Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our Daybreak
Speaker 2: anchors all around the world. Straight Ahead on the program,
Speaker 2: we'll look ahead to some key home sales data in
Speaker 2: the US during the heart of the spring home buying rush.
Speaker 2: Also the latest earnings from retail giant Target. I'm Tom
Speaker 2: Busby in New York.
Speaker 3: I'm Caroline Hedger in London, where we're looking ahead to
Speaker 3: be Cutaw Economic Forum.
Speaker 4: I'm Doug Chrisner looking ahead to earnings from Chinese Answer
Speaker 4: to Google by DO.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Tom Busby. We begin today's
Speaker 2: program with reads on existing and new home sales for
Speaker 2: the month of April, the obstacles the housing industry is
Speaker 2: facing right now, and what this week's earnings from the
Speaker 2: nation's big home improvement retailers can tell us about the
Speaker 2: housing market. For more on all of that, we're joined
Speaker 2: by Drew Reading, Bloomberg Intelligence, US home building analyst. Well, Drew,
Speaker 2: thank you so much for being here, and well, why
Speaker 2: don't we start with what are you expecting to see
Speaker 2: in these April home sales reports coming out this week?
Speaker 5: So, look, the spring selling season has been a dud.
Speaker 5: To put it simply. The latest housing data that we
Speaker 5: have from Redfincho's pending home sales down about three percent,
Speaker 5: which is the lowest on record for this time of year.
Speaker 5: You have home sitting on the market longer, and for
Speaker 5: sale inventory is rising up about fourteen percent last year.
Speaker 5: On the new home side, we just got data on
Speaker 5: purchase applications from the builders which show sales down five percent,
Speaker 5: and if you look at some of the names that
Speaker 5: we cover, orders in one Q we're down about ten percent.
Speaker 5: So it's certainly been a challenging market. You know, some
Speaker 5: of the builder conbinants data that we look at is
Speaker 5: the lowest going back to late twenty twenty two, and
Speaker 5: the measure of present sales expectations is near the lowest
Speaker 5: since twenty twelve, So the outlook for sales isn't all
Speaker 5: that strong right now?
Speaker 6: Wow?
Speaker 2: Is this just a perfect storm of sky high prices,
Speaker 2: elevated mortgage rates, and a lot of economic uncertainty.
Speaker 5: I think you hit the nail on the head. It's
Speaker 5: really those two things. First, affordability. You know, this piece
Speaker 5: isn't new, but it's not improving. You know, we came
Speaker 5: into the year thinking that we might get some relief
Speaker 5: on rates, and earlier in the year it looked like
Speaker 5: mortgage rates did come down a little bit, but now
Speaker 5: we're headed back up towards seven percent, and you know,
Speaker 5: with home prices continuing to climb, affordability remains near the
Speaker 5: worst level on record. And then the second piece is
Speaker 5: what you mentioned, it's uncertainty, which is leading to a
Speaker 5: lack of urgency among buyers. You know, there's been a
Speaker 5: lot of discussion out there about, you know, the soft
Speaker 5: data versus the hard data, and when does the weakening
Speaker 5: and the soft data translate, if ever, into what we're
Speaker 5: seeing into the numbers. And I can tell you that,
Speaker 5: at least from a housing perspective, it is having an
Speaker 5: impact when you're thinking about big ticket purchases like buying
Speaker 5: a home, or you know, in the home improvement space
Speaker 5: taking on a large remodeling project. You want to have
Speaker 5: confidence in the economy in your job, and we've seen
Speaker 5: those numbers start to come down. We've heard from almost
Speaker 5: every builder out there that there's just a lack of
Speaker 5: urgency as buyers wait to see what happens with prices,
Speaker 5: what happens with rates. So for us, it's certainly having
Speaker 5: an impact at this point.
Speaker 2: Wow, well the only good news I've seen. And you
Speaker 2: tell me how this could change things. The number of
Speaker 2: homes that are listed seems to be rising. I mean,
Speaker 2: are sellers giving up any hope for lower mortgage rates
Speaker 2: right now? Just saying we've got to pull this trigger now.
Speaker 5: Well, I think it could be good or bad, depending
Speaker 5: on who you ask. I mean, we think that more
Speaker 5: inventory coming to the market could support modestly improve volumes
Speaker 5: in the existing home market as a whole. But I
Speaker 5: do think that over time that will come with more
Speaker 5: moderate price increases in a lot of markets outright price declines,
Speaker 5: and we're already seeing that in some markets, predominantly in
Speaker 5: the South and the Southwest. When you think about it
Speaker 5: from a builder's perspective. You know, one of the key
Speaker 5: drivers over the last several years have been a lack
Speaker 5: of listings, which have forest fires into the new home market.
