowly begun to change. And maybe that slowly, maybe it 0:08:45.720 --> 0:08:47.840 picked up a little bit here more recently. Was that 0:08:47.920 --> 0:08:51.720 what what did you discover as you were reporting this story? Yeah, 0:08:52.200 --> 0:08:54.280 I think, like you said, it was more than bombing, 0:08:54.360 --> 0:08:56.240 it was white, white hot. I mean it was it 0:08:56.320 --> 0:08:59.880 was scorching. Last year, you know, we had record amount 0:09:00.280 --> 0:09:03.680 of funding and these mega rounds that were pushed all 0:09:03.720 --> 0:09:07.000 of these levels you know, of of um, the amount 0:09:07.040 --> 0:09:08.920 of VC in the market and the amount that started 0:09:09.040 --> 0:09:12.360 to raise two historic you know, twenty plus year level 0:09:12.400 --> 0:09:14.800 things never seen before. And just like you said, and 0:09:14.880 --> 0:09:16.800 just like you know, we were talking on the intro 0:09:16.960 --> 0:09:20.959 here that NASA dec you know, you know, decline in 0:09:21.040 --> 0:09:24.120 the public market squeezes pushing the late stage companies down. 0:09:24.200 --> 0:09:27.160 So it's huge hundred million dollar plus grounds that were 0:09:27.480 --> 0:09:32.120 almost daily in one we're not seeing those happening anymore. 0:09:32.120 --> 0:09:34.520 That's slowing down in a major way. And all of 0:09:34.559 --> 0:09:36.800 these startups that we're looking to raise that higher and 0:09:36.840 --> 0:09:40.720 higher evaluations um are are not trying to do that anymore. 0:09:40.760 --> 0:09:43.000 They're doing a lot more slowly. There's a big humbling 0:09:43.160 --> 0:09:45.839 of all of these unicorns, and it's starting to trickle 0:09:45.840 --> 0:09:49.640 down to even earlier stage, although not quite yet. Humbling 0:09:49.760 --> 0:09:51.640 starting to trickle down. I've got to ask about the 0:09:51.640 --> 0:09:56.400 timeline of that. How much farther can this go? Oh, 0:09:56.440 --> 0:09:58.600 it could get really bad. Um, there's a lot of 0:09:58.679 --> 0:10:01.400 you know, like Joe was saying that investor sentiment right 0:10:01.400 --> 0:10:04.559 here is the most negative it's been in twenty plus years. 0:10:04.640 --> 0:10:08.760 I mean, um, you know, PayPal co founder David Sachs, 0:10:08.800 --> 0:10:12.200 who is now a partner and investment firm Craft Ventures. Um, 0:10:12.280 --> 0:10:14.720 you know, put that out there and people were very 0:10:14.800 --> 0:10:18.120 quick to pile on with that. Bill Gurley of Benchmark 0:10:18.160 --> 0:10:21.439 big uber investor that he was known for that that 0:10:21.600 --> 0:10:25.520 big investment heated. UM. He's also said that it's it. 0:10:25.559 --> 0:10:27.520 He's been calling this for for many years, like this 0:10:27.559 --> 0:10:29.640 bull market is not sustainable. But there's just a real 0:10:29.679 --> 0:10:33.760 reckoning that um, you know, like that there is a 0:10:35.360 --> 0:10:39.640 overvaluation in the private market and they now are being 0:10:39.679 --> 0:10:43.520 called upon to justify those valuations. In many cases they can't. 0:10:44.000 --> 0:10:47.480 But Lizette it's it's not all bad news as you report. 0:10:47.520 --> 0:10:49.920 There is a silver lining here, at least according to 0:10:49.920 --> 0:10:54.040 some vetric capitalists who have lived through other big Googles. 