Speaker 1: This is Bloomberg Business Week inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news as it happened. Sloomberg
Speaker 1: Business Week with Carol Messier and Bloomberg Quick Takes Tim
Speaker 1: stenovic on Bloomberg Radio. Hi, everyone, Welcome to the weekend
Speaker 1: edition of Bloomberg Business Week. My co host Tim Stenovik
Speaker 1: is off in what was another eventful week for investors.
Speaker 1: No summer duldrums for sure. Now the big economic news
Speaker 1: of our week something we addressed with many of our guests.
Speaker 1: The latest CPI and pp I prints, both headline and
Speaker 1: core coming in better than expected in the month of July.
Speaker 1: Even so, with a still hot headline inflation reading on
Speaker 1: CPI of eight point five percent year of a year,
Speaker 1: feteficials are expected to continue on a path of raising
Speaker 1: interest rates. Also this week, a major legislative policy initiative
Speaker 1: four hundred thirty seven billion dollars to bring down America's deficit,
Speaker 1: healthcare costs and carbon emissions. Head On our broadcast, we
Speaker 1: catch up with the CEO of Plug Power on what
Speaker 1: it all means for key climate change initiatives. And the
Speaker 1: company's business and Green Hydrogen. Will also hear from the
Speaker 1: head of H and R Block on the health of
Speaker 1: the American consumer and the company's blistering share price gains,
Speaker 1: plus the CEO of Trovago on the persistently high cost
Speaker 1: of travel and the outlook for the hospitality industry. All
Speaker 1: of that to come. We begin with today's sobering reality
Speaker 1: of the world's worsening climate conditions. Bloomberg Big Take this
Speaker 1: week explains how from the Rhine to the Danube, Europe's
Speaker 1: rivers are drying up as temperatures post record highs across
Speaker 1: the continent, disrupting trade, commerce and more. Bloomberg's Mike Reagan
Speaker 1: and I spoke with Bloomberg News Oil products reporter Jack
Speaker 1: Whittles to help us understand the crisis across the Atlantic
Speaker 1: is really hot in Europe, it's been a very hot
Speaker 1: summer and as a result, a lot of the river
Speaker 1: levels extremely low. Probably the most important of them is
Speaker 1: a river cool to Rhyme that's about eight hundred miles long.
Speaker 1: It starts in the switch Out, so it goes all
Speaker 1: the way down through Europe to the North Sea, and
Speaker 1: that is used to ship a lot of really important
Speaker 1: commodity through the continent, so talking energy, coal, gas oil, diesel, gasoline,
Speaker 1: but also stuff like gravels. Some men iron ore. When
Speaker 1: the water level on the Rhine gets really low, the
Speaker 1: barges that are used to transport all this stuff they
Speaker 1: can't take on enough. They can't take on their full
Speaker 1: loads of these commodities because the more you load, the
Speaker 1: lower you get in the water. And then when the
Speaker 1: river is really shallow, they'll, you know, they'll hit the bottom.
Speaker 1: So it's swing the low water. It's really choking off
Speaker 1: the supply of energy and commodities in Europe, just as
Speaker 1: just as there's a war in Ukraine and we've got
Speaker 1: problems with Russian gas supply. So it's it's a little
Speaker 1: bit of a perfect norm at the moment, you know, Jack,
Speaker 1: this strikes me as a very difficult problem to solve,
Speaker 1: you know, save doing a rain dance or something. I
Speaker 1: don't know how you fix this. So I'm wondering is
Speaker 1: there any hope that this problem couldn't be solved or
Speaker 1: is it more a matter of you know, shipping stuff
Speaker 1: via truck and rail instead? How are how are people
Speaker 1: dealing with this? There aren't many very easy short term
Speaker 1: solutions for companies. You know you can't, You're right, you can.
Speaker 1: You can use rail, you can use road. So you know,
Speaker 1: Switzerland for instance, gets imports some oil products by the rhyme,
Speaker 1: but it can of it doesn't also get through roads
Speaker 1: and rails and pipeline. I believe companies can do that,
Speaker 1: but it's it's much more expensive, so that's not always great.
Speaker 1: The economics are not always going to look very good
Speaker 1: on that. The other thing companies can do is they
Speaker 1: can invest in ships that are specifically designed to you
Speaker 1: to go in shallow water. Sobers the chemicals company they
Speaker 1: they invested in a couple of ships to do that.
Speaker 1: But it's not easy. And with climate change, personally think
Speaker 1: it's probably just going to get worse and worse, to
Speaker 1: be honest, Well, and that's where I want to go
Speaker 1: because this wouldn't be happening. Is it fair for me
Speaker 1: to make this jump if it wasn't for climate change? Right?
Speaker 1: If the rhine is fed by a combination of rain
Speaker 1: and melting glass ears, and the more the the lower
Speaker 1: and lower the glassis getting, and the less they can
Speaker 1: feed the rhine, I'm not a kind to climate scientists,
Speaker 1: so I'm not going to try and say this specific
Speaker 1: event was pinned down to kind of change, but in
Speaker 1: general that's the way it's going and I can only
Speaker 1: see it getting worse really, Right, those alpine glaciers, right,
Speaker 1: they feed into all of this, and we know kind
Speaker 1: of to some extent, maybe some of that's you know,
Speaker 1: going away. They're getting smaller. Yeah, They're getting smaller and smaller. Yeah, Jack,
Speaker 1: I'm wondering where we should look for this crisis to
Speaker 1: sort of have the most potential damage. You know, is
Speaker 1: it a matter of BMW Mercedes not being able to
Speaker 1: produce cars at some point because they can't get supplies,
Speaker 1: or is it there's something more acute, you know, like
Speaker 1: electricity going off in Germany. Where will this really start
Speaker 1: to cause the most problems? Well, as an energy reporter,
Speaker 1: I'm convinced in the end, as you were, the lass
Speaker 1: of what you were saying. Switzerland, for instance, it's already
Speaker 1: said it's releasing oil from its strategic reserves. Austria and
Speaker 1: Hungary which are in that sort of general neck of
Speaker 1: the woods. Also, they've also said in recent months that
Speaker 1: they're doing the same you've had from the finary outages
Speaker 1: in those areas as well. The diesel market in Europe
Speaker 1: is already very tight, and we are going to lose
Speaker 1: In theory, you is going to lose supply from Russia
Speaker 1: in February as well that you sanctioned. So on oil
Speaker 1: it's tight, you know, then on power as well. Uniper
Speaker 1: has warned it may have to cut output two the
Speaker 1: coal fired power plants in Germany because the company is
Speaker 1: struggling to get full supplies along the line. So getting
Speaker 1: that coal in to Germany to make the power just
Speaker 1: as the gas gets cut off from Russia. That's another
Speaker 1: sort of more immediate crisis, you know, Jack, is this
Speaker 1: sort of fueling the whole debate about alternative energy in
Speaker 1: Europe and especially Germany. Are are people reconsidering uh nuclear
Speaker 1: more aggressively because of this and everything else going on
Speaker 1: in the world, I strongly imagine. So, you know, I
Speaker 1: was talking to one one of my energy contacts recently
Speaker 1: and he was saying he was still criticizing Germany's decision
Speaker 1: actually to shut off it's it's nuclear capacity, you know, saying,
Speaker 1: what a crazy time to do that. And so I
Speaker 1: think this this will certainly spurred the argument in general
Speaker 1: about renewable was doing it faster because nobody knew wants
Speaker 1: to be reliant on fossil fields, because you're at the
Speaker 1: markey of other countries, and it was the mercy of
Speaker 1: this sort of infrastructure that doesn't always hold up well
Speaker 1: under climate change. That was Bloomberg News, Oil Products reporter
Speaker 1: Jack Whittles and Bloomberg's Mike Regain coming up more on
Speaker 1: climate change as it in America's energy transition gets a
Speaker 1: big boost from Congress. The CEO of Plug Power on
Speaker 1: the importance of growing green hydrogen. You're listening to Bloomberg
Speaker 1: Business Week. This is Bloomberg. This is Bloomberg Business Week
Speaker 1: with Carol Masser and Bloomberg Quick Takes. Tim Stenovik from
Speaker 1: Bloomberg Radio. Well our next guest we last caught up
Speaker 1: with back in June, and so much has happened since then,
Speaker 1: including key tax, climate and healthcare policies, which Democrats call
Speaker 1: the largest investment in fighting climate change ever made in
Speaker 1: the United States. Shares in the alternative energy space rallied
Speaker 1: on the news this week. That includes the stock of
Speaker 1: plug Power, which is up more than a hundred percent
Speaker 1: since mid May. Andy Marsh is the President CEO of
Speaker 1: Plug Power and Bloomberg Markets, Mike Regan and I talked
Speaker 1: with him about the potential impact of new congressional climate
Speaker 1: and alternative energy initiatives. We began though. With the company's
Speaker 1: earnings release out this past week, market was excited about
Speaker 1: plug for a few reasons. We have an electricalizer business
Speaker 1: which takes green electricity produced green hydrogen. Before even in
Speaker 1: the announcements of the production the production tax credit for
Speaker 1: green hydrogen, we have seen bookings fifty higher for the
Speaker 1: year and we expected for the whole year, we've done
Speaker 1: one point five giggle wats that excited the market. I
Speaker 1: think the second I am that excited the market is that,
Speaker 1: you know, our path to three billion dollars oh I
Speaker 1: you know even becomes brighter when you include the production
Speaker 1: tax credit that was passed. And I think on top
Speaker 1: of that, we were able to reiterate guidance for this year.
