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Speaker 2: Adobe out with earnings today on RAG. But it's the
Speaker 2: departure of their longtime CEO. He was in that seat
Speaker 2: for eighteen years. You say that's overshadowing what were otherwise
Speaker 2: pretty good results.
Speaker 3: Yeah, I mean this is this was a quarter wasn't
Speaker 3: bad at all. I mean, if you see look at
Speaker 3: what's happening with Adobe over the last two and a half.
Speaker 4: Years or so, is this is the poster child.
Speaker 3: That AI is going to disrupt the software industry and
Speaker 3: basically take over what Adobe does as a software product. Now,
Speaker 3: we don't think that's going to be the case. They're
Speaker 3: going to maybe lose some work on the lower end
Speaker 3: or the periphery, but I think they're still going to
Speaker 3: remain a healthy company. But having said that, since the
Speaker 3: beginning of last year, their fundamentals has remained intact. Yet
Speaker 3: stocks down over forty percent, and which is partially the
Speaker 3: reason why most likely the CEO is leaving.
Speaker 5: And okay, so what investors want to hear about the
Speaker 5: profile of Adobe's next CEO to maybe restar confidence because
Speaker 5: to your point, it's really overshadowing and otherwise really good earnings.
Speaker 3: Yeah, I think the next CEO has to be in
Speaker 3: a completely AI first CEO, which is somebody who understands
Speaker 3: the large language models a lot more then let's say
Speaker 3: the older, you know generation CEOs. Now I'm not saying
Speaker 3: that CHA didn't understand. This is probably one of the
Speaker 3: most well respected CEOs in the software landscape, made massive
Speaker 3: improvements in Adobe's market position in this eighteen year period.
Speaker 3: You can look at any metric and it's it's you know,
Speaker 3: beyond comparison. But I think the next CEO has to
Speaker 3: be somebody who is just you know, day and out
Speaker 3: absolutely in AI products.
Speaker 6: Anrag.
Speaker 2: I'm a little surprised that a succession plan was not
Speaker 2: in place. I mean, the current CEO, he's sixty two,
Speaker 2: been there for eighteen years. You know, you'd think that
Speaker 2: maybe they had thought about it and had somebody in
Speaker 2: the wings, unless that somebody is not the right person
Speaker 2: for this moment in time, which is the moment about AI.
Speaker 4: Yeah.
Speaker 3: Now I would say is when you have a large
Speaker 3: company like this, they have to do the due diligence
Speaker 3: of bringing people in and out. You know, we think,
Speaker 3: for example, the leader David Wadwani, who's the head of
Speaker 3: the creative products, I think he is very capable of
Speaker 3: running this company. But you know, the same thing happened
Speaker 3: with Microsoft even though Satya was in house.
Speaker 4: You know, they had to go out and give a full.
Speaker 3: Search, both internal and external, and then they decided to
Speaker 3: go in house. So I won't be surprised if they
Speaker 3: run the search and eventually you know, in the end
Speaker 3: they decide with an internal candidate.
Speaker 5: So an AI first CEO. So that's what you want
Speaker 5: to see. Where do you see the biggest competitive threat
Speaker 5: coming in from AI creative tools in the next years
Speaker 5: And what do you want to hear specifically from the
Speaker 5: CEO or just the direction of Adobe.
Speaker 3: Yeah, the AI creative tools are already out there. I mean,
Speaker 3: you and I can go on Google today and you know,
Speaker 3: create our own image and videos and other things.
Speaker 4: But the key part of Adobe is it's not just the.
Speaker 3: Creation of digital assets, but how those digital assets go
Speaker 3: into your workflow. And that's where Adobe's products come in,
Speaker 3: and I mean they have done a very good job
Speaker 3: of integrating external tools. For example, if you go into
Speaker 3: the Adobe suite right now, you can use Google models
Speaker 3: to create your images. One of the things they talked
Speaker 3: about on the call yesterday was they have a product
Speaker 3: call Adobe Stock, which is basically a repository of hundreds
Speaker 3: of millions of images. They're saying that people's use of
Speaker 3: those already made pictures have gone down and people are
Speaker 3: using more LLM produced images. So what we want to
Speaker 3: see from the next CEO is they want to make
Speaker 3: We want to make sure that they are using all
Speaker 3: the models to create the image and models, but keeping
Speaker 3: intact the integrity of the workflow.
