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Speaker 2: It shares a SpaceX kind of bouncing around, but muted
Speaker 2: in the after hours, barely up by about half a
Speaker 2: percent right now. The company out with its first report
Speaker 2: as a publicly traded company. Revenue exceeded Wall Streets expectations,
Speaker 2: reported seven point eight billion dollars the company reporter and
Speaker 2: operating loss though of one point twenty six billion dollars
Speaker 2: from its AI business. That's better than the consensus expectation.
Speaker 2: Shares a plunge since that IPO raising more than a
Speaker 2: trillion dollars in market value from their peak. I think
Speaker 2: we'll hear a lot more on the coll when it
Speaker 2: starts a little later.
Speaker 3: One can certainly hope. All right, let's get to it
Speaker 3: with our team. We've got a great team to kind
Speaker 3: of go through the numbers and the results, and we're
Speaker 3: going to continue to kind of track as we get
Speaker 3: into the call. Man Deep Seeing is with us right
Speaker 3: here in studio in our Bloomberg Interactive Broker studio is
Speaker 3: Bloomberg Intelligence, Global head of Technology Research. And out there
Speaker 3: in our San Francisco news bureaus, of course, our own
Speaker 3: ed Ludlow host, a Bloomberg Tech ed. Let me just
Speaker 3: kick it off with you. What jumps out here? I
Speaker 3: know you're also on the live blog, but you know,
Speaker 3: investors just kind of reading through right now. The stock
Speaker 3: is down just about one percent here.
Speaker 4: Yeah, I mean overall revenue and sales came in above consensus.
Speaker 4: But you go into this saying this was the first
Speaker 4: quarterly earnings for SpaceX since they became a public company,
Speaker 4: and it will be their first earning school and there
Speaker 4: was a lot of acceptance that the consensus numbers out there.
Speaker 4: There was a bit of skepticism, right, they're a bit
Speaker 4: squishy because we don't have a whole lot of contemporaneous data.
Speaker 4: But it's really interesting. You know that the status quo
Speaker 4: is still that starlink is the is the driver on
Speaker 4: the top line and also sort of the cash cow.
Speaker 4: But they really improve the economics of this business in
Speaker 4: the quarter of Yes, it's a rocket company, but renting
Speaker 4: compute capacity to other technology companies, you know that has
Speaker 4: proved to be a strong business for them. There's a
Speaker 4: lot of discussion in that in what's a very limited
Speaker 4: earnings release.
Speaker 5: Many I've I want to bring you in here.
Speaker 2: If you were to look at the three different segments
Speaker 2: through reportable segments, ED mentioned the cash cow and in
Speaker 2: terms of where the revenue is still coming from in
Speaker 2: terms of growth, in your view, which segment is the
Speaker 2: most important.
Speaker 6: I mean, they reported a backlog number of forty seven
Speaker 6: point five billion.
Speaker 7: That tells you most of the backlog.
Speaker 6: Is likely coming from AI and what is not captured
Speaker 6: in this print is the Entropic and Google deals.
Speaker 5: Said, Okay, that's what I was going to ask you.
Speaker 2: When you say a backlog that means companies like Anthropic
Speaker 2: and Google coming to XAI part of space X and
Speaker 2: renting compute.
Speaker 6: That's right, yes, and in fact we know some of
Speaker 6: the deal terms. Entropic will be paying SpaceX about one
Speaker 6: point two five billion dollars a month, so next quarter
Speaker 6: when they report, there will be at least three point
Speaker 6: seventy five billion dollars from Entropic and another probably two
Speaker 6: billion plus from Google. When they report so six billion
Speaker 6: bump just from these two deals.
Speaker 3: S x quarter, that sounds pretty impressive.
Speaker 5: I think.
Speaker 6: So that's why the backlog number is very important because
Speaker 6: in that forty seven billion dollars is that Entropic deal
Speaker 6: and the Google deal and there's one more company, I think, Reflection.
Speaker 2: And what can XAI offer these firms that Mandeep mentioned
Speaker 2: that like a Google Cloud, a Microsoft Azure and AWS
Speaker 2: or even a Neocloud can.
Speaker 4: Offer space that they're not currently using.
Speaker 5: So it is it's a commodity little bit.
Speaker 4: So like in Tennessee, Xai now space Xai set up
Speaker 4: a number of data centers in very quick order, Colossus one,
Speaker 4: Colossus two, and Colossus three. And what was explained to
Speaker 4: me in great detail by sources is that once they
Speaker 4: had built all of them, they were like, okay, how
Speaker 4: do we use this ourselves? And they realized that in
Speaker 4: Colossus one, which is a big tin Can data center,
Speaker 4: they had multiple generations of Nvidia GPUs all mixed together.
Speaker 4: Some were Hopper generation, some were black Wells, some were
Speaker 4: even as old as the A one hundred generation, and
Speaker 4: so they decided the best use of that capacity was
Speaker 4: to rent it out with attractive economics for those renting
Speaker 4: it at a premium. Many would say, I think, Mandy,
Speaker 4: it's been over that really well in the past, and
Speaker 4: for them, like they run it really operationally efficiently, it
Speaker 4: can be a high margin business. But it was all
Speaker 4: born out of the fact that for their own models
Speaker 4: and running them, not just training later generation models, they
Speaker 4: couldn't work out how to use that capacity for themselves
Speaker 4: to best effect.