0:10:54.040 --> 0:10:58.480 There's always a silver lining exactly. I mean, look, they say, hey, 0:10:58.480 --> 0:11:02.960 some of the best companies around we're started during recessions 0:11:03.080 --> 0:11:05.080 or the fact that there is this belt tightening that 0:11:05.120 --> 0:11:06.440 I was talking about in the intro and that you 0:11:06.440 --> 0:11:09.240 wrote about with these larger companies. That means that the 0:11:09.320 --> 0:11:12.640 Amazons and Microsoft's and metal platforms, they're not going to 0:11:12.720 --> 0:11:15.080 be working on all the innovative stuff that they would 0:11:15.120 --> 0:11:19.480 be throwing money at necessarily. That's exactly right. I mean 0:11:19.480 --> 0:11:23.200 you sound like a venture capitalist, Yeah you do, and 0:11:23.880 --> 0:11:27.520 fair venture capitalists get paid to look for where they 0:11:27.520 --> 0:11:30.320 can make money, where there's opportunity, and right now, the 0:11:30.360 --> 0:11:34.800 focus is firmly on early stage companies because there's seven 0:11:34.800 --> 0:11:37.200 to ten years before they have to go public. It's 0:11:37.200 --> 0:11:40.760 not like these you know, late stage companies um that 0:11:41.120 --> 0:11:43.880 you know, um, you know, people are plowing hundreds of 0:11:43.880 --> 0:11:46.320 millions dollars into The risk is a lot less when 0:11:46.360 --> 0:11:48.960 you're only writing a two million dollars check, you know, 0:11:49.440 --> 0:11:51.680 and if one or two of those hundred checks that 0:11:51.720 --> 0:11:54.960 you right survive and thrive. Well, then great, you've got 0:11:54.960 --> 0:11:58.160 your next Airbnb, You've got your next Uber, You've got 0:11:58.200 --> 0:12:00.360 your next you know, insta cart. All these were founded 0:12:00.440 --> 0:12:02.520 during the downturn UM you know, to your point into 0:12:02.559 --> 0:12:04.720 DC points. But you know, are they going to be 0:12:04.720 --> 0:12:07.000 able to find the right ones and you know help 0:12:07.080 --> 0:12:09.920 them through? You know this all the way to public markets. 0:12:09.960 --> 0:12:12.280 You know, it's the same same thing that it's the 0:12:12.320 --> 0:12:15.120 same dynamic that exists even during an uptime. But right 0:12:15.120 --> 0:12:18.040 now this is where we sees are seeing that they 0:12:18.040 --> 0:12:20.400 can make the most money and it's really no skin 0:12:20.440 --> 0:12:22.320 off their nose to write a two million dollars check 0:12:22.360 --> 0:12:25.760 when they've got a three billion dollars funds. I'm curious, 0:12:25.960 --> 0:12:29.600 because you talked to so many people in the VC side, 0:12:29.600 --> 0:12:33.360 but also in startup playing. I'm curious how you know 0:12:33.559 --> 0:12:35.480 there's been a number of layoffs, there could be more 0:12:35.559 --> 0:12:37.920 layoffs at some of these companies. How has it gone 0:12:37.920 --> 0:12:40.400 over for the people who have you know, everything was 0:12:40.480 --> 0:12:42.920 quite hot until it wasn't. What what have they What's 0:12:42.960 --> 0:12:44.320 it been like to be on the receiving end of 0:12:44.320 --> 0:12:48.600 this stuff? It's been really confusing, um for a lot 0:12:48.720 --> 0:12:51.760 of employees who see that their companies raised you know, 0:12:51.800 --> 0:12:55.120 in one case, you know, you know, forty million dollars 0:12:55.360 --> 0:12:57.679 um just just a few months ago, and they were 0:12:57.679 --> 0:13:00.360 adding all these benefits you know, this is new um 0:13:00.800 --> 0:13:04.120 and uh, the you know both weight loss fitness company, 0:13:04.200 --> 0:13:06.160 and and and then they went ahead and they laid 0:13:06.240 --> 0:13:08.960 up you know, hundreds of people. So there's a real 0:13:09.080 --> 0:13:11.360 reckoning between that saying Okay, well, what are your priorities. 0:13:11.360 --> 0:13:13.640 You just you know, raised all this money. You were 0:13:13.679 --> 0:13:19.000 preparing to scale really fast into to grow into that valuation. 