Speaker 2: When you look at Adobe and then other application software
Speaker 2: companies like a salesforce, they're struggling to win new customers
Speaker 2: in the face of these AI upstarts. Who do you
Speaker 2: feel as best positioned at the moment.
Speaker 3: So you know, we created a big framework around this
Speaker 3: and published a report a few weeks ago. One of
Speaker 3: the big things we are talking about is if you
Speaker 3: are a big system of record, you know, somebody like
Speaker 3: an SAP or a workday SAP does a lot of
Speaker 3: supply chain and ERP related stuff, or a workday which
Speaker 3: is the core HR system of record for most larger enterprises,
Speaker 3: you know, you have a lot less disruption risk then
Speaker 3: let's say a smaller company that's out there. The other
Speaker 3: thing that we talk about is are you just a
Speaker 3: one product company or do you have a suite of
Speaker 3: multiple products? Because I think that matters a lot as well.
Speaker 3: So you know, on our frameworks see some of these
Speaker 3: larger companies with absolutely massive market sharees. I think they
Speaker 3: are the ones that are less at risk compared to that,
Speaker 3: say something that's just you know, giving one one product function.
Speaker 5: Out there and rob don't be maintained. It's pricing power.
Speaker 5: If generative AI tools make creative production cheaper and faster, like,
Speaker 5: will people still go to Adobe before that?
Speaker 3: I think that's probably the most important question right now
Speaker 3: for investors. And one of the things we talk about
Speaker 3: it is it's not just a question of as I said,
Speaker 3: creating images. When you think about just the image creation
Speaker 3: part of it, you know that's not what you should
Speaker 3: be going to ADO before, but creating an entire marketing campaign.
Speaker 3: They're adding so much AI capabilities into that entire workflow,
Speaker 3: so For example, if you are on California, your product
Speaker 3: may have a completely different marketing campaign compared to somebody
Speaker 3: you know on the East Coast or in Canada, and
Speaker 3: you can change those marketing campaigns at a very fast
Speaker 3: pace because the entire supply chain of every asset state
Speaker 3: you can think about can now be changed because of AI.
Speaker 3: So you're not just buying Adobe for you know, creating images,
Speaker 3: but the entire workflow is the most important aspect.
Speaker 1: Stay with us.
Speaker 2: More from Bloomberg Intelligence coming up after this.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 2: Alexis Christaph for us, in for Paul Sweeney, Isabell Lee
Speaker 2: doing duty for Scarlet Foo on this Friday. We want
Speaker 2: to talk a little housing market before we get to
Speaker 2: the top of the hour here because Lenar, the homebuilder
Speaker 2: out with earnings today. Revenue and earnings per share missed
Speaker 2: the mark, but Lenar's shares are actually up nearly four
Speaker 2: percent right now. So here to help us make sense
Speaker 2: of it. Is Drew reading Bloomberg Intelligence US home building analyst.
Speaker 2: First off, I'm just to start with the stock, Drew.
Speaker 2: Why the positive reaction when the top and bottom line
Speaker 2: missed the mark?
Speaker 6: Yeah, thanks for having me.
Speaker 7: So keep in mind Lenar stock has been down about
Speaker 7: thirty five percent since September. The whole group has really
Speaker 7: been under pressure since mid February, so, you know, I
Speaker 7: think part of it is just the fact that it's
Speaker 7: been so beaten down. You know, when you look at
Speaker 7: the results for the quarter, when you're talking about the builders,
Speaker 7: there's really two things you're looking at. You're looking at
Speaker 7: orders and gross margins. So while their orders did hit
Speaker 7: the midpoint of guidance for the quarter, their outlook for
Speaker 7: two Q was about seven percent below consensus, and gross
Speaker 7: margin was probably a little bit weaker than what people
Speaker 7: were looking for. So all in all, two Q earnings
Speaker 7: are about fifteen percent below expectations. But it really goes
Speaker 7: back to how Lenar's running their business, which is a
Speaker 7: volume first focus. So they're willing to sacrifice and carry
Speaker 7: a lower gross margin in this environment in order to
Speaker 7: gain the efficiencies with delivering higher volumes.