Speaker 5: Now and some of the biggest markets that the builders
Speaker 5: are in Florida and Texas, you have inventory levels which
Speaker 5: are back above twenty nineteen. So what we're seeing is
Speaker 5: that in order for the builders to compete in these markets,
Speaker 5: they're having them more heavily discount So, you know, they're
Speaker 5: having to increase these sales incentives. Maybe in some cases
Speaker 5: they're lowering base prices, but it's becoming harder and harder
Speaker 5: to get each sale for the builders.
Speaker 2: Wow, so they're changing their tactics. Are I know that
Speaker 2: there are some things they can do as far as
Speaker 2: economic incentives. Are they building smaller homes? Are they putting
Speaker 2: in you know, maybe not a Bosch dishwasher, but a whirlpool?
Speaker 2: You know what I mean? Are are are they struggling.
Speaker 5: With Yeah, builders have done a handful of things to
Speaker 5: try to get that affordability equation back in better check one.
Speaker 5: They are building smaller square footage homes. It's we've seen
Speaker 5: over the last several years, you're not seeing as highly
Speaker 5: amenditized offerings, particularly for builders at the lower end of
Speaker 5: the market who are catering to the entry level buyer
Speaker 5: who are more looking for shelter in the first place.
Speaker 5: So you're seeing less less amenities in those offerings. You're seeing,
Speaker 5: you know, higher density options, so maybe more talent home
Speaker 5: construction than things of those nature.
Speaker 2: Now, another thing I'm hearing about is possibly the administration's
Speaker 2: tough immigration policies. Has that impacted builders in a big
Speaker 2: way yet or is that still being flushed out that
Speaker 2: they're just don't have the workers availability that they did before.
Speaker 5: Yeah, So, the lack of lyabor supply in the residential
Speaker 5: construction industry has been an issue for you know, a
Speaker 5: handful of years really since the bottom of the last cycle.
Speaker 5: We've seen things start to improve more recently, and that's
Speaker 5: because volumes in the industry have come down, so there's
Speaker 5: not as much a need. But that being said, you know,
Speaker 5: the immigration policies and all that discussion is certainly a
Speaker 5: headline risk for the group. To this point, the builders
Speaker 5: we talked to haven't really seen an impact from that,
Speaker 5: but it's certainly something that we're going to keep our
Speaker 5: eye on because to the extent that you know, maybe
Speaker 5: housing does start to come back a little bit. If
Speaker 5: rates are able to fall, then you have more builders
Speaker 5: competing for less supply, which would raise labor costs.
Speaker 2: Got it, got it now?
Speaker 5: Drew.
Speaker 2: This coming week we get first quarter earnings from the
Speaker 2: Nation's Too big as do it Yourself, home improvement chains,
Speaker 2: Home Depot and Lows. Now, what do you think those
Speaker 2: results are going to tell us about the housing market
Speaker 2: right now and about what people are doing to their homes.
Speaker 5: Yeah, good question. I think this is going to be
Speaker 5: an interesting quarter for home improvement retail. It seemed like
Speaker 5: coming out of last quarter the industry was starting to
Speaker 5: get a little bit of momentum. We had the first
Speaker 5: same store sales growth in about two years, you know,
Speaker 5: certainly not going gangbusters, but perhaps indicating that the worst
Speaker 5: was behind it. As we gotten through the first few
Speaker 5: months of this year, we've had some volatility in the weather,
Speaker 5: We've had an increased amount of certainty given the commentary
Speaker 5: around economic growth and political developments, and we think that
Speaker 5: will probably be reflected in both results and guidance. And
Speaker 5: when you think about, you know, how they're being impacted
Speaker 5: by housing and what it means is is we're really
Speaker 5: seeing it on the big ticket side of the business,
Speaker 5: so think of things like kitchen and bathroom models, flooring projects,
Speaker 5: and things along those lines. It's the discretionary side of
Speaker 5: the business is certainly softer, and part of the reason
Speaker 5: for that is because rates are so high and these
Speaker 5: are projects that are typically financed, So we're seeing relative
Speaker 5: softness on that side of the business. If we look
Speaker 5: at some of the more race recent data we have
Speaker 5: on traffic, you know, it shows that February was week,
Speaker 5: March improved a little bit and it was mixed in April.
Speaker 5: On a relative basis, it looks like home depots maybe
Speaker 5: doing a little bit better from a traffic perspective, and
Speaker 5: I think we're going to see that in performance at
Speaker 5: the same store sales because Loews has that higher exposure
Speaker 5: to the DIY customer, which is a little bit weaker
Speaker 5: at this point.
Speaker 2: Well a lot to look forward to existing home sales.
