WEBVTT - SpaceX Exceeds Revenue Estimates in First Earnings Since IPO 0:00:02.480 --> 0:00:10.480 Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg business 0:00:10.480 --> 0:00:14.640 Weekdaily reporting from the magazine that helps global leaders stay 0:00:14.680 --> 0:00:18.759 ahead with insight on the people, companies, and trends shaping 0:00:18.760 --> 0:00:23.720 today's complex economy, plus global business finance and tech news 0:00:23.760 --> 0:00:27.720 as it happens. The Bloomberg Business Week Daily Podcast with 0:00:27.880 --> 0:00:31.840 Carol Masser and Tim Stenebek on Bloomberg Radio. 0:00:32.440 --> 0:00:36.120 It shares a SpaceX kind of bouncing around, but muted 0:00:36.159 --> 0:00:38.159 in the after hours, barely up by about half a 0:00:38.159 --> 0:00:41.200 percent right now. The company out with its first report 0:00:41.280 --> 0:00:44.800 as a publicly traded company. Revenue exceeded Wall Streets expectations, 0:00:45.159 --> 0:00:47.960 reported seven point eight billion dollars the company reporter and 0:00:47.960 --> 0:00:50.200 operating loss though of one point twenty six billion dollars 0:00:50.200 --> 0:00:53.520 from its AI business. That's better than the consensus expectation. 0:00:53.920 --> 0:00:56.080 Shares a plunge since that IPO raising more than a 0:00:56.120 --> 0:00:58.960 trillion dollars in market value from their peak. I think 0:00:59.000 --> 0:01:00.520 we'll hear a lot more on the coll when it 0:01:00.520 --> 0:01:01.360 starts a little later. 0:01:01.440 --> 0:01:03.280 One can certainly hope. All right, let's get to it 0:01:03.320 --> 0:01:05.280 with our team. We've got a great team to kind 0:01:05.319 --> 0:01:06.800 of go through the numbers and the results, and we're 0:01:06.840 --> 0:01:09.000 going to continue to kind of track as we get 0:01:09.000 --> 0:01:10.759 into the call. Man Deep Seeing is with us right 0:01:10.800 --> 0:01:13.480 here in studio in our Bloomberg Interactive Broker studio is 0:01:13.520 --> 0:01:17.040 Bloomberg Intelligence, Global head of Technology Research. And out there 0:01:17.040 --> 0:01:19.320 in our San Francisco news bureaus, of course, our own 0:01:19.440 --> 0:01:23.200 ed Ludlow host, a Bloomberg Tech ed. Let me just 0:01:23.280 --> 0:01:25.039 kick it off with you. What jumps out here? I 0:01:25.040 --> 0:01:27.560 know you're also on the live blog, but you know, 0:01:27.600 --> 0:01:30.399 investors just kind of reading through right now. The stock 0:01:30.480 --> 0:01:32.120 is down just about one percent here. 0:01:32.319 --> 0:01:37.040 Yeah, I mean overall revenue and sales came in above consensus. 0:01:37.040 --> 0:01:39.039 But you go into this saying this was the first 0:01:39.160 --> 0:01:42.040 quarterly earnings for SpaceX since they became a public company, 0:01:42.319 --> 0:01:44.120 and it will be their first earning school and there 0:01:44.160 --> 0:01:47.520 was a lot of acceptance that the consensus numbers out there. 0:01:47.640 --> 0:01:49.320 There was a bit of skepticism, right, they're a bit 0:01:49.360 --> 0:01:52.960 squishy because we don't have a whole lot of contemporaneous data. 0:01:53.480 --> 0:01:56.400 But it's really interesting. You know that the status quo 0:01:57.120 --> 0:01:59.840 is still that starlink is the is the driver on 0:01:59.880 --> 0:02:03.200 the top line and also sort of the cash cow. 0:02:03.800 --> 0:02:07.160 But they really improve the economics of this business in 0:02:07.160 --> 0:02:10.880 the quarter of Yes, it's a rocket company, but renting 0:02:11.000 --> 0:02:14.640 compute capacity to other technology companies, you know that has 0:02:14.720 --> 0:02:16.480 proved to be a strong business for them. There's a 0:02:16.520 --> 0:02:19.320 lot of discussion in that in what's a very limited 0:02:19.400 --> 0:02:20.559 earnings release. 