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Speaker 3: Okay, we've been all over this as the process has
Speaker 3: progressed over the past month or so. Now we know
Speaker 3: Carol open Ai completed a deal to raise six point
Speaker 3: six billion dollars in new funding. It gives the company
Speaker 3: a vale evaluation of one hundred and fifty seven billion dollars,
Speaker 3: and the idea is that the funding will help bolster
Speaker 3: their efforts to be the world's leading jen Ai company,
Speaker 3: bringing the leading technology with it.
Speaker 1: General Motors has a market kappa fifty billion. I know
Speaker 1: it's that appens to Apple's. But I like to just
Speaker 1: perspect out there the public once private, that's true. I
Speaker 1: know it's just kind of wild, all right, So is
Speaker 1: it a short? Is the sun at the top? We
Speaker 1: continue to have so many questions, So back with us.
Speaker 1: As Bloomberg News AI reporter Rachel Mets, She's out there
Speaker 1: in our san Francisco Bureau. Rachel. First of all, let's
Speaker 1: walk everybody through this global funding raise. Who how much?
Speaker 1: How impressive is this funding round in open ai? It
Speaker 1: sounds rather impressive.
Speaker 4: It is rather impressive. I mean, this is a ton
Speaker 4: of money, and there are a bunch of people in
Speaker 4: firms involved, including Thrive Capital. You have Nvidio, which also
Speaker 4: makes the chips that are very very important to this
Speaker 4: kind of work. I believe Coastal a Ventures as part
Speaker 4: of it, as well a whole bunch of other players besides,
Speaker 4: And I think what's so interesting is that, well like
Speaker 4: the size of it, of the amount of money they're getting,
Speaker 4: the size of their valuation, but also what they're doing
Speaker 4: with this money. They have to raise this kind of
Speaker 4: money if they want to keep making the kind of
Speaker 4: AI software that they're making, because it costs gobs of
Speaker 4: money just to make this stuff.
Speaker 3: Where do where are the costs? I mean, this is
Speaker 3: all in video chips that they're spending the money on.
Speaker 3: Is it that the engineers you can do this stuff
Speaker 3: are paid upwards of a million dollars a year? Rachel?
Speaker 3: Is it the server costs?
Speaker 2: Yes? Yes?
Speaker 3: And yes? What am I missing?
Speaker 5: Is it?
Speaker 1: Why Jensen Wong is saying, what is it everything is
Speaker 1: awesome or what was the wordy? I forget what he
Speaker 1: said anyway, anyway.
Speaker 3: Said demand is insane.
Speaker 5: Insane.
Speaker 4: That's it, man, is insane. Okay, No, I mean okay, So, like,
Speaker 4: think about it this way. If you want to train
Speaker 4: a state of the art AI model, like like a
Speaker 4: large language model right now, you're going to spend easily
Speaker 4: hundreds of millions of dollars to do that. Right, So
Speaker 4: let's assume you want to do that a couple times.
Speaker 4: Let's assume you know you're happy with two of the
Speaker 4: out of the three. Let's say you've done three. I
Speaker 4: mean that is, you know, that's easily more than a
Speaker 4: billion dollars right there, right, And then, as you mentioned,
Speaker 4: you've got all these other costs, I mean staff, I'm
Speaker 4: not even sure. I would love to see a breakdown
Speaker 4: if we can do that at some point of like
Speaker 4: staff costs might not even be you know, that's not
Speaker 4: even going to rate, right, even if you're paying somebody
Speaker 4: a million bucks. That's just like pocket change.
Speaker 1: Well, this is what you know, we have this question
Speaker 1: not my pocket change. To be fair, tim and on
Speaker 1: our list of questions It's like, we're thinking transparency of
Speaker 1: this business. And I understand it's not public yet so
Speaker 1: it doesn't have to report things, But how many specifics
Speaker 1: this is your world, like your expertise. I am curious
Speaker 1: how many specifics are you able to get access to
Speaker 1: or an understanding of when it comes to the business
Speaker 1: of open AI in terms of users chat GPT, Like,
Speaker 1: what do we know really that might justify one hundred
Speaker 1: and fifty seven billion dollar valuation.
Speaker 4: Well, we do know that they are bringing in revenue.
Speaker 4: This has come from some reports. This has also come
Speaker 4: from information that we have learned. They also have put
Speaker 4: out some stats. Every once in a while, they'll put
Speaker 4: out a number or an updated you know, an updated number.
Speaker 4: We know that as of now, there are I think
Speaker 4: it was two hundred and fifteen million weekly chat cheept
Speaker 4: users if I remember the stat correctly. When they said
Speaker 4: that they're funning round clothes the other day, they also
Speaker 4: mentioned that, so we know that. We also know from
Speaker 4: a recent report we had that a million. They hit
Speaker 4: the mark of a million paying business customers for chat
Speaker 4: DBT recently, and that would be across I think it's
Speaker 4: three different businesses there, sorry, three different products they have.
Speaker 4: One is like an educational one, and then two are
Speaker 4: different business products that they saw. So they are bringing
Speaker 4: in money. It's just you know, you've got to bring
Speaker 4: in lots and lots and lots of money if you
Speaker 4: want to grow this kind of business. So the valuation
Speaker 4: and the amount of money that they raised, it all,
Speaker 4: I feel think it all makes sense in a sense.
Speaker 4: But it is not lost on me that these are
Speaker 4: all very large numbers.
Speaker 1: If you could sit down with the management team and
Speaker 1: they said, all right, Rachel, we know you want to
Speaker 1: know more, but we can only give you one statistic
Speaker 1: to tell you like kind of how we're doing. What
Speaker 1: might it be? What would you ask or what would
Speaker 1: you want to know?
Speaker 4: Oh my gosh, sorry that is you're putting on.
Speaker 1: I know, but you're so smart.
