WEBVTT - Super Micro Auditor EY Resigns, Citing ‘Integrity’ Concerns 0:00:02.960 --> 0:00:10.720 Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg Business. 0:00:10.760 --> 0:00:13.960 Wait inside from the reporters and editors who bring you 0:00:14.040 --> 0:00:18.360 America's most trusted business magazine, plus global business, finance and 0:00:18.440 --> 0:00:22.880 tech news. The Bloomberg Business Week podcast with Carol Messer 0:00:23.040 --> 0:00:26.160 and Tim Stenebeck from Bloomberg Radio. 0:00:26.960 --> 0:00:29.319 We've got to check out the worst performer in the 0:00:29.640 --> 0:00:31.400 S and P five hundred, and that would be super 0:00:31.520 --> 0:00:35.280 Micro Computer shares absolutely cratering after Ernst and Young resigned 0:00:35.280 --> 0:00:39.080 as the auditor ceting concerns about the company's governance and transparency. 0:00:39.120 --> 0:00:41.000 We got with us Caroline Hye. She's co host of 0:00:41.159 --> 0:00:45.279 Bloomberg Technology on Bloomberg TV eleven Wall Street Time each day. 0:00:45.320 --> 0:00:47.520 She joins us here in the Bloomberg BusinessWeek studio. Bailey 0:00:47.560 --> 0:00:50.479 Lipschultz also with us. He's Bloomberg News equities reporter. He 0:00:50.560 --> 0:00:53.280 joins us from our Chicago bureau. Caroline, I want to 0:00:53.280 --> 0:00:56.240 start with you because I want to remind everyone, or 0:00:56.240 --> 0:00:58.520 I want you to remind everyone how we got here 0:00:58.680 --> 0:01:01.080 today with super Micro, because it's not the first time 0:01:01.160 --> 0:01:04.360 that smci's accounting practices have been under scrutiny. 0:01:04.520 --> 0:01:06.960 No, that was in twenty twenty. In fact, if you 0:01:07.000 --> 0:01:09.679 look back as to when the last time the shares 0:01:09.720 --> 0:01:12.200 fell as much as they have today, well that was 0:01:12.200 --> 0:01:14.440 back in twenty eighteen, when a Business Week report was 0:01:14.480 --> 0:01:16.920 out that they'd been had seen their motherboards and their 0:01:16.959 --> 0:01:20.920 servers hacked by the Chinese. They're not unaccustomed to controversy, 0:01:20.959 --> 0:01:23.760 shall we say. But twenty twenty was when they actually 0:01:23.800 --> 0:01:27.600 paid a fine seventeen million dollar penalty to end the 0:01:27.640 --> 0:01:31.000 investigation of the SEC into concerns about accounting. At that point, 0:01:31.120 --> 0:01:34.240 it was alleged that they'd been basically seeing their revenue 0:01:34.280 --> 0:01:36.920 come in faster than naturally it had been. Now we 0:01:37.040 --> 0:01:39.880 fast forward, and now it seems to be that we 0:01:39.920 --> 0:01:42.560 go back two months in August, we get the Hindenburg 0:01:42.640 --> 0:01:45.679 report that is citing in particular an ex employee who 0:01:45.720 --> 0:01:49.360 worries about accounting. Again, Hindenburg puts out a short report 0:01:49.560 --> 0:01:52.160 saying that we're worried about the accounting red flags. They 0:01:52.200 --> 0:01:55.600 call it the stock tumbles. Then we get a DOJ 0:01:55.800 --> 0:01:58.960 reports of a DOJ investigation into all of this. And 0:01:59.000 --> 0:02:02.920 now finally Ey not wanting their name to be associated 0:02:02.960 --> 0:02:05.120 with these financial reports. I mean, that is the last 0:02:05.120 --> 0:02:07.680 thing you ever want to hear about an accounting firm 0:02:07.920 --> 0:02:09.560 involved in a company that you have, Chaz and. 0:02:09.840 --> 0:02:13.280 Yeah, pretty us stunning culmination of that timeline here. Shares 0:02:13.280 --> 0:02:16.160 currently down about thirty two percent right now. 0:02:16.240 --> 0:02:18.680 And Billy Lipschel's cone in on the. 0:02:18.600 --> 0:02:22.320 Fact that Nate Anderson, of course of Hindenburn Research, he 0:02:22.400 --> 0:02:23.919 must be having a pretty good day today. 