Speaker 3: Yeah, I mean the worries that we've had man deep
Speaker 3: about this company and feeling like we didn't know some things.
Speaker 3: Should investors, I know, we never give investment advice, but
Speaker 3: feel all right, we're getting more information about the business
Speaker 3: that we can kind of figure out and cross with
Speaker 3: kind of where this company's going. The valuation. It means
Speaker 3: the valuation is still a little crazy, right.
Speaker 5: It is crazy.
Speaker 6: But what I think may work in their favor is
Speaker 6: this is a company that will likely have accelerating top
Speaker 6: line growth at least for the next three or four
Speaker 6: quarters with margin improvement, and that is a type of
Speaker 6: story that investors typically like, I mean, we just saw
Speaker 6: what Palanteer did today, you know, with their quarter partly
Speaker 6: because of that accelerating top line growth, and there is
Speaker 6: no doubt in my mind, given that forty seven point
Speaker 6: five billion dollar backlog number, SpaceX will have accelerating top
Speaker 6: line growth at least for the next three quarters.
Speaker 2: We're speaking with Man deep saying our Bloomberg Intelligence global
Speaker 2: head of Technology Research. Also with us Ed Ludlow out
Speaker 2: there in San Francisco. He's the host of Bloomberg Tech.
Speaker 2: I want to remind everybody if you have questions about
Speaker 2: SpaceX's earnings, the company's report, send us a question Bloomberg
Speaker 2: dot com slash ask Radio. That's Bloomberg dot com slash
Speaker 2: Ask Radio. It's only for Bloomberg dot com subscribers. You
Speaker 2: can submit questions for us or for any of our
Speaker 2: guests this afternoon.
Speaker 3: You know, I'm just looking at you know, you pull
Speaker 3: up SpaceX, do the ticker. Do you know CNBN SpaceX's
Speaker 3: business growing across all three segments. SpaceX exceeds revenue estimates
Speaker 3: in the first quarter, first earning since IPO. You know,
Speaker 3: SpaceX's first earnings offer a chance to reverse the stocks
Speaker 3: plunge that was earlier in the day. Top of mind
Speaker 3: you and come on back in because I'm just thinking
Speaker 3: how much of what we we didn't know? So this
Speaker 3: is kind of our first real picture of a lot
Speaker 3: of what the business is about. There are speculations, certainly
Speaker 3: coming off the IPO, and there is numbers, and there
Speaker 3: were estimates, but how much of this is like, oh, okay,
Speaker 3: so this is the business at least now?
Speaker 5: Yeah. Yeah.
Speaker 4: So what you can do is you can compare with
Speaker 4: the backward looking data we have from the IPO perspectus,
Speaker 4: the S one and the amended versions of it, just
Speaker 4: the two Aikey points, because I think it's really interesting
Speaker 4: to get Mandiv's take on this is AI is probably
Speaker 4: inflecting a little bit faster than the street expected. So
Speaker 4: the AI revenues are two point five six billion dollars, right,
Speaker 4: compare that to the first quarter, which is data we
Speaker 4: got in the perspectives about eight hundred million, So it's
Speaker 4: quite a jump sequentially quartered a quarter. And then on
Speaker 4: an adjusted ebit DAR basis, which you know, let man
Speaker 4: deep into this one because I know how the street
Speaker 4: feels on adjusted ebit DAR, but AI adjusted ebit dar
Speaker 4: did term positive AI specifically, and so like right now,
Speaker 4: with the knowledge that all of these other business lines
Speaker 4: are futuristic orbital data center, the space economy, and enterprise AI.
Speaker 4: What they have I've done is move pretty quickly on
Speaker 4: the arm structure business, and you know, Mandy's outlined the
Speaker 4: deals that they did to get there.
Speaker 2: Okay, let's just reset here a little bit, because we're
Speaker 2: seeing shares of SpaceX down about six and a half
Speaker 2: percent after the company reported results. Starlink growth continues to
Speaker 2: be a revenue driver, shares are slumping those investors digest this, Mandy,
Speaker 2: what's the sort of I don't know, from a guidance perspective,
Speaker 2: the expectations about what we'll hear on the call that's
Speaker 2: different from what's in the press release. Again, first time
Speaker 2: we've had a call for this company, so we can
Speaker 2: kind of only go with what Tesla has done in
Speaker 2: the past. But what do we expect in terms of guidance.
Speaker 6: I mean, when I look at this Starlink number, to me,
Speaker 6: that's slightly misconsensus in terms of number of subscribers. And
Speaker 6: given we talk about how that's the cash cow that's
Speaker 6: funding you know, the other businesses, that is probably the
Speaker 6: number one question that I feel they're going to get
Speaker 6: on the earnings call, but along with that backlog, which
Speaker 6: I think will help them in the quarters upcoming quarters.
Speaker 6: But clearly that Starlink business was slightly below consensus.
Speaker 2: I mentioned that we have Bloomberg dot com slash Ask
Speaker 2: Radio as a way for our subscribers to get in
Speaker 2: touch with us and ask questions not just to us,
Speaker 2: but to Ed and Mandeep in all of our guests
Speaker 2: SpaceX's a question about SpaceX coming in right now, guys.