Speaker 4: No, I mean, but the things that I'm interested in
Speaker 4: probably probably might not interest other people. But I mean,
Speaker 4: I guess I would be curious to know just how
Speaker 4: has usage of chat GPT changed over time or what
Speaker 4: the churn is, you know, like how as of now,
Speaker 4: like people that have been paying to use the service,
Speaker 4: how many are sticking with it, how long are they
Speaker 4: sticking with it? That kind of thing. Because I don't
Speaker 4: have the best sense of how people are using it
Speaker 4: over time and if they find it useful over time.
Speaker 5: Right.
Speaker 1: You do wonder if somebody uses it and they're like, ey,
Speaker 1: this isn't for me and they stop using it, Right,
Speaker 1: That's where churn could be exactly so telling.
Speaker 3: It's also not the only game in town. There's Anthropic
Speaker 3: out there. I mentioned perplexity. These are not necessarily apples
Speaker 3: apples comparisons. But who would you say is the biggest
Speaker 3: competitor to open ai?
Speaker 5: Oh?
Speaker 4: In my mind, I often think of Anthropic. Some of
Speaker 4: that is probably because it was started by people who
Speaker 4: left open ai and has since been joined by a
Speaker 4: bunch of other people from open Ai, but has always
Speaker 4: been focused on I mean, they've been very public about
Speaker 4: their focus on safety, and they are much more geared
Speaker 4: toward businesses from the get go, Like they are not
Speaker 4: concerned with doing some of the bells and whistles that
Speaker 4: you would see on mark consumer facing products, like for instance,
Speaker 4: they don't have an image generator, and they have said
Speaker 4: this is because their clients don't really want that or
Speaker 4: don't really need that, you know they do, so they
Speaker 4: are very like methodical about how they're rolling out features,
Speaker 4: and they seem to focus very firmly on what business
Speaker 4: users want, not thinking too much about consumers for the
Speaker 4: most part.
Speaker 1: Hey, Rachel, you went through the funding round led by
Speaker 1: Thrive Capital, which is a venture capital headed by Josh Kushner,
Speaker 1: brother of Jared. They put in one point three billion. Microsoft,
Speaker 1: which is open AI's largest back are put in another
Speaker 1: seven hundred and fifteen right on top of thirteen billion.
Speaker 1: The role of Microsoft, how much, say, do they have
Speaker 1: at this company? I think we've talked about this before,
Speaker 1: but it continues to be like kind of top of
Speaker 1: mind for me.
Speaker 4: Yeah, I mean, I think right now, that's definitely that's
Speaker 4: definitely a question mark. The company was going to have
Speaker 4: a board observer seat, and that was that person is
Speaker 4: not actually doing that role now. It was something that
Speaker 4: we had learned was happening, and now it sounds like
Speaker 4: it's not happening. So I think it's a little bit
Speaker 4: unclear since it is still not a publicly traded company,
Speaker 4: what role the company has.
Speaker 1: I also think do you think or do you think
Speaker 1: it's interesting for the companies that maybe didn't invest, like
Speaker 1: a little known company called Apple, Like, does that surprise
Speaker 1: you at all or no.
Speaker 4: I mean, nothing surprises me at this point because everything
Speaker 4: is weird. But it wouldn't shock me if Apple has
Speaker 4: other plans. You know, potentially they are already enmeshed with
Speaker 4: open Ai. They have this deal related to chat GPT,
Speaker 4: so who knows. I would definitely keep an eye on
Speaker 4: them and see are they planning to invest employment in
Speaker 4: the future, all on Microsoft or in some other way.
Speaker 4: Right now, I think it's still very TBD. I wouldn't
Speaker 4: say that they're not planning to invest, because we just
Speaker 4: don't know.
Speaker 3: Yeah, would you say, Rachel that Microsoft, even though they're
Speaker 3: an investor of the tune of more than ten billion
Speaker 3: dollars in open ai, they also compete with open ai?
Speaker 3: Is that fair to say?
Speaker 4: Sorry, say that one more time?
Speaker 3: Was it fair to say that Microsoft also competes with
Speaker 3: open ai even though they're an investor in open Ai?
Speaker 4: Right, And it's been like that the whole time, Like
Speaker 4: since they invested. I feel like it stood out a
Speaker 4: little bit more to me, like a year or so ago,
Speaker 4: and now it feels like maybe they're a little more complimentary.
Speaker 4: But honestly, that's more that's more vibeespased in my mind,
Speaker 4: but they definitely are a competitor.
Speaker 3: Are they a competitor in the set? Like are their
Speaker 3: own internal external tools? Are they powered by open ai
Speaker 3: the same way that Apple's tools are powered by or
Speaker 3: will be powered by open Ai? Are Microsoft's tools powered
Speaker 3: by open Ai? Are they? Are they separate? Distinct?
Speaker 4: I think it depends. I think it really depends on
Speaker 4: the products. So you kind of have to have to
Speaker 4: look at at the different ones sort of break it down.
Speaker 1: Hey, one other thing that we need to get into,
Speaker 1: and this is that an idea of I don't know,
Speaker 1: open ai maybe growing up a little bit and trying
Speaker 1: to figure out what its corporate structure or structure is
Speaker 1: going forward. And they've talked about right moving from a
Speaker 1: nonprofit to a for profit model, I know in your
Speaker 1: story and the team story talk about some of the
Speaker 1: legal hurdles to doing that. Should we assume do you
Speaker 1: assume as you watch kind of the evolution of open
Speaker 1: ai in the last almost two years now or so,
Speaker 1: say that that's going to be it's going to be
Speaker 1: a profit a for profit company, that's where it's going.
