Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. We want to go
Speaker 1: deep into technology critic because I mean, tech is you know,
Speaker 1: just It's been a leader for this market for as
Speaker 1: long as I can remember, almost and my question is
Speaker 1: as we come out of this, is tech going to
Speaker 1: be a leader going forward as a sector. We had
Speaker 1: some week numbers of a week or than expected numbers
Speaker 1: I guess we would say across the tech sector over
Speaker 1: this past earning periods. Let's dive deep into tech. Let's
Speaker 1: round table this and we're gonna do it for a
Speaker 1: couple of segments. Here, Dan, I've senior equity ANALYSTO web
Speaker 1: Bush Securities. Uh joins us here very casual attire. I
Speaker 1: will point out Uh and Man Deep Sing Bloomberg Intelligence
Speaker 1: Senior Tech analyst. Uh. They're both joining us here in
Speaker 1: Bloomberg Interactive Broker Studio, which is good, so we can
Speaker 1: just kind of bat it around for a while. So damn,
Speaker 1: You've been in this business a long time as self
Speaker 1: side analysts, you've been one of the leading voices in
Speaker 1: promoting technology on Wall Street. How do you think about
Speaker 1: this tech sector going forward? I mean over the last
Speaker 1: I would say, since the Great Financial Crisis, it's been
Speaker 1: a leader in this marketplace in terms of stock performance.
Speaker 1: How about the next ten years? Look, I think the
Speaker 1: hyper growth story in tech, I mean the clock struck midnight,
Speaker 1: and I think that's why you're seeing layoffs from Amazon
Speaker 1: to Meta and others. But my view is that you're
Speaker 1: gonna have trillions spent in what I used the Fourth
Speaker 1: Industrial Revolution, and that's not ending because of this recession
Speaker 1: next three to six months. So my view is, especially
Speaker 1: on high quality tech, this is more of a fourth
Speaker 1: fifth inning rather than the eighth ninth inning in terms
Speaker 1: of attack, and I think that's why we've been bullish
Speaker 1: on it, you know, even as we go, you know,
Speaker 1: into year into two thousand and twenty three, in terms
Speaker 1: of where we are in the cycle. Mandyp hop on
Speaker 1: in here because I think when I look at tech,
Speaker 1: I mean, it's such a broad sector naturally we think
Speaker 1: of the metas the Amazons and Microsoft, But then there's
Speaker 1: kind of this other lens of chips, and it feels
Speaker 1: like chips are kind of this magnified response of tech,
Speaker 1: and you have the chip equipment makers, which are an
Speaker 1: even bigger magnified response. Are all of these spheres of
Speaker 1: tech on the same page right now? Well, so think
Speaker 1: of you know where the spend is going when it
Speaker 1: comes to topics. So all these companies you mentioned, Meta, Amazon, Alphabet,
Speaker 1: they're spending you know, thirty forty billion dollars fifty billion
Speaker 1: dollars a year on topics. Where is that spend going
Speaker 1: in terms of building data center? In fact, n video
Speaker 1: like you look at their data center growth, they have
Speaker 1: gone from almost nothing to fifteen billion dollar run rate
Speaker 1: in a span of five years. That's phenomenal for a
Speaker 1: chip company. And so that gives you a sense of
Speaker 1: where the next leg of investments will be. Is it
Speaker 1: will be an AI and you know, building cloud capacity
Speaker 1: and and chips is at the forefront. That's why there's
Speaker 1: so much geopolitical tension around chips, you know, the China
Speaker 1: US aspect of it. And I think you just can't
Speaker 1: take that out of the equation. Even if you're in
Speaker 1: a downturn, when we come out of it, the focal
Speaker 1: point will still be semiconductors, AI, machine learning, cloud. These
Speaker 1: are the trends. So you have job securities what you're
Speaker 1: telling me, I hope. So alright, hey, then you know
Speaker 1: talk to us. You know, I need to get into
Speaker 1: this story here, this whole Elon Musk Twitter thing. I'd
Speaker 1: love to get your opinion here because you've been on
Speaker 1: top of the Tesla story since day one, Elon Musk
Speaker 1: since day one, And what do you make of Elon
Speaker 1: and Tesla has has his you know, efforts at Twitter
Speaker 1: change your view of Tesla as a company, as a
Speaker 1: stock and Elon as as an owner. Look, I mean
Speaker 1: I think it's been a circus show, you know, as
Speaker 1: we've all seen. And I think there was a view
Speaker 1: as a Tesla holder that once Must finally bought Twitter
Speaker 1: and ultimately was forced into because he knew legally he
Speaker 1: was gonna have to win it one way or another,
Speaker 1: that it would start to die down in terms of
Speaker 1: just this horror show that continues to play out. But
Speaker 1: instead it hasn't right. I mean, since he's bought it,
Speaker 1: it's kind of been a train wreck situation. He's trying
Speaker 1: to turn around. You know what's really been a treadmill
Speaker 1: Stock and Company for years. He's not someone culturally that's
Speaker 1: gonna be playing ping pong in the Twitter cafeteria or
Speaker 1: you know, doing parties on the rooftop. And I think
Speaker 1: now as a testa investor, you want to see him
Speaker 1: give reins to others that ultimately could operate social media
Speaker 1: because in terms of Tessa, forget the selling of the stock.