0:02:20.960 --> 0:02:22.120 Many I've I want to bring you in here. 0:02:22.160 --> 0:02:24.480 If you were to look at the three different segments 0:02:24.480 --> 0:02:28.560 through reportable segments, ED mentioned the cash cow and in 0:02:28.639 --> 0:02:31.440 terms of where the revenue is still coming from in 0:02:31.520 --> 0:02:34.360 terms of growth, in your view, which segment is the 0:02:34.360 --> 0:02:35.040 most important. 0:02:35.360 --> 0:02:38.520 I mean, they reported a backlog number of forty seven 0:02:38.560 --> 0:02:39.600 point five billion. 0:02:40.240 --> 0:02:43.399 That tells you most of the backlog. 0:02:43.000 --> 0:02:46.320 Is likely coming from AI and what is not captured 0:02:46.400 --> 0:02:50.440 in this print is the Entropic and Google deals. 0:02:50.440 --> 0:02:52.560 Said, Okay, that's what I was going to ask you. 0:02:52.720 --> 0:02:55.720 When you say a backlog that means companies like Anthropic 0:02:55.760 --> 0:02:59.040 and Google coming to XAI part of space X and 0:02:59.080 --> 0:02:59.960 renting compute. 0:03:00.080 --> 0:03:03.280 That's right, yes, and in fact we know some of 0:03:03.320 --> 0:03:08.720 the deal terms. Entropic will be paying SpaceX about one 0:03:08.720 --> 0:03:12.520 point two five billion dollars a month, so next quarter 0:03:12.600 --> 0:03:16.480 when they report, there will be at least three point 0:03:16.520 --> 0:03:21.560 seventy five billion dollars from Entropic and another probably two 0:03:21.639 --> 0:03:25.000 billion plus from Google. When they report so six billion 0:03:25.080 --> 0:03:28.200 bump just from these two deals. 0:03:28.080 --> 0:03:30.200 S x quarter, that sounds pretty impressive. 0:03:30.360 --> 0:03:30.720 I think. 0:03:30.760 --> 0:03:33.480 So that's why the backlog number is very important because 0:03:33.520 --> 0:03:37.440 in that forty seven billion dollars is that Entropic deal 0:03:37.560 --> 0:03:40.560 and the Google deal and there's one more company, I think, Reflection. 0:03:41.560 --> 0:03:47.680 And what can XAI offer these firms that Mandeep mentioned 0:03:48.200 --> 0:03:52.000 that like a Google Cloud, a Microsoft Azure and AWS 0:03:52.160 --> 0:03:53.360 or even a Neocloud can. 0:03:53.440 --> 0:03:56.840 Offer space that they're not currently using. 0:03:56.920 --> 0:04:00.400 So it is it's a commodity little bit. 0:04:00.440 --> 0:04:04.960 So like in Tennessee, Xai now space Xai set up 0:04:05.000 --> 0:04:08.960 a number of data centers in very quick order, Colossus one, 0:04:09.080 --> 0:04:12.480 Colossus two, and Colossus three. And what was explained to 0:04:12.520 --> 0:04:14.880 me in great detail by sources is that once they 0:04:14.880 --> 0:04:16.480 had built all of them, they were like, okay, how 0:04:16.520 --> 0:04:19.440 do we use this ourselves? And they realized that in 0:04:19.520 --> 0:04:22.040 Colossus one, which is a big tin Can data center, 0:04:22.560 --> 0:04:26.839 they had multiple generations of Nvidia GPUs all mixed together. 0:04:26.960 --> 0:04:29.880 Some were Hopper generation, some were black Wells, some were 0:04:29.920 --> 0:04:32.840 even as old as the A one hundred generation, and 0:04:32.880 --> 0:04:35.279 so they decided the best use of that capacity was 0:04:35.279 --> 0:04:38.599 to rent it out with attractive economics for those renting 0:04:38.640 --> 0:04:40.440 it at a premium. Many would say, I think, Mandy, 0:04:40.480 --> 0:04:42.880 it's been over that really well in the past, and 0:04:42.920 --> 0:04:46.640 for them, like they run it really operationally efficiently, it 0:04:46.680 --> 0:04:49.200 can be a high margin business. But it was all 0:04:49.240 --> 0:04:51.880 born out of the fact that for their own models 0:04:51.920 --> 0:04:54.839 and running them, not just training later generation models, they 0:04:54.880 --> 0:04:57.600 couldn't work out how to use that capacity for themselves 0:04:58.040 --> 0:04:59.560 to best effect. 0:05:01.240 --> 0:05:06.279 Yeah, I mean the worries that we've had man deep 0:05:06.440 --> 0:05:10.080 about this company and feeling like we didn't know some things. 