Speaker 2: That's the biggie for April that's out on Thursday. New
Speaker 2: home sales for that same month out on Friday. Our
Speaker 2: thanks to Drew Redding, Bloomberg Intelligence US home building analyst.
Speaker 2: We move next to earnings and this week we get
Speaker 2: first quarter results from the retail giant Target, which has
Speaker 2: faced some real struggles lately, and not just because of
Speaker 2: US consumers pulling back on their spending. For more on
Speaker 2: what to expect, we're joined by Jennifer bartashis Bloomberg Intelligence
Speaker 2: Senior Analysts Retail, Staples and packaged Foods. Well, Jen, thank
Speaker 2: you for being here. You know, just this past week,
Speaker 2: Walmart reported strong earnings for last quarter, but warrened, it'll
Speaker 2: have to start raising prices talking about the Trump tariffs
Speaker 2: the economic turbulence that they've caused. Are you expecting to
Speaker 2: see something pretty similar from Target?
Speaker 7: Yeah? It was interesting when you've we've got a company
Speaker 7: as big as Walmart saying that they're not going to
Speaker 7: be able to offset the full cost of tariffs. That
Speaker 7: really means that for every other retailer out there, they're
Speaker 7: in the same boat, or maybe even slightly worse off.
Speaker 7: And so we definitely expect Target to be hit a
Speaker 7: little bit harder than Walmart, even just because of the
Speaker 7: mix of products that Target sells, and we expect to
Speaker 7: hear a lot of similar commentary coming out of the
Speaker 7: retailer this week.
Speaker 2: Now, some of those problems or some of those challenges
Speaker 2: for Walmart, where Walmart makes about half its money from groceries,
Speaker 2: Target maybe about a quarter percent. Is that part of
Speaker 2: the equation there?
Speaker 7: That is definitely part of the equation because food is
Speaker 7: generally for the most part produced and made in the
Speaker 7: United States, so it's not subject to tariffs. And a
Speaker 7: lot of food that is imported is coming from Mexico
Speaker 7: or Canada, which is also currently free from tariffs based
Speaker 7: off of the North America. Mexico wedded a Mexico US
Speaker 7: trade agreement, and so there's limited exposure to tariffs in
Speaker 7: a food business. So the bigger your food business, the
Speaker 7: better you offer are in this tariff situation. So for Target,
Speaker 7: their food business is a lot smaller, and so it
Speaker 7: doesn't give them as much of a cushion as it
Speaker 7: does for Walmart.
Speaker 2: And let's talk about the consumer, because I know that's
Speaker 2: why a lot of them go to Walmart and also
Speaker 2: to Target. But we saw some just this past week
Speaker 2: retail sales for April that was the month those Trump
Speaker 2: tariffs were announced, and yet they edged a little bit
Speaker 2: higher unexpectedly, only one tenth of a percent, but it
Speaker 2: was an increase. What is the consumer doing right now?
Speaker 2: How are they acting.
Speaker 6: Well.
Speaker 7: What was interesting I think about those numbers is that
Speaker 7: there were consumers who cautiously pulled forward some of their
Speaker 7: spending because they weren't sure when price hikes related to
Speaker 7: tariffs were going to take effect. And so although we
Speaker 7: didn't see a run on stores where inventory just disappeared
Speaker 7: and things were in shortage, there was some pull forward
Speaker 7: and spending where people were planning and they said, you know,
Speaker 7: I usually buy this, I'm just going to buy a
Speaker 7: little bit extra because I don't know what's going to happen.
Speaker 7: So now that we have a little bit more clarity,
Speaker 7: people haven't seen prices move too quickly. I think that
Speaker 7: the consumer is just staying very cautious. You know, they're
Speaker 7: looking for value. Now. Value applies in different ways to
Speaker 7: different people. It could be just price, it could be convenience,
Speaker 7: it could be quality. So what's really important for retailers
Speaker 7: is to figure out how to translate that value message
Speaker 7: appropriately even in the with the backdrop of the economic
Speaker 7: environment in tariffs.
Speaker 2: Yeah, it's a fine line, a tricky line to pull
Speaker 2: this off.
Speaker 7: Oh no, it definitely is a tricky balance, just because
Speaker 7: you don't want to risk the loyalty of your consumers,
Speaker 7: but at the same time you still have to make
Speaker 7: a profit, and so it's going to be interesting to
Speaker 7: see which retailers are best able to navigate that situation.