Speaker 1: Musk is the gold standard. That's why Tessa trades where
Speaker 1: it is. There's key man risk, we'll call it. You
Speaker 1: don't want to see his attention focus too much on
Speaker 1: Twitter because it comes down to he has diamonds on
Speaker 1: one hand and Tessa has two Dour Slice in New
Speaker 1: York Pizza and the other one whatever. And I think
Speaker 1: that's the frustration for test investors. Well, okay, let's go
Speaker 1: into then the social media space a little bit more
Speaker 1: than I've wondered. If this potential bankruptcy or decline that
Speaker 1: you're seeing in Twitter, does that then create some sort
Speaker 1: of tailwind for the likes of Meta for example. I
Speaker 1: think right now, I mean all those ships are going
Speaker 1: down right. So it's one where there could be some
Speaker 1: life rafts here and there, but books social media is
Speaker 1: that the best growth is in the rear view mirror.
Speaker 1: And that's why Zuckerberg ultimately, once Apple IOLs came out
Speaker 1: with cook and the shot across the bout, I think
Speaker 1: Zuckerberg and Facebook knew, okay, like clock Struck Midnight, it
Speaker 1: was basically time that they were gonna have to transform
Speaker 1: the business model. I think the death of social media.
Speaker 1: I think what's happened is is that it's a it's
Speaker 1: a maturity of social media, and that's really what's happened
Speaker 1: is that how do you monetize? I think the problem
Speaker 1: from us someone that basically has created rockets and electric vehicles.
Speaker 1: He goes in Twitter and he's like, we got two
Speaker 1: d forty million users. Engagement, as we all know, is
Speaker 1: extremely high. How do you monetize it? That's been the
Speaker 1: problem for Twitter. They need to monetize it. And again
Speaker 1: they were spending money like rock stars, so they needed
Speaker 1: to cut cost. That was clear, and now it's about
Speaker 1: ken you turnaround. Penn State's playing at Rutger's this weekend.
Speaker 1: I think I'm gonna get some tickets and go we
Speaker 1: are we are? Are you going? Okay? Alright? So I
Speaker 1: think I might join you there, And we got Mandep
Speaker 1: saying he does all this tech stuff for Bloomberg Intelligence. Man, Deep,
Speaker 1: I want to start with you Meta. When I was
Speaker 1: a kid, it was Facebook, Okay, it was a phenomenal
Speaker 1: growth story. It had so many revenue growth levers to pull,
Speaker 1: whether it's Facebook or the Graham as kids call it,
Speaker 1: or What'sapp or Messenger? Stuck can't buy a friend? Right here?
Speaker 1: What's the call in Meta right here? Well, so clearly
Speaker 1: they have a lot of headmans from Apple as like
Speaker 1: changes that they made and you know the ad pricing
Speaker 1: impact that had on Meta. But the biggest one is
Speaker 1: what are they doing with reality labs and how long
Speaker 1: are they going to spend? So even though they announced
Speaker 1: the job cuts and that actually did help the stock,
Speaker 1: it's still not clear. You know, what is the endgame there, Venville.
Speaker 1: They're leg commercial success. What kind of revenue growth can
Speaker 1: reality labs generate? Because in terms of the installed base
Speaker 1: and unit sales, that's trending down and still Meta is
Speaker 1: talking about losing almost fifteen billion dollars on reality labs
Speaker 1: next year. So how am I supposed to buy stock
Speaker 1: when the top line revenue growth is slowing and these
Speaker 1: expenses on this business I don't even understand are going
Speaker 1: up dramatically. Is that kind of what investors are saying.
Speaker 1: If they start winning against TikTok, or TikTok gets banned
Speaker 1: in the US, that will certainly be a big catalyst
Speaker 1: for the stock as well as for their growth. Because
Speaker 1: think of it this way. If you are an advertiser
Speaker 1: who wants to spend their add dollars, there are only
Speaker 1: so many places you can go to, whether it's Google
Speaker 1: Search or Meta or TikTok or Snap or pinterest. So
Speaker 1: they only handful of platforms, and if TikTok goes out
Speaker 1: of the equation, that will certainly be a booze for
Speaker 1: meta reels. That's the other big investment they're making. We'll
Speaker 1: hop on in here, Dan and talk to us a
Speaker 1: little bit about the ripple effect from meta Specifically, you've
Speaker 1: seen a little bit of tail winds going to and
Speaker 1: video advanced micro devices. This idea that if Facebook now
Speaker 1: Meta is going to power the metaverse, you need the
Speaker 1: chips to do it. Is that a logical tailwinds that
Speaker 1: a sustainable tailwind for some of these other big tech players. Yeah,
Speaker 1: I don't think it is. Look, I think Zuckerberg, it's
Speaker 1: sort of been a Ted Striker from the movie Airplane situation,
Speaker 1: and I think that's you know, you go back to
Speaker 1: that last conference call investors have really you know, the
Speaker 1: patients is worn thin because I think in terms of
Speaker 1: the metaverse strategy in this type market, that's not what
Speaker 1: you want to see. That's why they had to cut
Speaker 1: back to cost. And I think ultimately gonna have to
Speaker 1: do more and more of a U turn in terms
Speaker 1: of metaverse. Facebook look as a stock, you know, we'd
Speaker 1: be more cautious on it, just because right now you
Speaker 1: feel like from a social media perspective you must see
Speaker 1: them doubled down. There still massive headwinds you as we
Speaker 1: talked about in terms of what we see with Apple IOLs.
Speaker 1: All right, let's go to Apple because I need your
Speaker 1: call at Dan, you've been one of the most vocal
Speaker 1: UH analysts on Apple here. Um, it's only down sixteen
Speaker 1: year to date, so it's beating the SMP. It's way
Speaker 1: beating the NASTAC here. So it feels like kind of
Speaker 1: a safe port in a in a storm here. What's
Speaker 1: the what are the growth stories for this one going forward?
