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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg

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Speaker 1: Business App. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: Adobe out with earnings today on RAG. But it's the

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Speaker 2: departure of their longtime CEO. He was in that seat

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Speaker 2: for eighteen years. You say that's overshadowing what were otherwise

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Speaker 2: pretty good results.

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Speaker 3: Yeah, I mean this is this was a quarter wasn't

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Speaker 3: bad at all. I mean, if you see look at

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Speaker 3: what's happening with Adobe over the last two and a half.

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Speaker 4: Years or so, is this is the poster child.

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Speaker 3: That AI is going to disrupt the software industry and

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Speaker 3: basically take over what Adobe does as a software product. Now,

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Speaker 3: we don't think that's going to be the case. They're

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Speaker 3: going to maybe lose some work on the lower end

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Speaker 3: or the periphery, but I think they're still going to

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Speaker 3: remain a healthy company. But having said that, since the

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Speaker 3: beginning of last year, their fundamentals has remained intact. Yet

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Speaker 3: stocks down over forty percent, and which is partially the

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Speaker 3: reason why most likely the CEO is leaving.

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Speaker 5: And okay, so what investors want to hear about the

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Speaker 5: profile of Adobe's next CEO to maybe restar confidence because

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Speaker 5: to your point, it's really overshadowing and otherwise really good earnings.

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Speaker 3: Yeah, I think the next CEO has to be in

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Speaker 3: a completely AI first CEO, which is somebody who understands

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Speaker 3: the large language models a lot more then let's say

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Speaker 3: the older, you know generation CEOs. Now I'm not saying

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Speaker 3: that CHA didn't understand. This is probably one of the

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Speaker 3: most well respected CEOs in the software landscape, made massive

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Speaker 3: improvements in Adobe's market position in this eighteen year period.

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Speaker 3: You can look at any metric and it's it's you know,

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Speaker 3: beyond comparison. But I think the next CEO has to

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Speaker 3: be somebody who is just you know, day and out

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Speaker 3: absolutely in AI products.

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Speaker 6: Anrag.

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Speaker 2: I'm a little surprised that a succession plan was not

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Speaker 2: in place. I mean, the current CEO, he's sixty two,

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Speaker 2: been there for eighteen years. You know, you'd think that

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Speaker 2: maybe they had thought about it and had somebody in

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Speaker 2: the wings, unless that somebody is not the right person

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Speaker 2: for this moment in time, which is the moment about AI.

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Speaker 4: Yeah.

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Speaker 3: Now I would say is when you have a large

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Speaker 3: company like this, they have to do the due diligence

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Speaker 3: of bringing people in and out. You know, we think,

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Speaker 3: for example, the leader David Wadwani, who's the head of

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Speaker 3: the creative products, I think he is very capable of

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Speaker 3: running this company. But you know, the same thing happened

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Speaker 3: with Microsoft even though Satya was in house.

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Speaker 4: You know, they had to go out and give a full.

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Speaker 3: Search, both internal and external, and then they decided to

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Speaker 3: go in house. So I won't be surprised if they

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Speaker 3: run the search and eventually you know, in the end

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Speaker 3: they decide with an internal candidate.

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Speaker 5: So an AI first CEO. So that's what you want

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Speaker 5: to see. Where do you see the biggest competitive threat

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Speaker 5: coming in from AI creative tools in the next years

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Speaker 5: And what do you want to hear specifically from the

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Speaker 5: CEO or just the direction of Adobe.

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Speaker 3: Yeah, the AI creative tools are already out there. I mean,

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Speaker 3: you and I can go on Google today and you know,

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Speaker 3: create our own image and videos and other things.

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Speaker 4: But the key part of Adobe is it's not just the.

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Speaker 3: Creation of digital assets, but how those digital assets go

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Speaker 3: into your workflow. And that's where Adobe's products come in,

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Speaker 3: and I mean they have done a very good job

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Speaker 3: of integrating external tools. For example, if you go into

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Speaker 3: the Adobe suite right now, you can use Google models

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Speaker 3: to create your images. One of the things they talked

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Speaker 3: about on the call yesterday was they have a product

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Speaker 3: call Adobe Stock, which is basically a repository of hundreds

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Speaker 3: of millions of images. They're saying that people's use of

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Speaker 3: those already made pictures have gone down and people are

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Speaker 3: using more LLM produced images. So what we want to

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Speaker 3: see from the next CEO is they want to make

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Speaker 3: We want to make sure that they are using all

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Speaker 3: the models to create the image and models, but keeping

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Speaker 3: intact the integrity of the workflow.