Speaker 2: Sanjay out in Irvine, California writes that the fact that
Speaker 2: SpaceX's valuation is already high, does that make today's earnings
Speaker 2: more or less in line with the high expectations. I
Speaker 2: want to send that one over to Mandeep. First valuations question.
Speaker 2: We talked with Max Chafkin earlier about the so called
Speaker 2: Elon premium and the idea that Tesla is valued more
Speaker 2: than any other carmaker despite the fact that, you know,
Speaker 2: in terms of revenue, it doesn't even crack.
Speaker 5: The top ten.
Speaker 2: Valuation question about SpaceX, what do you make of it?
Speaker 6: Yeah, I mean at one point five trillion, you know,
Speaker 6: for a company of SpaceX size, there is a lot
Speaker 6: embedded in that number in terms of you know, growth,
Speaker 6: expectations and how investors see margins improving. So that's why,
Speaker 6: you know, even though I feel like they will do
Speaker 6: very well over the next three quarters in terms of
Speaker 6: top line driven by AI, but at this valuation, and
Speaker 6: you know, it hypeered at even a higher valuation. So
Speaker 6: it's always hard to keep up with the expectations, and
Speaker 6: unless you come out and show positive surprises the way
Speaker 6: Nvidia has done that constant consistently, I think it will
Speaker 6: be hard for SpaceX just to kind of keep this multiple.
Speaker 6: So they really have to grow into that multiple, which
Speaker 6: I think they should be able to given the backlog
Speaker 6: number we are seeing. I mean, all the cloud companies
Speaker 6: had backlogs of four hundred billion dollars plus you know
Speaker 6: when they reported, and they had an excellent quarter, all
Speaker 6: of them, you know, Google, Amma, On, and Microsoft. So
Speaker 6: from that perspective, SpaceX reporting a forty seven point five
Speaker 6: billion dollar back long. If they keep growing that I
Speaker 6: think will be positive for that SpaceX story.
Speaker 3: I also want to mention we're getting some additional headline
Speaker 3: SpaceX second quarter AI segment capex a fifteen point eighty
Speaker 3: three billion versus an estimate on the street of thirteen
Speaker 3: point zero nine billion. I know ed you were on
Speaker 3: a live blog like looking for more insight when it
Speaker 3: comes to Capex.
Speaker 1: Yeah.
Speaker 4: No, I think they have positioned this in the CFO
Speaker 4: commentary about having a really strong liquidity position. Right, they
Speaker 4: have the proceeds of the IPO and then they immediately
Speaker 4: went to the corporate debt market and so they have
Speaker 4: one hundred billion dollars to play with. But you again
Speaker 4: can go back to the prospectus on how capital expenditures
Speaker 4: were tracking in the first half of this year. The
Speaker 4: consensus number, again there's a note of caution on all
Speaker 4: the consensus numbers because this is their first ever quarterly
Speaker 4: earnings as a public company. The expectation was they spend
Speaker 4: about forty five forty six billion dollars this year. A
Speaker 4: lot of that's still to come right this, you know,
Speaker 4: it's it's it's really key information because across those nascent
Speaker 4: business lines starships as a launch system, orbital data center,
Speaker 4: and then the business of like actually selling AIS the
Speaker 4: software at scale, it's still going to take a lot
Speaker 4: of spending.
Speaker 2: And is this is this report, are we getting the information?
Speaker 2: It's sort of an inside baseball question, but is the
Speaker 2: information coming at a cadence that's on par with what
Speaker 2: we get from Tesla.
Speaker 4: No, so this I find this really interesting. So, you know,
Speaker 4: Tesla presents a pretty detailed shareholder deck each quarter, and
Speaker 4: it is multiple pages long. It has a lot of information,
Speaker 4: for example, the headwinds and tailwinds to the top and
Speaker 4: bottom line, the macro impacts, they felt, any political impacts,
Speaker 4: their sort of forward looking strategy as it relates to
Speaker 4: software in different markets, et cetera. This is a very
Speaker 4: modest release where there's zero commentary from Elon mask who's
Speaker 4: the CEO of SpaceX. There's zero commentary from Gwyn Shotwell,
Speaker 4: who's the president in COO and de facto runs the company,
Speaker 4: just the CFO commentary from Brett Johnson. And it's you know,
Speaker 4: it's very modest, so there's a lot still to learn.
Speaker 4: You know, there's not the same level of detail. There
Speaker 4: are fair questions like will Elon Musk be on the
Speaker 4: earnings call? You know, we just we have no definitive
Speaker 4: answer in that one assumes, so what kind of role
Speaker 4: did Gwyn Shotwell and Brett Johnson play on the earning
Speaker 4: scoore are like, are they the stars of the show
Speaker 4: or is it like Tesla, where Elon's still the star
Speaker 4: of the show. We just don't know, and that's kind
Speaker 4: of fun.
Speaker 3: So do we have an idea man deep of how
Speaker 3: much cash they're burning through?
Speaker 6: I mean, they are investing fifteen billion plus in capex
Speaker 6: every quarter and they're not generating any free cash flow
Speaker 6: as of now. I mean, the startling business is the
Speaker 6: only one that seems to be generating free cash flow
Speaker 6: and that seems to have misconsensus. So from that perspective,
Speaker 6: I mean, they have this challenge in terms of meeting
Speaker 6: expectations around free cash flow, unlike the hyperscalers that clearly
Speaker 6: have strong balance sheets to invest in capex. So from
Speaker 6: that perspective, I feel there is a ceiling to how
Speaker 6: much higher they can go in terms of capex increases.