Speaker 1: Do I have to wait for the next cool phone
Speaker 1: or what's the story? It's a rocket Gibraltar stock. And
Speaker 1: I think the heaters continue to hate the you know,
Speaker 1: fire in a crowd theater every quarter. Yet look with demand,
Speaker 1: I was held up, and I think if you look
Speaker 1: at the services business, doc continues to play out, and
Speaker 1: I think we have a re acceleration going to next year.
Speaker 1: Look in macro, it's going to hit everyone including Apple
Speaker 1: and of course supply chains in issue. But I believe
Speaker 1: it's very negative out there in from an investor perspective,
Speaker 1: and I believe numbers the decks being cleared, and I
Speaker 1: think there's a stock that can continues to move higher
Speaker 1: as we go in next six and nine months. That's
Speaker 1: why intact, Apple, Microsoft, you'll continue to be our favorite names.
Speaker 1: You've been a real expert on cloud and the switch
Speaker 1: to cloud. Will Apple ever enter that game? Now? They
Speaker 1: will always be a consumer focused company. And look, they
Speaker 1: will keep building the back back in infrastructure in terms
Speaker 1: of supporting the services revenue that Dan was talking about.
Speaker 1: But Apple is not an enterprise sales company. You know,
Speaker 1: they will continue to focus on devices, and I think
Speaker 1: they will enter the VR market as well. They will
Speaker 1: launch a headset that could drive the next leg of growth,
Speaker 1: like look at what air pods have done in a
Speaker 1: span of you know, three or four years. So but
Speaker 1: I I do think they will always be consumer focused.
Speaker 1: And if I know, you and the tech team at
Speaker 1: Bloomberg Intelligence kind of look at the industry as a
Speaker 1: whole as well, talk about tech spending in the last
Speaker 1: couple of years and what it might look like a
Speaker 1: a kind of recession or environment maybe for the next
Speaker 1: year or so. Yes, so we definitely were in above
Speaker 1: historical growth rate environment when it comes to tech spending,
Speaker 1: and we probably pulled forward some of the data centers
Speaker 1: spend over the last couple of years, given everyone was
Speaker 1: talking about digital transformation and you know, the shifting work
Speaker 1: clothes to cloud. But still I think, you know, when
Speaker 1: it comes to I T spending, you break it apart
Speaker 1: into software and services, it will still be high single digits. Yes,
Speaker 1: semiconductor is more cyclical, so the hardware and semiconductor component
Speaker 1: will slow down, but overall tech spending will continue to
Speaker 1: be you know, at least two times GDP. Yeah, I'm
Speaker 1: sticking with it. I mean, I don't know. I mean,
Speaker 1: it's been good for me for the last twelve years,
Speaker 1: don't you think, I mean you know, so you know
Speaker 1: when you were a kid. Yeah, exactly, exactly, all right,
Speaker 1: Mandy seeing Bloomberg Intelligence tech analyst Dan I's web Bush
Speaker 1: securities are covering all things on the TMT space for
Speaker 1: web Bush. We appreciate them coming into the studio round
Speaker 1: tabling a couple of segments here talking about tech um.
Speaker 1: It's going to continue to be a solid growth story
Speaker 1: going forward. Look at a bitcoint pretty I mean finally
Speaker 1: getting a little bit of stability here. It's up about
Speaker 1: a four tenths of one percent here sixteen thousand, five ninety.
Speaker 1: But the world of crypto, I mean you talk about
Speaker 1: the crypto winter, Okay, I guess the asset class a
Speaker 1: little bit out of favors. What I take you the
Speaker 1: term crypto winter. But then we got f t X
Speaker 1: blowing up. This is like the nasdacs saying we're going
Speaker 1: out of business. This is crazy and it is an
Speaker 1: ever ever changing story on a daily and hourly a
Speaker 1: minute basis. And Bloomberg has got some great, great reporting,
Speaker 1: uh and on this story and part of that reporting
Speaker 1: team is Annie Massa. She's an investigating reporter, investing reporter
Speaker 1: for Bloomberg News. He joins us here in our Bloomberg
Speaker 1: Interactive Broker studio. She's not mailing in, phoning it in,
Speaker 1: She's in the studio exactly. So Annie, the Sam Bankman
Speaker 1: freed guy. What do we know about him and what
Speaker 1: kind of happened here? We know a lot about him.
Speaker 1: We've all been very exposed to Sam Bankman Freed over
Speaker 1: the past year or two years. But what is coming
Speaker 1: to light is that he's a totally different kind of
Speaker 1: person than many people really thought. In the bankruptcy documents
Speaker 1: that came out today, there is a trove of information
Speaker 1: about how he ran f t X and his affiliated
Speaker 1: hedge fund, Ali Alima Research, and how there was no
Speaker 1: there was no internal system, no controls, and actually a
Speaker 1: pretty flagrant um sense of uh. I mean, it's it
Speaker 1: goes beyond lack of oversight to to really irresponsibility. Is
Speaker 1: there anybody talking fraud at this point? That's that's a
Speaker 1: big suspicion. I mean, when when you talk to people
Speaker 1: in the industry, they're like, yeah, this guy's going to jail,
Speaker 1: But I mean, who's to say, like it's still playing out,
Speaker 1: but there's uh, there's certainly not a good feeling about
Speaker 1: what's next. Well, I think one of the issues in
Speaker 1: crypto broadly has been the story of credibility. It's almost
Speaker 1: a experiment that's taking place in crypto that we've seen
Speaker 1: in other markets, in the bond market, in the equity
Speaker 1: market as well. The new f t X CEO saying
Speaker 1: there's a complete failure of corporate controls. How does a
Speaker 1: company like f t X, for example, regain some of
Speaker 1: the credibility scene, say, the equity markets. Yeah, I mean,
Speaker 1: I just want to underscore what you just said. The
Speaker 1: man overseeing the bankruptcy of f t X and its
Speaker 1: affiliated entities oversaw the end Ron bankruptcy. And this is
Speaker 1: a guy who said, I have never in my career
Speaker 1: seen such a lack of trustworthy financial information um and
Speaker 1: complete lack of corporate control. So even he is shaken
Speaker 1: to his core as far as I can tell, and
Speaker 1: says throughout the document that some of the financial information
Speaker 1: provided to him anything provided to him while the company
Speaker 1: was understand Bankman Freed, he doesn't even necessarily trust Sam
Speaker 1: Bankman Freed, I just wonder why is he not sitting
Speaker 1: in an FBI office in Washington or in New york Y?