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Speaker 2: When you look at Adobe and then other application software

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Speaker 2: companies like a salesforce, they're struggling to win new customers

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Speaker 2: in the face of these AI upstarts. Who do you

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Speaker 2: feel as best positioned at the moment.

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Speaker 3: So you know, we created a big framework around this

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Speaker 3: and published a report a few weeks ago. One of

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Speaker 3: the big things we are talking about is if you

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Speaker 3: are a big system of record, you know, somebody like

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Speaker 3: an SAP or a workday SAP does a lot of

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Speaker 3: supply chain and ERP related stuff, or a workday which

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Speaker 3: is the core HR system of record for most larger enterprises,

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Speaker 3: you know, you have a lot less disruption risk then

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Speaker 3: let's say a smaller company that's out there. The other

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Speaker 3: thing that we talk about is are you just a

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Speaker 3: one product company or do you have a suite of

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Speaker 3: multiple products? Because I think that matters a lot as well.

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Speaker 3: So you know, on our frameworks see some of these

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Speaker 3: larger companies with absolutely massive market sharees. I think they

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Speaker 3: are the ones that are less at risk compared to that,

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Speaker 3: say something that's just you know, giving one one product function.

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Speaker 5: Out there and rob don't be maintained. It's pricing power.

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Speaker 5: If generative AI tools make creative production cheaper and faster, like,

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Speaker 5: will people still go to Adobe before that?

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Speaker 3: I think that's probably the most important question right now

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Speaker 3: for investors. And one of the things we talk about

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Speaker 3: it is it's not just a question of as I said,

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Speaker 3: creating images. When you think about just the image creation

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Speaker 3: part of it, you know that's not what you should

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Speaker 3: be going to ADO before, but creating an entire marketing campaign.

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Speaker 3: They're adding so much AI capabilities into that entire workflow,

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Speaker 3: so For example, if you are on California, your product

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Speaker 3: may have a completely different marketing campaign compared to somebody

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Speaker 3: you know on the East Coast or in Canada, and

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Speaker 3: you can change those marketing campaigns at a very fast

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Speaker 3: pace because the entire supply chain of every asset state

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Speaker 3: you can think about can now be changed because of AI.

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Speaker 3: So you're not just buying Adobe for you know, creating images,

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Speaker 3: but the entire workflow is the most important aspect.

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Speaker 1: Stay with us.

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Speaker 2: More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 2: Alexis Christaph for us, in for Paul Sweeney, Isabell Lee

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Speaker 2: doing duty for Scarlet Foo on this Friday. We want

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Speaker 2: to talk a little housing market before we get to

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Speaker 2: the top of the hour here because Lenar, the homebuilder

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Speaker 2: out with earnings today. Revenue and earnings per share missed

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Speaker 2: the mark, but Lenar's shares are actually up nearly four

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Speaker 2: percent right now. So here to help us make sense

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Speaker 2: of it. Is Drew reading Bloomberg Intelligence US home building analyst.

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Speaker 2: First off, I'm just to start with the stock, Drew.

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Speaker 2: Why the positive reaction when the top and bottom line

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Speaker 2: missed the mark?

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Speaker 6: Yeah, thanks for having me.

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Speaker 7: So keep in mind Lenar stock has been down about

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Speaker 7: thirty five percent since September. The whole group has really

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Speaker 7: been under pressure since mid February, so, you know, I

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Speaker 7: think part of it is just the fact that it's

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Speaker 7: been so beaten down. You know, when you look at

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Speaker 7: the results for the quarter, when you're talking about the builders,

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Speaker 7: there's really two things you're looking at. You're looking at

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Speaker 7: orders and gross margins. So while their orders did hit

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Speaker 7: the midpoint of guidance for the quarter, their outlook for

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Speaker 7: two Q was about seven percent below consensus, and gross

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Speaker 7: margin was probably a little bit weaker than what people

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Speaker 7: were looking for. So all in all, two Q earnings

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Speaker 7: are about fifteen percent below expectations. But it really goes

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Speaker 7: back to how Lenar's running their business, which is a

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Speaker 7: volume first focus. So they're willing to sacrifice and carry

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Speaker 7: a lower gross margin in this environment in order to

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Speaker 7: gain the efficiencies with delivering higher volumes.