Speaker 1: And I think that made investors comfortable with the direction
Speaker 1: the company has taken. And I wonder is there any
Speaker 1: visibility on when you think Plug Power will turn to
Speaker 1: profitability either on a quitterly annual basis uh the next
Speaker 1: few years or any sense on that. Sure our CFO
Speaker 1: is very clear in pronouncing that the company would be
Speaker 1: profitable in what's the take to get there? What is
Speaker 1: it just a matter of uh, you know, reducing R
Speaker 1: and D and that sort of thing, and seeing some
Speaker 1: of these projects just just start to bring in the revenue.
Speaker 1: I would never reduce R and D. This industry is
Speaker 1: just starting, Mike. Where it's coming from is the build
Speaker 1: out of our green hydrogen network across the United States.
Speaker 1: We have first mover advantage. We'll have five tons deployed
Speaker 1: per day in the States, seventy tons by the end
Speaker 1: of this year. It dramatically impacts our cost of fuel,
Speaker 1: which really is one of the big big items in
Speaker 1: keeping us from being profitable. And we're becoming vertically integrated
Speaker 1: to make sure that we're providing it to ourselves costs effectively,
Speaker 1: and that's really one of the big items that changes
Speaker 1: our income statement. How do you you know in terms
Speaker 1: of hydrogen and how much does it continue to be
Speaker 1: a part of our energy society? Hydrogen ultimately, and Carol,
Speaker 1: these are not my numbers. These are numbers like, uh,
Speaker 1: your organization, Bloomberg thinks this will be of world's energy
Speaker 1: by twenty by and it's growing from growing from now.
Speaker 1: You know, if you take a look at Walmart where
Speaker 1: we announced a thirty tons per day green hydrogen agreement
Speaker 1: with them, Uh, that is helping them in their path
Speaker 1: to reduce their carbon footprint by one giga ton. So
Speaker 1: the real work is happening now. And certainly the bill
Speaker 1: that Centers Schumer and Center and Manchion were instrumental and
Speaker 1: having passed, will just accelerate this move in the world
Speaker 1: to a green economy. Yeah, and I wanted to ask
Speaker 1: you about that. How does hydrogen in general and plug
Speaker 1: powers specifically sort of fit into this inflation Reduction Act
Speaker 1: which has so many perks for green energy um and
Speaker 1: on top of that, is there a risk, you know,
Speaker 1: in the midterms, of of some of that being undone? Well,
Speaker 1: I think that I'm gonna answer your last question first.
Speaker 1: When there was an investment tax credit for fuel cells,
Speaker 1: Actually the house built have more Republican co signers and
Speaker 1: Democrat co signers. I've met with people like Centator Cassidy
Speaker 1: from Louisiana. They are strong supporters of hydrogen. This act
Speaker 1: that look, it's obviously Centator Schumer Mansion, who are both
Speaker 1: huge supporters, has a three dour production tax credit for
Speaker 1: green hydrogen, which makes hydrogen from green sources competitive with
Speaker 1: any other form of hydrogen. It's a big deal because
Speaker 1: the market for hydrogen's launched today from natural gas. Now
Speaker 1: we're lower costs and competitive with natural gas hydrogen today.
Speaker 1: It helps our electricalizer business, it helps our fuel cell
Speaker 1: business because it will be able to drive all sorts
Speaker 1: of applications like the backup power system we developed for
Speaker 1: Microsoft which ekes fuel cost effective with today's diesel and
Speaker 1: green hydrogen. I mean, just remind everybody you're using it,
Speaker 1: but it's this is hydrogen power that's generated by renewables right,
Speaker 1: whether it's win, whether it's solar or or hydro power.
Speaker 1: I mean, one of my favorite plants is of one
Speaker 1: were ability in New York and uh, just like George
Speaker 1: Westinghouse built the first electrical network using Niagara Falls power,
Speaker 1: we're using Niagara Falls power to create green hydrogen. What
Speaker 1: is the biggest thing that's holding back green hydrogen right now? Well,
Speaker 1: I think the biggest I I first, I think the
Speaker 1: Sentence will be the big accelerator for this market. I
Speaker 1: think they put us in a position where green hydrogen
Speaker 1: will now be cost competitive and it's our our our
Speaker 1: responsibility to make sure that we leverage this time like
Speaker 1: they did in solar and wind, so that the cost
Speaker 1: of green hydrogen will always be lower with or without
Speaker 1: government support in the long run. You know, Andy, It's
Speaker 1: it's interesting in addition to the top line and bottom
Speaker 1: line of your company, which is obviously very important, but
Speaker 1: we've also got a planet to consider here, And I'm wondering,
Speaker 1: you know, how optimistic are you about everything that's been
Speaker 1: done by Congress and about the future of the hydrogen
Speaker 1: power industry to really help save the world, help reduce
Speaker 1: this climate damage that is really starting to come to
Speaker 1: roost now with all these weather anomalies and everything. Is
Speaker 1: there a reason to be optimistic about, you know, the
Speaker 1: climate going forward giving all these developments this year, You know, absolutely, Mike.
Speaker 1: Let me tell you, I worked in wireless in three
Speaker 1: when nobody knew what wireless was, and I've seen creation
Speaker 1: of industries and this bill by Congress is good for
Speaker 1: the national security of the United States, it's good for
Speaker 1: climate change, it's good for creating jobs, and it will
Speaker 1: create momentum with customers like Amazon who want to be
Speaker 1: carbon you know, are looking to be carbon neutral by.
Speaker 1: It's good for customers like Microsoft which want to eliminate
Speaker 1: diesel from their process. This bill will help make it happen,
Speaker 1: and it actually puts United States in a unique leadership position.
Speaker 1: So I I think the kids running around are going
Speaker 1: to be really happy with what the Senate did in
Speaker 1: that was Andy marsh Presidency. A plug power coming up
Speaker 1: next to new app aims to help users have an
Speaker 1: understanding of what it's like to work at a Wall
Speaker 1: Street hedge fund without the risk. Find out how and why.
Speaker 1: This is Bloomberg Broadcasting from the financial capital of the
Speaker 1: World Bloomberg Frio in New York to Washington, d C.
Speaker 1: Bloomberg to Boston, Bloomberg one oh six one, does San Francisco,
Speaker 1: Bloomberg nine sixty to the country Sirius XM Chadal one
Speaker 1: nineteen and around the globe the Bloomberg Business app and
Speaker 1: Bloomberg Radio dot Com. This is Bloomberg Business Week. Mary's
Speaker 1: is a company and app founded by two Wall Street veterans.
Speaker 1: It aims to democratize Wall Street recruiting and more. The
Speaker 1: platform simulates the experience of working at a fast paced
Speaker 1: hedge fund on your mobile device. To find out how
Speaker 1: Bloomberg's Mike Reagan and I caught up with the company's
Speaker 1: founder and CEO, Neil Dotta. My backgrounds. I've been an
Speaker 1: institutional allocator to hedge funds for last fifteen years, um,
Speaker 1: really having exposure to some of the most well known,
Speaker 1: best performing hedge fund managers in the space, and uh,
Speaker 1: over the course of that time, you know, it became
Speaker 1: abundantly obvious that the folks that are in the position
Speaker 1: of making investment decisions and managing money for folks that
Speaker 1: are you know, whether they're they're fire men or police
Speaker 1: officers or institutional investors like myself. It's not necessarily the
Speaker 1: people that have the most talent, but a lot of
Speaker 1: times it's the folks that had the best resumes and
Speaker 1: found themselves in the position to uh manage that capital.
Speaker 1: And really what we wanted to do with Maritas was
Speaker 1: to kind of create a platform that democratizes this access
Speaker 1: that forever has been limited to folks who have specific resumes,
Speaker 1: came to specific schools. UM. So that's the platform in
Speaker 1: a nutshell, and really what we do is we extend
Speaker 1: this access to folks regardless of their ability to financier
Speaker 1: trading or their actual education. So it's a free app
Speaker 1: that you download that allows you to simulate working at
Speaker 1: a at a hedge fund and trading equities and crypto,
Speaker 1: and your experience generates an alpha score, and we take
Speaker 1: that alpha score and we allow you to apply for
Speaker 1: jobs on Wall Street with that score. So it's really
Speaker 1: bringing that experience to to everyone through their mobile devices.