0:13:19.200 --> 0:13:21.880 You can't now you're cutting back. UM. So there's a 0:13:21.880 --> 0:13:25.080 lot of fear uncertainty. But then at the early stage, 0:13:25.120 --> 0:13:27.880 like I talked to a founder at a party um 0:13:28.000 --> 0:13:30.120 last week at at a venue here in San Francisco 0:13:30.160 --> 0:13:32.319 that opened up for the first time since it shutdown 0:13:32.320 --> 0:13:34.480 because of covid Um. But this founder was saying that 0:13:34.800 --> 0:13:37.440 he's a very early stage health tech company and he 0:13:37.480 --> 0:13:40.920 already he already has talked to dozens of investors, more 0:13:40.960 --> 0:13:43.240 than a dozen investors, and he's got quite a few 0:13:43.320 --> 0:13:47.160 term sheets that keeps selecting between. So it's really taled 0:13:47.280 --> 0:13:49.760 to two markets. There's the late stage and there's the 0:13:49.800 --> 0:13:55.280 early stage, the late stage, lots of belt tightening, layoff, fear, denial, confusion, 0:13:55.320 --> 0:13:58.119 I think is the way one VC described founders reactions 0:13:58.160 --> 0:14:01.880 to having to humble their expectations and kind of pull 0:14:01.960 --> 0:14:03.760 it in for this reception what could be a very 0:14:04.120 --> 0:14:07.800 you know, much much longer correction UM. And then early 0:14:07.880 --> 0:14:11.880 stage companies UM are still about a team in a dream, right, 0:14:11.920 --> 0:14:13.520 and if they've got a good idea and if they 0:14:13.520 --> 0:14:16.800 can find product market fit. Talent is easier to find, 0:14:16.960 --> 0:14:19.120 and it's a lot cheaper to start a company in 0:14:19.120 --> 0:14:21.160 a downturn. The team and a dream. That's us in 0:14:21.160 --> 0:14:24.280 here in the Bloomberg. There's a T shirt there that 0:14:24.320 --> 0:14:27.920 tim Yeah, definitely, Oh yeah, that's that will. That will 0:14:27.960 --> 0:14:30.240 just sort of like, you know, put the icing on 0:14:30.280 --> 0:14:33.000 the cake. When it comes to my venture capital persona, 0:14:33.400 --> 0:14:36.000 Lizette Chapman, love it when you join us on a 0:14:36.000 --> 0:14:39.440 Bloomberg business week. She's technology reporter, she's venture capital reporter. 0:14:39.480 --> 0:14:42.440 Excuse me for Bloomberg News on the phone from San Francisco. 0:14:42.520 --> 0:14:44.720 It's her big take today. It is the big take. 0:14:44.920 --> 0:14:47.160 Check it out. High flying startups feel the pain of 0:14:47.200 --> 0:14:50.280 a long predicted downturn. It's featured give the upcoming issue 0:14:50.320 --> 0:14:53.080 of Business Week magazine. Joe Weber is the editor of 0:14:53.120 --> 0:14:55.640 Bloomberg Business Week. He also joined us in the Bloomberg 0:14:55.720 --> 0:15:04.600 Interactive Broker Studios. This is Bloomberg Radio. This is Bloomberg 0:15:04.600 --> 0:15:08.280 Business Week with Carol Messer and Bloomberg Quick Takes Tim 0:15:08.360 --> 0:15:13.360 Stinovic on Bloomberg Radio. Well, Walmart shares are down eleven 0:15:13.480 --> 0:15:16.520 point three right now. They're currently having their worst day 0:15:16.520 --> 0:15:19.400 since nineteen seven and, in fact, at their lows, the 0:15:19.440 --> 0:15:24.320 worst day since nineteen seventy four. This after the company 0:15:24.400 --> 0:15:27.960 cited rising expenses from supply chain that includes fuel, that 0:15:28.040 --> 0:15:31.240 includes food. The retailer is going to balance pricing with 0:15:31.280 --> 0:15:34.120 a need for profit growth. That's according to Walmart CEO 0:15:34.400 --> 0:15:37.760 Doug McMillan. Let's get into it with Jennifer bartoushas senior 0:15:37.800 --> 0:15:42.400 retail stables and packaged food analysts at Bloomberg Intelligence. Jennifer 0:15:42.560 --> 0:15:46.520 joins us from our Princeton, New Jersey bureau. Uh, Jennifer, 0:15:46.560 --> 0:15:48.320 good to have you with us. You've had a few 0:15:48.320 --> 0:15:51.840 hours to digest this report from from Walmart. Give us 0:15:51.840 --> 0:15:54.640 your takeaways. Well, I think one of the things that 0:15:54.760 --> 0:15:57.040 is is important to remember is that part of the 0:15:58.120 --> 0:16:00.720 myths that Walmart had today was selfa afflicted and it 0:16:00.800 --> 0:16:03.320 really comes back to how well they were able to 0:16:03.360 --> 0:16:07.240 