Speaker 2: There will Target's earnings are out this Wednesday, and our
Speaker 2: thanks to Jennifer Bartashes Bloomberg Intelligence senior analysts retail staples
Speaker 2: and packaged foods. Coming up on Bloomberg Daybreak weekend, world
Speaker 2: and business leaders head to the Cutter Economic Forum. I'm
Speaker 2: Tom Busby and this is Bloomberg. This is Bloomberg day
Speaker 2: Break weekend, our global look ahead at the top stories
Speaker 2: for investors in the coming week. I'm Tom Busby in
Speaker 2: New York. Up later in our program and look ahead
Speaker 2: to earnings from the Chinese tech giant Bad but first.
Speaker 2: In the wake of President Trump's visit to the Middle East,
Speaker 2: the region will be in the spotlight again this week
Speaker 2: as world and business leaders touchdown for the Qatar Economic Forum.
Speaker 2: Amidst growing global instability. Could twenty twenty five herald a
Speaker 2: new era of dominance for golf nations. For more, Let's
Speaker 2: get to London and bring in Bloomberg day Break euro
Speaker 2: banker Caroline Hepgar.
Speaker 1: Tom.
Speaker 3: It's the fifth edition of the Cutar Economic Forum, an
Speaker 3: event underwritten by the State of Katar and powered by Bloomberg.
Speaker 3: This year, the theme is transforming the global economy. It's
Speaker 3: an apt topic at a time when the world's trade
Speaker 3: and capital flows, economies, investment, and energy industry are all
Speaker 3: in flux. There's also the question of geopolitical uncertainty, a
Speaker 3: phenomenon the region has battled with in Gaza, Lebanon, Iran,
Speaker 3: and elsewhere. But residents and investors are keen to showcase
Speaker 3: the Middle East potential as an emerging global player and
Speaker 3: investment partner. It's a factor President Donald Trump emphasized during
Speaker 3: his recent visit to Saudi Arabia. Despite acknowledging current barriers
Speaker 3: to progress.
Speaker 8: The Golf Nations are at the forefront of creating a stable, peaceful,
Speaker 8: and prosperous Middle East. And I have to say that
Speaker 8: I've seen such progress. It's really incredible. I've also seen
Speaker 8: great unity and friendships. I've spent a little time with
Speaker 8: you just before this, and I've seen tremendous unity, tremendous friendship.
Speaker 8: And the whole world is watching the Middle East, and
Speaker 8: many are watching with envy. You have something very special
Speaker 8: going on. Incredible opportunities are within reach for this region
Speaker 8: if we can simply stop the aggression from a small
Speaker 8: group of pretty bad actors.
Speaker 3: That was President Trump speaking during his time in Riad,
Speaker 3: Saudi Arabia as part of his Middle East tour. The
Speaker 3: praise and the deals that President Trump lavished on Cuta,
Speaker 3: saying that the friendship between the US and Cutter has
Speaker 3: never been stronger, will surely be on the minds of
Speaker 3: participants at the upcoming Cutter Economic Forum. So what should
Speaker 3: we expect. I've been speaking to Blueberg's managing editor for
Speaker 3: the Middle East and North Africa on and to get
Speaker 3: a sense of what the main themes at the forum
Speaker 3: are likely to be.
Speaker 6: The overarching theme these officially will be that will shape
Speaker 6: the discussions that the Cutar Economic Forum will be the
Speaker 6: transforming transformation of the global economy on the road to
Speaker 6: twenty thirty. And that's especially relevant to the region to
Speaker 6: the Middle East Gulf, where oil producers are at the
Speaker 6: forefront of that transformation as they are trying to diversify
Speaker 6: their sources of income and their economy more broadly away
Speaker 6: from hydrocarbons. And that is an effort led by the
Speaker 6: likes of cutter, as well as Saudi Arabia and of
Speaker 6: course the United Arab Emirates where Abu Dhabi is the
Speaker 6: capital and Dubai is the commercial heartland.
Speaker 3: I talked about the praise, but there are also lots
Speaker 3: of questions and there are certainly plenty of tensions. The
Speaker 3: backdrop of global trade, disruption of geopolitical instability will that
Speaker 3: surely play into the discussions definitely.
Speaker 6: So the forces unleashed by the global trade war, if
Speaker 6: we can call it that at this point, or maybe
Speaker 6: more cautiously, disruptions to the global trade are weighing down
Speaker 6: on economies across the world, but the impact is likely
Speaker 6: to be more profound in the region than elsewhere, especially
Speaker 6: taking into account taking into account the effect on oil
Speaker 6: prices as well as sources of geopolitical instability that you
Speaker 6: have already mentioned. Trade disruptions amplified by other factor other
Speaker 6: factors such as Ope's own decision to bring forward some
Speaker 6: of the planned production boosts already is having a great
Speaker 6: impact on oil prices and they're pushing them down and
Speaker 6: those revenues, the revenues from oil in general makes up
Speaker 6: the backbone of common revenues, so that is definitely going
Speaker 6: to be a part of the discussion at the Katar
Speaker 6: Economic Forum. And obviously we should add to that the
Speaker 6: violent conflicts, including the war in Gaza between Israel and Hamas,
Speaker 6: which now has been raging for more than a year
Speaker 6: and a half, and it's something that forum participants will
Speaker 6: definitely discuss as it does affect everything from the capital
Speaker 6: flows to a perception of risk, which has obviously a
Speaker 6: huge impact on investors' propensity to increase exposure to the region.