Speaker 1: And one thing that was kind of, you know, really
Speaker 1: obvious to me was that, you know, for I've been
Speaker 1: managing large pools of capital and my my co founder
Speaker 1: Gabel as well, and we realize that even at the
Speaker 1: scale and scope that we invest, even ourselves, we don't
Speaker 1: actually own our own track record. And this is what
Speaker 1: we think we should do to everyone and give everyone
Speaker 1: the opportunity to you know, whether you're you're a junior
Speaker 1: analyst at a bank and you want to leverage your experience,
Speaker 1: most of the time, your employer owns your actual ideas,
Speaker 1: and we give folks like that and the ability to say, hey,
Speaker 1: this is why I'm talented, and this is why you
Speaker 1: should hire me based upon my talent, not what based
Speaker 1: on my resume says. Let me make sure I'm picturing
Speaker 1: this right. So I log in and I basically can
Speaker 1: start doing some paper trading and you'll be able to
Speaker 1: track my P and L sort of rank me among
Speaker 1: other traders. What happens if say, my strategy is some algorithm,
Speaker 1: you know, fast twitch type of thing. Uh am I
Speaker 1: able to sort of input input a automated strategy into
Speaker 1: this thing as well. That's a great question, And the answers, no, actually,
Speaker 1: and we we take the view that being allocators into
Speaker 1: these strategies. So I know, the folks that you can
Speaker 1: think of that are kind of at the forefront of
Speaker 1: high frequency and systematic trading. We take the view that
Speaker 1: it's very difficult for a typical person to compete against
Speaker 1: a big ten billion dollar hedge fund. So really we're
Speaker 1: meant for fundamental investing. We're meant for people that do
Speaker 1: you know, research and individual companies and take views on
Speaker 1: things like market share and earnings and growth potential. We're
Speaker 1: not focused on kind of day trading or systematic trading
Speaker 1: because the thinking is that that's not a game that
Speaker 1: a typical person can succeed that. So now I'm wondering
Speaker 1: how Maritas makes money off of this. It is a
Speaker 1: free app. I'm guessing the the users, the traders get
Speaker 1: to use it for free, and then maybe the hedge
Speaker 1: funds pay for access to to see who's doing what. Yeah, exactly,
Speaker 1: So we're effectively a recruiting platform. So the way I
Speaker 1: like to think of us as we're kind of like
Speaker 1: the n C Double Afe or Wall Street where you
Speaker 1: you join our platform, you showcase your skills, and if
Speaker 1: your skills happen to match un employer who finds that valuable,
Speaker 1: then they'll reach out to you directly, and then we'll
Speaker 1: get paid on the recruiting fee that the employer will
Speaker 1: pay us. Hey, Neil, how does this maybe help create
Speaker 1: more diversity when it comes to financial firms hedge funds specifically,
Speaker 1: because that is certainly something we've talked about a lot
Speaker 1: over the last couple of years, and well, there's progress
Speaker 1: being made, there's a lot a long way to go.
Speaker 1: So how might what you guys are doing help with that?
Speaker 1: Can you make it kind of color blind? Um, sex blind?
Speaker 1: Like can you or gender blind? Can you do that
Speaker 1: so that we maybe up the up the diversity anti Sure,
Speaker 1: great question, And if you think of the way recruiting
Speaker 1: is done at hedge funds and big banks, it really
Speaker 1: hasn't changed in the last hundred years. UM, it's effectively
Speaker 1: a network of who you know and how well you're connected,
Speaker 1: and those are the metrics that typically place people, particularly
Speaker 1: in most highest income roles like portfolio manager and analysts.
Speaker 1: So we take the view that it should be a
Speaker 1: democratized system that should be based solely on your talent.
Speaker 1: So through us, we don't care what you look like,
Speaker 1: we don't care what your resume says. We don't even
Speaker 1: care where you went to school. We only care about
Speaker 1: your ideas, and those ideas can can potentially get you
Speaker 1: paid or get you recruited. Are big thanks to Neil Dotta,
Speaker 1: the founder and CEO of Maritas. You're listening to Bloomberg
Speaker 1: Business Week. Still to come. We're talking planes, trains, and automobiles. Well,
Speaker 1: we're really talking about getting out and about the CEOs
Speaker 1: of car parts dot Com and travel services company Travago
Speaker 1: are up next. This is Bloomberg. You're listening to Bloomberg
Speaker 1: Business Week with Carol Masser and Bloomberg Quick Takes Tim
Speaker 1: Stinovik from Bloomberg Radio. Earlier, we heard about Europe's worsening
Speaker 1: climate situation and in America's hopes for an expedited transition
Speaker 1: to clean energy. A large part of that effort will
Speaker 1: come from the auto industry. A recent report from the
Speaker 1: Bloomberg An e F says we are just fourteen years
Speaker 1: away from peak car, when an estimated one and a
Speaker 1: half billion passenger vehicles globally are expected on the road
Speaker 1: by nine Well before we get there, buyers, you know this,
Speaker 1: they're still looking at months, perhaps even years worth of
Speaker 1: inflation and supply chain snarls that could hinder them from
Speaker 1: getting the cars they want and when they want them.
Speaker 1: That's where car Parts dot Com comes in. Bloomberg News
Speaker 1: senior markets reporter Katie Greifeld and I asked CEO David
Speaker 1: begnon how his company can help car Parts dot Com.
Speaker 1: We're direct to consumer, pure play online player of auto
Speaker 1: parts and accessories. We've been in business for twenty five years,
Speaker 1: and what makes us very unique is that we have
Speaker 1: a vertically integrated supply chain. So we buy our own
Speaker 1: parts from globally a combination of collision parts and replacement parts,
Speaker 1: and then we sell them direct to consumer via our
Speaker 1: own distribut and channel. So we're in a very good
Speaker 1: spot to see what's going on in the auto world.
Speaker 1: And the auto parts industry. Um, you know, the the
Speaker 1: auto industry is just gigantic. You guys know that you
Speaker 1: cover it all the time. Auto parts is three hundred
Speaker 1: billion dollars market. And believe it or not, the average
Speaker 1: age of a car on the road it's twelve point
Speaker 1: two years. So the average American drives an older car.
Speaker 1: And in order to keep that car going and running longer. Uh,
Speaker 1: they rely on retailers like us to buy you know,
Speaker 1: quality parts at the competitive prices. You know, David, During
Speaker 1: the last couple of years, we heard so much about
Speaker 1: how the actual automakers were struggling to source the chips
Speaker 1: they need and other parts. I'm curious how you guys
Speaker 1: fared with all the supply chain disruptions we've had. I
Speaker 1: can only imagine it must have been a giant headache.
Speaker 1: Was it was it tough to source the parts you needed? Uh?
Speaker 1: In the last few years. I mean, supply chain was
Speaker 1: basically top of mind for the last two years, right
Speaker 1: before inflation and Ukraine and and everything else. Uh. You know,
Speaker 1: we were very aggressive early on in the pandemic in
Speaker 1: in ramping up inventory buys. Um. You know, we've build
Speaker 1: capabilities in house so we increase the quantities of our
Speaker 1: buy we increase our safety stock requirements, we open more
Speaker 1: distribution centers just to carry more inventory. What we found
Speaker 1: was it took longer and it was more complicated to
Speaker 1: get the parts. So in order to keep going and
Speaker 1: to keep growing, we just had to carry more inventory.
Speaker 1: And so if you look at it from a financial
Speaker 1: investor perspective, we basically had to sacrifice inventory turns just
Speaker 1: to make sure that we have the parts in stock.
Speaker 1: And of course, the other big shock this year is inflation,
Speaker 1: and I'm wondering how that plays into your business. I mean,
Speaker 1: does it sort of cause this effect where consumers are
Speaker 1: maybe more willing to try to work on their own
Speaker 1: car and and find those parts on your ciders. Is
Speaker 1: you know, how's the price problems we've seen this year
Speaker 1: sort of translating into your everyday business. Yeah. Absolutely, And
Speaker 1: historically auto parts and auto repair in general is pretty
Speaker 1: um inflation and resistant. You know, if you need a car,
Speaker 1: if you're a school teacher or a nurse and you
Speaker 1: need your car to get to work, you're gonna have
Speaker 1: to do what you need to do to to keep
Speaker 1: it going. So obviously for every retailer and for all
Speaker 1: the consumers out there. Inflation is is hitting everyone. Um,
Speaker 1: and we're not We're not immune. You know. What we
Speaker 1: had to do was really kind of make sure that
Speaker 1: we found efficiencies in the supply chain to be able
Speaker 1: to pass on our savings of that, you know, direct
Speaker 1: to consumer, factory to consumer, uh, to the consumer. Um.
Speaker 1: Having said that, you know you're you're absolutely right in
Speaker 1: terms of inflation. UM. What it does is that if
Speaker 1: historically you will do it for me and needed a
Speaker 1: friend or a mechanic to do the repair, UM, chances
Speaker 1: are you're going to go on YouTube or on Google
Speaker 1: and figure out a way to source the parts and
Speaker 1: do it cheaper. All my friends are on YouTube these
Speaker 1: days trying to figure out how to fix their car.
Speaker 1: It's amazing. I had to go on YouTube to find
Speaker 1: out how to change the tire in my jeep Cherokee.
Speaker 1: I'm not I'm not too embarrassed to admit YouTube just
Speaker 1: creating a lot of mechanics. I have a feeling, David.