0:05:10.440 --> 0:05:13.159 Should investors, I know, we never give investment advice, but 0:05:13.240 --> 0:05:16.400 feel all right, we're getting more information about the business 0:05:16.480 --> 0:05:19.480 that we can kind of figure out and cross with 0:05:19.839 --> 0:05:23.880 kind of where this company's going. The valuation. It means 0:05:23.920 --> 0:05:26.080 the valuation is still a little crazy, right. 0:05:26.200 --> 0:05:27.120 It is crazy. 0:05:27.160 --> 0:05:30.320 But what I think may work in their favor is 0:05:30.440 --> 0:05:34.080 this is a company that will likely have accelerating top 0:05:34.120 --> 0:05:36.640 line growth at least for the next three or four 0:05:36.760 --> 0:05:41.159 quarters with margin improvement, and that is a type of 0:05:41.240 --> 0:05:45.080 story that investors typically like, I mean, we just saw 0:05:45.120 --> 0:05:48.960 what Palanteer did today, you know, with their quarter partly 0:05:49.040 --> 0:05:52.200 because of that accelerating top line growth, and there is 0:05:52.320 --> 0:05:55.120 no doubt in my mind, given that forty seven point 0:05:55.160 --> 0:05:59.839 five billion dollar backlog number, SpaceX will have accelerating top 0:05:59.839 --> 0:06:03.440 line growth at least for the next three quarters. 0:06:03.640 --> 0:06:06.640 We're speaking with Man deep saying our Bloomberg Intelligence global 0:06:06.760 --> 0:06:09.240 head of Technology Research. Also with us Ed Ludlow out 0:06:09.240 --> 0:06:11.680 there in San Francisco. He's the host of Bloomberg Tech. 0:06:11.839 --> 0:06:14.080 I want to remind everybody if you have questions about 0:06:14.120 --> 0:06:18.800 SpaceX's earnings, the company's report, send us a question Bloomberg 0:06:18.839 --> 0:06:22.080 dot com slash ask Radio. That's Bloomberg dot com slash 0:06:22.160 --> 0:06:24.840 Ask Radio. It's only for Bloomberg dot com subscribers. You 0:06:24.839 --> 0:06:27.120 can submit questions for us or for any of our 0:06:27.160 --> 0:06:28.200 guests this afternoon. 0:06:28.240 --> 0:06:29.600 You know, I'm just looking at you know, you pull 0:06:29.680 --> 0:06:33.880 up SpaceX, do the ticker. Do you know CNBN SpaceX's 0:06:33.920 --> 0:06:38.160 business growing across all three segments. SpaceX exceeds revenue estimates 0:06:38.160 --> 0:06:42.080 in the first quarter, first earning since IPO. You know, 0:06:42.200 --> 0:06:45.200 SpaceX's first earnings offer a chance to reverse the stocks 0:06:45.200 --> 0:06:49.359 plunge that was earlier in the day. Top of mind 0:06:49.520 --> 0:06:52.240 you and come on back in because I'm just thinking 0:06:52.360 --> 0:06:54.680 how much of what we we didn't know? So this 0:06:54.760 --> 0:06:58.800 is kind of our first real picture of a lot 0:06:58.839 --> 0:07:01.120 of what the business is about. There are speculations, certainly 0:07:01.160 --> 0:07:03.120 coming off the IPO, and there is numbers, and there 0:07:03.120 --> 0:07:06.400 were estimates, but how much of this is like, oh, okay, 0:07:06.440 --> 0:07:09.320 so this is the business at least now? 0:07:09.440 --> 0:07:10.400 Yeah. Yeah. 0:07:10.440 --> 0:07:12.560 So what you can do is you can compare with 0:07:12.640 --> 0:07:15.360 the backward looking data we have from the IPO perspectus, 0:07:15.400 --> 0:07:18.040 the S one and the amended versions of it, just 0:07:18.080 --> 0:07:20.880 the two Aikey points, because I think it's really interesting 0:07:20.920 --> 0:07:23.880 to get Mandiv's take on this is AI is probably 0:07:23.920 --> 0:07:27.200 inflecting a little bit faster than the street expected. So 0:07:27.240 --> 0:07:29.880 the AI revenues are two point five six billion dollars, right, 0:07:30.680 --> 0:07:32.680 compare that to the first quarter, which is data we 0:07:32.720 --> 0:07:35.200 got in the perspectives about eight hundred million, So it's 0:07:35.320 --> 0:07:38.360 quite a jump sequentially quartered a quarter. And then on 0:07:38.400 --> 0:07:41.080 an adjusted ebit DAR basis, which you know, let man 0:07:41.120 --> 0:07:42.960 deep into this one because I know how the street 0:07:43.000 --> 0:07:46.800 feels on adjusted ebit DAR, but AI adjusted ebit dar 0:07:47.240 --> 0:07:52.239 did term positive AI specifically, and so like right now, 0:07:52.400 --> 0:07:54.720 with the knowledge that all of these other business lines 0:07:54.720 --> 0:07:59.040 are futuristic orbital data center, the space economy, and enterprise AI. 0:07:59.560 --> 0:08:01.320 What they have I've done is move pretty quickly on 0:08:01.320 --> 0:08:04.040 the arm structure business, and you know, Mandy's outlined the 0:08:04.040 --> 0:08:05.200 deals that they did to get there. 