Speaker 6: I do think they will raise the capex, but even
Speaker 6: at sixty billion dollars rund rate, how high can they
Speaker 6: go given they don't have the balance sheet and the
Speaker 6: free cash flow that the other hyperscalers.
Speaker 3: Have ed Come on in, you have a.
Speaker 4: Question, Yeah, so I have a question with I rely
Speaker 4: on Mandeep's expertise and he's modeling. So in the first
Speaker 4: half of the year, SpaceX about three point five billion
Speaker 4: dollars operating cash flow, but the capital expenditures for the
Speaker 4: first half of the year were like twenty nine billion dollars.
Speaker 4: So you just do the operating cash flow minus the
Speaker 4: capex and that gives you a sort of an approximation
Speaker 4: on the negative free cash flow right overall? Am I
Speaker 4: doing the math right on that?
Speaker 5: That's right? Yeah?
Speaker 4: So I see again, like this is me doing math
Speaker 4: in my head and phone my high school teachers. It
Speaker 4: weren't my strong point, but I see, let's say, let's
Speaker 4: say twenty five billion dollars of negative free cash flow
Speaker 4: and aggregate across those businesses in the first half.
Speaker 5: Yeah.
Speaker 6: Look, I think what you will see is the cloud
Speaker 6: rental business is going to be a lot better margins.
Speaker 6: So that's the part that you know when you do
Speaker 6: the first half calculations and analyze it, you you're expecting,
Speaker 6: maybe you know there will be negative fifty billion dollars
Speaker 6: for the full year, But my guess is that cloud
Speaker 6: rental business is going to be positive in terms of
Speaker 6: the margin profile. Now, it's not going to be as
Speaker 6: high as a hyperscalers. So Hyperscalers as we have seen
Speaker 6: this quarter, they have mid thirty percent margins when it
Speaker 6: comes to their cloud businesses. In the case of SpaceX,
Speaker 6: even in a best case scenario, that AI segment would
Speaker 6: have you know, low to mid teens margins, but at
Speaker 6: least it's positive. So from that perspective, if you see
Speaker 6: AI business at the end of the year around a
Speaker 6: twenty five billion dollar run rate with low to mid
Speaker 6: teens margins, then it will offset some of that negative
Speaker 6: twenty five billion dollar you know, burned that you've seen
Speaker 6: for the first half. And that's where I think there's
Speaker 6: a good story to tell in terms of margin improvement
Speaker 6: driven by that cloud rental business.
Speaker 2: Stay with us more from Bloomberg Business Week Daily coming
Speaker 2: up after this.
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Speaker 3: Wayfair investors man are pushing this stock up a big
Speaker 3: time today, shares surging thirty one percent as we speak
Speaker 3: after the home furnishing retailer set sales at the US
Speaker 3: grew at their fastest clip since twenty twenty one, held
Speaker 3: by a growing number of brick and mortar stores, which
Speaker 3: has been a new initiative for them over the last
Speaker 3: few years and growing and also sales growing, helped out
Speaker 3: by demand for some of its higher end brands.
Speaker 2: Yeah, the stock ops seventeen percent your day earlier today
Speaker 2: as much as thirty two percent intra day highs the
Speaker 2: most going back to April of twenty twenty some perspective,
Speaker 2: the stock is still down Carol sixty six percent from
Speaker 2: that peak that was back in March of twenty twenty one,
Speaker 2: but today soaring higher.
Speaker 3: Yeah, big time. So we're delighted to have back with us.
Speaker 3: Joining us once again, Kate Olliver. She's the chief financial
Speaker 3: officer and chief administrative officer. We like to remind everybody
Speaker 3: that Kate oversees finance, legal talent, real estate, corporate affairs
Speaker 3: at Wayfairs. She has a full plate, so delighted once
Speaker 3: again to find some time for us. She's in Boston
Speaker 3: where the company's bossed. Kate, good to have you here.
Speaker 3: Congratulations Killer quarter. Thank you talk to us about the momentum.
Speaker 8: Well, I mean, I think you just said it right.
Speaker 8: It's it's nice momentum. Over many quarters now, and so
Speaker 8: I think what you're seeing is really the sort of
Speaker 8: multitude of initiatives that we've laid out the consistency of
Speaker 8: that playthrough and you know, building momentum there and that
Speaker 8: reaction is a result of those factors. So you know
Speaker 8: that US revenue growth of nearly nine percent, the highest
Speaker 8: in the post COVID period, the flow through to really
Speaker 8: solid contribution margin, high EBITDA margin, and then you know,
Speaker 8: best free cash flow that we've had since Q two,
Speaker 8: twenty twenty, and so all of the things that we
Speaker 8: have been working on to drive and improve that customer
Speaker 8: experience continue to come together help us gain share, and
Speaker 8: we're flowing that through quite nicely.
Speaker 2: Who are the customers who are buying right now? Because
Speaker 2: when you hear a superlative like you know, most since
Speaker 2: post pandemic days, you think to yourself, Okay, well, well,
Speaker 2: who are the customers who have who have the money
Speaker 2: right now to be buying this stuff.