Speaker 4: I mean, one thing that we know is that the
Speaker 4: company is not afraid to change the structure, right, They
Speaker 4: already did that once. I believe it was in twenty
Speaker 4: nineteen when they created this really complicated structure that they
Speaker 4: have to this day that has an end to you
Speaker 4: within it that can bring in a profit. So I
Speaker 4: think based on that, we know that they may be
Speaker 4: willing to do that in the future. I think there's
Speaker 4: still a lot of questions about, like, could converting from
Speaker 4: what they are now to a public benefit corp, which
Speaker 4: is what we were hearing from our sources that they
Speaker 4: would want to convert to. Might that lead to a
Speaker 4: giant tax liability that that's a big unanswered question to me,
Speaker 4: because it's potentially possible that something like that, if it
Speaker 4: was many, many, many billions of dollars, could make it
Speaker 4: untenable to do that. So it's gonna it's a little
Speaker 4: it's a little TVD right now. We're going to have
Speaker 4: to do some more reporting and stay tuned.
Speaker 3: I think also TVD is is what an exit looks
Speaker 3: like for the investors of this company. Is anyone talking
Speaker 3: about an IPO yet at this point? Is it too
Speaker 3: early to be talking about that because that seems like
Speaker 3: the only exit here.
Speaker 4: It makes like it makes sense, right and We've seen
Speaker 4: other companies take a similar path, where like they get
Speaker 4: to this point and then the next step is that.
Speaker 4: To my knowledge, I haven't heard of anybody talking about it. However,
Speaker 4: definitely seeing investors increasingly talking about it. I mean, you know,
Speaker 4: they're not investing in this company for fun, right, they
Speaker 4: want to return at some point. So I think I'm
Speaker 4: pretty sure.
Speaker 1: That's pretty sure. Hey, listen, you have a great deep
Speaker 1: dive that hit the Bloomberg terminal just about two hours ago,
Speaker 1: and it's entitled or at least the headline on the
Speaker 1: story open ayes Sam Altman concentrates power on his path
Speaker 1: to one hundred and fifty seven billion dollar valuation. Safe
Speaker 1: to say he is in the driver's seat, Sam Altman,
Speaker 1: despite being kicked out at one point, just you know
Speaker 1: what in the past year? Was it earlier this year?
Speaker 1: It was like crazy, He's in the driver's seat and
Speaker 1: just got about twenty five thirty seconds here.
Speaker 4: Yes, I think that that is absolutely what's happening there.
Speaker 4: It was really instructive to spend the last few weeks
Speaker 4: looking back at our previous reporting, look it back at,
Speaker 4: looking back at the company's history, and also doing some
Speaker 4: fresh reporting and just kind of taking a broader look
Speaker 4: because usually I'm stuck in the weeds with these stories
Speaker 4: on you know, what's been happening and how did we
Speaker 4: get to this point, Where did we start? Where were
Speaker 4: we in the middle, And though in particular since he
Speaker 4: was brought back last year, a lot has changed and
Speaker 4: he is much more powerful now than most.
Speaker 1: It's a great story, and as you say, the open
Speaker 1: AI of today bears a little resemblance to its earlier self,
Speaker 1: so I highly recommend it. We'll put it out on Twitter.
Speaker 1: You get interrupted because of folks like us, but we
Speaker 1: so appreciate it, of course. Rachel Mists, our AI reporter
Speaker 1: Here at Bloomberg.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 2: live weekday afternoons from two to five pm Eastern Listen
Speaker 2: on Apple car Play and then Bright Auto with a
Speaker 2: Bloomberg Business app, or watch us live on YouTube.
Speaker 1: Well, we talked earlier about this morning to you have
Speaker 1: sweetly jobless claims being consistent with low layoffs. Mike McKee
Speaker 1: joined us too to talk about some of the other
Speaker 1: data points that maybe questioned a little bit about some
Speaker 1: of the strength that we are seeing in the job market.
Speaker 1: We do get another read tomorrow morning on the monthly
Speaker 1: job picture and on the labor front. We also heard
Speaker 1: from a big player when it comes to being an
Speaker 1: employer of a lot of workers. We're talking about Amazon
Speaker 1: dot Com today earlier as it kind of does around
Speaker 1: this time of year, earlier, talking about what it will
Speaker 1: need for the all important and busy holiday shopping season.
Speaker 3: Yeah, Amazon's going to bring about two hundred and fifty
Speaker 3: thousand seasonal, part time in full time employees on for
Speaker 3: the US holiday shopping rush. It's unchanged from last year.
Speaker 3: It's an indication that the company expects steady demand in
Speaker 3: its biggest market. Carol, I will say as of June
Speaker 3: thirtieth of this year, they had one point five three
Speaker 3: two million employees.
Speaker 1: As well have roles the employee a lot. All right,
Speaker 1: let's head to Atlanta and to Sandy Gordon. She's Amazon's
Speaker 1: vice president of Global Operations, Employee Experience and Relations. Sandy,
Speaker 1: great to have you here on Bloomberg Radio and Television.
Speaker 1: Tell us a little bit about how you guys determined
Speaker 1: demand for the year, how you make these projections, and
Speaker 1: maybe what your needs this year. Tell you a little
Speaker 1: bit about the market any economic environment.
Speaker 6: Yeah, Carolyn, Tim, it's nice to be with you all today,
Speaker 6: and thank you for taking the time. You know, this time,
Speaker 6: this is the time of the year when we began
Speaker 6: preparing for what we do expect to be a busy
Speaker 6: holiday season. And as you stated, that preparation includes US
Speaker 6: hiring for two hundred and fifty thousand full time and
Speaker 6: part time seasonal roles across our customer fulfillment and transportation
Speaker 6: network in the US, and this is a diverse range
Speaker 6: of roles for applicants of all backgrounds and experience levels.
Speaker 6: We obviously take a look at what we project as
Speaker 6: our customer demand. We watch how we're performing in the
Speaker 6: year leading into the holiday and that helps us to
Speaker 6: identify the volume of employees that we'll need, the number
Speaker 6: of employees that we'll need to meet our customers' expectations.