0:08:06.800 --> 0:08:09.320 Okay, let's just reset here a little bit, because we're 0:08:09.320 --> 0:08:12.040 seeing shares of SpaceX down about six and a half 0:08:12.040 --> 0:08:15.720 percent after the company reported results. Starlink growth continues to 0:08:15.760 --> 0:08:21.200 be a revenue driver, shares are slumping those investors digest this, Mandy, 0:08:20.840 --> 0:08:25.160 what's the sort of I don't know, from a guidance perspective, 0:08:25.280 --> 0:08:28.080 the expectations about what we'll hear on the call that's 0:08:28.080 --> 0:08:30.800 different from what's in the press release. Again, first time 0:08:30.840 --> 0:08:33.480 we've had a call for this company, so we can 0:08:33.559 --> 0:08:35.320 kind of only go with what Tesla has done in 0:08:35.360 --> 0:08:38.040 the past. But what do we expect in terms of guidance. 0:08:38.320 --> 0:08:41.120 I mean, when I look at this Starlink number, to me, 0:08:41.400 --> 0:08:46.000 that's slightly misconsensus in terms of number of subscribers. And 0:08:46.160 --> 0:08:49.320 given we talk about how that's the cash cow that's 0:08:49.360 --> 0:08:53.440 funding you know, the other businesses, that is probably the 0:08:53.600 --> 0:08:56.719 number one question that I feel they're going to get 0:08:56.760 --> 0:09:00.240 on the earnings call, but along with that backlog, which 0:09:00.600 --> 0:09:04.680 I think will help them in the quarters upcoming quarters. 0:09:04.720 --> 0:09:10.080 But clearly that Starlink business was slightly below consensus. 0:09:10.240 --> 0:09:13.120 I mentioned that we have Bloomberg dot com slash Ask 0:09:13.280 --> 0:09:15.400 Radio as a way for our subscribers to get in 0:09:15.400 --> 0:09:18.199 touch with us and ask questions not just to us, 0:09:18.240 --> 0:09:20.240 but to Ed and Mandeep in all of our guests 0:09:20.559 --> 0:09:24.400 SpaceX's a question about SpaceX coming in right now, guys. 0:09:25.000 --> 0:09:28.320 Sanjay out in Irvine, California writes that the fact that 0:09:28.360 --> 0:09:31.760 SpaceX's valuation is already high, does that make today's earnings 0:09:31.840 --> 0:09:35.320 more or less in line with the high expectations. I 0:09:35.320 --> 0:09:39.040 want to send that one over to Mandeep. First valuations question. 0:09:39.280 --> 0:09:41.360 We talked with Max Chafkin earlier about the so called 0:09:41.360 --> 0:09:45.120 Elon premium and the idea that Tesla is valued more 0:09:45.120 --> 0:09:47.560 than any other carmaker despite the fact that, you know, 0:09:47.600 --> 0:09:49.600 in terms of revenue, it doesn't even crack. 0:09:49.400 --> 0:09:50.000 The top ten. 0:09:51.240 --> 0:09:53.440 Valuation question about SpaceX, what do you make of it? 0:09:53.600 --> 0:09:56.280 Yeah, I mean at one point five trillion, you know, 0:09:56.440 --> 0:10:00.680 for a company of SpaceX size, there is a lot 0:10:00.760 --> 0:10:04.560 embedded in that number in terms of you know, growth, 0:10:04.600 --> 0:10:11.240 expectations and how investors see margins improving. So that's why, 0:10:11.320 --> 0:10:14.160 you know, even though I feel like they will do 0:10:14.440 --> 0:10:16.920 very well over the next three quarters in terms of 0:10:17.080 --> 0:10:21.199 top line driven by AI, but at this valuation, and 0:10:21.520 --> 0:10:24.120 you know, it hypeered at even a higher valuation. So 0:10:25.320 --> 0:10:29.560 it's always hard to keep up with the expectations, and 0:10:30.640 --> 0:10:34.920 unless you come out and show positive surprises the way 0:10:35.000 --> 0:10:39.480 Nvidia has done that constant consistently, I think it will 0:10:39.480 --> 0:10:43.120 be hard for SpaceX just to kind of keep this multiple. 