Speaker 1: Is he? I mean, he's the center of all this
Speaker 1: and there are billions of dollars that have been lost.
Speaker 1: Why is he still hanging out in the Bahamas? A
Speaker 1: great question for regulators when they come on the show
Speaker 1: next time. But it's it's true. So um, he's been
Speaker 1: questioned by authorities in the Bahamas, and I think it
Speaker 1: speaks to why was he in the Bahamas in the
Speaker 1: first place? Right, it was no secret that he based
Speaker 1: his business in the Bahamas. Both of these businesses, by
Speaker 1: the way, Alameda and f t X. And you know
Speaker 1: this is a guy who ran these companies. You know,
Speaker 1: Alameda started in no surprise, Alameda County in California, then
Speaker 1: moved to Hong Kong, then moved to the Bahamas. It's like,
Speaker 1: why did this corporate entity have to hop around the
Speaker 1: world to the Caribbean ultimately to UH to survive? So,
Speaker 1: I mean, clearly he was trying to stay out of
Speaker 1: the reaches of US authorities. We know now, I mean,
Speaker 1: but we see this now right in retrospect. Hindsight is
Speaker 1: always but I have to for for the viewers who
Speaker 1: are listeners, I should say, who aren't as familiar with
Speaker 1: the rise of Sam Bankman Freed. How did f t
Speaker 1: X get so big so quickly? Yeah, um, well, it's
Speaker 1: a good point because or it's a good question because
Speaker 1: f t X hasn't been around that long. It was
Speaker 1: the second largest crypto exchange before the bankruptcy. But it's
Speaker 1: not that old. Um. Alameda started first of all. I
Speaker 1: want to underscore that Alameda started first. Alameda started as
Speaker 1: his crypto trading hedge fund in f t X emerged
Speaker 1: as an offshoot of that in Okay, so we're talking
Speaker 1: just a few years this this company rises to be
Speaker 1: the second largest player in all of crypto in the world.
Speaker 1: How did that happen? Well, he was a master manipulator,
Speaker 1: but knew how to access people. He knew how to
Speaker 1: get people on the platform, and he uh and he
Speaker 1: put ads like he got all this VC backing. He
Speaker 1: was able to charm vcs. Raised two billion dollars, right,
Speaker 1: you can. You can throw your weight around with that
Speaker 1: kind of money. And we all saw the Super Bowl
Speaker 1: commercials Um, you know ft X plastered on the sides
Speaker 1: of stadiums. He knew how to get in front of
Speaker 1: retail investors, and I think it started this cycle this
Speaker 1: like flywheel almost where. Um, once the vcs saw all
Speaker 1: the people on trading on the ft X platform, then
Speaker 1: they're like, hey, wait a minute, like everybody else is
Speaker 1: you know in this investment? Why am I not? And
Speaker 1: it's snowballed from there Binance. They seem to be I
Speaker 1: guess the winners here and their founders c z I
Speaker 1: just known by his I'm not sure his name. Um,
Speaker 1: they seem to be the winner here. Is anybody looking
Speaker 1: at them because I know they sold some bitcoin I
Speaker 1: guess last weekend, which would have been the weekend before,
Speaker 1: which kind of accelerated the demise of the ft X platforms.
Speaker 1: Anybody looking at them in any way, shape or form,
Speaker 1: or are they just the winners here? I would be
Speaker 1: cautious to say there are any winners in this story,
Speaker 1: at least now, because it is hard to overstate how
Speaker 1: seismic this event has been in the cryptocurrency industry. Yeah,
Speaker 1: we've spoken to CEOs of other entities within the crypto
Speaker 1: space and they are shaken to their core. They're almost
Speaker 1: they can't believe this happened. Because Sam Bankman Fried was,
Speaker 1: if nothing else, the savior of the industry. He was
Speaker 1: the voice, voice, and face to Washington, d C in
Speaker 1: terms of creating credibility. It's a highly destabilizing event and
Speaker 1: there's been a huge loss of trust in the space.
Speaker 1: So we'll see what emerges from this. But I'm not
Speaker 1: declaring any winners at this point. I'm still shocked that
Speaker 1: and Paul met this point I believe earlier is that
Speaker 1: crypto is actually still sixteen thousand literally at Bitcoin at
Speaker 1: a level of sixteen thousand, uh five, fifteen ish, we'll
Speaker 1: call it at the moment um. I'm surprised that there
Speaker 1: isn't an even bigger reaction to a collapse of the
Speaker 1: second largest crypto exchange, because if he saw that and
Speaker 1: say the equity market, there would definitely be a massive collapse.