Speaker 6: And so we are really excited and ready to welcome
Speaker 6: back so many of our repeat seasonal customers, I mean employees,
Speaker 6: and we're happy to welcome new.
Speaker 1: And customers and customers. That's fair.
Speaker 6: Oh, hey, absolutely will say that, of.
Speaker 1: Which we all we all can certainly say yep, Amazon
Speaker 1: customer and certainly use it. Hey, Sandy though, what is
Speaker 1: what you're seeing in your expectations for what you need
Speaker 1: for the holiday season? Tell you about how the economy
Speaker 1: is doing. As you know, we're Bloomberg. We talk a
Speaker 1: lot about soft landing hard landing. What the outlook is.
Speaker 1: Do we miss a recession? How would you describe it?
Speaker 1: Based on your hiring needs and what you guys are
Speaker 1: expecting for the business come the holiday season.
Speaker 6: I think we're projecting, you know, what we're expecting, projecting
Speaker 6: expected holiday growth in our customer demand, and I don't
Speaker 6: think we expect there to be anything less than that.
Speaker 6: I heard you at the opening say we're hiring similar
Speaker 6: to what we hired last year, and that is true,
Speaker 6: but that is what we The additional two hundred and
Speaker 6: fifty thousand compliments are already existing more than one million
Speaker 6: Amazon employees. And each year we get smarter in the
Speaker 6: way that we do business and projecting what our customers
Speaker 6: will want to purchase and making sure that those items
Speaker 6: are close to them so that we're able to meet
Speaker 6: the the commitment to get it there quickly. And so
Speaker 6: I think just through our typical behaviors of continuing to
Speaker 6: improve the way we operate, we're able to do more
Speaker 6: with our two hundred and fifty thousand additional seasonal employees.
Speaker 3: It's not too early to be talking about this. I
Speaker 3: kind of said that yesterday and we spoke to Ali
Speaker 3: Furman over at PwC. She's Consumer Markets industry leader, and
Speaker 3: she shared with us with us some data about how
Speaker 3: consumers are projected to spend a record high of one
Speaker 3: thousand and six and thirty eight dollars per shopper this
Speaker 3: holiday season. It's up seven percent over last year, but
Speaker 3: it's lower than the fifteen percent increase that we saw
Speaker 3: the prior year. In terms of hiring your seasonal employees,
Speaker 3: that you're hiring this year is unchanged compared to last year.
Speaker 3: What can you tell us about what that reflects when
Speaker 3: it comes to demand.
Speaker 6: I think it not much. For it as it reflects
Speaker 6: to demand is more so the fact that we are
Speaker 6: continuing to find ways to deliver smartly for our customers,
Speaker 6: and in doing so, you know, we have been spending
Speaker 6: a lot of time making sure that we can anticipate
Speaker 6: our customers needs and ensure that the inventory is correctly
Speaker 6: placed so that it can get to them quickly. And
Speaker 6: we'll be able to do that with our employees, the
Speaker 6: two hundred and fifty thousand that we're adding to our
Speaker 6: already more than one million compliments.
Speaker 3: So, Sandy, in other words, it's gotten more efficient just
Speaker 3: in the last year, you've been able to find efficiencies.
Speaker 3: Can you tell us what those efficiencies are or how
Speaker 3: much more efficient you've been able to become just in
Speaker 3: a short time.
Speaker 6: Yeah, I think what we could say is, you know,
Speaker 6: we're always a culture that is figuring out how we
Speaker 6: can do more and continuously improving. And our ability to
Speaker 6: deliver fast and even faster is rooted in structural changes
Speaker 6: like placing us I satic thoor, like placing items as
Speaker 6: close to customers as possible, moving from a national to
Speaker 6: a regional network and thus reducing the touch points and
Speaker 6: transportation distances for deliveries, and so with that we are
Speaker 6: able to deliver faster and meet our customers' expectations with
Speaker 6: the projected headcount that we're identifying.
Speaker 1: Hey, one of the other things that we were thinking
Speaker 1: about when we looked at the number, standy, We're curious
Speaker 1: if the base of full time logistics workers, did that
Speaker 1: base increase year over year in a way that makes
Speaker 1: the number that you guys are needing to hire for
Speaker 1: holidays being steady misleading. In other words, your full time
Speaker 1: logistics workers have been increasing ahead of this, and so
Speaker 1: maybe that explains why the numbers consistent.
Speaker 6: Our full time and our part time employee numbers, they
Speaker 6: can fluctuate throughout the year, but the seasonal The value
Speaker 6: of bringing our seasonal employees on is that they allow
Speaker 6: us to ensure we're able to deliver for our customers
Speaker 6: while aiding our permanent employees in being able to maintain
Speaker 6: their flexibility with their schedules so they're able to spend
Speaker 6: time with their families around the holidays. And so it's
Speaker 6: why we this This program has been so popular for us,
Speaker 6: not only with our permanent employees, but also with our
Speaker 6: seasonal employees. It's why we see so many people returning
Speaker 6: because there is flexibility in it and it is an
Speaker 6: opportunity to earn a good weight with a work schedule
Speaker 6: that aligns with whatever's going on in their personal life.
Speaker 1: Hey, one of the other things, listen, We've got to
Speaker 1: ask you, Sandy. In a week where you know we've
Speaker 1: got East Coast and Gulf Coast ports workers on strike,
Speaker 1: there's been a lot of activity over the last couple
Speaker 1: of years. When it comes to union organizing, how hot
Speaker 1: is the temperature? How would you describe it? When it
Speaker 1: comes to labor organizing. You guys, you know are among
Speaker 1: you know certainly some of the companies that you know,
Speaker 1: these issues have come up against.