0:10:43.280 --> 0:10:46.200 So they really have to grow into that multiple, which 0:10:46.240 --> 0:10:49.120 I think they should be able to given the backlog 0:10:49.200 --> 0:10:51.920 number we are seeing. I mean, all the cloud companies 0:10:52.240 --> 0:10:55.360 had backlogs of four hundred billion dollars plus you know 0:10:55.360 --> 0:10:58.880 when they reported, and they had an excellent quarter, all 0:10:58.920 --> 0:11:01.080 of them, you know, Google, Amma, On, and Microsoft. So 0:11:01.440 --> 0:11:04.880 from that perspective, SpaceX reporting a forty seven point five 0:11:04.880 --> 0:11:07.599 billion dollar back long. If they keep growing that I 0:11:07.640 --> 0:11:09.840 think will be positive for that SpaceX story. 0:11:09.960 --> 0:11:12.640 I also want to mention we're getting some additional headline 0:11:12.640 --> 0:11:17.079 SpaceX second quarter AI segment capex a fifteen point eighty 0:11:17.120 --> 0:11:19.840 three billion versus an estimate on the street of thirteen 0:11:19.880 --> 0:11:22.480 point zero nine billion. I know ed you were on 0:11:22.600 --> 0:11:25.400 a live blog like looking for more insight when it 0:11:25.440 --> 0:11:26.440 comes to Capex. 0:11:27.600 --> 0:11:27.800 Yeah. 0:11:27.920 --> 0:11:32.240 No, I think they have positioned this in the CFO 0:11:32.280 --> 0:11:36.640 commentary about having a really strong liquidity position. Right, they 0:11:37.080 --> 0:11:39.880 have the proceeds of the IPO and then they immediately 0:11:39.920 --> 0:11:43.360 went to the corporate debt market and so they have 0:11:43.360 --> 0:11:46.760 one hundred billion dollars to play with. But you again 0:11:46.880 --> 0:11:49.839 can go back to the prospectus on how capital expenditures 0:11:49.840 --> 0:11:52.600 were tracking in the first half of this year. The 0:11:52.679 --> 0:11:55.280 consensus number, again there's a note of caution on all 0:11:55.320 --> 0:11:58.440 the consensus numbers because this is their first ever quarterly 0:11:58.440 --> 0:12:01.520 earnings as a public company. The expectation was they spend 0:12:01.520 --> 0:12:05.960 about forty five forty six billion dollars this year. A 0:12:06.000 --> 0:12:07.960 lot of that's still to come right this, you know, 0:12:08.000 --> 0:12:13.080 it's it's it's really key information because across those nascent 0:12:13.120 --> 0:12:18.200 business lines starships as a launch system, orbital data center, 0:12:18.520 --> 0:12:21.839 and then the business of like actually selling AIS the 0:12:21.880 --> 0:12:24.280 software at scale, it's still going to take a lot 0:12:24.280 --> 0:12:24.760 of spending. 0:12:26.120 --> 0:12:30.400 And is this is this report, are we getting the information? 0:12:30.600 --> 0:12:32.480 It's sort of an inside baseball question, but is the 0:12:32.480 --> 0:12:35.000 information coming at a cadence that's on par with what 0:12:35.000 --> 0:12:36.600 we get from Tesla. 0:12:36.720 --> 0:12:40.360 No, so this I find this really interesting. So, you know, 0:12:40.480 --> 0:12:46.280 Tesla presents a pretty detailed shareholder deck each quarter, and 0:12:47.559 --> 0:12:51.880 it is multiple pages long. It has a lot of information, 0:12:52.200 --> 0:12:55.440 for example, the headwinds and tailwinds to the top and 0:12:55.440 --> 0:13:00.160 bottom line, the macro impacts, they felt, any political impacts, 0:13:01.000 --> 0:13:03.520 their sort of forward looking strategy as it relates to 0:13:03.559 --> 0:13:06.439 software in different markets, et cetera. This is a very 0:13:06.480 --> 0:13:10.160 modest release where there's zero commentary from Elon mask who's 0:13:10.160 --> 0:13:13.320 the CEO of SpaceX. There's zero commentary from Gwyn Shotwell, 0:13:13.320 --> 0:13:16.280 who's the president in COO and de facto runs the company, 0:13:16.960 --> 0:13:20.360 just the CFO commentary from Brett Johnson. And it's you know, 0:13:20.400 --> 0:13:23.320 it's very modest, so there's a lot still to learn. 