Speaker 1: And um Crypto, I felt like, was a growing um entity.
Speaker 1: You've covered exchanges, You've covered accent managers. Do you think
Speaker 1: I get worse from here? I think it absolutely can
Speaker 1: and will get worse from here. I think that we're
Speaker 1: we're still kind of waiting to see the full effects
Speaker 1: of what will happen. This is going to have ripple
Speaker 1: effects in the crypto lending space. It already is. Um,
Speaker 1: the effects are going to ripple out from here. Um.
Speaker 1: To your point about bitcoin, Uh, it's interesting bitcoin. I mean,
Speaker 1: crypto gets all lumped together, right, but but bitcoin is
Speaker 1: different from some of these like fantasy Land tokens that
Speaker 1: were just being minted by f t X. So it's
Speaker 1: seen as more of like a safer bet among the
Speaker 1: speaking of I need a final for my poker table.
Speaker 1: Are you available? Are you? I sure do? Yeah. She's
Speaker 1: a champion to the champions. So if we had brought
Speaker 1: you in, you would have cleaned us out, is what
Speaker 1: you're telling Usily, all right, I didn't know that, Thank
Speaker 1: you very much. That's interesting. Alright, any massive investing reporter,
Speaker 1: poker player for bloo Bo Bourber News, and we appreciate
Speaker 1: her bringing a summer her reporting chops here on this
Speaker 1: whole FTX story in crypto ever evolving. We know that
Speaker 1: the consumer it's about of the US economy, it's pretty big.
Speaker 1: So Bloomberg Intelligence, which is the research arm of Bloomberg LP,
Speaker 1: we allocate a lot of top resources to covering retail
Speaker 1: and the consumer. We've got Punum Goyle, she covers retail.
Speaker 1: Jen bartashes covers retail. Lindsay Dutch also covers retail. We've
Speaker 1: got Lindsay here on the line to give us a
Speaker 1: sense of what's going on out there with the retail
Speaker 1: space and the consumer. And she has her BS and
Speaker 1: math from Lafayette College. She's a leopard. Did you know
Speaker 1: that the Lafayette left with a mathematician? Yeah? Does that
Speaker 1: BS and math at Lafiat College. I mean, I mean
Speaker 1: I would not go up to Lindsay at a cock
Speaker 1: de party, I mean, math person. Why don't they is
Speaker 1: going to come out with formulas and the small talk? Hey, Lindsay,
Speaker 1: thanks so much for joining us here. Of the retail
Speaker 1: companies you cover, what have you been seeing here over
Speaker 1: you know, this quarter? What are they telling you about
Speaker 1: the consumer? About recession all that kind of stuff? Hi, Paul,
Speaker 1: thanks for having me. Um. My focus is on the
Speaker 1: hard lines, and we haven't had too many report but
Speaker 1: there is sort of, you know, a common thread that
Speaker 1: I'm seeing sort of across my space and some of
Speaker 1: the other retailers is you know, obviously, you know, the
Speaker 1: consumers are focused on value. They're very price sensitive, and
Speaker 1: that is driving an extremely promotional environment for these retailers.
Speaker 1: Heading into the key fourth quarter. You know, we see
Speaker 1: that with Bath and body Works, UM And I think
Speaker 1: that the other thing is like managing inventory. These retailers
Speaker 1: are don't want to get over inventory, some of them
Speaker 1: already are there, and that's also really driving these promotions
Speaker 1: UM and we expect them to continue and be elevated
Speaker 1: in the fourth quarter. You mentioned Beth and Body Works,
Speaker 1: it starts up nine today. I mean this is a
Speaker 1: big company, eight and a half billion dollar market cap.
Speaker 1: Tell us what happened with their their numbers? Yes, so
Speaker 1: they basically beat from the top to the bottom line
Speaker 1: UM with results, and they raised their outlook for the
Speaker 1: year after they sort of drastically cut it back in
Speaker 1: July when everyone started really questioning what was going on
Speaker 1: with the consumer and where the pullbacks were going to be.
Speaker 1: And Bath and body really does sell discretionary item, so
Speaker 1: you know, the gut feel, you know, the initial reaction
Speaker 1: might be like that they would be severely hurt in
Speaker 1: this environment, but I think their results really show how
Speaker 1: loyal they're following is and their customers really go to
Speaker 1: their products as sort of state items, especially for the
Speaker 1: the key holiday season. UM. There they use them as gifts.
Speaker 1: You know, people incorporate their their products, their candles, their
Speaker 1: body care into you know, their holiday season. So I
Speaker 1: do think, Um, you know, the results were great, but
Speaker 1: it also demonstrates the future with this company and the
Speaker 1: growth potential that they have with this loyal base. What
Speaker 1: does that then mean for this divergence that I feel
Speaker 1: like a lot of people expected to narrow a little
Speaker 1: bit between perhaps some of the luxury shoppers and then
Speaker 1: some of the uh not luxury shoppers for lack of
Speaker 1: a better term. But essentially what I'm referring to is
Speaker 1: this kind of divergence you saw in Macy's versus Coals,
Speaker 1: in um, even Walmart versus Target. Arguably, what are the
Speaker 1: share shifts that are happening in this space? So for
Speaker 1: bet the body work, because their customer base, you know,
Speaker 1: really does align pretty l with you know, the demographics
Speaker 1: across the US nationally, So they have some high income
Speaker 1: shoppers and they have some low income shoppers, and you know,
Speaker 1: they consider their products sort of affordable luxury. Um, if
Speaker 1: you will, Um, But I think again, it comes back
Speaker 1: to my point of you would kind of expect, you know,
Speaker 1: if people are going to cut back and people are
Speaker 1: cutting back, you know, cutting back on body lotion or
Speaker 1: sprays seems like an obvious thing, right, you may not
Speaker 1: need that item, but I think you know, people are
Speaker 1: very focused on self care and these items are important
Speaker 1: to them and they're basically willing to spend on them. Um.