Speaker 3: And the conflicts in Gaza, the war in Yemen, you know,
Speaker 3: whether the sanctions against Syria may be lifted by the US,
Speaker 3: you know, the whole issue of security. But just tell
Speaker 3: us about the people who are going to be there,
Speaker 3: Who are going to be attending. I mean you've got
Speaker 3: speakers from you know, the likes of the TESTA CEO
Speaker 3: Elon Musk, to central bankers, even to you know, former
Speaker 3: British politician Dominic rab is going to be there. So
Speaker 3: who are you going to be thinking about and listening
Speaker 3: to the event.
Speaker 6: That's true, a wide range of speakers. The highlight is
Speaker 6: definitely Elon Musk with everything he has to say about
Speaker 6: his efforts to increase government efficiency in the US to
Speaker 6: Tesla and the competition that he is facing from manufacturers
Speaker 6: elsewhere in the world, including in China. But besides that,
Speaker 6: we will see finance ministers, global investors and venture capitalists
Speaker 6: who will be coming together during the Cutar Economic Form
Speaker 6: to discuss everything from transformation of the global economy, the
Speaker 6: regional economies, trade disputes, energy prices, and of course geopolitics
Speaker 6: of the Middle East. And I think that's where Dominic
Speaker 6: rabb among a few others such as David Petris, the
Speaker 6: former general, former American General, will be coming to the
Speaker 6: fort to discuss your politics and conflicts in the region.
Speaker 3: Yeah, David Patres, Yes, indeed. But you mentioned investment opportunities
Speaker 3: and the idea of diversifying away from hydrocarbons, obviously a
Speaker 3: huge undertaking in the Middle East. Do you think that
Speaker 3: GCC countries and others are going to try to hedge
Speaker 3: their dependence on the kind of US led global financial order.
Speaker 3: Obviously it comes on the back of President Trump's major tour,
Speaker 3: his first sort of big overseas tour other than the
Speaker 3: visit to the Vatican. Do you think that there's going
Speaker 3: to be discussion of that, of that balance of power
Speaker 3: and kind of investment relationships.
Speaker 6: This is a very tricky balance for golf oil producers,
Speaker 6: and if anything, since Donald Trump's to be the second
Speaker 6: to be the president of the US for a second time,
Speaker 6: the nature of the relationship between the US and this
Speaker 6: region is becoming more transactional, and it's affecting the narrative
Speaker 6: that's dominating, that's dominating the discussions and the ties between
Speaker 6: the US and the region. So because of the fact
Speaker 6: that the US relationship with the region is but becoming
Speaker 6: more trans is actional than it used to be, we
Speaker 6: are going to see an increasing pressure or increasing tendency
Speaker 6: by the US to force the countries in the region
Speaker 6: to make a clear choice in terms of their preferred
Speaker 6: partners for trade, especially in sensitive areas such as AI,
Speaker 6: high technology, defense equipment, and aviation. One of the things
Speaker 6: that the US administration has been trying to think the
Speaker 6: purchases of such sensitive and high technology coming from the
Speaker 6: US for countries in the region is that they should
Speaker 6: not be doing trade in such sssive areas with sort
Speaker 6: of the other pole in the global financial and economic order,
Speaker 6: and that is China. So we are going to see
Speaker 6: I think a tendency by the region by members of
Speaker 6: the GCC, especially these top three producers of oil and gas,
Speaker 6: to prioritize the US as a trading partner, as it
Speaker 6: was evident during Trump's trip to the Gulf, as you
Speaker 6: mentioned over their relationship with the rest of the world
Speaker 6: and possibly China.
Speaker 3: That was Bloomberg's Managing editor for Middle East and North Africa, honor,
Speaker 3: and my thanks to him for joining me ahead of
Speaker 3: the fifth Cutter Economic Forum underwritten by the State of Cutter,
Speaker 3: empowered by Bloomberg. I'm Caroline Hepge here in London where
Speaker 3: you can catch us every weekday morning for Bloomberg Daybreak.
Speaker 3: Thank you at beginning at six am in London. That's
Speaker 3: one am on Wall Street.