0:13:23.600 --> 0:13:25.920 You know, there's not the same level of detail. There 0:13:25.920 --> 0:13:28.680 are fair questions like will Elon Musk be on the 0:13:28.720 --> 0:13:31.640 earnings call? You know, we just we have no definitive 0:13:31.640 --> 0:13:34.439 answer in that one assumes, so what kind of role 0:13:34.440 --> 0:13:36.280 did Gwyn Shotwell and Brett Johnson play on the earning 0:13:36.320 --> 0:13:38.079 scoore are like, are they the stars of the show 0:13:38.679 --> 0:13:41.040 or is it like Tesla, where Elon's still the star 0:13:41.160 --> 0:13:43.400 of the show. We just don't know, and that's kind 0:13:43.400 --> 0:13:43.720 of fun. 0:13:44.000 --> 0:13:46.600 So do we have an idea man deep of how 0:13:46.679 --> 0:13:48.160 much cash they're burning through? 0:13:49.400 --> 0:13:53.760 I mean, they are investing fifteen billion plus in capex 0:13:53.840 --> 0:13:59.720 every quarter and they're not generating any free cash flow 0:14:00.360 --> 0:14:04.520 as of now. I mean, the startling business is the 0:14:04.559 --> 0:14:07.559 only one that seems to be generating free cash flow 0:14:07.960 --> 0:14:12.199 and that seems to have misconsensus. So from that perspective, 0:14:12.280 --> 0:14:16.520 I mean, they have this challenge in terms of meeting 0:14:16.559 --> 0:14:21.320 expectations around free cash flow, unlike the hyperscalers that clearly 0:14:21.760 --> 0:14:27.360 have strong balance sheets to invest in capex. So from 0:14:27.360 --> 0:14:29.960 that perspective, I feel there is a ceiling to how 0:14:30.040 --> 0:14:33.400 much higher they can go in terms of capex increases. 0:14:33.440 --> 0:14:37.240 I do think they will raise the capex, but even 0:14:37.280 --> 0:14:39.920 at sixty billion dollars rund rate, how high can they 0:14:39.960 --> 0:14:44.840 go given they don't have the balance sheet and the 0:14:44.880 --> 0:14:47.800 free cash flow that the other hyperscalers. 0:14:47.080 --> 0:14:50.840 Have ed Come on in, you have a. 0:14:50.880 --> 0:14:53.440 Question, Yeah, so I have a question with I rely 0:14:53.520 --> 0:14:58.240 on Mandeep's expertise and he's modeling. So in the first 0:14:58.240 --> 0:15:02.160 half of the year, SpaceX about three point five billion 0:15:02.200 --> 0:15:06.120 dollars operating cash flow, but the capital expenditures for the 0:15:06.120 --> 0:15:08.080 first half of the year were like twenty nine billion dollars. 0:15:08.120 --> 0:15:11.280 So you just do the operating cash flow minus the 0:15:11.320 --> 0:15:14.360 capex and that gives you a sort of an approximation 0:15:14.520 --> 0:15:17.400 on the negative free cash flow right overall? Am I 0:15:17.440 --> 0:15:18.720 doing the math right on that? 0:15:18.720 --> 0:15:19.600 That's right? Yeah? 0:15:19.880 --> 0:15:23.000 So I see again, like this is me doing math 0:15:23.040 --> 0:15:25.560 in my head and phone my high school teachers. It 0:15:25.600 --> 0:15:29.280 weren't my strong point, but I see, let's say, let's 0:15:29.280 --> 0:15:31.920 say twenty five billion dollars of negative free cash flow 0:15:31.960 --> 0:15:34.760 and aggregate across those businesses in the first half. 0:15:37.160 --> 0:15:38.280 Yeah. 0:15:38.320 --> 0:15:42.320 Look, I think what you will see is the cloud 0:15:42.360 --> 0:15:45.640 rental business is going to be a lot better margins. 