0:02:24.639 --> 0:02:25.960 He must be having a good day, Kitty. 0:02:25.960 --> 0:02:29.320 He's having really a good few years, depending what timeframe 0:02:29.360 --> 0:02:30.840 you want to use, whether you go back to the 0:02:30.919 --> 0:02:33.960 Nicola fraud that he called out or a number of 0:02:33.960 --> 0:02:36.480 his other big time hits. When you look at the 0:02:36.560 --> 0:02:39.560 report from Hindenburg really kind of laying out those red 0:02:39.560 --> 0:02:42.160 flags to Caro's point, But the big thing is that 0:02:42.200 --> 0:02:45.160 was the day before they delayed their ten K filing, 0:02:45.240 --> 0:02:48.359 So it has been a flurry of issues for the company. 0:02:48.480 --> 0:02:50.560 And I know this is a name that Hindenburger in 0:02:50.600 --> 0:02:53.480 a number of other investors both on the long end 0:02:53.480 --> 0:02:55.639 short side, have been keeping a close eye on. Again, 0:02:55.760 --> 0:02:58.880 just given the ascent, the rapid ascent that we saw 0:02:59.040 --> 0:03:01.360 over the last few years and what we've seen really 0:03:01.360 --> 0:03:03.240 play out even back since March when it hit its 0:03:03.240 --> 0:03:04.919 all time high, baily. 0:03:04.639 --> 0:03:07.919 Hard to answer counterfactule here, But you know, Katie and 0:03:07.919 --> 0:03:10.120 I were kind of talking about this ahead of the 0:03:10.240 --> 0:03:12.240 interview when we were preparing for this, in the idea 0:03:12.240 --> 0:03:14.840 that shorts certainly play an important role here, even though 0:03:14.840 --> 0:03:17.680 they're heavily criticized. Do you think we'd be talking about 0:03:17.720 --> 0:03:20.440 this or do you think Ey would have resigned today 0:03:20.480 --> 0:03:22.760 had that Hindenberg report not come out? 0:03:23.760 --> 0:03:25.640 I think it's impossible to note tim But when you 0:03:25.680 --> 0:03:29.120 look at it just chronologically, Hindenberger report comes out, the 0:03:29.280 --> 0:03:31.400 next day, they come back and say, all right, we're 0:03:31.440 --> 0:03:33.480 going to delay our filings because we need a little 0:03:33.480 --> 0:03:34.840 bit more time to go through them. 0:03:35.040 --> 0:03:36.680 Fast forward a month to Caro's point. 0:03:36.800 --> 0:03:40.080 Then you have the reports of the DOJ in query 0:03:40.080 --> 0:03:43.880 and investigation, and now ultimately Ey resigning, and you look 0:03:43.920 --> 0:03:46.880 at the letter that Ey wrote. Whether or not Hindenburg 0:03:46.960 --> 0:03:49.360 kick started this, I think can be debated, But if 0:03:49.400 --> 0:03:51.200 you look at the kind of outlay and how those 0:03:51.240 --> 0:03:53.960 events have played out, whether it was a short report 0:03:54.000 --> 0:03:56.200 or whether this would have eventually gotten out, it does 0:03:56.240 --> 0:03:59.440 seem at least on the margin to point towards Nate 0:03:59.480 --> 0:04:02.720 Anderson's we're actually kickstarting what we've seen play out. 0:04:02.960 --> 0:04:06.839 Carolyn, remind us where SMCI is in the chip ecosystem here, 0:04:06.960 --> 0:04:09.520 because I mean, whenever talk about these companies, I feel 0:04:09.520 --> 0:04:12.560 like I need some sort of like whiteboard that where 0:04:12.560 --> 0:04:16.120 they play me both is TSMC. 0:04:16.680 --> 0:04:20.640 Well, just think of them as encapsulating in video. They 0:04:20.760 --> 0:04:24.560 basically take the Invidia chips, they circulate them in metal, 0:04:24.640 --> 0:04:27.760 and they help install your server into your data center. 