Speaker 2: Tom, Thanks Caroline, and coming up on Bloomberg day Break weekend,
Speaker 2: we look ahead to earnings from China's answer to Google
Speaker 2: by DO. I'm Tom Busby and this is Bloomberg. This
Speaker 2: is Bloomberg day Break weekend, our global look ahead of
Speaker 2: the top stories for investors in the coming week. I'm
Speaker 2: Tom Busby in New York. BYD's early lead in AI
Speaker 2: is being eroded by fast moving competitors and its core
Speaker 2: search business continues to lose ground to short form video apps.
Speaker 2: For more on what's going on, let's get to the
Speaker 2: host of the Daybreak Asia podcast, Doug Krisner.
Speaker 4: Tom Beayching sees it as one of its national champions.
Speaker 4: This is by Do and the company will report earnings
Speaker 4: in the coming week. Now, Bloomberg Intelligence says Bydu's outlook
Speaker 4: remains highly challenged. It's AI ventures to remain unprofitable for
Speaker 4: the next three years as competitors like ten Cent, by
Speaker 4: Dance and Ali Baba narrow the gap. For a closer look,
Speaker 4: I'm joined by Bloomberg's Robert Lee. He is senior software
Speaker 4: analyst for Bloomberg Intelligence, joining from our studios in Hong Kong. Robert,
Speaker 4: thank you so much for making time to chat with me.
Speaker 4: Let's begin by remembering where we were when Baydu reported
Speaker 4: its fourth quarter numbers. Aiicloud revenue grew twenty six percent
Speaker 4: year on year, advertising revenue continued to decline. So to
Speaker 4: what extent will the upcoming results kind of mirror what
Speaker 4: we had in the prior quarter.
Speaker 9: I think probably is most likely to be a mirror,
Speaker 9: as you say, of what we saw before, because taking
Speaker 9: a step back, Bydo is often referred to as the
Speaker 9: Google of China. It's the dominant search engine. So that's
Speaker 9: the cash cow, but relatively low growth business which underpins
Speaker 9: their cash generation and helps fund their investments in AI
Speaker 9: and on the AI side. As you mentioned, I think
Speaker 9: it's well recognized over the last two to three years
Speaker 9: that they were seen as a national champion. As you
Speaker 9: said in your intro, they had a quite a large
Speaker 9: lead on the competition, but progressively we've seen that lead
Speaker 9: eroad and why is that ultimately well, a number of reasons,
Speaker 9: but by dou is a medium sized company, and you've
Speaker 9: got China's tech goliaths, not just ten Cent and Eli Barba,
Speaker 9: but the likes of Huawei, Byte Dance, the national telco companies,
Speaker 9: the list goes on. These are substantial companies with huge
Speaker 9: cash flow and huge balance sheets behind them, a considerable
Speaker 9: depth of R and D resource and developers and engineers.
Speaker 9: So it's very difficult for a relatively thinly spread company
Speaker 9: like Baidu to compete against the vast resources of these
Speaker 9: these big tech platforms. So that's one issue, and then
Speaker 9: the second issue for them, going back to the search
Speaker 9: engine business, No, we all access search don't we it's
Speaker 9: a free service, so how do these companies monetize They
Speaker 9: do it through advertising. So unfortunately for by Do, their
Speaker 9: core search business has come under increasing competitive threat which
Speaker 9: has had a negative impact on their advertising revenue. So
Speaker 9: that core cash cow business that underpins everything is not
Speaker 9: in a calamitous decline, but it's in a slow and
Speaker 9: steady decline. And I think those are the two main
Speaker 9: reasons why you've seen the stock price under perform and actually,
Speaker 9: you know the financial performance of this company remain under
Speaker 9: sustained pressure.
Speaker 4: We can talk about the Chinese consumer and BYD's e
Speaker 4: commerce business in a moment, but can we focus first
Speaker 4: on the AI story. From what I understand, by Do
Speaker 4: will no longer charge users for its AI model Ernie,
Speaker 4: how well does that chatbot compete with other products in
Speaker 4: the Chinese market.
Speaker 9: So it was recognized as about of around eighteen months
Speaker 9: ago is probably the leading chatbot, But since then we've
Speaker 9: seen a company after company launch a relatively you know,
Speaker 9: similar products. So I would say, in fact, if any
Speaker 9: if you or your listeners want to understand anything about AI,
Speaker 9: go back to basic economics. The market in China is
Speaker 9: flooded with supply I'm choosing my wording carefully, and that
Speaker 9: is not an exaggeration. You know, in December of last year,
Speaker 9: so that's already you know, four or five months out
Speaker 9: of date. There were more than five hundred large language
Speaker 9: models in China and they're you know, a dozens and
Speaker 9: dozens of chatbots, most of which are available for free.