Speaker 6: Yeah, harol. We yeah. We respect our employees' rights to
Speaker 6: voice their opinions and encourage them to share their experiences
Speaker 6: in the workplace. And we have a culture at Amazon
Speaker 6: that respects and values each of our team members as individuals,
Speaker 6: and we favor each of our team members having their
Speaker 6: unique voice heard working directly with our team The fact
Speaker 6: is that Amazon offers competitive pay, health benefits on day one,
Speaker 6: opportunities for career growth, and engaging safe work experiences, and
Speaker 6: working directly with our employees, you know, we can look
Speaker 6: for ways to continuously improve. And it's in fact, you know,
Speaker 6: working with our employees. We we know that wages are
Speaker 6: a very important part of what makes you know, an
Speaker 6: employee satisfied to work at a company, and it's such
Speaker 6: as part of the reason we have an annual wage review,
Speaker 6: a wage and benefit review, and just a few weeks ago,
Speaker 6: we announced that we're making a two point two billion
Speaker 6: dollar investment in employee compensations and benefits for our fulfillment
Speaker 6: and exportation employees in the US.
Speaker 1: All right, good to leave it on that note. So
Speaker 1: glad we could get some time with you and really
Speaker 1: give us a window into what you guys are doing,
Speaker 1: especially for the upcoming holiday season. Sandy Gordon, VP of
Speaker 1: Global Operations, Employee and Experience Relations at Amazon.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 2: own Amy or girl. Yeah.
Speaker 3: She covers IPOs here at Bloomberg. She reminded us in
Speaker 3: a story this week that overall, usipos continue along a
Speaker 3: steady path to recovery. Thirty three and a half billion
Speaker 3: dollars have been raised so far this year. It's nearly
Speaker 3: fifty three percent more than the volume for the same
Speaker 3: period in twenty twenty three. Data compiled by Bloomberg show Yes, However,
Speaker 3: tech IPOs are lagging the agreea amount raised by tech
Speaker 3: IPOs so far this year amounted a six point seven billion.
Speaker 3: It's lower than the eight point three billion for the
Speaker 3: same period last year. This also according to Bloomberg Data.
Speaker 1: All right, so let's get into the IPO landscape for
Speaker 1: more on that. We bring back with us here on
Speaker 1: Bloomberg Business Week. Rachel Gearing, she's ey America's IPO leader
Speaker 1: and she joins us I believe from Tennessee. So how
Speaker 1: are oh, Nashville? Yeah, you are Dashville, Tennesseekause are both right?
Speaker 1: Check Jack? How are you? And how would you describe
Speaker 1: the IPO market right now?
Speaker 5: Well?
Speaker 7: I'm doing great, Thanks for having me. IPO market, as
Speaker 7: you mentioned, I think it's on a healthy recovery yet
Speaker 7: study so we're not in that kind of sharp hockey
Speaker 7: stick that everyone is looking for, but that slow recovery
Speaker 7: with a lot of optimism out there, just navigating through
Speaker 7: the selection cycle, some other geopolitical tensions, but optimistic for
Speaker 7: twenty twenty five.
Speaker 1: Is it really geopolitics, the market environment, politics that's holding
Speaker 1: it back? Or is it how much is still that
Speaker 1: there's a fair amount of money, private money maybe out
Speaker 1: there to keep companies private longer? Like what is is
Speaker 1: there some other dynamic going on. I'm just curious.
Speaker 7: Yeah, No, they're that the private market is certainly you
Speaker 7: know a lot of that attention is clearly towards AI
Speaker 7: and so that the private markets have been have been
Speaker 7: a bit sluggish as well. But ultimately, you know, what's
Speaker 7: been holding back i pos largely has been the cost
Speaker 7: of capital. So now as we're starting to see rates decrease,
Speaker 7: the macroeconomic you know, factors really improving, right, strong data
Speaker 7: coming out, so optimistic for the remainder of this year,
Speaker 7: going into next year, but the first part of this year,
Speaker 7: and you know, as we saw even last year, just
Speaker 7: keeping it a sluggish recovery, but a slow study recovery.
Speaker 3: Nonetheless, what about when it comes to tech specifically, what
Speaker 3: are you seeing in terms of tech i pos?
Speaker 7: Tech IPOs you know, still leading largely in in volume,
Speaker 7: but as you mentioned, you know, not at the levels
Speaker 7: that we're used to seeing in the in the past.
Speaker 7: Largely that's because what we're seeing right now are large
Speaker 7: scale companies ipoing. The investors are still favoring the large companies,
Speaker 7: proven profitable path to profitability, so forth, what you what
Speaker 7: we need to see to see IPOs the volumes and
Speaker 7: so forth get back to historical norms. We need to
Speaker 7: see more of those growth companies coming to market. That's
Speaker 7: really where tech plays a role. And yet we need,
Speaker 7: you know, other factors to come into play. I think
Speaker 7: as interest rates continue to decrease, that will certainly help.
Speaker 3: Okay, that's exactly where I want to go. Do we
Speaker 3: ever see a return to the IPO market of zero
Speaker 3: interest rates without zero interest rates?
Speaker 7: I think we will. I think we will. It's not
Speaker 7: happening overnight. But when we look at you know, coming
Speaker 7: out of the heights of twenty one, we've got you know,
Speaker 7: twenty three doing better than twenty two. Twenty four is
Speaker 7: already out passed outpacing full year twenty twenty three. So
Speaker 7: we're making the right you know, we're in the right trajectory.
Speaker 7: We need we need some of this, some of the
Speaker 7: these elements, the rates to continue to come down really
Speaker 7: to stick.
Speaker 5: Yeah.
Speaker 1: And it's interesting like if we don't get those kind
Speaker 1: of some high growth i PO specifically in the tech space,
Speaker 1: do you then anticipate that it will be a mellower
Speaker 1: I p O market that we need that as a catalyst,
Speaker 1: and if we don't get it, it's going to be
Speaker 1: kind of quiet ish.