0:04:27.839 --> 0:04:30.159 So ultimately a lot of companies and clients go to 0:04:30.839 --> 0:04:33.640 a super Micro rather than directly to an Nvidia to 0:04:33.680 --> 0:04:35.840 get all of their computes sorted out. They're in the 0:04:35.880 --> 0:04:37.800 same lane as Dell. And that is why we're seeing 0:04:37.839 --> 0:04:40.719 Dell shoot higher today because analysts saying that this is 0:04:40.720 --> 0:04:43.159 their moment to take market share from the likes of 0:04:43.160 --> 0:04:45.880 super Micro. And to Bailey's point, this is why it 0:04:46.000 --> 0:04:47.880 hit an all time high earlier this year. This is 0:04:47.880 --> 0:04:50.000 why we saw the shares at one point up fourfold 0:04:50.160 --> 0:04:53.120 because they were integral to this whole AI Darling, Searge 0:04:53.160 --> 0:04:56.440 and now well we're only up about what's I think, 0:04:56.480 --> 0:04:59.040 sixteen percent year to date if you're looking at it, 0:04:59.080 --> 0:05:02.120 and ultimately, with to see them trying to fight against 0:05:02.120 --> 0:05:04.719 this narrative, we've got to go and make clear that 0:05:04.720 --> 0:05:07.640 the company is saying it doesn't expect the issues will 0:05:07.720 --> 0:05:10.520 lead to a revision and previously issued financials, and they 0:05:10.560 --> 0:05:13.000 have begun to look for another auditor. But the share 0:05:13.040 --> 0:05:15.120 price tells at all. And if you're looking at certain things, 0:05:15.120 --> 0:05:17.240 we're down thirty two percent, with the lowest since January 0:05:17.279 --> 0:05:19.839 the eighteenth of twenty twenty fourth who basically erased all 0:05:19.880 --> 0:05:20.680 of this ye's games. 0:05:20.760 --> 0:05:22.840 Yeah, big time and great point on Dell. You take 0:05:22.880 --> 0:05:24.880 a look at shares right now, up about seven point 0:05:25.360 --> 0:05:28.800 seven percent, and Bailly, you think about, of course, this 0:05:29.320 --> 0:05:31.320 enormous I'm not gonna call it a bubble, but all 0:05:31.360 --> 0:05:35.400 of this enthusiasm around some of these AI names, obviously 0:05:35.440 --> 0:05:37.640 that's CATENIV for some of these short sellers. I want 0:05:37.680 --> 0:05:40.440 to talk a little bit about Luhman because we're talking 0:05:40.440 --> 0:05:43.400 about this great year that Nate Anderson is having over 0:05:43.440 --> 0:05:44.640 at Hindenburg Research. 0:05:44.680 --> 0:05:46.120 Then you think about Luhman. 0:05:46.240 --> 0:05:49.200 Of course you had who was It was Caersdale who 0:05:49.240 --> 0:05:51.640 took a short position in Luhmen a couple months ago. 0:05:52.160 --> 0:05:56.000 And Luhman has really defied that. They just signed another 0:05:56.080 --> 0:06:00.280 partnership today with AWS. The shares have done incredible over 0:06:00.320 --> 0:06:04.800 the past couple months. So even if you have some 0:06:04.880 --> 0:06:06.680 of these big run ups, I guess it just speaks 0:06:06.720 --> 0:06:09.600 to how difficult a business short selling is. 0:06:10.560 --> 0:06:11.279 Exactly, Katie. 0:06:11.279 --> 0:06:12.839 But the one thing to keep in mind, and this 0:06:13.000 --> 0:06:16.560 is kind of the hot debate around short sellers, is 0:06:16.560 --> 0:06:19.120 we don't know when these active as short sellers actually 0:06:19.120 --> 0:06:21.800 cover their positions, and we don't know whether they're taking 0:06:21.839 --> 0:06:24.359 out and betting against the company via put options and 0:06:24.400 --> 0:06:26.479 set about right shorting the stocks. 