Speaker 9: The level of product differentiation is low, the switching cost
Speaker 9: to the user is low. It's a commoditized sector. So
Speaker 9: that's a very very difficult environment for the likes of
Speaker 9: by Do or even ten Cent to monetize because you know,
Speaker 9: I have Deep Seek downloaded to my mobile. If they
Speaker 9: started charging, I would most likely delete it and just
Speaker 9: switch to another free service. That's the issue at the moment.
Speaker 9: So we need to see a consolidation in the sector.
Speaker 9: And also at the end of the day, what are
Speaker 9: these chatbots et cetera for or why companies investing billions
Speaker 9: and billions in model development. Well, it's ultimately to help
Speaker 9: develop the next generation of killer AI apps, but nobody
Speaker 9: has real visibility on what they are at the moment. Sure,
Speaker 9: if you look in you know, like Adobe in the States,
Speaker 9: they've added AI functionality to Photoshop. I mean, that's a
Speaker 9: decent enhancement, but it hasn't allowed them to raise their
Speaker 9: ASP and I'm not aware that it's driven their substantial
Speaker 9: change in their market share. So it's maybe it makes
Speaker 9: their product more sticky and gives more value add but
Speaker 9: it's not really transformational in any way to their financial outlook.
Speaker 4: What about partnering with a company like Huawei. Is there
Speaker 4: any sense for a company like buy Do to adopt
Speaker 4: that sort of strategy?
Speaker 9: Yeah, I mean, Huawei's strength is really on the hardware
Speaker 9: and semiconductor side. They do have software interests, but that's
Speaker 9: a lesser focus for them, So I guess there's something
Speaker 9: like that could be a strategic option for them. By
Speaker 9: the end of the day, you have to be delivering
Speaker 9: a differentiated products that either consumers or enterprise clients are
Speaker 9: going to pay for. And as I said, going back
Speaker 9: to basic economics, in a market, in a highly fragmented
Speaker 9: market that is flooded with supply, with very low switching costs,
Speaker 9: with very low barriers to entry, it's very difficult to
Speaker 9: charge in that environment. In fact, it's not difficult, it's
Speaker 9: almost impossible. That's the challenge. And yet you have to
Speaker 9: maintain a very high level of R and D investment
Speaker 9: to keep up with a competition, and it's sort of
Speaker 9: fear of missing out FOMO, which is driving a lot
Speaker 9: of the decision making in the sector at the moment.
Speaker 9: So I think, you know, there is good evidence that
Speaker 9: AI within certain user cases, you know, obviously can add value.
Speaker 9: It's a good efficiency tool, it can help drive activity
Speaker 9: in certain settings. Certainly if you look at something like
Speaker 9: drug development, yeah, there's great opportunities there. But again I
Speaker 9: go back to my central point. The Chinese large language
Speaker 9: model sector is commoditized. So we need to see an
Speaker 9: industry shakeout, and we need to see the development of
Speaker 9: these next generation killer apps that consumers and corporate clients
Speaker 9: are willing to pay for. We don't have visibility on
Speaker 9: that at the moment.
Speaker 4: And the market is glutted. We get that too, and
Speaker 4: we've discussed kind of the AI cloud story as it
Speaker 4: relates to buy do. I'm curious about revenue from ads
Speaker 4: that the company may offer on its various platforms. What's
Speaker 4: happening there, I mean in terms of ad revenue.
Speaker 9: Okay, so the ads revenue they generate is really derived
Speaker 9: from their search engine. But as you've seen again this
Speaker 9: is where you know double edged sword. As we say
Speaker 9: in the UK, there are opportunities in AI and also
Speaker 9: a threat and in this case, actually AI is probably
Speaker 9: a threat to their traditional search business because if you
Speaker 9: have been on Chat, GBT, by Do, whatever it may be,
Speaker 9: actually they're really good at doing enhanced search. So again
Speaker 9: that poses a major question mark not just to buy Do,
Speaker 9: but the likes of Google and others, and allows non
Speaker 9: search specialists to enter the market. And there are many
Speaker 9: ways in which you can search these days. So again,
Speaker 9: if you look at WeChat, which is the main app
Speaker 9: provided by ten Cent, you know, a ubiquitous part of
Speaker 9: life in China, it's got a great search function on it,
Speaker 9: So why do you need to go on to buy
Speaker 9: Do's website to search? So there are many ways to
Speaker 9: search at a moment, and obviously advertisers are only going
Speaker 9: to put their place the ads where the consumer eyeballs
Speaker 9: are there more likely to gain a return on that.