Speaker 8: It's a great question. And we actually went on the call,
Speaker 8: we went into a little bit of detail around Paragold,
Speaker 8: which is our luxury brand. You know, it's of our
Speaker 8: sort of family of brands that plays at the highest
Speaker 8: end of the market. And we do see really nice
Speaker 8: momentum there. We said that was growing north of thirty percent, right,
Speaker 8: So you do see nice momentum in the higher end segment,
Speaker 8: the top part of that K shape you will in
Speaker 8: the K shaped economy that said Paragold is only you know,
Speaker 8: a little over four hundred million. So when you think
Speaker 8: about the overall Wayfair business, the Wayfair dot com brand,
Speaker 8: that mass market brand has to also be performing well
Speaker 8: to get to that nine percent comp and so what
Speaker 8: we're so seeing there is ongoing share gain and we
Speaker 8: think that's from programs like our Wayfair rewards program, programs
Speaker 8: like the stores you know which Carol, you had the
Speaker 8: opportunity to see, programs like our Wayfair Verified. The combination
Speaker 8: of those things is helping us, you know, both attract
Speaker 8: and retain these customers and have them engage more and more.
Speaker 3: Tell us about the stores. My understanding is that more
Speaker 3: than fifty percent of store customers are new. But tell
Speaker 3: us about that's a big investment, Kate. We've talked about it.
Speaker 3: I did go there. I was kind of blown away
Speaker 3: by the size and the scope of it. You guys
Speaker 3: continue to add stores, but tell us about you know,
Speaker 3: we kind of marveled over how everybody had pushed back
Speaker 3: on brick and mortar for years and so interesting. You
Speaker 3: know that your guy that you're finding success with it,
Speaker 3: but tell us how this is really moving the needle
Speaker 3: for you.
Speaker 8: Yeah, it's a great it's a great call out. I
Speaker 8: think we're seeing that folks really do desire that multi
Speaker 8: channel experience. And you know, the stores are supported by
Speaker 8: e comm and e comms supported by the stores. Now,
Speaker 8: obviously it's very early days on the stores, so they're
Speaker 8: a very small piece of this overall momentum. We've had
Speaker 8: the Chicago store open now for a little over two years. Atlanta,
Speaker 8: where we were able to meet, has been open since
Speaker 8: early spring, and then we opened Columbus about a month ago.
Speaker 8: We've also announced Denver opening later this year, and then
Speaker 8: five more stores into twenty twenty seven. So the momentum,
Speaker 8: you know, to use the word of the day, is
Speaker 8: building with these stores. But it is early days. But
Speaker 8: what we're seeing is customers, you know, are new to defile,
Speaker 8: so they are new customers coming to the store. It's
Speaker 8: been a great acquisition channel. Customers are also getting exposed
Speaker 8: to the breadth of what we offer, so engagement in
Speaker 8: more sort of frequency categories decorative accent, seasonal decor. Being
Speaker 8: able to touch and feel the product is a win
Speaker 8: for them. And with that combination of the breadth of
Speaker 8: selection that we offer online, that's very compelling.
Speaker 2: You mentioned Paragole at this higher end brand and it's
Speaker 2: actually like it's it lives distinctly from Wayfair. I'm wondering
Speaker 2: about the momentum that you're seeing there, but also the
Speaker 2: momentum that you're seeing more broadly, and how you're confident
Speaker 2: that it's sustainable.
Speaker 8: Yeah, it's a great question. I think it goes back
Speaker 8: to the fact that most of this momentum is coming
Speaker 8: from self help measures, right, So these are our own
Speaker 8: initiatives that are driven by it. We think the category
Speaker 8: itself is, you know, overall roughly flatish, and you know
Speaker 8: the category has been in a complicated place over the
Speaker 8: last few years, so you know, flatish place is a
Speaker 8: nice place to operate from. But the you know, close
Speaker 8: to nine percent comp in the US that's driven by
Speaker 8: US gaining share. And so what we can see is
Speaker 8: the building blocks of these pieces getting into place, and
Speaker 8: then we see how they compound on each other. So
Speaker 8: the Wayfair Rewards program, for example, is supported by Wayfair Verified,
Speaker 8: which is also supported by improvements and changes to the
Speaker 8: storefront experience. And then to your point around Paragold, it
Speaker 8: does have absolutely its own, you know, separate go to
Speaker 8: market facing site. It leverages the entire back end infrastructure,
Speaker 8: so the logistics infrastructure across you know, Wayfair, Inc. The
Speaker 8: tech stack, the ad tech stack across Wayfair, Inc. How
Speaker 8: the storefront evolves, and so we're able to build test
Speaker 8: things on Wayfair and then push them out to you know,
Speaker 8: Paragold or the specialty retail brands. For example, Wayfair Rewards
Speaker 8: started on Wayfair and that'll be launching at some point
Speaker 8: over the next year in the Paragold system as well.
Speaker 3: But you have to conceive, like you know, Kate, we
Speaker 3: talked about this, you know, existing home sales still you know,
Speaker 3: not on fire like the housing market. Yeah, if they
Speaker 3: but to see these results amid that backdrop, if that stays,
Speaker 3: let's say, existing home sales is depressed for another twelve
Speaker 3: to twenty four months. You guys have talked about kind
Speaker 3: of growing. I think it was roughly twenty percent growth
Speaker 3: through company specific initiatives. I think you said it earlier
Speaker 3: this year, if we kind of still contain, you know,
Speaker 3: remain somewhat depressed, do you still feel like you can
Speaker 3: achieve those goals or does it require a housing recovery
Speaker 3: because it is pretty remarkable in this market to see
Speaker 3: these results.