Speaker 7: We need growth I pos to come back, you know,
Speaker 7: so largely in tech, but quite frankly across all sectors.
Speaker 7: But that those growth companies, the environment needs to continue
Speaker 7: moving in the direction that we're going now. But make that,
Speaker 7: you know, make that a strong market for growth companies
Speaker 7: to come to market. Cost of capital needs to decrease,
Speaker 7: and then we'll see, you know, we'll see IPO volumes
Speaker 7: continue to increase.
Speaker 3: What about the pipeline because it so much of this
Speaker 3: has to do with private capital and what we saw
Speaker 3: in the last couple of years in terms of funding
Speaker 3: for some of these companies. We spend a long time
Speaker 3: today and yesterday talking about open AI and just how
Speaker 3: much money.
Speaker 1: Do you need open AI to go public? I mean, Rachel,
Speaker 1: let's just put it out there.
Speaker 3: Seriously, how do you watch that?
Speaker 7: Yeah, I can't can't speak to open AI and they're
Speaker 7: they're public, they're going public. But ultimately, a AI is
Speaker 7: certainly a sector or one that's that's getting a lot
Speaker 7: of attention, and so frankly is getting a lot of
Speaker 7: the funding, a lot of VC funding we're seeing pointed
Speaker 7: towards AI. I think over thirty percent of VC funding
Speaker 7: this year is directed towards AI in AI related companies,
Speaker 7: So a lot of attention there, a lot of the
Speaker 7: VC private private funding being interested there therefore investing. But
Speaker 7: what that means then is those companies can stay longer,
Speaker 7: can stay private for longer? Can you working on that technology?
Speaker 7: I think there's going to be you know, there's still
Speaker 7: time for seeing more AI or AI related companies to
Speaker 7: come public. They need to prove out that technology really
Speaker 7: have a strong story for a public facing debut.
Speaker 1: Yeah, So what do you guys do then in that,
Speaker 1: you know, in the meantime as you kind of wait
Speaker 1: for this to happen, I mean, is it a case
Speaker 1: of companies coming to you, do you guys reach out
Speaker 1: to try and kind of gauge where people are in
Speaker 1: the in the IPO process or even the thinking about
Speaker 1: the iput IPO prices process.
Speaker 7: Excuse me, well, the process itself, and that's a that's
Speaker 7: a great question. The process is not one, you know,
Speaker 7: one to take lightly and it doesn't happen overnight. It
Speaker 7: takes thoughtful planning. Really getting your organization public company ready
Speaker 7: can take you know, anywhere from twelve to twenty four months.
Speaker 7: So we're encouraged by you know, the pipeline and the
Speaker 7: shadow pipeline via you know, the companies that we're working
Speaker 7: with right now who are planning to go public. Though
Speaker 7: some of this activity we won't see come to market
Speaker 7: until twenty twenty five and in some cases even twenty
Speaker 7: twenty six. It takes a lot of time. It takes
Speaker 7: you know, again, thoughtful planning to organize you know, the
Speaker 7: company around getting you know, getting ready for you know,
Speaker 7: to be public. Talent. Access to talent is one key
Speaker 7: element that companies start to look at early and making
Speaker 7: sure that they have the right people and the processes
Speaker 7: in place to be ready when the market, when the
Speaker 7: market opportunity is right for them.
Speaker 3: Hey, Rachel. We spoke yesterday to Triago CEO Matt Swain,
Speaker 3: He's Global CEO, Matt Swain, talking about private equity, and
Speaker 3: one thing that he mentioned to us was that because
Speaker 3: of the higher rate environment over the past couple of years,
Speaker 3: there are a lot of companies out there that are
Speaker 3: owned by private equity, that are still owned by private
Speaker 3: equity and they haven't seen that exit that typically would
Speaker 3: have seen in a lower rate environment. Are those the
Speaker 3: types of companies that you think will be going to
Speaker 3: market or are those going to avoid the public listing
Speaker 3: process and they'll stay private.
Speaker 7: I think we will definitely see more companies that have
Speaker 7: private equity and investment coming public. Completely agree when I
Speaker 7: look back at kind of the historical norms, you know,
Speaker 7: pre twenty nineteen, over a course, generally speaking, you know
Speaker 7: IPO companies that we're ipoing twenty to thirty percent of
Speaker 7: those we're private equity backed. That is not what we're seeing.
Speaker 7: You know, we're not seeing those levels today. So to
Speaker 7: your point, the private equity backed companies are staying with
Speaker 7: PE longer, it will naturally run its course where those
Speaker 7: companies there needs to be a sale or there will
Speaker 7: need to be an IPO. So I do do anticipate
Speaker 7: as the market continues to recover, as valuations, as valuation targets,
Speaker 7: you know, start to write size and kind of meet
Speaker 7: each other, we're going to start seeing more E backed
Speaker 7: companies coming coming to market.
Speaker 1: How how difficult though, is it do you think for
Speaker 1: some of those PE owned companies at this point. We've
Speaker 1: done some reporting Bloomberg just doing some reporting just you know,
Speaker 1: it's a tricky environment, right and not being able to
Speaker 1: exit and maybe having to lower valuations and so on
Speaker 1: and so forth. What are you hearing? How would you
Speaker 1: characterize what's going on with private equity portfolio companies right now?
Speaker 7: You know, a lot of the companies that we're speaking with,
Speaker 7: you know, the focus is on managing managing cost. How
Speaker 7: are how are we how are we investing in our
Speaker 7: growth strategy in a very smart, you know, scalable manner.
Speaker 7: So those are those are top of mind, you know
Speaker 7: cash flow, you know, forecasting, so forth. Those are those
Speaker 7: are areas that I see a lot of these companies
Speaker 7: paying particular attention to, where the focus is making sure
Speaker 7: that the business is kind of right sized and there's
Speaker 7: a strong growth story that's being kind of built and
Speaker 7: building that out in a very compelling manner.