Speaker 1: But the one thing we did see is they do
Speaker 1: want a deal. So so they want these products, but
Speaker 1: they want a deal. And I think that in the
Speaker 1: fourth quarter, you know, especially Black Friday, Cyber Monday, you know,
Speaker 1: some of the deals are going to be very, very good,
Speaker 1: and I think you know where there was some pullback
Speaker 1: and that lower income consumer in the third quarter, I
Speaker 1: think we're going to see some transactions from that customer
Speaker 1: because they want the items, They're going to come into
Speaker 1: the store and they're gonna stock up when the price
Speaker 1: is low. So little line for the companies you cover
Speaker 1: in retail, are shoppers coming back to the store. Are
Speaker 1: they still just clicking from their couch so? Um. You know,
Speaker 1: since stores sort of started reopening in one you know,
Speaker 1: we've seen a resurgence of brick and mortar. Right the
Speaker 1: storefront is essential to drawing people, um to buy your products. UM,
Speaker 1: and we are seeing people back in the stores. I think,
Speaker 1: you know, Black Friday is going to look a lot
Speaker 1: more like pre pandemic UM, where you know, people are
Speaker 1: waiting a little bit to do their shopping, and I
Speaker 1: think they are going to go in person to these
Speaker 1: stores and explore the products um and and try to
Speaker 1: take advantage of the deals out there, not me sitting
Speaker 1: on the count and I'm clicking if I can't buy
Speaker 1: with my phone, it in happen it, Lindsay, thank you
Speaker 1: so much for joining us. Appreciate it. Lindsay Dutch. She's
Speaker 1: an analyst at Bloomberg Intelligence. Comes lots of things, but
Speaker 1: she really does a great job on the retail space.
Speaker 1: We've got a strong team there at Bloomberg Intelligence because hey,
Speaker 1: there's a lot of companies out there in the retail
Speaker 1: space UH and be the consumers such a big part
Speaker 1: of this economy. And it's interesting to see how the
Speaker 1: consumer UH is faring here with high inflation, appending recession.
Speaker 1: Yet the retail sales numbers we saw come out we're
Speaker 1: pretty darn good. UM, So we'll have to keep on
Speaker 1: top of that. We need to get the latest on
Speaker 1: the Ukraine. This is a fluid situation, of course, but
Speaker 1: we need to speak to some experts and get the real,
Speaker 1: uh sense of what's going on there, and we do
Speaker 1: that right now with Dr Ariel Cohen. He's a senior
Speaker 1: fellow at the Atlantic Council Eurasia Center. UH. He also
Speaker 1: served as a Senior research fellow in Russian and Eurasian
Speaker 1: studies and International Energy policy at the Heritage Foundation. The
Speaker 1: author of six books, He's been doing his stuff a
Speaker 1: long time. Folks, Um, Dr Colin, thanks so much for
Speaker 1: joining us here. Boy, I guess I think about the
Speaker 1: last fourty eight hours, it seems like the world kind
Speaker 1: of dodged the bullet, if you will, in that this
Speaker 1: missile strike in Poland. You know, perhaps was not a
Speaker 1: premeditated act on the part of Russia, but boy, it
Speaker 1: just highlights how risky things are over there and maybe
Speaker 1: potentially getting even worse. What's your current state of affairs
Speaker 1: over there? Absolutely? Uh. This is probably the worst deterioration
Speaker 1: UH in the global security field since the Cuban missile crisis.
Speaker 1: But the Cuban missile crisis was resolved quickly. Both the
Speaker 1: US and the Soviet Union did not want the nuclear war. Here,
Speaker 1: it's different because Jima puts in deliberately threatened the use
Speaker 1: of tactical nuclear weapons in Ukraine and wanted the world
Speaker 1: to walk him back from the break. And he really
Speaker 1: really wanted attention. He got it. UH. Now it looks
Speaker 1: like China and India a sort of distancing in different ways,
Speaker 1: but distancing themselves from Russia, including in the recent G
Speaker 1: twenty summit. Um Chairman C who just won the power
Speaker 1: struggle in Beijing, was very careful not to criticize Russia directly,
Speaker 1: but the statement about the necessity to avoid the nuclear
Speaker 1: war was their front and center. Of course, Russia said
Speaker 1: they are against the nuclear war as well, but what
Speaker 1: you see here is a prolonged, protracted conflict in Ukraine.
Speaker 1: Russia things that time is on its side because it
Speaker 1: has more human resources and a greater UH industrial capacity,
Speaker 1: whereas the Moscow power Circle thing that the West will
Speaker 1: lose interest. UH. They hope that the Republicans would win
Speaker 1: both houses, and mistakenly, in my opinion, I thought that
Speaker 1: the Republicans will not support Ukraine. UH. And with the
Speaker 1: exception of some fringe figures who got reelected recently, the
Speaker 1: majority of the Republican Party and Republican voters do support
Speaker 1: our aid to the struggle of the Ukrainian people for
Speaker 1: their freedom. So, but this into some perspective for us
Speaker 1: when it comes to the situation with Poland. At the moment,
Speaker 1: I believe the investigation is still ongoing in terms of OH,
Speaker 1: I believe what has been called a stray missile that
Speaker 1: then hit Polish territory, and I should add NATO territory
Speaker 1: as well. Present Biden has been very vocal about saying
Speaker 1: any inch of NATO, the United States will of course
Speaker 1: go to defend. But there are historical dynamics between Poland
Speaker 1: Ukraine and then Poland Russia. Highlight to our audience why
Speaker 1: that's so important. The missile fell in the Polish territory
Speaker 1: close to the Ukrainian border. UM. The missile appeared to
Speaker 1: missiles appeared to be at this moment the Ukrainian anti
Speaker 1: aircraft missiles that hit air Russian UM missile that was
Speaker 1: flying towards UM a Ukrainian target probably and energy target.