Speaker 8: Yeah, so I think you're referring to a new urgency
Speaker 8: of our co founder shareholder letter earlier in the year,
Speaker 8: and they talked about these initiatives that could get us
Speaker 8: back to that you know, double digit and then you know,
Speaker 8: from there to that twenty percent growth, and we do
Speaker 8: have a high degree of conviction of that. You know,
Speaker 8: we feel very good about these initiatives and the building
Speaker 8: effects of these initiatives. You know, obviously again that close
Speaker 8: to nine percent comp on the US this quarter, that
Speaker 8: high single digits guide, So we're building there, but the
Speaker 8: momentum is sustaining.
Speaker 2: You mentioned the way that you're doing this internally, in
Speaker 2: the way that you're gaining share from a market that
Speaker 2: is relatively flat wayfair rewards. How does that play into
Speaker 2: that and the metrics that you're seeing there. What changes
Speaker 2: are you seeing when it comes to frequency, retention, customer
Speaker 2: lifetime value payback relative to folks who are.
Speaker 8: Not members it's a great question. So what we, you know,
Speaker 8: wanted to try to do with Wayfair Rewards was exactly
Speaker 8: to drive up that frequency. The average wayfare customer shops
Speaker 8: you know, with us or buys with us just under
Speaker 8: two times a year, whereas a Wayfair Rewards customer is
Speaker 8: you know, three times a year, right, So you're seeing
Speaker 8: an incremental purchase from them, which at an AOV of
Speaker 8: three hundred dollars is pretty meaningful. And so the Wayfair
Speaker 8: Rewards program is really designed around frequency and ongoing engagement
Speaker 8: for the consumer, and we are seeing that from those
Speaker 8: rewards customers. We're also seeing them shop categories that are
Speaker 8: not you know, we are very well known for furniture.
Speaker 8: The rewards customers, though, are shopping decorative accents, they're shopping
Speaker 8: kitchen accessories. In some of these categories, they get preferential
Speaker 8: pricing or they get early access to sales, and so
Speaker 8: those things sort of reinforce the quality of the experience
Speaker 8: for them in that rewards program. And then on the
Speaker 8: P and L, you know, we've talked a little bit
Speaker 8: about how obviously rewards has an impact on gross margin
Speaker 8: because of the cash back element of it, but it's
Speaker 8: helpful on what we really look at, which is contribution
Speaker 8: margin because the rewards program you know, costs less obviously
Speaker 8: on an ongoing basis to get that incremental sale. So
Speaker 8: a lower ad cost is a percent of net revenue,
Speaker 8: meaning it would be a creative to the contribution margin
Speaker 8: that we really look at and ultimately to ebitdem margin
Speaker 8: ebit dead dollars.
Speaker 3: Hey, Kate, you know, one of the coolest thing is
Speaker 3: you guys really are a technology backbone and you go
Speaker 3: back to the origin of your company, which is really
Speaker 3: interesting if you think about, you know, kind of what's
Speaker 3: going on right now. You've partnered with different platforms, whether
Speaker 3: it's open AI, perplexity when it comes to agentic commerce.
Speaker 3: So what key performance metrics are you guys seeing when
Speaker 3: it comes to AI driven shopping shopping specifically, is it
Speaker 3: a meaningful contributor when it comes to traffic or to sales?
Speaker 3: Are you seeing that?
Speaker 8: Yeah, it's a great question. So we work across many
Speaker 8: of the lms you mentioned a few. We also work
Speaker 8: with Gemini. You know, we've said that we're an earlier
Speaker 8: partner on Universal Commerce protocol through them. We do say
Speaker 8: traffic today is is small from these sites, but it's
Speaker 8: growing meaningfully, right, so it's small but rapid growth. We
Speaker 8: think it's really important to be where our customer is at,
Speaker 8: and so if our customer desires to shop through these channels,
Speaker 8: we want to show up well there, whether that's you know,
Speaker 8: through actual shopping like Universal Commerce protocol, or you know,
Speaker 8: through ads like on open Ai, or if that's through
Speaker 8: you know, better search performance and how you show up
Speaker 8: in LLM based search. Right, So all of that, those
Speaker 8: are all things that we look at and that we
Speaker 8: work with a variety of these partners on. I think
Speaker 8: this is the place where our scale benefits us. You know,
Speaker 8: we have nearly twenty five years of history and data
Speaker 8: here and we know both one how to work with
Speaker 8: these partners. As you said, we're technology first, and two
Speaker 8: we bring to it, you know, some important data in
Speaker 8: terms of how we're able to show up there. And
Speaker 8: I think that helps the customer ultimately, because if our
Speaker 8: customer you know, wants to be using the platforms and
Speaker 8: shopping there, will be there. If she wants to come
Speaker 8: to us through the app, we're there. If she wants
Speaker 8: to you know, go into a store and shop with us,
Speaker 8: we're there as well.
Speaker 3: We got to leave it there. Kate's so great to
Speaker 3: get some time with you. As always always the stock
Speaker 3: as we're mentioned, it's up thirty percent as we speak,
Speaker 3: so investor is certainly liking what they heard.
Speaker 5: Kate.