0:15:46.040 --> 0:15:49.440 So that's the part that you know when you do 0:15:49.480 --> 0:15:54.960 the first half calculations and analyze it, you you're expecting, 0:15:55.200 --> 0:15:57.880 maybe you know there will be negative fifty billion dollars 0:15:58.040 --> 0:16:01.560 for the full year, But my guess is that cloud 0:16:01.600 --> 0:16:04.920 rental business is going to be positive in terms of 0:16:04.960 --> 0:16:07.320 the margin profile. Now, it's not going to be as 0:16:07.440 --> 0:16:11.400 high as a hyperscalers. So Hyperscalers as we have seen 0:16:11.480 --> 0:16:14.720 this quarter, they have mid thirty percent margins when it 0:16:14.760 --> 0:16:18.280 comes to their cloud businesses. In the case of SpaceX, 0:16:18.920 --> 0:16:21.880 even in a best case scenario, that AI segment would 0:16:21.920 --> 0:16:25.080 have you know, low to mid teens margins, but at 0:16:25.160 --> 0:16:29.320 least it's positive. So from that perspective, if you see 0:16:29.520 --> 0:16:32.200 AI business at the end of the year around a 0:16:32.320 --> 0:16:35.320 twenty five billion dollar run rate with low to mid 0:16:35.320 --> 0:16:39.120 teens margins, then it will offset some of that negative 0:16:39.160 --> 0:16:43.200 twenty five billion dollar you know, burned that you've seen 0:16:43.280 --> 0:16:45.880 for the first half. And that's where I think there's 0:16:45.960 --> 0:16:48.640 a good story to tell in terms of margin improvement 0:16:48.720 --> 0:16:50.680 driven by that cloud rental business. 0:16:52.040 --> 0:16:54.840 Stay with us more from Bloomberg Business Week Daily coming 0:16:54.920 --> 0:16:55.840 up after this. 0:17:00.000 --> 0:17:03.280 We were listening to the Bloomberg Business Week Daily podcast. 0:17:03.520 --> 0:17:06.240 Catch us live weekday afternoons from two to five eas 0:17:06.280 --> 0:17:09.280 during Listen on Apple Karplay and Android Otto with the 0:17:09.359 --> 0:17:13.480 Bloomberg Business app, or watch us live on YouTube. 0:17:14.119 --> 0:17:16.600 Wayfair investors man are pushing this stock up a big 0:17:16.640 --> 0:17:21.240 time today, shares surging thirty one percent as we speak 0:17:21.480 --> 0:17:24.399 after the home furnishing retailer set sales at the US 0:17:24.680 --> 0:17:27.360 grew at their fastest clip since twenty twenty one, held 0:17:27.400 --> 0:17:29.680 by a growing number of brick and mortar stores, which 0:17:29.720 --> 0:17:32.160 has been a new initiative for them over the last 0:17:32.200 --> 0:17:37.399 few years and growing and also sales growing, helped out 0:17:37.440 --> 0:17:39.359 by demand for some of its higher end brands. 0:17:39.440 --> 0:17:42.240 Yeah, the stock ops seventeen percent your day earlier today 0:17:42.280 --> 0:17:44.399 as much as thirty two percent intra day highs the 0:17:44.480 --> 0:17:47.280 most going back to April of twenty twenty some perspective, 0:17:47.280 --> 0:17:49.480 the stock is still down Carol sixty six percent from 0:17:49.480 --> 0:17:52.520 that peak that was back in March of twenty twenty one, 0:17:52.760 --> 0:17:54.760 but today soaring higher. 0:17:54.960 --> 0:17:56.919 Yeah, big time. So we're delighted to have back with us. 0:17:57.000 --> 0:17:59.440 Joining us once again, Kate Olliver. She's the chief financial 0:17:59.440 --> 0:18:02.800 officer and chief administrative officer. We like to remind everybody 0:18:02.840 --> 0:18:06.359 that Kate oversees finance, legal talent, real estate, corporate affairs 0:18:06.400 --> 0:18:09.600 at Wayfairs. She has a full plate, so delighted once 0:18:09.600 --> 0:18:11.520 again to find some time for us. She's in Boston 0:18:11.520 --> 0:18:14.760 where the company's bossed. Kate, good to have you here. 0:18:15.040 --> 0:18:20.640 Congratulations Killer quarter. Thank you talk to us about the momentum. 0:18:21.680 --> 0:18:24.360 Well, I mean, I think you just said it right. 0:18:24.440 --> 0:18:27.679 It's it's nice momentum. Over many quarters now, and so 0:18:27.920 --> 0:18:31.359 I think what you're seeing is really the sort of 0:18:31.520 --> 0:18:35.479 multitude of initiatives that we've laid out the consistency of 0:18:35.480 --> 0:18:39.520 that playthrough and you know, building momentum there and that 0:18:40.080 --> 0:18:43.320 reaction is a result of those factors. So you know 0:18:43.400 --> 0:18:47.760 that US revenue growth of nearly nine percent, the highest 0:18:48.119 --> 0:18:51.639 in the post COVID period, the flow through to really 0:18:51.680 --> 0:18:56.080 solid contribution margin, high EBITDA margin, and then you know, 0:18:56.200 --> 0:18:58.040 best free cash flow that we've had since Q two, 0:18:58.200 --> 0:19:00.639 twenty twenty, and so all of the things that we 0:19:00.720 --> 0:19:03.440 have been working on to drive and improve that customer 0:19:03.520 --> 0:19:06.959 experience continue to come together help us gain share, and 0:19:07.000 --> 0:19:08.639 we're flowing that through quite nicely. 