Speaker 1: I'm sure you say a lot of money, but you're
Speaker 1: absolutely right. YouTube is creating a lot of mechanics and ultimately,
Speaker 1: if you want to do the labor yourself and you
Speaker 1: could find that ten or fifteen minute video. Um, you know,
Speaker 1: companies like us were a good alternative because you know
Speaker 1: you can get the parts for fifty cheaper than in
Speaker 1: the store. You said you built up inventory. Does that
Speaker 1: mean you're going to be working down inventory, maybe not
Speaker 1: demanding or buying so much from your suppliers over the
Speaker 1: next few months that that is a great question and
Speaker 1: the answer is yes, we're seeing some signs of of
Speaker 1: easing up in the supply chain. So as the league
Speaker 1: time start compressing, we have to carry less safety stock
Speaker 1: or buffer inventory. Uh. And what you're going to see
Speaker 1: from us, and I'm assuming other companies out there, is
Speaker 1: converting that inventory back to cash and seeing some working
Speaker 1: capital improvements. Okay, speaking of working capital, and I'm just
Speaker 1: reading off of your press release. You guys, have you
Speaker 1: entered in an amended and restated seventy five million dollar
Speaker 1: credit facility the ability to increase a hundred and fifty
Speaker 1: million Are you looking to get hold of whatever cash again?
Speaker 1: Because it's you know, you're concerned about maybe what the
Speaker 1: the environment might be and I don't know, a few months,
Speaker 1: it might be a tougher environment. Yeah, I think there's
Speaker 1: definitely a lot of signs that the economic environment is
Speaker 1: getting tougher. Having said that, you know, we're growing, we're profitable,
Speaker 1: we have positive unit economics on every transaction, we have
Speaker 1: no debt, and we're well funded and well capitalized. So
Speaker 1: you know, that line of credit is just a safety
Speaker 1: net that we basically don't need. That was car Parts
Speaker 1: dot Com CEO David Midion. Katy Greifeld with us there
Speaker 1: as well. Now, declining gas prices were a big reason
Speaker 1: for July is cooler than expected inflation reading. One area
Speaker 1: that is still seeing costs sore the travel and hospitality sector.
Speaker 1: For insight into how those pressures might persist, Bloomberg's Mike
Speaker 1: Reagan and I spoke with Trobago CEO Axel Heifer. The
Speaker 1: the the industry is is an interesting point where it's
Speaker 1: benefiting from a lot of pent up demand and a
Speaker 1: lot of money that has been saved over the last
Speaker 1: couple of years by not doing trips, by not going
Speaker 1: out during offt etcetera. At the same time, the industry
Speaker 1: has actually you do stuffing that v was quite a
Speaker 1: bit in the pandemic. Everybody had to and it's now
Speaker 1: struggling to stop up. So so there is a lot
Speaker 1: more demand than there is supply, and and that's exactly
Speaker 1: what you're describing. The service is actually suffering from that,
Speaker 1: um And that's why we are more cautious on the outlook,
Speaker 1: and we think that this this imbalance will you know,
Speaker 1: will start to balance again, which means that the prices
Speaker 1: will continue to slopen and demand will will come down. Accel.
Speaker 1: You know, you can't talk to someone from Bloomberg for
Speaker 1: more than about thirty seconds without getting a question about
Speaker 1: inflation this week, so I'm curious, you know, is inflation
Speaker 1: having any sort of ripple effects in the travel industry,
Speaker 1: Is a changing behavior at all or anything like that? Yeah,
Speaker 1: I mean for sure. I mean I I don't think
Speaker 1: we see it yet because the what we've seen in
Speaker 1: the last couple of years is that the summer vacation
Speaker 1: is actually the key thing. I mean, even in the pandemic,
Speaker 1: you want to make sure that you get a break
Speaker 1: with your family, with your friends for a couple of days.
Speaker 1: So I don't think that that this summer period is
Speaker 1: necessarily representatives, but we see it in in all of
Speaker 1: our main markets. Inflation is is hitting um the disposable
Speaker 1: income of many, many people. And what that means is
Speaker 1: that they will they will need to think twice how
Speaker 1: to spend their money and how to get um the
Speaker 1: best vocation possible. And in travel is actually different than
Speaker 1: then a lot of other sectors. You can you have
Speaker 1: quite a few choices. You can decide whether you spend
Speaker 1: money on air tickets or whether you go by cars.
Speaker 1: So the destinations are are your choice. Destinations are very
Speaker 1: differently priced. We can go for a different kind of
Speaker 1: accommodation and you can compare prices, which is actually why
Speaker 1: we are actually looking into the future quite positively. People
Speaker 1: being more price conscious means that they will spend more
Speaker 1: time on researching prices, and that's exactly where we're helping them. Well,
Speaker 1: that's you know, you guys have access to so much data.
Speaker 1: What kind of you know talk to us about that
Speaker 1: that you know, consumers are are searching looking for the
Speaker 1: best deal. What other trends are you noting when it
Speaker 1: comes to you travel at this point? Yeah, I mean
Speaker 1: you have overall obviously higher prices. Price I've gone up
Speaker 1: quite a bit. Um not every destination to the same extent,
Speaker 1: and you have a couple of finn anecdotes that there's
Speaker 1: just support what what you're you're describing. I mean, for example,
Speaker 1: searches for um for hotels close to the airport in
Speaker 1: the UK have doubled compared to twenty nine because now
Speaker 1: you don't know whether you have to show up two
Speaker 1: hours before or four before or five hours before because
Speaker 1: of the lack of starting so a lot of people
Speaker 1: decide to just say all the night. So that's what
Speaker 1: you see already, but I think what we will see
Speaker 1: over the next twelve months there is more a fundamental
Speaker 1: change in in really saving costs because the summer vacation
Speaker 1: that the people are now on um that they have
Speaker 1: made up their mind to to do that trip quite
Speaker 1: a while back, and the inflation has got a lot
Speaker 1: of work over the last couple of months. Act. So
Speaker 1: I'm curious what the story is with business travels. As
Speaker 1: Carol said, she's jet setting all over the place for work.
Speaker 1: They don't let me out of the office. But as
Speaker 1: Carol an anomaly, I don't get the impression that business
Speaker 1: travel is quite back where it was. Yeah, I mean
Speaker 1: so so we we are not really big in business travel,
Speaker 1: to be honest, And and the sad thing said, The
Speaker 1: true thing is that that a lot of business travelers
Speaker 1: don't really care as much how much they are spending
Speaker 1: on their accommodation because the employer is paying so so
Speaker 1: we have a few business travelers that tend to be
Speaker 1: you know, self employed as an easy cetera. Um, that's
Speaker 1: why we don't have the best visibility. But our expectation
Speaker 1: for the overall market is that with the economy slowing down,
Speaker 1: that the not essential business travel will come down. And
Speaker 1: there was also a bit of a catch up effect.
Speaker 1: You hadn't seen business partners in two or three years.
Speaker 1: That was accel he for the CEO of Travago. And
Speaker 1: that wraps up the first hour of the weekend. Addition
Speaker 1: to Bloomberg Business Week from Bloomberg Radio, I'm Carol Masser
Speaker 1: a head. In our next hour, the CEO of H
Speaker 1: and R Block gives us an update on the American
Speaker 1: consumer and small business, both key to the US economy.
Speaker 1: He also weighs on his company's red hot stock price,
Speaker 1: plus why Mark Zuckerberg wants you to think of Facebook
Speaker 1: as a social media underdog Wait What? And also coming
Speaker 1: up next, we turn back to this week's special double
Speaker 1: issue of Bloomberg Business Week. It's all about why American
Speaker 1: women are at their breaking point. When story on that
Speaker 1: looks at what the end of Roe versus Wade could
Speaker 1: mean for access to IVF treatments, that story is coming up.
Speaker 1: This is Bloomberg. This is Bloomberg Business Week inside from
Speaker 1: the reporters and editors who bring you America's most trusted
Speaker 1: business magazine, plus global business, finance and tech news as
Speaker 1: it happened. Sloomberg Business Week with Carol Messier and Bloomberg
Speaker 1: Quick takes Tim Stinovic on Bloomberg Radio. Plenty ahead in
Speaker 1: our second hour of the weekend edition of Bloomberg Business Week,
Speaker 1: including the CEO of H and R Block and how
Speaker 1: new policy moves might impact taxpayers as well as the
Speaker 1: agency that collects our cash, the I R S. Plus
Speaker 1: why Mark Zuckerberg is hitting the panic button even as
Speaker 1: Facebook breaks in billions of dollars. And we've also got
Speaker 1: the upside of Internet and app addictions with the author, lecturer,
Speaker 1: and investor known in Silicon Valley as the Habit Skuy.
Speaker 1: First up this hour the latest edition of Bloomberg Business
Speaker 1: Week magazine. It's a special double issue that takes a
Speaker 1: look at the dwindling support for women's rights and resources
Speaker 1: in America. One area of concern in the wake of
Speaker 1: the Supreme Court's reversal of Roe v. Wade involves fertility treatments.