manage their own UM forecasting for things like labor, which 0:16:07.240 --> 0:16:09.720 was a big component of the of the profit missed today, 0:16:10.160 --> 0:16:14.160 and further understanding where that consumer is in terms of 0:16:14.160 --> 0:16:17.480 their shopping behavior and how they're changing their patterns. UM. 0:16:17.840 --> 0:16:20.640 Because the retailer seemed a little surprised that some of 0:16:20.720 --> 0:16:24.720 their their consumers were pushing more of their spending into food. UM. 0:16:24.720 --> 0:16:27.960 But that shouldn't necessarily have been a huge surprise. Jennifer 0:16:27.960 --> 0:16:32.480 bartoshes UM. Why was this so surprising to investors? Though? 0:16:32.520 --> 0:16:35.280 If if this shouldn't have necessarily been such a surprise 0:16:35.360 --> 0:16:37.120 to two people who have been paying close attention to 0:16:37.120 --> 0:16:40.160 the company, then why are shares getting crushed? Well, the 0:16:40.200 --> 0:16:43.280 shares are down because the company really missed a couple 0:16:43.320 --> 0:16:46.240 of key things. UM. When I say it was self inflicted, 0:16:46.600 --> 0:16:49.560 you know, there were things that investors couldn't have anticipated, 0:16:49.640 --> 0:16:52.920 and so the profit miss really did was really a 0:16:53.000 --> 0:16:57.200 surprise because people didn't know that Walmart hadn't efficiently you know, 0:16:57.800 --> 0:17:00.800 managed their labor force in the getting of the year, 0:17:01.120 --> 0:17:03.880 you know, or that they were not able to offset 0:17:03.920 --> 0:17:06.800 some of the costs of fuel through more dynamic pricing changes. 0:17:07.240 --> 0:17:09.320 And so those are some of the operational things that 0:17:09.359 --> 0:17:11.399 I think people take for granted that the that the 0:17:11.400 --> 0:17:13.760 company is on top of and the fact that it 0:17:13.800 --> 0:17:16.639 had such a large toll and profits was really driving 0:17:16.680 --> 0:17:19.560 the surprise. Today, Jennifer, I have to ask about the 0:17:19.600 --> 0:17:21.920 dollar story. I come onto the show all the time 0:17:21.920 --> 0:17:25.720 and bothered him and Carol with all my dollar You 0:17:25.800 --> 0:17:28.320 love currencies. I do love currencies. I wish we had 0:17:28.320 --> 0:17:30.400 a currency show. It would it would be great. But 0:17:30.960 --> 0:17:33.359 the reason I ask is because Brendan Case made a 0:17:33.440 --> 0:17:35.920 very strong point this morning, and he said that international 0:17:36.000 --> 0:17:41.040 sales fell by about and he related it to the dollar. 0:17:41.200 --> 0:17:44.080 I'm curious, if you're looking at forecasts on Wall Street 0:17:44.119 --> 0:17:47.440 for a stronger dollar in thanks to a very hawkersh 0:17:47.440 --> 0:17:51.199 federal reserve, how much does that eat into walls Walmart's 0:17:51.520 --> 0:17:54.679 bottom line. Well, it certainly does have an impact UM. 0:17:54.800 --> 0:17:56.879 But what I will also say is that part of 0:17:57.160 --> 0:18:01.680 the decrease in in international revenue UM from dovestitures UM, 0:18:01.760 --> 0:18:04.240 so that there's no longer the size of the operation 0:18:04.320 --> 0:18:06.520 is no longer the same as it was before. UM, 0:18:06.560 --> 0:18:09.240 So part of the decrease was due to that UM. 0:18:09.320 --> 0:18:11.440 But the strength of the dollar is something that when 0:18:11.800 --> 0:18:15.840 especially because the largest UM overseas components for Walmart right 0:18:15.840 --> 0:18:19.200 now are in Mexico China. UM, you know that that 0:18:19.280 --> 0:18:22.560 dollar exchange rate does does make a meaningful impact on 0:18:22.560 --> 0:18:25.520 the bottom line. One thing that I wanted to talk 0:18:25.520 --> 0:18:29.000 about with you is, and we love hearing from Walmart 0:18:29.040 --> 0:18:31.600 and other large retailers because we get kind of a 