0:19:08.760 --> 0:19:10.800 Who are the customers who are buying right now? Because 0:19:10.800 --> 0:19:13.080 when you hear a superlative like you know, most since 0:19:13.760 --> 0:19:17.240 post pandemic days, you think to yourself, Okay, well, well, 0:19:17.400 --> 0:19:19.360 who are the customers who have who have the money 0:19:19.440 --> 0:19:20.719 right now to be buying this stuff. 0:19:21.640 --> 0:19:24.760 It's a great question. And we actually went on the call, 0:19:24.800 --> 0:19:26.960 we went into a little bit of detail around Paragold, 0:19:26.960 --> 0:19:30.080 which is our luxury brand. You know, it's of our 0:19:30.160 --> 0:19:32.119 sort of family of brands that plays at the highest 0:19:32.200 --> 0:19:34.720 end of the market. And we do see really nice 0:19:34.760 --> 0:19:37.800 momentum there. We said that was growing north of thirty percent, right, 0:19:37.880 --> 0:19:41.320 So you do see nice momentum in the higher end segment, 0:19:41.359 --> 0:19:43.679 the top part of that K shape you will in 0:19:43.720 --> 0:19:47.800 the K shaped economy that said Paragold is only you know, 0:19:47.880 --> 0:19:50.199 a little over four hundred million. So when you think 0:19:50.240 --> 0:19:54.240 about the overall Wayfair business, the Wayfair dot com brand, 0:19:54.280 --> 0:19:57.320 that mass market brand has to also be performing well 0:19:57.320 --> 0:19:59.760 to get to that nine percent comp and so what 0:19:59.800 --> 0:20:02.520 we're so seeing there is ongoing share gain and we 0:20:02.560 --> 0:20:07.119 think that's from programs like our Wayfair rewards program, programs 0:20:07.119 --> 0:20:09.560 like the stores you know which Carol, you had the 0:20:09.560 --> 0:20:14.600 opportunity to see, programs like our Wayfair Verified. The combination 0:20:14.680 --> 0:20:17.640 of those things is helping us, you know, both attract 0:20:17.760 --> 0:20:20.600 and retain these customers and have them engage more and more. 0:20:20.760 --> 0:20:23.040 Tell us about the stores. My understanding is that more 0:20:23.080 --> 0:20:25.760 than fifty percent of store customers are new. But tell 0:20:25.840 --> 0:20:28.919 us about that's a big investment, Kate. We've talked about it. 0:20:28.960 --> 0:20:30.520 I did go there. I was kind of blown away 0:20:30.560 --> 0:20:33.200 by the size and the scope of it. You guys 0:20:33.280 --> 0:20:36.560 continue to add stores, but tell us about you know, 0:20:37.400 --> 0:20:40.480 we kind of marveled over how everybody had pushed back 0:20:40.520 --> 0:20:44.280 on brick and mortar for years and so interesting. You 0:20:44.320 --> 0:20:47.000 know that your guy that you're finding success with it, 0:20:47.040 --> 0:20:49.280 but tell us how this is really moving the needle 0:20:49.320 --> 0:20:49.560 for you. 0:20:50.640 --> 0:20:53.000 Yeah, it's a great it's a great call out. I 0:20:53.040 --> 0:20:56.399 think we're seeing that folks really do desire that multi 0:20:56.520 --> 0:20:59.960 channel experience. And you know, the stores are supported by 0:21:00.080 --> 0:21:02.240 e comm and e comms supported by the stores. Now, 0:21:02.359 --> 0:21:04.920 obviously it's very early days on the stores, so they're 0:21:04.960 --> 0:21:08.240 a very small piece of this overall momentum. We've had 0:21:08.240 --> 0:21:12.120 the Chicago store open now for a little over two years. Atlanta, 0:21:12.560 --> 0:21:15.080 where we were able to meet, has been open since 0:21:15.160 --> 0:21:18.640