Speaker 1: Bloomberg contributor Jill Filipovic breaks down the new threat to
Speaker 1: in vitro fertilization access with my co host Tim Stenovic
Speaker 1: and Bloomberg's Katie Greifeld. As it stands, IVF remains legal
Speaker 1: in all fifty states in in the US, with some
Speaker 1: restrictions depending on the state. However, with road falling, you're
Speaker 1: seeing a real push from the right to life movement
Speaker 1: to establish essentially fetal and embryonic personhood and if personhood
Speaker 1: old path which essentially in view a fertilized egg from
Speaker 1: the moment of fertilization with full rights do process rights
Speaker 1: and certainly a right to life, You're going to see
Speaker 1: IVS become either extremely difficult, if not potentially criminal. And
Speaker 1: that's because IVF procedures typically results in the creation of
Speaker 1: multiple embryos, and the embryos that are not viable are discarded.
Speaker 1: Embryos that don't form a successful pregnancy or can't form
Speaker 1: a successful pregnancy will be discarded, and couples often create
Speaker 1: more embryos than they actually implant at one time and
Speaker 1: then store those embryos for future youth. If those embryos
Speaker 1: have full rights, you can see how that would get
Speaker 1: quite legally complicated. IVF it's all about creating more life.
Speaker 1: It's about, you know, creating a baby for a couple
Speaker 1: to have. But I mean, I guess that's the crux
Speaker 1: of the issue is that you know, these embryos, theoretically,
Speaker 1: under the vision they would be people, they would have
Speaker 1: those rights that you're talking about, right exactly, And so
Speaker 1: there's a question of whether that would necessarily make IBF
Speaker 1: illegal or whether it would just make the legal landscapes
Speaker 1: so dangerous and so complicated that providers essentially wouldn't want
Speaker 1: to practice. So, for example, part of what happens in
Speaker 1: IVF is if you create multiple embryos, those embryos going
Speaker 1: to a storage facility and they're frozen, and if you
Speaker 1: want to use one later on, you you defrost it essentially,
Speaker 1: and you have an embryologist who who defrost that embryo.
Speaker 1: Most embryos survive that process, some don't. If if an
Speaker 1: embryo has full personhood rights, and it doesn't survive the process,
Speaker 1: embryologists could become legally liable, potentially criminally liable, and certainly
Speaker 1: potentially civily liable, and so there's real questions about whether
Speaker 1: anyone is going to want to practice IBS under those conditions.
Speaker 1: What did you hear from Elizabeth, which we should note
Speaker 1: is a pseudonym, tell us her story. Elizabeth is a
Speaker 1: woman who lives in New Orleans. She has one daughter,
Speaker 1: who was conceived through IVF after two grueling years of infertility,
Speaker 1: and Elizabeth and her husband both want a second child,
Speaker 1: but they weren't planning on starting that process for at
Speaker 1: least a few more months and potentially into next year.
Speaker 1: When the Supreme Court decision and Dobbs overturning Robe Wade
Speaker 1: came down, Elizabeth and her husband decided to pretty significantly
Speaker 1: move up their plans for a second child, so she
Speaker 1: made an appointment right away at the fertility clinic that
Speaker 1: she had used previously. She when I met her, was
Speaker 1: already taking hormones to prepare her body for an embryo transfer,
Speaker 1: and then the night before I met Elizabeth, she was
Speaker 1: actually kind of reeling. When I talked to her because
Speaker 1: her husband had turned to her in bed and essentially said,
Speaker 1: I'm really nervous about you being pregnant in this environ it.
Speaker 1: I think both of them have been reading many of
Speaker 1: the horror stories that have come out post Row of
Speaker 1: women who weren't appropriately treated to act topic pregnancies, who
Speaker 1: weren't appropriately treated for miscarriages, you know. And her husband said,
Speaker 1: you're a woman in your mid thirties, this is an
Speaker 1: IVF pregnancy. It's going to be a high risk pregnancy.
Speaker 1: I don't want to lose you. And so the couple
Speaker 1: is now struggling with that question. Do they stick with
Speaker 1: just one child? Do they speed up the IVF process
Speaker 1: because they're afraid that they won't have the ability to
Speaker 1: do it later, But in doing so, do they potentially
Speaker 1: risk Elizabeth's life? And these are questions coupled all over
Speaker 1: the US. Women all over the US are asking themselves
Speaker 1: and just impossible questions. And Jill put this into context
Speaker 1: for us about you know how common IVF is, how
Speaker 1: many people like Elizabeth could be out there in the
Speaker 1: U S right now. IVS is incredibly common. And to
Speaker 1: be clear, while i VS is the fertility treatment most
Speaker 1: at risk it's not the only fertility treatment available, and
Speaker 1: it's not the only one put at risk by new
Speaker 1: anti abortion laws. Right now, roughly two of every one
Speaker 1: hundred children born in the US we're conceived via some
Speaker 1: sort of fertility treatment, so that includes IBS, but also
Speaker 1: a series of others and IVS is particularly crucial to
Speaker 1: same sex couples, crucial to couples who have individuals who
Speaker 1: have survived cancer, and then obviously anyone struggling with infertility.
Speaker 1: And it's only growing as as more and more women
Speaker 1: delayed child bearing and once a plan when they have children.
Speaker 1: Where does this leave providers? Jill. Providers that I've spoken to,
Speaker 1: including the providers I spoke to for this piece, really
Speaker 1: are in frankly a bit of a panic. A lot
Speaker 1: of their work has been thrown into question. They can
Speaker 1: provide care right now. Many of them are consulting with
Speaker 1: lawyers pretty regularly. But yes, it does open up questions.
Speaker 1: And if you haven't picked up the double issue a
Speaker 1: Bloomberg business Week or checked it out online, definitely do so.
Speaker 1: You can find it at Bloomberg dot com, slash business Week,
Speaker 1: on the Bloomberg terminal and on newsstands. Really, I must read.
Speaker 1: Our thanks to Bloomberg contributor Jill Filipovich for her story
Speaker 1: and for talking about it with my co host Tim
Speaker 1: Stanovic and Bloomberg's Katie Greifeld. You're listening to Bloomberg Business
Speaker 1: Week coming out, taxes boring, H and R Blocks record
Speaker 1: share price not so boring. The CEO joins us on
Speaker 1: the other side, This is Bloomberg. This is Bloomberg Business
Speaker 1: Week with Carol Masser and Bloomberg Quick Takes Tim Stenovic
Speaker 1: from Bloomberg Radio. This past week, the company best known
Speaker 1: for tax prep, H and R Block reported a beat race,
Speaker 1: some guidance for fiscal and approved a new share buy
Speaker 1: back of one and a quarter billion dollars. Jeff Jones
Speaker 1: is president CEO of the company, and we like to
Speaker 1: remind everyone that Jeff has spent his career at a
Speaker 1: host of well known companies. That includes as chief marketing
Speaker 1: officer at the Gap and Target and also president of
Speaker 1: ride sharing over at Uber. Now he is shepherding H
Speaker 1: and R Block to its next era. Bloomberg's Mike Reagan
Speaker 1: and I asked him how he's doing it. Well, let's
Speaker 1: start with, you know, our bread and butter, the core
Speaker 1: consumer tax business. You know, we continue to make improvements
Speaker 1: in revenue and client volume, in market share, and our
Speaker 1: assistant business, really demonstrating just how strong that industry is.
Speaker 1: You know, we we talked about going into the pandemic
Speaker 1: and nineteen coming out in twenty two, up in revenue,
Speaker 1: up in market share up and earnings reducing shares outstanding.
Speaker 1: So the core consumer tax business has been very strong.
Speaker 1: We had a record year in small business and so
Speaker 1: that means more and more small business owners are recognizing
Speaker 1: our expertise and turning us for tax. And then we
Speaker 1: had a really successful initial launch of Spruce, which is
Speaker 1: our new challenger bank. You know, Cheff, the big news
Speaker 1: in politics this week, obviously, h is that Inflation Reduction Act.
Speaker 1: Part of that is, UH, they want to add thousands
Speaker 1: and thousands of IRS agents. I've got to think that's
Speaker 1: very big opportunity opportunity for you, but also potentially a challenge.
Speaker 1: I'm just curious how you're thinking about the ramp up
Speaker 1: of the i R S enforcement. Well, we've been very
Speaker 1: vocal in support of the i r S receiving more funding.
Speaker 1: They touch more American consumers than any other agency, and
Speaker 1: they have not had the resources to be equipped to
Speaker 1: do that. So we absolutely support that. And what we've seen,
Speaker 1: I guess over history is when the I r S
Speaker 1: steps up enforcement, the consumer looks for expertise more and more.
Speaker 1: You know, keep in mind the stakes for our clients
Speaker 1: are very high. Getting this right matters, getting me every
Speaker 1: dollar they deserve matters whether you're a small business owner,
Speaker 1: a gig worker, or a consumer. And so you know,
Speaker 1: we're glad they're getting more support and we're here to
Speaker 1: help the customer. You know, your core businesses the tax services,
Speaker 1: but you are ending in small business. You mentioned spruce
Speaker 1: your mobile banking. What kind of growth are we seeing
Speaker 1: on those platforms and do you anticipate that there is
Speaker 1: a time where they are as equally as important as
Speaker 1: your core tax business. Well, there's no question there strategically
Speaker 1: as important today. Of course, they're earlier stage. We've been
Speaker 1: in the tax business for decades. In small business, we
Speaker 1: had a record gear We grew that business clients five
Speaker 1: percent on top of four percent last year. And believe
Speaker 1: there's still lots of upside in serving small businesses. Just
Speaker 1: looking at the landscape, those people that have side hustles
Speaker 1: ten ninety nine gig workers. They may not consider themselves
Speaker 1: to be a small business owner, but they absolutely have
Speaker 1: tax and bookkeeping, potentially payroll needs just like a small
Speaker 1: business would. And then with Spruce, we had a fantastic launch.