Speaker 3: So do you think twenty four will be better than
Speaker 3: twenty five or twenty five will be better than twenty four?
Speaker 7: I would say, sitting here right now, all things you know,
Speaker 7: sustaining twenty five will be definitely better than twenty.
Speaker 3: Four, regardless of who's president's regardless of who's president.
Speaker 7: Okay, yeah, yeah, that's my current that's today's prediction.
Speaker 1: That's fair. That's fair. Hey, listen, A great overview of
Speaker 1: the IPO market. So grateful to Rachel Garing back with us.
Speaker 1: She's Ey America's ip leader, joining us from Nashville, Tennessee.
Speaker 5: Brother Marco.
Speaker 2: A journal Now about you let me drive?
Speaker 1: Oh no, no, no, no, please, honey, please, I'll do the gravel.
Speaker 1: I want to try it.
Speaker 5: It's a good question.
Speaker 2: This is the Drive to the clothes well d on
Speaker 2: Bloomberg Radio.
Speaker 6: Everybody coming up.
Speaker 1: On about eighteen minutes left in today's trading session, getting
Speaker 1: ready to wrop up the Thursday trade. Shortly, we'll head
Speaker 1: over to our TV colleagues, catting you down to the
Speaker 1: clothes on this Thursday. In the meantime, we do want
Speaker 1: to talk a little bit about the trade. It feels
Speaker 1: like we're once again kind of just in a little
Speaker 1: bit of a holding pattern, although certainly some yin and
Speaker 1: yang based on economic data that we got this morning,
Speaker 1: the concern over the tensions in the Middle East. So
Speaker 1: we'll see what our next guest has to say, because
Speaker 1: actually some optimism, but not necessarily here in the United States.
Speaker 3: Yeah, we got with us Lance Cannon, portfolio manager at
Speaker 3: Hood River Capital, joining us from Palm Beach Gardens, Florida.
Speaker 3: Lance manages the hood River International Opportunity Fund ticker hr IOX.
Speaker 3: You to David dat it's up a bit more than
Speaker 3: seventeen percent. It puts it in this seventy six percentile
Speaker 3: compared to Piers Lance.
Speaker 2: Welcome.
Speaker 3: Look, before we get to stock picks, and before we
Speaker 3: get to your optimism on international small cap growth, talk
Speaker 3: to us a little bit about the macro right now
Speaker 3: and what you're seeing in this environment big picture.
Speaker 5: So, I think I'm probably not alone when I say this.
Speaker 5: There's a lot of uncertainty. It's out there, and while
Speaker 5: we're not necessarily bought our top down investors here at
Speaker 5: hood River, we are cognizant of what's happening out there.
Speaker 5: There's definitely a lot of things that we're looking at
Speaker 5: and trying to figure out at this juncture. But for
Speaker 5: the most part, what we're trying to do is look
Speaker 5: for high quality companies that we believe can beat earnings
Speaker 5: and have see are going to see beate and raise
Speaker 5: opportunities going forward.
Speaker 1: Why small cap and play it that way?
Speaker 5: Yeah, So, for our perspective, small cap right now is
Speaker 5: undervalued relative to large cap historically. If you look at
Speaker 5: the large cap index specifically from my perspective on the
Speaker 5: international side, the large cap indexes non US, I've historically
Speaker 5: traded a discount relative to the small cap index non US,
Speaker 5: and right now that is inverse by two or three
Speaker 5: turns on the multiple. And so from our perspective view
Speaker 5: that there's a lot of great opportunities in small cap
Speaker 5: in general, but specifically if you've got the right stock
Speaker 5: pickers out there working for you, that are identifying the
Speaker 5: companies that are a high quality nature, these things are
Speaker 5: going to work to your favor in an even greater fashion.
Speaker 1: Hey, who are your typical investors? I'm curious if it's institutional,
Speaker 1: if it's retail, I'm just curious.
Speaker 5: We have about a fifty to fifty split between both
Speaker 5: retail and institutional at this juncture, and that will continue
Speaker 5: to kind of be that. I think the mixed on
Speaker 5: and go for a basis.
Speaker 1: What kind of flows are you seeing coming in coming out?
Speaker 5: We are seeing We are very fortunate at this junction.
Speaker 5: We'll be seeing a nice amount of flows coming in
Speaker 5: and very little outflow.
Speaker 3: Okay, and where the flow is coming from.
Speaker 5: The flows are it's a mix right now almost I
Speaker 5: would say a fifty to fifty split between both institutional.
Speaker 3: And even retail, even as you continue to get new money.
Speaker 5: Yeah, but I said the new money just because for
Speaker 5: the most part we have been historically a more institutional
Speaker 5: based company or investment platform for a lot many years.
Speaker 5: We opened up to the retail side of things. I
Speaker 5: would say, you know, six or seven years ago in
Speaker 5: kind of real more grand order, and kind of had
Speaker 5: gone after that, So our inflows have been slightly more
Speaker 5: tilted towards the retail side of things. But for the
Speaker 5: most part, I would still say it's pretty split evenly.
Speaker 1: You know, it's interesting. I kind of love the international
Speaker 1: and global space, but feel like we used to talk
Speaker 1: about it a lot more. Investors used to invest in
Speaker 1: it a lot more, and then you had just indexing
Speaker 1: and the S and P five hundred on fire for
Speaker 1: such a long time that you could be a passive
Speaker 1: investor right in large cap us names and do just fine.
Speaker 1: So tell us take us there, give us a name
Speaker 1: that either you've had in your portfolio that you've recently
Speaker 1: added to, and walk us through the investment thesis.