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Speaker 5: How much of that's low it on is being driven

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Speaker 5: by higher mort get rich versus just a broader economic

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Speaker 5: uncertainty overall.

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Speaker 6: Yeah, that's that's a great question. It's really a combination

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Speaker 6: of the two.

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Speaker 4: You know.

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Speaker 7: Obviously, affordability has been the major challenge in the market

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Speaker 7: since twenty twenty two, really when Moorg's rates skyrocket it

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Speaker 7: but it's not just rates, it's you know, the massive

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Speaker 7: run up in home prices we've had since twenty nineteen.

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Speaker 7: Prices are up, you know, over fifty percent or more,

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Speaker 7: depending on what market you're talking about.

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Speaker 4: But to your.

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Speaker 7: Point, what we've heard increasingly from the builders is just

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Speaker 7: this overall sense of uncertainty in the market, whether it's

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Speaker 7: you know, less certainty about the outlook for the direction

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Speaker 7: of the economy. You have more people concerned about maybe

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Speaker 7: the outlook for employment, which is actually something that Lenar

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Speaker 7: referenced on their call today. And you know, basically, while

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Speaker 7: traffic has remained pretty stable, there's just not a lot

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Speaker 7: of urgency in the market. I think you have people

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Speaker 7: out there maybe sitting on the fence. We're saying to themselves, look,

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Speaker 7: maybe mortgage rates are going to come down a little bit,

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Speaker 7: maybe home prices are going to fall and now it's

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Speaker 7: not a great time to buy.

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Speaker 6: So to your point that the uncertainty.

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Speaker 7: From the macro environment as well as the geopolitical environment

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Speaker 7: more recently is certainly weighing on buyers.

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Speaker 2: Would Drew tell us more about what they had to

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Speaker 2: say on the call about the job market, because I mean,

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Speaker 2: I think that's the driver, right. If you feel good

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Speaker 2: about your job and confident in the paycheck, you might

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Speaker 2: be willing to take on what is really the largest

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Speaker 2: purchase in your life for many folks, right their home.

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Speaker 7: Yeah, so at the end of the day, the labor

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Speaker 7: market is really the most important driver of housing demand. Certainly,

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Speaker 7: you know, mortgage rates get all the attention on a

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Speaker 7: daily basis, But if the employment picture is strong, that

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Speaker 7: usually drives demand for housing. And you're seeing in different

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Speaker 7: parts of the market relative strength or relative weakness, you know,

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Speaker 7: whether it's employment in the tech market making things more

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Speaker 7: challenging on the West Coast, and you know, to your

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Speaker 7: question directly that it is something that Lenar pointed out

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Speaker 7: on the call, is just that that brought uncertainty that

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Speaker 7: consumers aren't necessarily certain you know about the employment picture

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Speaker 7: over the next twelve months, And interestingly enough one of

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Speaker 7: the things they pointed to is what we've heard from AI,

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Speaker 7: all of the headlines that have been out there in

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Speaker 7: terms of AI disrupting the labor market.

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Speaker 6: So it's certainly something that's weighing on the market.

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Speaker 5: And despite your term pressure, Lennar says that it's positioned

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Speaker 5: for long term growth. What's the key thing that could

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Speaker 5: turn them around or turn the market around for them?

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Speaker 7: Right, So, Leonard's strategy, as I mentioned before, has been

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Speaker 7: on driving volume over margin, and really what they're trying

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Speaker 7: to do is create a more efficient business model to

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Speaker 7: prepare for an eventual market rebound. They've they've certainly gained scale,

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Speaker 7: They're doing a lot of investments in technology, they're driving

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Speaker 7: down costs, they have a more asset light land strategy.

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Speaker 6: So all of these things will ultimately help.