Speaker 1: That product has been in the market only a handful
Speaker 1: of months. We've had seven major releases of the app
Speaker 1: since we launched, and right now the team is focused
Speaker 1: on testing customer acquisition outside of tax season and then
Speaker 1: getting ready to launch it in our retail channel next
Speaker 1: tax season. Obviously, we have a very large install base
Speaker 1: of customers and we want to take full advantage of
Speaker 1: introducing them to Spruce next year. Jeff, what's cool about
Speaker 1: talking to you? You talk about small business? You know,
Speaker 1: it's funny. Our colleague on television, Caroline Hyde, she talked
Speaker 1: about the small cap the Russell doing really well and
Speaker 1: out performing the broader market, and a lot of that
Speaker 1: has to play with kind of domestic businesses here in
Speaker 1: the US maybe upbeat about the outlook in the economy.
Speaker 1: So I love hearing what you have to say about
Speaker 1: small business. I love hearing about Spruce because you get
Speaker 1: some insight into consumers and really kind of maybe how
Speaker 1: much money they've been able to save and so on
Speaker 1: and so forth. Based on what you are seeing, based
Speaker 1: on your business overall, would you say, yep, we are
Speaker 1: headed for a recession in the next year, or we're not.
Speaker 1: If I just had to simply call it, I would
Speaker 1: say we're not. But like you all do as well.
Speaker 1: I mean we're looking at the same data. There are
Speaker 1: days to be optimistic and then the next day you
Speaker 1: need to be cautious. What is it that maybe troubles
Speaker 1: you a little bit? Is there some concern about the
Speaker 1: FED over doing it and putting some slow momentum ultimately
Speaker 1: into the economy. Part of our diversification is to participate
Speaker 1: in different parts of the market. In the tax business,
Speaker 1: you know that business over many, many decades has not
Speaker 1: been sensitive to recession because of the obligation we have
Speaker 1: as American filers. In fact, when economic times get tough,
Speaker 1: the stakes rise, that's when our expertise and value really
Speaker 1: kick in. So obviously we have to execute and continue
Speaker 1: to build on the momentum we have. But that business
Speaker 1: looks different than, for example, in our financial products portfolio,
Speaker 1: where you know, if savings rates are lower and maybe
Speaker 1: credit is starting to rise again, and every dollar matters
Speaker 1: and government subsidies are gone, then what we have to
Speaker 1: do with RUSS make sure people know that product is
Speaker 1: a almost completely fee free product that offers incredible value
Speaker 1: to help you spend and save and plan. And so
Speaker 1: we try to lean into how our value proposition is
Speaker 1: helping consumers because we know that every dollar really matters.
Speaker 1: How do you think about how to return that share
Speaker 1: that capital to shareholders? Is it is it best to
Speaker 1: do a little bit of each like like you're doing,
Speaker 1: or you know what's the calculus that goes into deciding
Speaker 1: how to do that? Well, Mike, I guess I would
Speaker 1: also say the first part is investing in our business,
Speaker 1: which we are absolutely doing now. We're able to still, Jennifer,
Speaker 1: generate significant free cash flow to invest in dividends and
Speaker 1: share repurchase because of our expense management discipline. If you
Speaker 1: think about on a given year, I think you know
Speaker 1: roughly couple hundred million dollars to continue to invest in
Speaker 1: our dividend and the rest two to three hundred millions
Speaker 1: in share by back. So because of the profitability of
Speaker 1: this business, I think we're in a unique position to
Speaker 1: be able to really do all three at an effective way.
Speaker 1: As you guys have been broadening out, expanding services. I mean,
Speaker 1: part of it is so that you can kind of,
Speaker 1: you know, not be see so much of kind of
Speaker 1: positive results. Are so much business momentum kind of during
Speaker 1: tax season, right, So are you seeing signs of it
Speaker 1: that there's more business throughout the year. Um, yes, But
Speaker 1: we're not even close to being down the road of
Speaker 1: that journey yet. So you know, again, the lion's share
Speaker 1: of our business today still happens in tax season. As
Speaker 1: we serve more small businesses, those dates extend, bookkeeping in
Speaker 1: payroll becomes year round, and clearly the goal for Spruce
Speaker 1: is to be a year around financial products business. We're
Speaker 1: just in the early innings, but that's absolutely the strategy.
Speaker 1: That's Jeff Jones, president CEO of H and R Block.
Speaker 1: Here are full conversation with Jeff. You can find that
Speaker 1: at Bloomberg dot com. Still to come on Bloomberg Business Week.
Speaker 1: Met Is Mark Zuckerberg has a new strategy convincing you
Speaker 1: that is multibillion dollar social media company is really an underdog.
Speaker 1: Facebook is under scrutiny, and it's to its advantage to
Speaker 1: play up competition. So I think it's important to take
Speaker 1: it with a grain of fault every time they talk
Speaker 1: about fear of TikTok and sewn more and why you
Speaker 1: shouldn't feel so sorry for Meta. This is Bloomberg Broadcasting
Speaker 1: from the financial capital of the World, Bloomberg Eleve in
Speaker 1: Frio in New York to Washington, d C. Bloomberg to Boston,
Speaker 1: Bloomberg one O six one to San Francisco, Bloomberg nine
Speaker 1: sixty to the Country Sirius XM Chado one nine and
Speaker 1: around the globe the Bloomberg Business Apt and Bloomberg Radio
Speaker 1: dot Com. This is Bloomberg Business Week. We've often talked
Speaker 1: about Meta platforms, the company formerly known as Facebook getting
Speaker 1: beaten up by investors, down about fifty this year alone,
Speaker 1: down from its all time high back in September one.
Speaker 1: Well as Bloomberg This Week, calumnist Max Chafkin rights, despite
Speaker 1: Mark Zuckerberg's attempt to present Meta as an underdog, Max
Speaker 1: says it's not time to feel sorry for the social
Speaker 1: media giant. So let's get to it. This story on
Speaker 1: the Bloomberg and at Bloomberg dot com, Slash Business Week
Speaker 1: and Max joining us on the phone from Queen's So, Max,
Speaker 1: why shouldn't we feel sorry for Meta. So what's happened
Speaker 1: over over this year basically is the economy and kind
Speaker 1: of the social media ecosystem is sort of reverting to
Speaker 1: pre COVID norm So there was this moment, you know,
Speaker 1: in twenty people are spending all of their time, you know,
Speaker 1: on the internet, spending huge sums of money on you know,
Speaker 1: online shopping, and that was amazing for Facebook's business and
Speaker 1: excuse me metas business. And what's happened is we've seen
Speaker 1: a reversion which has led to you know, all these
Speaker 1: kind of like doom and gloom predictions, both from inside
Speaker 1: the company and from analysts. The thing is, the pre
Speaker 1: COVID version of Facebook was still dominant, and when you
Speaker 1: look at the competitive landscape, yes, TikTok Um is gaining
Speaker 1: ground in terms of cultural mind share. They do have
Speaker 1: a lot of young people on the platform, but it's
Speaker 1: not even close. Facebook still basically owns social media and
Speaker 1: and that isn't changing anytime soon. And I think, what's
Speaker 1: what's happening more Zuckerberg is attempting to position the company
Speaker 1: both because it's in this uh Ani trust conversation and
Speaker 1: as a way to of course get more productivity out
Speaker 1: of his employees to to sort of try to find ways,
Speaker 1: you know, to continue to stay ahead of TikTok, you know. Max.
Speaker 1: The other big story obviously with Facebook is this pivot
Speaker 1: to the metaverse. Uh though, is it possible that is
Speaker 1: an underdog story? I mean, is Zuckerberg seeing something in
Speaker 1: the metaverse that everyone else isn't meta? Facebook already controls
Speaker 1: a lot of the metaverse as part of their push
Speaker 1: into VR, into new platforms. Right, they paid around two
Speaker 1: billion dollars for this company called Oculus that turned into
Speaker 1: Facebook Meta's you know, VR a R thing, And the
Speaker 1: question is how big does this market get? Right, Zuckerberg
Speaker 1: is spending billions of dollars and rebranding a company and
Speaker 1: so on with the hopes that this is the next
Speaker 1: big platform, as big as mobile phones or something like that.
Speaker 1: But we don't actually know that will be the case.
Speaker 1: So in in sort of the best case scenario, this
Speaker 1: becomes huge. It's the biggest pieces And that's the vision
Speaker 1: that Zuckerberg has talked about for years. Really, you know,
Speaker 1: the worst cases, Facebook just controls relatively small market and
Speaker 1: then continues to dominate social media as it does today.