Speaker 5: How much of that's low it on is being driven
Speaker 5: by higher mort get rich versus just a broader economic
Speaker 5: uncertainty overall.
Speaker 6: Yeah, that's that's a great question. It's really a combination
Speaker 6: of the two.
Speaker 4: You know.
Speaker 7: Obviously, affordability has been the major challenge in the market
Speaker 7: since twenty twenty two, really when Moorg's rates skyrocket it
Speaker 7: but it's not just rates, it's you know, the massive
Speaker 7: run up in home prices we've had since twenty nineteen.
Speaker 7: Prices are up, you know, over fifty percent or more,
Speaker 7: depending on what market you're talking about.
Speaker 4: But to your.
Speaker 7: Point, what we've heard increasingly from the builders is just
Speaker 7: this overall sense of uncertainty in the market, whether it's
Speaker 7: you know, less certainty about the outlook for the direction
Speaker 7: of the economy. You have more people concerned about maybe
Speaker 7: the outlook for employment, which is actually something that Lenar
Speaker 7: referenced on their call today. And you know, basically, while
Speaker 7: traffic has remained pretty stable, there's just not a lot
Speaker 7: of urgency in the market. I think you have people
Speaker 7: out there maybe sitting on the fence. We're saying to themselves, look,
Speaker 7: maybe mortgage rates are going to come down a little bit,
Speaker 7: maybe home prices are going to fall and now it's
Speaker 7: not a great time to buy.
Speaker 6: So to your point that the uncertainty.
Speaker 7: From the macro environment as well as the geopolitical environment
Speaker 7: more recently is certainly weighing on buyers.
Speaker 2: Would Drew tell us more about what they had to
Speaker 2: say on the call about the job market, because I mean,
Speaker 2: I think that's the driver, right. If you feel good
Speaker 2: about your job and confident in the paycheck, you might
Speaker 2: be willing to take on what is really the largest
Speaker 2: purchase in your life for many folks, right their home.
Speaker 7: Yeah, so at the end of the day, the labor
Speaker 7: market is really the most important driver of housing demand. Certainly,
Speaker 7: you know, mortgage rates get all the attention on a
Speaker 7: daily basis, But if the employment picture is strong, that
Speaker 7: usually drives demand for housing. And you're seeing in different
Speaker 7: parts of the market relative strength or relative weakness, you know,
Speaker 7: whether it's employment in the tech market making things more
Speaker 7: challenging on the West Coast, and you know, to your
Speaker 7: question directly that it is something that Lenar pointed out
Speaker 7: on the call, is just that that brought uncertainty that
Speaker 7: consumers aren't necessarily certain you know about the employment picture
Speaker 7: over the next twelve months, And interestingly enough one of
Speaker 7: the things they pointed to is what we've heard from AI,
Speaker 7: all of the headlines that have been out there in
Speaker 7: terms of AI disrupting the labor market.
Speaker 6: So it's certainly something that's weighing on the market.
Speaker 5: And despite your term pressure, Lennar says that it's positioned
Speaker 5: for long term growth. What's the key thing that could
Speaker 5: turn them around or turn the market around for them?
Speaker 7: Right, So, Leonard's strategy, as I mentioned before, has been
Speaker 7: on driving volume over margin, and really what they're trying
Speaker 7: to do is create a more efficient business model to
Speaker 7: prepare for an eventual market rebound. They've they've certainly gained scale,
Speaker 7: They're doing a lot of investments in technology, they're driving
Speaker 7: down costs, they have a more asset light land strategy.
Speaker 6: So all of these things will ultimately help.