Speaker 3: Well, thank you, thank you, Thank you. Kate Oliver. She's
Speaker 3: chief financial officerver at Wayfair. She's also chief administrative officer.
Speaker 3: Joining us from Boston.
Speaker 5: Stay with us.
Speaker 2: More from Bloomberg Business Week Daily coming up after this.
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Speaker 3: So we're gonna talk a little bit about Copper because
Speaker 3: we did see it. Doctor Copper advanced to the highest
Speaker 3: and two months reaching fourteen thousand dollars a ton in London.
Speaker 3: Traders monitoring ballooning volumes held in the United States ahead
Speaker 3: of an expected decision on an import terror by President Trump.
Speaker 3: So we are seeing it come into the US at
Speaker 3: a rate at least twelve years, the fastest rate in
Speaker 3: at least twelve years, I should say, so some positioning
Speaker 3: ahead of that, the US is proposing including an additional
Speaker 3: fourteen types of derivative products on its section two thirty
Speaker 3: two tariffs and steel, aluminum, copper. I kind of say,
Speaker 3: coming into it and want to get to our guests,
Speaker 3: it just feels like tariffs go out of the headlines
Speaker 3: for a little bit and then all of a sudden,
Speaker 3: something else happens, another possible action or an actual action.
Speaker 2: Imagine if day affected your top or bottom line and
Speaker 2: you've had to keep track.
Speaker 5: Of those things. Yeah, not easy, right, not easy.
Speaker 2: We've got Richard Burke, with a senior analyst of metals
Speaker 2: in mining with our Bloomberg Intelligence team. He joins us
Speaker 2: here in the Bloomberg Interactive Brokers studio on the tariffs front,
Speaker 2: what is the administration now considering when it comes to steel, aluminum,
Speaker 2: and copper?
Speaker 7: Okay, on steel, you know, tariffs are at fifty percent.
Speaker 7: We've seen tariffs actually be put on a lot river
Speaker 7: of products over the last year or so, a lot
Speaker 7: more than initial that initially was set went up to
Speaker 7: fifty percent. Our view is that the tyrescent steel will
Speaker 7: stay at fifty percent just because you know, the sector
Speaker 7: has seen kind of resurgence. You've seeing you know, new
Speaker 7: core steel dynamics US steal through Nippon all reinvesting and
Speaker 7: starting new capacity and new plants and things like that,
Speaker 7: and that's what the government wants to see. On a
Speaker 7: lunum they're fifty. The trouble is that the US is
Speaker 7: short aluminum. Is a huge importer of aluminum, you know,
Speaker 7: applying rational economic thinking, I would think that that would
Speaker 7: drop down a little because you're hurting the US. The
Speaker 7: US can't is short of aluminum and probably can't produce aluminum.
Speaker 7: Aluminum is often referred to liquor metal electricity, So the
Speaker 7: fact that the US power cost is higher in the
Speaker 7: rest of the world, you're probably not going to see
Speaker 7: companies expand into the US. And plus now with the
Speaker 7: data centers, they're competing against the data centers who seem
Speaker 7: to have an unlimited budget to pay up for electricity, so.
Speaker 2: Asn't Historically a lot of the processing move to places
Speaker 2: like with a lot cheaper power. Like I remember being
Speaker 2: in Iceland like twenty years ago, and they were talking
Speaker 2: about the metals processing they were doing because of the
Speaker 2: cheap geo thermal that they had, which was essentially outsourcing
Speaker 2: the production of this because power was cheaper.
Speaker 7: Well, the interesting about Iceland is seventy five percent of
Speaker 7: their power is by three aluminum smelters.
Speaker 5: Wow.
Speaker 7: And then the other twenty five percent the people in
Speaker 7: the country, you know, their homes and things like that.
Speaker 7: I mean, it's just something really odd.
Speaker 2: But but from an economics perspective, like that made sense
Speaker 2: for so many years because you go where the power
Speaker 2: was cheaper, because this is a very energy intensive thing
Speaker 2: to do, right, Okay.
Speaker 3: Yeah, well so you know, I think it was last month, right,
Speaker 3: the Trump administration and now let me just look here
Speaker 3: and send a program to cut tariffs on imported aluminum
Speaker 3: to about twenty five percent from fifty percent. Our companies
Speaker 3: that build expand of refurbished illuminum plants in the US.
Speaker 3: I mean, your point is right. You can't just do
Speaker 3: this stuff overnight. It's expensive, it's difficult, and there might
Speaker 3: be some constraints about the cost of electricity here versus elsewhere.
Speaker 3: So is the administration doing that? It's it's just not realistic.
Speaker 7: Well, right, absolutely. You know you heard like for example,
Speaker 7: Alka has a plant, the war plant that's only half running,
Speaker 7: and they said in order to get up and run
Speaker 7: up and running, it would take them two or three
Speaker 7: years to get up and running and the tear you know,
Speaker 7: who is what the terriff situation is going to be
Speaker 7: in two or three years. And second of all, the
Speaker 7: cost of the power is prohibitive or drive and they
Speaker 7: haven't made In fact, you know they recently they're going
Speaker 7: to acquire SOP thirty two is aluminum business and a
Speaker 7: different country rather than take that money and invested in
Speaker 7: the US. So it's you know, when you have like
Speaker 7: the restart of three Mile Island Microsoft contract that had
Speaker 7: to buy the power at one hundred dollars in Megaua,
Speaker 7: the aluminum people, the looming companies need probably thirty five
Speaker 7: dollars in Megawa to be competitive with the rest of
Speaker 7: the world. So when you have a data center that's
Speaker 7: willing to pay three times to going rate, you know,
Speaker 7: it's kind of hard to restart aluminum in this country.