Speaker 1: I mean, it's still further and one billion dollar market
Speaker 1: cap company. I mean, it's it's it's exactly. And I
Speaker 1: think about there's so many companies when we talk about
Speaker 1: the law of large numbers. I mean you're looking at
Speaker 1: revenue still for this year forecasting to be something like
Speaker 1: a d eighteen billion dollars. I mean, this company still
Speaker 1: still makes a lot of money. Well. And and one
Speaker 1: thing that I think people have sort of missed is
Speaker 1: there's been this conversation like, oh, maybe maybe uh meta,
Speaker 1: Facebook is lost it's cool, right, the young people are
Speaker 1: going to TikTok and what what It's easier to forget
Speaker 1: that that has been going on for basically a decade.
Speaker 1: You know, it's about about a decade ago that Facebook
Speaker 1: first lost it's cool, maybe a little bit earlier than that.
Speaker 1: And Zuckerberg has found ways time and again to adjust,
Speaker 1: you know. And originally that that adjustment meant buying Instagram
Speaker 1: and then copying aspects of Snapchat, buying WhatsApp, um, And
Speaker 1: we're seeing that play out again. He can't buy TikTok
Speaker 1: because of antitrust scrutiny, but he can't copy it and
Speaker 1: and and the company is making progress there. It hasn't
Speaker 1: yet found ways to generate revenue. But but these these
Speaker 1: TikTok like products are definitely gaining in terms of users,
Speaker 1: time span, and that sort of thing you got back.
Speaker 1: So I'm wondering a lot of times when you see
Speaker 1: a company sort of stumble like this, at least its
Speaker 1: share price, you know, I would start wondering about the
Speaker 1: guy at the top. Zuckerberg is is both CEO and
Speaker 1: chairman of the company. Is it just insane to think
Speaker 1: that there could be some risk to him? So, I
Speaker 1: mean he would have The important thing is he would
Speaker 1: have to do it right. It he controls Facebook in
Speaker 1: addition to being the CEO and chairman through these super
Speaker 1: voting shares, So he would have to conclude or I
Speaker 1: guess suppose like be forced by a court or something
Speaker 1: that that this would be you know, better for the company.
Speaker 1: And I don't think that's going to happen anytime soon.
Speaker 1: So the point is what that you know, and I
Speaker 1: think about as we talk about this story, and you're right,
Speaker 1: I think I feel like some of the conversations around
Speaker 1: it is like, oh, whoa is you know? Meta? But
Speaker 1: I mean, this is a company still even if numbers
Speaker 1: maybe are the growth numbers aren't as strong as they
Speaker 1: used to be. I mean when it comes to things
Speaker 1: like advertising. I mean, this is still where folks go. Yeah,
Speaker 1: it's unavoidable from an advertising perspective, And I think it's
Speaker 1: just worth keeping in mind that there's this political story
Speaker 1: playing at the same time, which is that Facebook is
Speaker 1: under scrutiny and it's to its advantage to play up competition.
Speaker 1: So I think it's important to, you know, just take that,
Speaker 1: take it with a grain of salt. Every time they
Speaker 1: talk about fear of TikTok and so on. That was
Speaker 1: Bloomberg business Week columnist Max Chafkin, along with Bloomberg's Mike Regan.
Speaker 1: You're listening to Bloomberg business Week Still ahead, how to
Speaker 1: harness the psychology of social media addiction in a way
Speaker 1: that can actually help strengthen our minds and bodies. We
Speaker 1: only hear about Facebook and Snapchat melting kids brains. We
Speaker 1: also need to talk about the good examples of how
Speaker 1: we can actually use habit forming technology for good. Yes,
Speaker 1: for good, especially when it comes to health and wellness
Speaker 1: at least, so says our next guest. Stick around. We've
Speaker 1: got more. This is Bloomberg. You're listening to Bloomberg Business
Speaker 1: Week with Carol Messer and Bloomberg Quick Takes Tim Stinovik
Speaker 1: from Bloomberg Radio. Okay, you know, tech startups are always
Speaker 1: promising to make us better, to help us lose weight,
Speaker 1: get more sleep, read more, And the reason very few
Speaker 1: of them actually work is because users never get hooked
Speaker 1: down them. At least that's according to Near All, Silicon
Speaker 1: Valley's Habits Guy. He's an angel investor, former lecture at
Speaker 1: Stanford's Graduate School of Business. He also wrote a couple
Speaker 1: of books, including Hooked, how to build habit forming products.
Speaker 1: He wrote back in and then put out another book
Speaker 1: in the title Indistractable, How to Control your attention and
Speaker 1: Choose your Life. Bloomberg's Mike Reagan and I spoke with
Speaker 1: near in studio this past week, and we had to
Speaker 1: know all of this app tracking, information gathering, optimizing, Is
Speaker 1: it really really good for us? It's a great question.
Speaker 1: Is it good? Is it bad? The answers yes, it's both.
Speaker 1: Pauvarlio has a wonderful quote. He said, when we invented
Speaker 1: the ship, we invented the shipwreck. So of course, every
Speaker 1: new technology, especially one on such a massive scale as
Speaker 1: the internet is going to have goods and beds about
Speaker 1: how we manage those. You know, you're I'm wondering about
Speaker 1: sort of the chemicals that are at play, like the
Speaker 1: brain chemicals. You know you always hear about, Well, if
Speaker 1: you get a notifications on your is that a real thing?
Speaker 1: You know, do is there dopamine or whatever? You know,
Speaker 1: happiness chemicals at work when you when you get addicted
Speaker 1: to an app and you're and you're you know, I
Speaker 1: love to see those notifications and stuff like that. Yes
Speaker 1: and no. I hate to give a wishy washing answer,
Speaker 1: but typically if you hear somebody talk about dopamine squirts,
Speaker 1: just discount everything they say because it's so overused. It's
Speaker 1: so overplayed. Everything releases dopamine. When you hug somebody, you
Speaker 1: get dopamine. When you learn to play the piano or
Speaker 1: play tennis, you get a squirt of dopamine. Dopamine is
Speaker 1: not cocaine in the brain. It's like a different scale
Speaker 1: than using an app. So the whole idea of getting
Speaker 1: addicted to an app or hijacking your brain is so overplayed.
Speaker 1: If you actually look at the research and you talk
Speaker 1: to the people who study this stuff, some people get addicted,
Speaker 1: of course, just like some people get addicted to alcohol. Right,
Speaker 1: alcohol is highly addictive, but not everybody who has a
Speaker 1: glass of wine with dinner is an alcoholic. Right. About
Speaker 1: three to five of population is addicted, But it's not.
Speaker 1: It's certainly not everyone. Addiction is a pathology, and just
Speaker 1: because some people get addicted doesn't mean everyone will. So
Speaker 1: these little dopamine hits that we get aren't It's something
Speaker 1: pretty natural that we'd probably be getting something. And we remember,
Speaker 1: we want products to get better products. Being engaging is
Speaker 1: not a problem. It's progress. Are we gonna say, hey, Apple,
Speaker 1: your phones are really easy to use. Stop that Netflix
Speaker 1: your shows? I want to watch them all the time?
Speaker 1: Can you please make boring shows? It's ridiculous. It's a
Speaker 1: wonderful thing that the world is becoming more engaging, But
Speaker 1: the cost of this is that we have to learn
Speaker 1: some new manner, some new norms and new ways of
Speaker 1: being in the world so that we can get the
Speaker 1: best of these products without letting them. Yeah, because I
Speaker 1: can't imagine, you know how many times you walk into
Speaker 1: like a subway train and just people are just involved,
Speaker 1: you know, so engaged, either in their phone or something,
Speaker 1: and you feel kind of rude, kind of moving around,
Speaker 1: And I do feel like we need to kind of
Speaker 1: rethink how we interact and engage in society as a whole.
Speaker 1: How do you think about how we could get so
Speaker 1: much more in the healthcare and wellness space When it
Speaker 1: comes to apps and you know whether it's workable technology,
Speaker 1: how do you see it? How do you see that
Speaker 1: it should play out? Is playing at So we were
Speaker 1: talking about before we went on air about how I
Speaker 1: get a gadget. Almost every week somebody sends me something
Speaker 1: to try out. Because I'm in this health change space.
Speaker 1: Healthcare is specifically taking off. I mean, I think one
Speaker 1: thing I'm super excited about our continuous glucose monitors. Have
Speaker 1: you seen those around for? It used to be something
Speaker 1: that only diabetics war and it's it's a game changer.
Speaker 1: My mother in law and a family member who and
Speaker 1: you start seeing them on people's arms. What you start
Speaker 1: seeing now is that people who don't have diabetes are
Speaker 1: now tracking their glucost because it's so easy to do that.