Speaker 7: But at the end of the day, in order to
Speaker 7: see a rebound in their growth, they need to see
Speaker 7: improvement in the broader market. And that's really the same
Speaker 7: for all the home builders. So they are putting themselves
Speaker 7: in a better position for the long term, but they,
Speaker 7: like everyone else, need to see, you know, the market
Speaker 7: turn higher.
Speaker 2: So does this earnings report from Lenar basically reinforce the
Speaker 2: fact that in this expensive housing market, people need deals
Speaker 2: and incentives, you know, to get in the door.
Speaker 7: Yeah, I mean you hit the nail on the head
Speaker 7: their affordabilities the issue. Lenar is offering incentives which total
Speaker 7: about fourteen percent of the delivered home price. Now to
Speaker 7: provide some contact for that in a normal market and
Speaker 7: centives are typically about four to six percent of the
Speaker 7: home price, so you could see just how massively important
Speaker 7: incentives have been to get buyers through the door. I
Speaker 7: think a lot of the optimism, you know, coming into
Speaker 7: the year was that if mortgage rates came down, they'd
Speaker 7: be able to take their foot off the gas pedal
Speaker 7: a little bit. But you know, to this point, what
Speaker 7: we've heard from most of the builders is that incentives
Speaker 7: have remained stubbornly high. Lenard did tell it that their
Speaker 7: incentives on new orders, which are a better leading indicator,
Speaker 7: are a little bit below where they were on deliveries,
Speaker 7: but we still expect them to remain pretty elevated as
Speaker 7: we get through the spring selling season, because, as you mentioned,
Speaker 7: buyers are aware of these incentives and they're looking for
Speaker 7: a deal.
Speaker 2: What are you expecting from pending home sales in about
Speaker 2: twenty seconds. Next week we get pending home sales for February,
Speaker 2: so I think.
Speaker 7: It's going to be more of the same for the
Speaker 7: existing home market and pending home sales. Last month, pending's
Speaker 7: home sales were at the lowest level on record. I
Speaker 7: think you'll have a little bit of weather still impacting results,
Speaker 7: but by and large, it's still going to be the
Speaker 7: affordability constraints that we're seeing out there.
Speaker 6: In the market.
Speaker 5: Stay with us.
Speaker 8: More from Bloomberg Intelligence coming.
Speaker 2: Up after this.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live
Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
Speaker 1: you get your podcasts, or watch US live on YouTube.
Speaker 5: I think one of the industries really upended by this
Speaker 5: war is the aviation industry and the global travel. We're
Speaker 5: seeing lots of flight being canceled and really a lot
Speaker 5: of TSA disruptions. Let's bring a Jeff Friedman, he's CEO
Speaker 5: of the US Travel Association, to shed some light on
Speaker 5: the situation. Jeff, I'm really scared. I'm really scared, and
Speaker 5: I'm just over winter now. I want it to be summer.
Speaker 5: That said, could higher oil prices translate to weaker demand
Speaker 5: and weaker travel in the US ahead of the summer.
Speaker 8: You're speaking my language. I can't take anymore this winter.
Speaker 8: And obviously all of us as travelers want to get
Speaker 8: out there and see the country, see the world. And
Speaker 8: there's no doubt that there are limitations on travel right now.
Speaker 8: There are issues with international travelers coming to the United States,
Speaker 8: there are issues with travelers moving about the United States. Certainly,
Speaker 8: we're seeing some pressure on prices. That said, travel generally
Speaker 8: has run below general inflation over the past year or so,
Speaker 8: so I think that is a bonus for people across
Speaker 8: the country. One of the best things we saw coming
Speaker 8: out of COVID, and you can't get a lot of
Speaker 8: sentences that way, but one of the best things we
Speaker 8: saw coming out of COVID was a new demand for travel.
Speaker 8: People prioritize travel experiences, creating memories over goods. At this point,
Speaker 8: that's a good thing for us, but only if we
Speaker 8: remove the obstacles to travel, And what's happening at TSA
Speaker 8: right now is the single biggest obstacle the travelers are confronting.