0:18:31.600 --> 0:18:35.119 good read on the American consumer. There was some interesting 0:18:35.200 --> 0:18:38.720 nuggets about what consumers are buying right now. The idea 0:18:38.800 --> 0:18:42.320 that they're moving more towards generics or you know, buying 0:18:42.400 --> 0:18:46.320 smaller portions. How did you read into that? So when 0:18:46.320 --> 0:18:48.639 I listened to that, what I really think of is 0:18:48.680 --> 0:18:51.840 that they're really seeing a bifurcation of the consumer in 0:18:51.880 --> 0:18:54.560 the United States. UM. You know, we had home Depot 0:18:54.600 --> 0:18:59.040 report earlier today where they had a positive surprise. Right UM, 0:18:59.119 --> 0:19:01.920 people there were spent thing on the Walmart side. The 0:19:01.920 --> 0:19:04.879 the idea that people are trading down, or more importantly, 0:19:04.920 --> 0:19:07.480 that there are fewer items in the basket when they're 0:19:07.560 --> 0:19:10.960 checking out. That to me signals that those those consumers 0:19:11.000 --> 0:19:12.840 who are on the mid to lower end of the 0:19:12.880 --> 0:19:16.919 income scale are really starting to fill a pinch because 0:19:16.920 --> 0:19:21.200 of inflation or because of inflation is a big is 0:19:21.200 --> 0:19:22.840 a very big part of it, because if you think 0:19:22.880 --> 0:19:25.000 about it, in the last year and a half, a 0:19:25.080 --> 0:19:29.160 large swath of that population had meaningful pay rises. So 0:19:29.359 --> 0:19:32.320 the the the average you know, paper hour has gone 0:19:32.359 --> 0:19:34.520 up quite a bit. Um. There was some relief in 0:19:34.600 --> 0:19:36.879 terms of rent and things like that, and so people 0:19:36.960 --> 0:19:39.119 had more money, and they had stimulus funds in their 0:19:39.160 --> 0:19:42.159 pockets as well. Um, but inflation has gone up at 0:19:42.160 --> 0:19:45.560 a point to a pace where they're there for a while. 0:19:46.119 --> 0:19:49.520 The higher the higher hourly pay helped offset some of 0:19:49.560 --> 0:19:51.920 that inflation. But we may be hitting that inflection point 0:19:51.960 --> 0:19:55.560 where it just isn't doing that anymore. It's interesting that 0:19:55.600 --> 0:19:58.400 you talk about the lower income scale because I also 0:19:58.440 --> 0:20:00.399 think when I think of Walmart, I also think of 0:20:00.560 --> 0:20:02.720 the supercenter I lived by and close by, and they 0:20:02.720 --> 0:20:05.800 had a gas station as well. Something that Walmart talked 0:20:05.840 --> 0:20:08.840 about was the fuel part of it, how it's eating 0:20:08.840 --> 0:20:12.240 into their margins. But for the lower income crew that 0:20:12.359 --> 0:20:15.560 wants to or needs to actually fill up their gas tank, 0:20:16.320 --> 0:20:18.280 Walmart is kind of the go to place to do that. 0:20:18.359 --> 0:20:20.320 Can you square the two for us when it comes 0:20:20.320 --> 0:20:23.240 to fuel prices, we have about thirty seconds. Sure. So 0:20:23.320 --> 0:20:25.800 when it comes to fuel prices, obviously, the more you 0:20:25.800 --> 0:20:27.400 have to pay to put in your tank, the less 0:20:27.440 --> 0:20:30.640 you have to feed your your yourself or your family. Um. 0:20:30.680 --> 0:20:32.440 And so where it comes you know, where it comes 0:20:32.440 --> 0:20:34.760 to play is that Walmart plays in that space where 0:20:34.800 --> 0:20:37.040 people can consolidate their trips and maybe they don't go 0:20:37.080 --> 0:20:39.440 to the grocery store into Walmart, but they shop only 0:20:39.480 --> 0:20:42.200 at Walmart because of the price. So that's that's how 0:20:42.240 --> 0:20:44.480 you you can get those two to kind of come 0:20:44.520 --> 0:20:48.439 together and see where the consumer is. Jennifer, thank you 0:20:48.480 --> 0:20:52.159 so much for joining us. That's Jennifer Bartashes, senior retail, 0:20:52.200 --> 0:20:56.520