Speaker 1: Now you can track it throughout the day. And and
Speaker 1: there's several companies I work with a few that will
Speaker 1: tell you before you eat, right before you get a snack,
Speaker 1: R check your glucose. Why because it will tell you
Speaker 1: whether you are psychologically hungry or physically hungry. And sometimes
Speaker 1: it's hard for us to tell the difference. So by
Speaker 1: looking at this app and saying, actually, my blood glucose
Speaker 1: is fine, I really don't need a snack. Let me
Speaker 1: wait fifteen minutes, that can delay snacking. So that's just
Speaker 1: one small example. But I think we're gonna see an
Speaker 1: explosion of these new behavior change apps. All right, So
Speaker 1: what are some of your favorite you know, either apps
Speaker 1: are products that are out there, let's say for working out,
Speaker 1: because there's so many. Yeah. So, one of the apps
Speaker 1: I talked about in my book Hooked is an app
Speaker 1: called fit bod f I T B O D. And
Speaker 1: I love this app because I actual put on a
Speaker 1: blog post. I was so frustrated with how bad most
Speaker 1: fitness apps were. I put out a blog post that
Speaker 1: the title was why your fitness app is making you fat?
Speaker 1: Because they were so bad. All of them were so terrible.
Speaker 1: And then somebody told me about fit body so bad?
Speaker 1: Was it just because they didn't form a habit? Okay,
Speaker 1: got it? And so I I downloaded fit Bond and
Speaker 1: I started using it and I said, oh my goodness,
Speaker 1: this is actually really great and it looks like it's
Speaker 1: following the hook model. Hook models what I based my
Speaker 1: book on my class at Stanford on and so I
Speaker 1: just went to the customer support email thing and I
Speaker 1: sent them to said do you have you by chance
Speaker 1: read my book? Within thirty seconds, the founder wrote me
Speaker 1: back and said, yes, we actually built the hook model
Speaker 1: into the app. And I use fit bod every time
Speaker 1: I work out. I'm in the I'm forty four years old,
Speaker 1: best shape of my life because of this app. It's fantastic.
Speaker 1: Well near cuts the chase here. How can Carol and
Speaker 1: I make this show more habit? For me? The most
Speaker 1: important part, the fuel that we see is the backbone
Speaker 1: of every habit forming product is a variable reward, right,
Speaker 1: some kind of intermittent reinforcement. Of course you have it
Speaker 1: in that you product. By the news, the first three
Speaker 1: years of news, any w K new it's all about variability.
Speaker 1: So that's what makes sports engaging, what makes slot machines
Speaker 1: so so intoxicating, what makes social media fun, It's all
Speaker 1: about the new, new new, the variability um peloton right,
Speaker 1: somewhere addicted. There's something that really rode a high no
Speaker 1: pun intended, and then obviously has has come undone a bunch.
Speaker 1: What do you think about that? Yeah, it's it's a
Speaker 1: super interesting story because I think it's a great example
Speaker 1: of why variability is so important for habit formation, that
Speaker 1: if something is not variable, if it's predictable, it's boring. Right.
Speaker 1: I think about game games, right, everybody wants to gamify everything,
Speaker 1: put points, advagines and leaders, but most games people burn
Speaker 1: out on. Right, think about member Farmville. Farmville was like
Speaker 1: the biggest thing ever back in what two thousand and twelve.
Speaker 1: Who's playing Farmville anymore? Nobody? Why? Because after Farmville it
Speaker 1: was Chefville and uh whatever, Frontierville was like the same. Yea,
Speaker 1: you're telling me nobody's gonna be playing Wortle in a
Speaker 1: few years. You may be surprised. It's long, is that?
Speaker 1: You know? What's great about word is that it's social. Yeah,
Speaker 1: as opposed to solitary expanses like Peloton. So Peloton during
Speaker 1: the pandemic, when you couldn't go to the gym, you
Speaker 1: couldn't do the things that used to do. It was
Speaker 1: very novel it's this this screen on your on your bike.
Speaker 1: It's so interesting, so in with people. But then you
Speaker 1: do it three or four times and you kind of
Speaker 1: got the idea. Right, It's say, it's the same routine.
Speaker 1: It's not variable enough. Let alone the fact that it's
Speaker 1: hard work, right, You're you're really pushing yourself. So it's
Speaker 1: uh that I think was what what what went wrong
Speaker 1: was that it they didn't maintain the sense of variability. Yeah,
Speaker 1: you know, and your talk to us a little bit
Speaker 1: about some of the companies you've invested in over the
Speaker 1: year and how this notion of habit forming it has
Speaker 1: sort of played into your thesis of whether or not
Speaker 1: a company's worth investing in. If you give us some
Speaker 1: examples of sere where it worked, well, yeah, it's it's
Speaker 1: been amazing. So the book came out in Hooked, How
Speaker 1: to Build Habit Forming Products, and uh, it's been used
Speaker 1: in every conceivable industry. Education is one I'm super proud
Speaker 1: of whenever I see a company using the hook model.
Speaker 1: A few years ago, I got a call from these
Speaker 1: young entrepreneurs in Norway building this little app. They showed
Speaker 1: me the hook model. I was so impressed. Immediately said
Speaker 1: please take my money. I want to. I want to,
Speaker 1: I want in because they showed me how they really
Speaker 1: applied the book. And today that company's cohoot. It's the
Speaker 1: most widely used educational software in the world. Uh and
Speaker 1: uh the last time I checked that a multibillion dollar evaluation.
Speaker 1: And what are they doing. They're getting kids hooked onto
Speaker 1: online learning. So how are they doing that? What are
Speaker 1: some of the techniques? Yeah, so they have this really
Speaker 1: innovative it's like a it's uh, you you get the
Speaker 1: so the hook model. I'm trying to summarize, uhhand page
Speaker 1: book and and don't do any seconds. But essentially what
Speaker 1: they're doing is, uh, they're getting kids to invest in
Speaker 1: making these quizes on their own to share with their peers.
Speaker 1: And so that investment phase this is really special. That
Speaker 1: that's great. Yeah, the investment phase where you put effort
Speaker 1: into something to make it better. So when you are
Speaker 1: the person making the quiz, right as opposed to saying
Speaker 1: that when we were in school it was a pop quiz.
Speaker 1: Today that sucks right horrible. Here the kids are making
Speaker 1: it for their peers and then in a class they're
Speaker 1: playing these quizzes. So anyway, body with kids, you know
Speaker 1: under probably fourteen. I bet you your kids have know
Speaker 1: all about CAHOT and that's a wonderful examp. You only
Speaker 1: we only hear about the bad cases. We only hear
Speaker 1: about Facebook and Snapchat melting kids brains. I think that
Speaker 1: story is overblown. But we also need to talk about
Speaker 1: the good examples of how we can actually use habit
Speaker 1: for me technology for good. You know, near you did
Speaker 1: sort of flick at the idea of there can be
Speaker 1: a backlash too products that are too habit forming, whether
Speaker 1: it be a parent saying as you said, the social
Speaker 1: media is melting my kid brain. So how do you
Speaker 1: sort of assess that risk when you're trying to decide
Speaker 1: in a company to invest? You know, is that risk
Speaker 1: still there for say, the big social media for the
Speaker 1: robin hoods? You know, how how important is that risk
Speaker 1: do you think to these companies going forward? It's a
Speaker 1: great question. I spent a lot of time working on ethics.
Speaker 1: There's actually a chapter in my book called the Morality
Speaker 1: of Manipulation where I talk about all this, but I
Speaker 1: propose what I call the regret tests. And the regret
Speaker 1: test comes out of my search for how do you
Speaker 1: make sure that you're ethical when you use these behavioral
Speaker 1: design techniques, because, as we talked about, they can be
Speaker 1: used for good. You can help people exercise more and
Speaker 1: uh save money and form all these great habits. But
Speaker 1: how do you make sure you do it ethically? So
Speaker 1: the regret test says, you don't do it with DraftKings
Speaker 1: or or one of the gambling apps. That's that's a
Speaker 1: that's a great example. Robin Hood also potentially a great example.
Speaker 1: So the regret test says that the he asks would
Speaker 1: the user do what we have designed for them to do,
Speaker 1: knowing everything we know summarized as would they regret using
Speaker 1: our product? Because people aren't dumb, right, people aren' dumb
Speaker 1: that if they regret doing business with you, guess what,
Speaker 1: not only are they not going to do business with you,
Speaker 1: they're going to tell all their friends on social media
Speaker 1: not to do business with you. Yes, indeed, nothing like
Speaker 1: the power of a bad online review that was near
Speaker 1: a all Angel investor, author and Silicon Valleys habits guy.
Speaker 1: And that wraps up the wee Can edition to Bloomberg
Speaker 1: Business Week from Bloomberg Radio. Thank you so much for
Speaker 1: joining us. I'm Carol Masser. Many thanks to Bloomberg News
Speaker 1: Senior Markets Reporter Katie I. Felt and Bloomberg Market Senior
Speaker 1: editor Mike Reagan for joining us as well over the
Speaker 1: past week. Be sure to tune into Bloomberg Business Week
Speaker 1: Monday through Friday, starting at two pm Wall Street Time
Speaker 1: on Bloomberg Radio. Catch us too on YouTube. Just search
Speaker 1: Bloomberg Global News and check out our Bloomberg Business Week podcast.
Speaker 1: You can catch our full conversations with so many of
Speaker 1: our guests. Find that at Bloomberg dot com, Apple, or
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Speaker 1: on newsstands now, at Bloomberg dot com and always on
Speaker 1: the Bloomberg Terminal. Have a good weekend, everyone, Stay safe
Speaker 1: and sound. This is Bloomberg