Speaker 1: And UH. President Biden said that because Russia started this war, UH,
Speaker 1: the ultimate responsibility is with Russia. Two people were killed
Speaker 1: in Poland. For a moment, it looked at like a
Speaker 1: Russian strike against Polish territory that would of course escalate
Speaker 1: this war to a whole new level. But looks like,
Speaker 1: thankfully this is not the case, and we very much
Speaker 1: hope that this is not going to be a step
Speaker 1: in escalation. But the escalation is deliberate Russian destruction of
Speaker 1: the Ukrainian energy infrastructure, in which hundreds of thousands of
Speaker 1: civilians remain without electricity and heat in the middle of
Speaker 1: the war. So the Russians are trying to break the
Speaker 1: spirit of resistance in Ukrap Dr Cohen, you know, we're
Speaker 1: now many months into this war in Ukraine, we're coming
Speaker 1: upon you know, uh, the winter season in that part
Speaker 1: of the world. Based upon your experience, how do you
Speaker 1: think this war resolves itself? How do you how do
Speaker 1: you think it plays out? And maybe over what time frame?
Speaker 1: I think we are going to see fighting in winter,
Speaker 1: which is brutal. Um, it will get into the negative
Speaker 1: tens and twenties occasionally there or the thaw maybe freezing,
Speaker 1: but it's still December through March is quite nasty. Then
Speaker 1: there'll be a little hiatus when the mud season strikes
Speaker 1: late March early April, and then into the summer. So
Speaker 1: I I see probably close to another year unless something
Speaker 1: major happens. Look, Russian history teaches us at every tar
Speaker 1: every ruler that loses war loses power. And Mr Putsen
Speaker 1: is a great student of Russian history. He knows he
Speaker 1: will not be an exception. All right, Dr Ariel Cohen,
Speaker 1: thank you so much for joining us there. We appreciate
Speaker 1: getting your thoughts in your perspective. Dr Errol Cohen, he's
Speaker 1: a senior fellow at the Atlantic Council Eurasia Center. Getting
Speaker 1: the latest on the fighting in Ukraine, and Dr Cohen
Speaker 1: was saying, pretty it doesn't seem to be any resolution
Speaker 1: in sight at this point. Yeah, and even I believe
Speaker 1: the joint chis to have the Pentagon yesterday is talking about, well,
Speaker 1: the timeline is going to extend certainly into the winter.
Speaker 1: I had a lot of retail data come out over
Speaker 1: the last week or so. We had some retail sales
Speaker 1: government figures come out little bit better than a expected.
Speaker 1: We've had some pretty good earnings numbers from most of
Speaker 1: the retailers, and Macy's today with some good number stocks
Speaker 1: up um, so we're starting to see getting some decent
Speaker 1: figures of how the consumers really faring. To get some
Speaker 1: more color We've checked in with Harley Finkelstein, president of
Speaker 1: Shopify Shopify trades on the NASDAC under the simple s
Speaker 1: H O P. That makes sense, Hardy, thanks so much
Speaker 1: for joining us here, UM to tell us what's happening
Speaker 1: with your business here, because there is concern about the
Speaker 1: consumer as we potentially head into recession over the next
Speaker 1: several quarters. Hey, Paul, Yeah, thanks for having me. Well,
Speaker 1: it's like I think the UH, if the past few
Speaker 1: years have proven anything, it's that changes is kind of
Speaker 1: the only constant in commerce in general. UM. But we're
Speaker 1: heading into you know, the biggest shopping moments of the year. UM.
Speaker 1: And and there are still some notes in the in
Speaker 1: the landscape. UH surveys are telling us at eight of
Speaker 1: US businesses are planning for a big Black Friday, Cyber
Speaker 1: Monday sales weekend. So that's that we think is really
Speaker 1: really great. UM. And one of the things that you know,
Speaker 1: we're seeing is that there are a couple of trends
Speaker 1: happening bote both for the consumer but also for the
Speaker 1: merchant and and uh, you know, if you compare it
Speaker 1: to last year. Last year we saw but forty seven
Speaker 1: million shoppers buying from Shopify brands over the forty weekend
Speaker 1: UM that felt like it was a vote with their
Speaker 1: wallets to support these amazing independent brands as opposed to
Speaker 1: go to department stores. And so we'll see what happens there.
Speaker 1: But peak sales last year, we're at three point one
Speaker 1: million dollars permitted on Black Friday on Shopify and uh
Speaker 1: and for the weekend we saw were six billion dollars
Speaker 1: sold on our platform. So we'll see what happens this year.
Speaker 1: But there's certainly some optimism in the in the air.
Speaker 1: I heard that Shopify is building out their logistics arm,
Speaker 1: which is interesting is usually something we associate with Amazon
Speaker 1: for example, walk us through perhaps some of the challenges
Speaker 1: at least a vision for that. Yeah, I mean a
Speaker 1: couple of things, I think for the relationship that our
Speaker 1: merchants have. We have millions of merchants on our platform.