0:06:26.520 --> 0:06:27.760 So it's hard to be. 0:06:27.760 --> 0:06:30.240 Able to say whether or not, even with a super 0:06:30.240 --> 0:06:34.440 micrown mind, Handenberg actually maximized their potential return because for 0:06:34.480 --> 0:06:37.440 all intentsive purposes, they could have covered immediately after and 0:06:37.480 --> 0:06:40.200 that would not be disclosed. But to your point with Luman, 0:06:40.320 --> 0:06:42.920 with a company like Symbotic, with all of these other 0:06:43.000 --> 0:06:46.320 AI flavors, if you will, that have drawn the ire 0:06:46.400 --> 0:06:50.960 of short sellers, whether they're quiet investors betting against a company, 0:06:51.040 --> 0:06:53.760 or activists who come out with these lengthy reports with 0:06:53.839 --> 0:06:56.640 a number of allegations, it does speak back to to 0:06:56.680 --> 0:06:59.960 your point, the difficulty for the long term short seller 0:07:00.240 --> 0:07:03.040 to be successful, because if you go back just a 0:07:03.080 --> 0:07:05.360 little while ago, you look at a company like Herbal Life, 0:07:05.360 --> 0:07:08.160 that actman versus Icon narrative and how that played out, 0:07:08.200 --> 0:07:10.200 and you kind of can ascribe that, at least at 0:07:10.280 --> 0:07:13.040 some level to a number of these other companies that 0:07:13.160 --> 0:07:15.320 have drawn scrutiny of those activists. 0:07:15.440 --> 0:07:19.080 Someone's shorlting this stock, though it's twenty percent of the 0:07:19.320 --> 0:07:22.560 outside float, is currently shulted. Someone out there is still 0:07:22.560 --> 0:07:23.720 wedding against it head. 0:07:23.560 --> 0:07:26.080 And they're probably feeling pretty good today. It is a 0:07:26.080 --> 0:07:29.240 good reminder though that who knows, of course, is Hindenberg. 0:07:28.920 --> 0:07:30.760 Is still in this stock. 0:07:30.880 --> 0:07:33.880 But Carolin, when it comes to super Micro, you know, 0:07:34.200 --> 0:07:37.480 as you mentioned, this timeline of these sort of accounting 0:07:37.560 --> 0:07:40.120 questions goes back to at least twenty twenty. 0:07:40.680 --> 0:07:42.760 What is next for this story? What should we keep 0:07:42.760 --> 0:07:44.040 an eye on from here? 0:07:44.120 --> 0:07:47.440 Because I don't know, you think about the reputational damage 0:07:47.800 --> 0:07:49.560 that this company is going. 0:07:49.280 --> 0:07:51.600 Through right now, it seems like a rocky road ahead. 0:07:51.720 --> 0:07:57.000 November fifth, same day as then, is when they're coming 0:07:57.040 --> 0:08:01.440 out with an updated business report. So ultimately it can't 0:08:01.480 --> 0:08:03.760 be their financials because they're delaying their financials, but they 0:08:03.800 --> 0:08:05.440 are going to come to the market to their investors 0:08:05.480 --> 0:08:07.400 and give an update on November the fifth, So all 0:08:07.480 --> 0:08:09.800 eyes on that, all eyes on whether they get another accountant. 0:08:09.840 --> 0:08:12.280 They're trying to bury that news with the election. 0:08:13.800 --> 0:08:15.920 Would you dare say such thing, Katie? 0:08:16.360 --> 0:08:18.960 I know, let's not forget that this company was added 0:08:18.960 --> 0:08:21.040 to the S and P five hundred this year, so 0:08:21.200 --> 0:08:23.000 you know, which is a very prestigious thing, and you know, 0:08:23.000 --> 0:08:24.280 it gets into it. 0:08:24.200 --> 0:08:28.080 Was delisted previously, so that on its old accounting issues. 0:08:28.200 --> 0:08:30.160 And actually that is something that's being brought up again 0:08:30.200 --> 0:08:33.240 by analysts. I think Wujinhome over Bloomberg Intelligence is saying, look, 0:08:33.400 --> 0:08:35.800 they need to focus on great corporate governance. We may 0:08:36.000 --> 0:08:38.160 require a leadership change. And they're also saying, look, maybe 0:08:38.200 --> 0:08:41.160 we will start to see an issue of delisting once again. 