Speaker 3: It's like terrifying, like the power grab, It's like so
Speaker 3: Hunger Games, the power version, like it really what what.
Speaker 5: That means is we're going to keep importing this.
Speaker 7: Right, we have to keep impooring.
Speaker 5: And that's why it just does economically does not make sense, right, And.
Speaker 7: That's our viewpoint. Is that we you know, when we
Speaker 7: look across the tariffs of various metals and things like that,
Speaker 7: where like I said, applying rational economic theory, you're like, okay,
Speaker 7: this has to go back down versus other ones.
Speaker 9: This is what Jodo has talked to us about with
Speaker 9: rare earths, with the idea that the processing and extraction
Speaker 9: of this has been a challenging business in many parts
Speaker 9: of the world, including the United States, which is like, okay,
Speaker 9: why a lot of this moved to.
Speaker 3: China for right, because we did do it and then
Speaker 3: we gave it up hard to make it work. Exactly
Speaker 3: what about with steel? What do we need to know here?
Speaker 3: With steel?
Speaker 7: Steel? I think we'll stay at fifty percent because the
Speaker 7: government stands the reaction they're seeing, you know, plants being
Speaker 7: built and the US increased capacity. And basically if you
Speaker 7: look at what we call parents supply shipments plus imports,
Speaker 7: it's kind of stayed flat over the last two years.
Speaker 7: And what's really happened is our shipments are domestic shipments
Speaker 7: have just displaced imports. Now we still need a few
Speaker 7: imports because there's certain steals that the US doesn't make
Speaker 7: or they don't want to make, and you know, there's
Speaker 7: not big enough quantities or things like that. But really,
Speaker 7: what's you know, that's kind of going to what I
Speaker 7: would call the administration's game plan is the US has
Speaker 7: you know, displaced the imports and invested to do that?
Speaker 3: Was that pre though the Trump administration sec well let's
Speaker 3: start back in twenty eighteen was first one, so it
Speaker 3: did start back there.
Speaker 7: It kind of encouraged like new cores for example, new
Speaker 7: cores you know, just finishing up like a six or
Speaker 7: seven year capital spending program that they invested billions of
Speaker 7: dollars at. Really in twenty eighteen, I think the tariffs
Speaker 7: kind of gave them you know, made that decision easier
Speaker 7: to try. The stomach and things like that.
Speaker 3: So the mouth was there in order to do because
Speaker 3: a business, especially certainly if you're publicly held or something,
Speaker 3: but you're not going to do it unless you can
Speaker 3: make money here right.
Speaker 7: Right or it's viable well or the top you know,
Speaker 7: the you know, I think the bigger uncertainty is the timing.
Speaker 7: Will terrorist stick around things like that, and you know
Speaker 7: they have they you know, they've kept the twenty five
Speaker 7: percent Terrists that start back at two thousand eighteen you know,
Speaker 7: increase them with fifty percent, and took certain countries that
Speaker 7: previously were examp from tariffs and are example like Canada, Mexico.
Speaker 2: So I guess the the question is are the terrorists
Speaker 2: accomplishing with the Trump administration wants to accomplish?
Speaker 7: I think and certain and definitely steal. I think that's
Speaker 7: an instance, whereas other ones I'm not so sure it is.
Speaker 2: So what what could the what could the administration do
Speaker 2: to further provide an incentive for this stuff to be
Speaker 2: made in the US? I think aluminum notwithstanding, because it
Speaker 2: sounds like that one just won't be able to be
Speaker 2: done well.
Speaker 7: I think what they're we're starting to see companies reshoring.
Speaker 7: You know, you know, the was this whole big thought,
Speaker 7: Hey they're going to resure We hadn't really seen that.
Speaker 7: But I would say this last set of earnings calls
Speaker 7: talking to steal companies and service centers and stuff like that,
Speaker 7: they've kind of said that, hey, we're starting to see
Speaker 7: manufacturing come back and and be located in the US. Now.
Speaker 7: Part of the reason is tariffs. I also think another
Speaker 7: part of the reason is just the pandemic with the
Speaker 7: supply shape, supply chain shocks kind of said, Gee, companies
Speaker 7: that are starting to wake up like, hey, maybe I
Speaker 7: don't want to have my supply chains spread across the
Speaker 7: whole world and I needed closer to me to keep
Speaker 7: an eye on and things like that. So you know,
Speaker 7: it's kind of I think there's all intertwined things that
Speaker 7: are kind of starting. We're starting to see play out
Speaker 7: a bit.
Speaker 3: All right, we're gonna leave it there. It's interesting. Yeah,
Speaker 3: the reality of what canon can't be done. Thank you
Speaker 3: so much. I feel like it was a and we
Speaker 3: need it to get on the space because there's just
Speaker 3: things that kind of keep flying at us and just
Speaker 3: understanding it. Rich Thank you so much.
Speaker 7: Rich Berg.
Speaker 3: He is senior Analyst of Medals and Mining with our
Speaker 3: Bloomberg Intelligence team, joining us right here in studio.
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