Speaker 1: Shopify is now about ten percent of total e commerce
Speaker 1: in the US alone. UM and and so if you're
Speaker 1: a consumer and you're buying from a from a great
Speaker 1: brand direct on their online storey even offline store and
Speaker 1: experiences is wonderful, there's a really good chance Shopify his
Speaker 1: power and that experience one of the things that we
Speaker 1: know that our merchants are looking for is is they
Speaker 1: want us to help with more of their their retail
Speaker 1: and their commerce issues. And so years ago we introduce
Speaker 1: Shopify payments make it easier for him to exact payments.
Speaker 1: We then introduced things like Shopify Capital. We've now given
Speaker 1: out more than four billion dollars worth of cash advances
Speaker 1: and loan store merchants, and more recently we introduced Shopify Fulfillment.
Speaker 1: And really the idea is so because the consumers expectations
Speaker 1: around fulfillment and shipping have been reset, we want to
Speaker 1: give every merchant that uses Shopify the same effectively the
Speaker 1: same ability to delight them with you know, to day
Speaker 1: affordable shipping uh and that that the big retailers do.
Speaker 1: And we think we can do that with shop by fulfilment.
Speaker 1: But it's not just about one particular product, whether it's
Speaker 1: a film that oar, payments or capital. The ideas we
Speaker 1: are becoming the most important piece of software that these
Speaker 1: millions of stores and merchants use and and to do so,
Speaker 1: we really are are transitioning from just being e commerce
Speaker 1: provider to being a retail operating system. And I think
Speaker 1: a lot of our merchants would say that shopify is
Speaker 1: their business for the most part. Harley, talk to us
Speaker 1: about the pandemic over the last three years. A lot
Speaker 1: of folks, I think it's kind of suggested to me
Speaker 1: that maybe it's that has pulled forward maybe you know,
Speaker 1: five years of market share gains for e commerce forward. Um,
Speaker 1: A do you do you agree with that? Do you
Speaker 1: think e commerce will louse share? Is? Maybe people start
Speaker 1: going back to stores. How do you an you think
Speaker 1: about that? What are your merchants telling you? Yeah, I mean,
Speaker 1: it's it's a great question. What the pandemic did was
Speaker 1: it certainly did pull forward some some acceleration in e
Speaker 1: commerce penetration. Um, you know, uh, just just to be
Speaker 1: just to be clear, Um, the metric or the vector
Speaker 1: that most people are looking at is e commerce penetration
Speaker 1: as a percentage of total retail. What happened during the
Speaker 1: pandemic is if the equation simple, then the numerator is
Speaker 1: e commerce sales. The denominator is total retail sales. When
Speaker 1: the pandemic hit, you saw two things happen. The numerator
Speaker 1: went up, of course e commerce was higher, but the
Speaker 1: denominator you lost all physical retail, and so you saw
Speaker 1: this massive growth rate and now that we're settling back
Speaker 1: in sort of this you know, post pandemic world, what
Speaker 1: you're seeing is all the gains and e commerce have
Speaker 1: have sustained. We still have all those games, but the
Speaker 1: growth rate is now closer to what we saw in
Speaker 1: two thousand nineteen, but on a much much higher base.
Speaker 1: And so I think the macro tail winds of e
Speaker 1: commerce is is still very very healthy. In fact, e
Speaker 1: commerce will you need to grow over time. We're still
Speaker 1: sub in the US, it's a little bit less in Canada,
Speaker 1: a little bit more in the UK, but e commerce
Speaker 1: generally is still quite small and there's a lot of
Speaker 1: room to grow. Now. The other thing I think that
Speaker 1: is is becoming apparent to to us and certainly to
Speaker 1: the merchants that you shopify you know, uh, you know,
Speaker 1: great brands, whether it's you know, All Birds or its Figs,
Speaker 1: or it's Fashion Nova or Gym Shark. Uh. You know
Speaker 1: I mentioned on the Earnings called Glossy is now Shopify
Speaker 1: and thetels banks these incredible to use this. One of
Speaker 1: the things that we are seeing is that the future
Speaker 1: of retail is not just going to be online, nor
Speaker 1: is it going to be offline. There's sort of this
Speaker 1: talk about is offline coming back? Well, of course, and
Speaker 1: the reason is the future of retail is going to
Speaker 1: be all about consumer choice and the brands that will
Speaker 1: be most successful. I just tweeted about this about an
Speaker 1: hour ago. But you know, Kim Kardashian, her new skin line,
Speaker 1: cosmetic line we know, has a pop up powered by Shopify,
Speaker 1: and so it's all coming together around e commerce and
Speaker 1: commerce colliding and commerce being everywhere. Yep, it certainly seems
Speaker 1: that is the case. Hardy, thank you so much for
Speaker 1: joining us. We'll always appreciate getting the latest from you
Speaker 1: on retail and on Shopify. Harley Finkelstein, he's the president
Speaker 1: and at Shopify. Again, that is a NASTAC traded stock.
Speaker 1: You can type in s h o P, go into
Speaker 1: your Bloomberg terminally get all the latest there forty billion
Speaker 1: dollars market cap there. So again, Black Friday coming up
Speaker 1: big for the retailers. Thanks for listening to the Bloomberg
Speaker 1: Markets podcast. You can subscribe and listen to interviews with
Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller.
Speaker 1: I'm on Twitter. At Matt Miller three and I'm fall Sweeney.
Speaker 1: I'm on Twitter at pt Sweeney Before the podcast. You
Speaker 1: can always catch us worldwide at Bloomberg Radio