0:08:41.280 --> 0:08:42.959 That's what I'm wondering if those folks over at S 0:08:43.000 --> 0:08:45.440 and P are having like second guesses about adding it 0:08:45.440 --> 0:08:45.839 to the S. 0:08:45.800 --> 0:08:48.040 And P three nineteen billion dollar valuation. 0:08:47.840 --> 0:08:50.559 Still even after today. Yeah, all right, a big thank 0:08:50.559 --> 0:08:52.480 you to Caroline Hydeen Bailey Lipsheltz. 0:08:53.320 --> 0:08:56.960 You're listening to Bloomberg Business Week with Carol Messer and 0:08:57.080 --> 0:09:00.000 Tim Steneveek on Bloomberg Radio and tele. 0:09:01.040 --> 0:09:04.040 It is Bloomberg Business Week. That's Katie greifeld in for 0:09:04.360 --> 0:09:07.400 Carol Nasser this afternoon. As we mentioned earlier, as slew 0:09:07.480 --> 0:09:10.520 of economic data today showed that the economy expanded at 0:09:10.520 --> 0:09:13.400 a robust pace in the third quarter. Inflation adjusted GDP 0:09:13.880 --> 0:09:17.040 increased at a two point eight percent annualized rate. A 0:09:17.080 --> 0:09:19.440 big part of that has to do with small business. 0:09:19.440 --> 0:09:22.520 The US Chamber of Commerce reminding us that small businesses 0:09:22.559 --> 0:09:24.840 are responsible for employing close to half of the workers 0:09:24.840 --> 0:09:27.400 in the US and they represent more than forty percent 0:09:27.920 --> 0:09:32.360 of GDP. Needless to say, super important to our economy. 0:09:32.600 --> 0:09:35.080 For a temperature check of small business, we welcome back 0:09:35.120 --> 0:09:37.240 Sharon Miller. She's president and co head of Business Banking 0:09:37.280 --> 0:09:40.160 at Bank of America. She joins us from San Antonio. 0:09:40.480 --> 0:09:42.600 Always good to check in with you, Sharon. You guys 0:09:42.600 --> 0:09:46.440 do this report over at Bank of America about small business. 0:09:46.679 --> 0:09:50.080 You get into the demographic details of how small business 0:09:50.120 --> 0:09:52.800 owners are feeling, how they're doing, what they see coming 0:09:52.880 --> 0:09:56.600 up ahead. Looking through the data, seems to me people 0:09:56.600 --> 0:09:58.080 are pretty optimistic right now. 0:09:59.080 --> 0:10:02.679 They are mean, they did maintain a very positive outlook. 0:10:02.720 --> 0:10:06.199 I mean, as we surveyed the clients, seventy eight percent 0:10:06.360 --> 0:10:09.040 told us that they expect their revenue to increase over 0:10:09.040 --> 0:10:11.720 the next twelve months. So to me, that is a 0:10:11.760 --> 0:10:15.400 good sign and there is a positive sentiment out there. 0:10:16.240 --> 0:10:18.679 And Sharon I also thought it was interesting that, you know, 0:10:18.720 --> 0:10:21.480 within this positive sentiment you think about what is still 0:10:21.840 --> 0:10:25.559 an issue, and topics such as inflation, such as supply 0:10:25.720 --> 0:10:29.839 chain issues come up, and especially with supply chain chains. 0:10:29.880 --> 0:10:32.040 We still talk about inflation all the time, but supply 0:10:32.120 --> 0:10:34.600 chain issues. It's a good reminder that a lot of 0:10:34.600 --> 0:10:36.520 small business owners are still struggling with that. 0:10:37.640 --> 0:10:41.240 They are I mean, inflation does remain the number one 0:10:41.360 --> 0:10:44.440 concern in our survey of small business owners at baut 0:10:44.559 --> 0:10:48.480 nine and ten told us that they saw inflation as 0:10:48.720 --> 0:10:51.640 an issue for their business. Your right, supply chain does 0:10:51.960 --> 0:10:54.240 pop up there, although it has gone down in the 0:10:54.280 --> 0:10:57.840 list of concerns, but there are still concerns around supply chain. 