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Speaker 7: But at the end of the day, in order to

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Speaker 7: see a rebound in their growth, they need to see

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Speaker 7: improvement in the broader market. And that's really the same

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Speaker 7: for all the home builders. So they are putting themselves

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Speaker 7: in a better position for the long term, but they,

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Speaker 7: like everyone else, need to see, you know, the market

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Speaker 7: turn higher.

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Speaker 2: So does this earnings report from Lenar basically reinforce the

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Speaker 2: fact that in this expensive housing market, people need deals

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Speaker 2: and incentives, you know, to get in the door.

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Speaker 7: Yeah, I mean you hit the nail on the head

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Speaker 7: their affordabilities the issue. Lenar is offering incentives which total

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Speaker 7: about fourteen percent of the delivered home price. Now to

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Speaker 7: provide some contact for that in a normal market and

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Speaker 7: centives are typically about four to six percent of the

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Speaker 7: home price, so you could see just how massively important

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Speaker 7: incentives have been to get buyers through the door. I

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Speaker 7: think a lot of the optimism, you know, coming into

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Speaker 7: the year was that if mortgage rates came down, they'd

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Speaker 7: be able to take their foot off the gas pedal

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Speaker 7: a little bit. But you know, to this point, what

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Speaker 7: we've heard from most of the builders is that incentives

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Speaker 7: have remained stubbornly high. Lenard did tell it that their

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Speaker 7: incentives on new orders, which are a better leading indicator,

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Speaker 7: are a little bit below where they were on deliveries,

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Speaker 7: but we still expect them to remain pretty elevated as

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Speaker 7: we get through the spring selling season, because, as you mentioned,

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Speaker 7: buyers are aware of these incentives and they're looking for

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Speaker 7: a deal.

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Speaker 2: What are you expecting from pending home sales in about

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Speaker 2: twenty seconds. Next week we get pending home sales for February,

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Speaker 2: so I think.

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Speaker 7: It's going to be more of the same for the

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Speaker 7: existing home market and pending home sales. Last month, pending's

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Speaker 7: home sales were at the lowest level on record. I

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Speaker 7: think you'll have a little bit of weather still impacting results,

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Speaker 7: but by and large, it's still going to be the

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Speaker 7: affordability constraints that we're seeing out there.

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Speaker 6: In the market.

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Speaker 5: Stay with us.

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Speaker 8: More from Bloomberg Intelligence coming.

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Speaker 2: Up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch US live on YouTube.

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Speaker 5: I think one of the industries really upended by this

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Speaker 5: war is the aviation industry and the global travel. We're

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Speaker 5: seeing lots of flight being canceled and really a lot

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Speaker 5: of TSA disruptions. Let's bring a Jeff Friedman, he's CEO

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Speaker 5: of the US Travel Association, to shed some light on

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Speaker 5: the situation. Jeff, I'm really scared. I'm really scared, and

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Speaker 5: I'm just over winter now. I want it to be summer.

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Speaker 5: That said, could higher oil prices translate to weaker demand

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Speaker 5: and weaker travel in the US ahead of the summer.

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Speaker 8: You're speaking my language. I can't take anymore this winter.

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Speaker 8: And obviously all of us as travelers want to get

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Speaker 8: out there and see the country, see the world. And

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Speaker 8: there's no doubt that there are limitations on travel right now.

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Speaker 8: There are issues with international travelers coming to the United States,

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Speaker 8: there are issues with travelers moving about the United States. Certainly,

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Speaker 8: we're seeing some pressure on prices. That said, travel generally

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Speaker 8: has run below general inflation over the past year or so,

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Speaker 8: so I think that is a bonus for people across

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Speaker 8: the country. One of the best things we saw coming

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Speaker 8: out of COVID, and you can't get a lot of

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Speaker 8: sentences that way, but one of the best things we

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Speaker 8: saw coming out of COVID was a new demand for travel.

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Speaker 8: People prioritize travel experiences, creating memories over goods. At this point,

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Speaker 8: that's a good thing for us, but only if we

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Speaker 8: remove the obstacles to travel, And what's happening at TSA

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Speaker 8: right now is the single biggest obstacle the travelers are confronting.