Speaker 5: Sure happy to do so. One of the names that
Speaker 5: we're really excited about now is a company called Do
Speaker 5: and co out of Austria, tickers doc AV. We are
Speaker 5: very excited about this is a company that has kitchens
Speaker 5: at airports or adjacent to airports around the world. Is
Speaker 5: one of their main courses of business. These kitchens are
Speaker 5: serving the international flights the food and they're so no
Speaker 5: longer are you getting fresh or you're not getting the
Speaker 5: frozen food that then is heated up. You're getting fresh
Speaker 5: food delivered to you. And that goes for basically all
Speaker 5: types of cabs, depends upon the airline you're with. They've
Speaker 5: been expanding globally, so now they're here in the US
Speaker 5: as well as across Europe. They're expanding into Asia as well.
Speaker 5: But these kitchens are underutilized at this juncture right because
Speaker 5: they just started entering in their partner with Delta here
Speaker 5: in the US. They've got a few other airlines they're
Speaker 5: working with, and so those kitchens they've built, you know
Speaker 5: in Miami, New York and other major airports around the US,
Speaker 5: they're underutilized and so those pressure, those margins are pressured
Speaker 5: relative to what they can be. Is a continue to
Speaker 5: great greater utilization within the kitchens. We believe that utilization
Speaker 5: is coming that as they go further with the likes
Speaker 5: of their current clientele, as well as an ad additional
Speaker 5: airlines maybe adjacent opportunities within those cities, that the margins
Speaker 5: can continue to expand, the top one will grow a
Speaker 5: little bit faster. With the street's projecting out there in
Speaker 5: twenty twenty five, that we will then see even margins
Speaker 5: expand faster than what the street's expecting, and that will
Speaker 5: lead to even greater EPs growth. The company currently trades
Speaker 5: at a discount relative to what it has historically from
Speaker 5: a multiple perspective, believe that will not only come more
Speaker 5: and back in line, but then also you get the
Speaker 5: benefit of a faster earnings growth perspective.
Speaker 3: How's the food? It's really good.
Speaker 1: Someone who travels with Tim on an airplane often eats
Speaker 1: all of it.
Speaker 3: Yeah. My favorite though, is ice cream Sundays. It doesn't
Speaker 3: I don't like I'm not going to go out and
Speaker 3: buy an that's.
Speaker 1: A United specialty, is it? I don't know, is it United?
Speaker 3: I can go out and buy like an ice cream
Speaker 3: and the warm cookies, But if I get served on
Speaker 3: an airplane offered one, you can sure the best. You
Speaker 3: can bet that i'mond eat that.
Speaker 1: That's all I can tell you is we will travel
Speaker 1: and will like quick grab like a good meal before
Speaker 1: we even get on the plane because it's a late flight.
Speaker 1: And then we'll get on the plane and I'll look
Speaker 1: over and I'm thinking, all right, I'm going to go
Speaker 1: to work now.
Speaker 3: Yeah, well I'm not.
Speaker 1: Tim is eating another meal. That's just the way it goes.
Speaker 3: Hey, they bring it by on a tray. I'm going
Speaker 3: to eat it.
Speaker 1: I know, I know, I know.
Speaker 3: Hey, Linz, I know. We have a couple of minutes
Speaker 3: left with you all want to get to tbb Uh.
Speaker 3: They got stores in Mexico. It's another one of your picks.
Speaker 5: Yeah, so this is a competitor to Walmart Mexico recently
Speaker 5: IPILD here in the US. But when we talk to
Speaker 5: consumers about their experience at Walmart Mexico versus TV, you know,
Speaker 5: T Triple B, they mentioned that these stores are cleaner,
Speaker 5: They're getting the same type of prices, they're seeing sometimes
Speaker 5: in some cases more products relative to what Walmart has
Speaker 5: with just some of the surprise and given what we
Speaker 5: experienced from the.
Speaker 3: US tiny market cap compared to Walmart, I mean, this
Speaker 3: is a three point three billion dollars they have.
Speaker 5: A lot of opportunity to grow the top one. The
Speaker 5: top one is going to grow in two ways. One
Speaker 5: will be through same store sales, which we think will
Speaker 5: be better than what the Street's projected. But the other
Speaker 5: way is going to be is they continue to expand
Speaker 5: and build out their own store base. There's still relatively small,
Speaker 5: pretty good relative to Walmart. They're in Mexico with a
Speaker 5: lot of white space there.
Speaker 3: Could Walmart buy them? And Walmart's worth over half a
Speaker 3: trillion dollars six hundred and forty five billion dollars.
Speaker 5: And I think that's possible, But I think there's also
Speaker 5: going to be some regulatory issues that would come if
Speaker 5: that were to happen, right, I think everyone wants to
Speaker 5: see some type of competition that's out there. And then
Speaker 5: so as they continue to have the opportunity to grow
Speaker 5: and take and gain market share, if you will, they
Speaker 5: should see leverage both from the scenes store selves increasing
Speaker 5: and then also as they get leverage through their stores margin.
Speaker 1: You said they're coming in the US just quickly.
Speaker 5: Now that they are listed here in the US, but
Speaker 5: you can actually buy the ticker here in the US
Speaker 5: Mexico Company with everything in Mexico.
Speaker 1: Okay, just check it. Yeah, more than two thousand stores.
Speaker 1: Pretty cool stuff. Lance, thank you, that was fun. Lance Canon,
Speaker 1: portfolio manager at hood River Capital Management, joining us from
Speaker 1: Palm Beach Gardens, Florida. I love taking a look at
Speaker 1: international companies.
Speaker 3: Yeah, I would think it's fair to say get a
Speaker 3: little lost in the shuffle with so much focused. Yeah
Speaker 3: on the US trading day, the S and P five hundred,
Speaker 3: but there used to.
Speaker 1: Be a point where, especially like small cap international people has.
Speaker 3: Just been dominating over the last decade. But you know,
Speaker 3: you can get some good value alpha maybe.
Speaker 1: Maybe.
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