0:10:58.120 --> 0:11:00.960 And I'd also say to the political environment that came 0:11:01.000 --> 0:11:03.440 in number two, which makes sense. We're in the middle 0:11:03.480 --> 0:11:06.440 of an election year, and in fact, next week, you know, 0:11:06.480 --> 0:11:09.200 we will know the election results and so from there 0:11:09.480 --> 0:11:11.760 we normally see this. I mean, we've been doing this 0:11:11.920 --> 0:11:16.240 survey over ten years and every election cycle there seems 0:11:16.240 --> 0:11:19.480 to be you know, concern and then post that regardless 0:11:19.480 --> 0:11:23.040 of who wins, there's certainty and people seem to move 0:11:23.080 --> 0:11:24.080 on with their business. 0:11:24.720 --> 0:11:29.200 So I mentioned that there's really interesting demographic information in 0:11:29.240 --> 0:11:32.920 the survey. You guys break it down. You look at 0:11:33.040 --> 0:11:36.360 Black and Latino business owners, you look at women business owners. 0:11:36.880 --> 0:11:40.160 How do business owners vary based on their demographic data. 0:11:41.360 --> 0:11:43.960 Well, I mean when we talk about women business owners, 0:11:43.960 --> 0:11:47.800 for example, I mean they are implementing expansion strategies at 0:11:47.800 --> 0:11:51.080 a high rate, with sixty five percent focusing on growing 0:11:51.120 --> 0:11:55.640 their customer base. When you talk about Hispanic Latino business owners, 0:11:55.679 --> 0:12:00.640 their confidence in the economy despite labor shortages, encourage to 0:12:00.760 --> 0:12:05.040 obtain funding. In fact, ninety four percent of Hispanic Latinos 0:12:05.120 --> 0:12:09.040 survey respondents told us that they expect to obtain funding 0:12:09.040 --> 0:12:11.320 for their business to grow. And so, you know, there 0:12:11.320 --> 0:12:15.440 are some differences, but certainly there's definitely some optimism out there, 0:12:15.720 --> 0:12:21.240 especially in Hispanic Latino communities and also Black African American communities. 0:12:21.120 --> 0:12:24.400 And there's also optimism in local economies. One of the 0:12:24.400 --> 0:12:27.680 takeaways that I found interesting was that sixty six percent 0:12:27.720 --> 0:12:31.200 that their local economy will improve, compared to sixty percent 0:12:31.240 --> 0:12:34.679 believing that the national economy will improve. Those numbers are 0:12:34.679 --> 0:12:38.000 fairly close sixty six to sixty percent, but still an 0:12:38.040 --> 0:12:40.600 interesting difference there it is. 0:12:40.640 --> 0:12:43.319 And I think, you know, as you think about smaller businesses, 0:12:43.360 --> 0:12:46.120 and I heard as we let into this segment, just 0:12:46.160 --> 0:12:50.040 thinking about how important small business is to the US economy. 0:12:50.080 --> 0:12:52.840 But generally speaking, I mean, small businesses are in our 0:12:52.960 --> 0:12:55.840 local communities and so you know, they're very close to 0:12:55.880 --> 0:12:58.760 their local communities. I think it's important that we support 0:12:58.880 --> 0:13:02.360 small businesses. And when you think about, you know, what 0:13:02.480 --> 0:13:05.360 they have more control over. I do think that we 0:13:05.480 --> 0:13:09.840 tend to see more optimism in local economies and in 0:13:09.880 --> 0:13:12.640 their own ability to grow their business than maybe that 0:13:12.679 --> 0:13:15.360 they think about the national or the worldwide landscape. 0:13:15.920 --> 0:13:19.600 And Sharon put some of these numbers into historical context 0:13:19.600 --> 0:13:21.160 for us, like you said, you know, you've been doing 0:13:21.160 --> 0:13:24.439 the survey for about ten years. Now, how do the 0:13:24.520 --> 0:13:26.880 numbers this year compared to the past several years. 