Speaker 9: So that's the issue. There is a proliferation of search
Speaker 9: options at the moment, which is diluting that market and
Speaker 9: making it more difficult for traditional search engines like by
Speaker 9: Do to monetize. So again this is not calamitous decline
Speaker 9: in the business. It's a slow attrition, I think is
Speaker 9: the best way to look at it.
Speaker 4: What about consolidation in these marketplaces? Is that even a possibility?
Speaker 4: And I'm wondering if by Do were to be acquisitive,
Speaker 4: where would they spend money and if it weren't on
Speaker 4: the R and D side, Let's say in AI especially,
Speaker 4: is there an area of weakness that they could fortify
Speaker 4: by acquiring a competitor.
Speaker 9: Again, consolidation has to be the root forward to put
Speaker 9: the industry on a firmer foot to monetization and profit. Again,
Speaker 9: go back to economic textbooks. As I've mentioned, Would by
Speaker 9: Do be a consolidator? I think again, because as a
Speaker 9: medium sized company that maybe lacks the financial resources of
Speaker 9: Ali Baba and Tencent, that's probably less likely. But far
Speaker 9: bit from me to offer advice to bodies management. But
Speaker 9: if I was asked, what I would say suggest is
Speaker 9: that the business is quite thinly stretched at the moment.
Speaker 9: They've got their core search business, as we've talked about,
Speaker 9: they've got their chatbot business. They're also pursuing investments in
Speaker 9: larger language model development. One thing we haven't talked about
Speaker 9: is their investments in the autonomous vehicle space, which I think,
Speaker 9: you know, it's got great promise on a longer term view,
Speaker 9: but it's a highly competitive space. They're competing against the
Speaker 9: you know, the likes of BYD established automotive companies and
Speaker 9: other specialist companies like pony Ai, which is a Chinese
Speaker 9: company that listed on Nasdak I think at the tail
Speaker 9: end of last Yeah. So again, you know, maybe they
Speaker 9: have some interesting intellectual property, but do they really have
Speaker 9: a strong competitive edge in any of these markets? And
Speaker 9: as I've said, ultimately they're a medium sized company, which
Speaker 9: I would argue is quite thinly stretched. So I would say,
Speaker 9: you know, they're better off focusing more narrowly on segments
Speaker 9: where they have again more of an edge and are
Speaker 9: more likely to drive you know, meaningful cash flow and
Speaker 9: profit that I think that's what they should do.
Speaker 4: Does that include short form video? Is that even a
Speaker 4: possibility for this company?
Speaker 9: There have been talks I suppose going into two short videos.
Speaker 9: You know, most of us are I would say, even addicted,
Speaker 9: certainly our kids are to short videos. The whole Tikton
Speaker 9: phenomenon or whatever, which has overtaken the world in recent years.
Speaker 9: So again, going back to my point, and advertising dollars. Clearly,
Speaker 9: if consumer iables are going on short videos, there's potential
Speaker 9: for advertising revenue to be generated. But it's a very
Speaker 9: competitive market. So again I'll come back to a more
Speaker 9: fundamental question. You know, what would BYD's competitive edge be there?
Speaker 9: But I think you know, strategically, they need to do something.
Speaker 9: The status quot can't continue because otherwise it's a slow
Speaker 9: drip of attrition.
Speaker 4: So that's kind of a bleak outlook. I mean, what's
Speaker 4: the worst case scenario here?
Speaker 9: Just keeping things balanced? Here they are you know, they've
Speaker 9: got a net cash position, their cash general they still
Speaker 9: have a substantial share in the China search market, even
Speaker 9: though that is under slow and steady pressure. So by
Speaker 9: no means is this you know, a doomsday calamitous outlook
Speaker 9: for them. But their core businesses are under slow drip
Speaker 9: of you know, the degrading over time, and what they
Speaker 9: lack is really a you know, a strong growth opportunity
Speaker 9: in growth market that can help drive cash flow and profit.
Speaker 9: So they're sort of stuck in this no man's land,
Speaker 9: if you like.
Speaker 2: For the moment, we're going.
Speaker 9: To see this slow, ongoing drip and attrition of their
Speaker 9: core business whilst they struggle to you know, monetize, let
Speaker 9: alone profit from some of these potential growth markets. So
Speaker 9: I think we need to see a more radical overhaul
Speaker 9: of their business.
Speaker 4: Really, Robert, thank you for joining us. He is Robert Lee,
Speaker 4: Senior Software Analyst for Bloomberg Intelligence, and I'm Doug Chrisner.
Speaker 4: You can catch us weekdays for the Daybreak Asia podcast.
Speaker 4: It's available wherever you get your podcast.
Speaker 2: Tom, thank you, Doug. And that does it for this
Speaker 2: edition of Bloomberg day Break Weekend. Join us again Monday
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