Speaker 2: Yeah, I want to talk about that, because this is
Speaker 2: sort of a double whammy right for travelers. This is
Speaker 2: we've got a record spring travel season upon us, We've
Speaker 2: got a partial government shut down. These TSA workers are
Speaker 2: working without pay for I don't know weeks.
Speaker 4: Now.
Speaker 2: What is the situation like at at the airports.
Speaker 8: Yeah, I'll get to travelers in a second, because it's
Speaker 8: a travesty what's happening for travelers, But I want to
Speaker 8: start with the people who are most affected, the real
Speaker 8: victims here, and that's the TSA workers. You know, we
Speaker 8: have more than fifty thousand TSA officers who go to
Speaker 8: work every day. Last year, they found more than six
Speaker 8: thousand weapons at various checkpoints. These people, for the second
Speaker 8: time now in just a matter of months, are going
Speaker 8: completely unpaid. We're asking these workers to do something that
Speaker 8: none of us do, that no member of Congress does.
Speaker 8: We're asking them to go to work based on an IOU.
Speaker 8: And if you think they're not thinking about their rent,
Speaker 8: their gas, their need for groceries, the other things they
Speaker 8: have to do for their kids while they're trying to
Speaker 8: do their job, then we're kidding ourselves. This will have
Speaker 8: an effect on the aviation system. It is having effect
Speaker 8: on the aviation system.
Speaker 6: And it's a.
Speaker 8: Man made disaster. It doesn't need to be this way.
Speaker 8: The fault lies with Congress. For travelers, it's leading to
Speaker 8: incredible uncertainty. I saw the lines in Austin, Texas earlier today,
Speaker 8: three hour long lines down there. I went through San
Speaker 8: Diego yesterday and I got through in ten minutes. What
Speaker 8: that means is travelers don't know do I need to
Speaker 8: arrive at the airport an hour ahead of time? Do
Speaker 8: I need to arrive five hours ahead of time? It
Speaker 8: creates massive uncertainty, It harms the system, it encourages people.
Speaker 8: It discourages some people from traveling, which will have a
Speaker 8: significant impact on the economy. During the last shutdown, we
Speaker 8: saw travel spending decline by about one billion dollars per week.
Speaker 5: When I'm in the airport and when I go and
Speaker 5: zoom by everything, that's just like I feel like my
Speaker 5: day is made and I'm a superhero. So then if
Speaker 5: we see more travel disruptions, how could that impact the
Speaker 5: broader economy, especially if the conflict dragsone? Do you see
Speaker 5: it affecting maybe the airline costs and ticket prices? And
Speaker 5: I mean, how will that ripple through.
Speaker 8: Yeah, if travelers, and let's look at there are different
Speaker 8: types of travelers. There are leisure travelers who are going
Speaker 8: out for spring break. There are business travelers who are
Speaker 8: going on their third, fourth, sixth trip of the month.
Speaker 8: I think the leisure traveler is generally more resilient. If
Speaker 8: I promised my kids that we're going somewhere warm for
Speaker 8: spring break, I'm going to be irritated, but I'm going
Speaker 8: to tolerate that unnecessarily long line at TSA for the
Speaker 8: frequent business traveler. Frankly, the people who are spending more
Speaker 8: often sitting in the front of the plane, spending more
Speaker 8: at the hotel, spending more at the restaurants in various communities.
Speaker 8: It's the frequent business traveler who we're putting at risk here.
Speaker 8: It's that person who says, I'm going to skip the convention,
Speaker 8: I'm going to skip this meeting. I'm going to move
Speaker 8: it to zoom or an alternative. That's where the effect
Speaker 8: really hits the economy. It's incredibly unfortunate, but that's what
Speaker 8: Congress is doing. I think there's some degree, obviously of
Speaker 8: gamesmanship that's going on on Capitol Hill right now, with
Speaker 8: the sense that there isn't a consequence to the way
Speaker 8: they're behaving. TSA officers have now gone upwards of a
Speaker 8: month without pay. Again, no member of Congress has offered
Speaker 8: to do the same. That is, in my mind, borderline
Speaker 8: criminal in the way that we're treating these TSA officers.
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