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Speaker 2: Yeah, I want to talk about that, because this is

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Speaker 2: sort of a double whammy right for travelers. This is

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Speaker 2: we've got a record spring travel season upon us, We've

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Speaker 2: got a partial government shut down. These TSA workers are

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Speaker 2: working without pay for I don't know weeks.

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Speaker 4: Now.

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Speaker 2: What is the situation like at at the airports.

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Speaker 8: Yeah, I'll get to travelers in a second, because it's

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Speaker 8: a travesty what's happening for travelers, But I want to

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Speaker 8: start with the people who are most affected, the real

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Speaker 8: victims here, and that's the TSA workers. You know, we

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Speaker 8: have more than fifty thousand TSA officers who go to

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Speaker 8: work every day. Last year, they found more than six

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Speaker 8: thousand weapons at various checkpoints. These people, for the second

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Speaker 8: time now in just a matter of months, are going

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Speaker 8: completely unpaid. We're asking these workers to do something that

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Speaker 8: none of us do, that no member of Congress does.

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Speaker 8: We're asking them to go to work based on an IOU.

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Speaker 8: And if you think they're not thinking about their rent,

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Speaker 8: their gas, their need for groceries, the other things they

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Speaker 8: have to do for their kids while they're trying to

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Speaker 8: do their job, then we're kidding ourselves. This will have

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Speaker 8: an effect on the aviation system. It is having effect

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Speaker 8: on the aviation system.

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Speaker 6: And it's a.

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Speaker 8: Man made disaster. It doesn't need to be this way.

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Speaker 8: The fault lies with Congress. For travelers, it's leading to

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Speaker 8: incredible uncertainty. I saw the lines in Austin, Texas earlier today,

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Speaker 8: three hour long lines down there. I went through San

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Speaker 8: Diego yesterday and I got through in ten minutes. What

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Speaker 8: that means is travelers don't know do I need to

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Speaker 8: arrive at the airport an hour ahead of time? Do

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Speaker 8: I need to arrive five hours ahead of time? It

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Speaker 8: creates massive uncertainty, It harms the system, it encourages people.

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Speaker 8: It discourages some people from traveling, which will have a

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Speaker 8: significant impact on the economy. During the last shutdown, we

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Speaker 8: saw travel spending decline by about one billion dollars per week.

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Speaker 5: When I'm in the airport and when I go and

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Speaker 5: zoom by everything, that's just like I feel like my

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Speaker 5: day is made and I'm a superhero. So then if

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Speaker 5: we see more travel disruptions, how could that impact the

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Speaker 5: broader economy, especially if the conflict dragsone? Do you see

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Speaker 5: it affecting maybe the airline costs and ticket prices? And

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Speaker 5: I mean, how will that ripple through.

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Speaker 8: Yeah, if travelers, and let's look at there are different

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Speaker 8: types of travelers. There are leisure travelers who are going

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Speaker 8: out for spring break. There are business travelers who are

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Speaker 8: going on their third, fourth, sixth trip of the month.

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Speaker 8: I think the leisure traveler is generally more resilient. If

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Speaker 8: I promised my kids that we're going somewhere warm for

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Speaker 8: spring break, I'm going to be irritated, but I'm going

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Speaker 8: to tolerate that unnecessarily long line at TSA for the

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Speaker 8: frequent business traveler. Frankly, the people who are spending more

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Speaker 8: often sitting in the front of the plane, spending more

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Speaker 8: at the hotel, spending more at the restaurants in various communities.

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Speaker 8: It's the frequent business traveler who we're putting at risk here.

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Speaker 8: It's that person who says, I'm going to skip the convention,

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Speaker 8: I'm going to skip this meeting. I'm going to move

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Speaker 8: it to zoom or an alternative. That's where the effect

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Speaker 8: really hits the economy. It's incredibly unfortunate, but that's what

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Speaker 8: Congress is doing. I think there's some degree, obviously of

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Speaker 8: gamesmanship that's going on on Capitol Hill right now, with

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Speaker 8: the sense that there isn't a consequence to the way

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Speaker 8: they're behaving. TSA officers have now gone upwards of a

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Speaker 8: month without pay. Again, no member of Congress has offered

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Speaker 8: to do the same. That is, in my mind, borderline

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Speaker 8: criminal in the way that we're treating these TSA officers.

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