0:13:27.920 --> 0:13:31.280 Well, we've seen, you know, I think that the revenue expectations, 0:13:31.320 --> 0:13:35.000 I mean, business owners in general are more optimistic, and 0:13:35.880 --> 0:13:38.560 this year we did find a slight uptick as you 0:13:38.600 --> 0:13:43.040 think about their plans for hiring. In fact, over half 0:13:43.280 --> 0:13:45.720 plan to hire over the next twelve months, which is 0:13:45.760 --> 0:13:51.000 an increase. Despite labor shortages, despite finding the right skilled labor, 0:13:51.400 --> 0:13:54.200 people are still hiring for their business. They are expanding 0:13:54.240 --> 0:13:57.040 and those numbers have increased, and so you know, we 0:13:57.200 --> 0:14:00.880 have seen an uptick in the optimism of business owners 0:14:01.240 --> 0:14:04.920 and I do think that this year's report is really 0:14:04.960 --> 0:14:07.480 a good sign for the next twelve months to come. 0:14:08.280 --> 0:14:11.400 Sharon Miller, President, co head of Business Banking at Bank 0:14:11.440 --> 0:14:14.600 of America, joining us from San Antonio. A lot of 0:14:14.640 --> 0:14:16.320 optimism coming out of that survey. 0:14:16.400 --> 0:14:19.040 A lot of optimism. Yeah, definitely interesting to hear about 0:14:19.080 --> 0:14:21.120 some of the nitty gritty, especially I really love the 0:14:21.200 --> 0:14:24.320 point on the local economy versus the national economy. 0:14:25.520 --> 0:14:29.000 You're listening to the Bloomberg Business Week podcast. Can't Us 0:14:29.080 --> 0:14:32.360 Live weekday afternoons from two to five pm Eastern Listen 0:14:32.360 --> 0:14:34.560 on Apple car Play and and brout Auto with a 0:14:34.560 --> 0:14:38.680 Bloomberg Business app or want us Live on YouTube? 0:14:39.080 --> 0:14:41.960 Well, full disclosure. People who know me, you know I 0:14:42.040 --> 0:14:42.760 ride bikes a lot. 0:14:42.920 --> 0:14:43.680 You certainly do. 0:14:44.560 --> 0:14:47.560 I'm a big swift too. Zwift is well known among 0:14:47.640 --> 0:14:49.480 cyclists as a way to train or compete when it's 0:14:49.520 --> 0:14:51.840 too cold or rainy to go on your bike outside, 0:14:52.120 --> 0:14:53.800 or if you want to get a quick workout. In 0:14:54.200 --> 0:14:56.960 the Appcnnect, cyclists riding their bikes inside to real time 0:14:57.080 --> 0:14:59.880 races and virtual worlds through a mobile device, a computer 0:15:00.160 --> 0:15:02.320 or an Apple TV. Think about it like kind of 0:15:02.360 --> 0:15:06.000 like gaming with your bike. The company is raised six 0:15:06.080 --> 0:15:10.400 hundred and twenty million dollars from backers including KKR, Premiere Holdings, 0:15:10.400 --> 0:15:13.720 Amazon's Alexa Fund, and more, giving it a market value 0:15:13.720 --> 0:15:15.760 of more than a billion dollars. We've got with us 0:15:15.840 --> 0:15:17.760 Eric min the co founder and CEO of Swift. He 0:15:17.800 --> 0:15:21.280 joins us here in the Bloomberg Interactive Broker's studio. Welcome, 0:15:21.280 --> 0:15:21.720 How are you? 0:15:21.840 --> 0:15:22.080 Yeah? 0:15:22.120 --> 0:15:24.160 Good, thank you for having me. Good to have you back. 0:15:24.200 --> 0:15:26.960 A lot has happened since you last joined us on Bloomberg, Katie. 0:15:27.000 --> 0:15:28.080 I don't know if you saw this, we got to 0:15:28.080 --> 0:15:29.480 do this virtual ride together. 0:15:29.640 --> 0:15:31.960 No, I remember it well. It was pretty cool. Yeah, 0:15:31.960 --> 0:15:33.320 I thought you were going to wear the outfit. 0:15:33.400 --> 0:15:34.120 I'm not wearing. 0:15:35.800 --> 0:15:36.880 You got your helmet over there. 0:15:36.920 --> 0:15:39.520 I got to helmet here. Don't need that for Swift. 0:15:40.520 --> 0:15:42.280 But there's a lot has happened. There was a there 0:15:42.280 --> 0:15:44.840 was a round of layoffs earlier this year a big 0:15:44.880 --> 0:15:48.360 hardware pivot, but I think you being back as sole 0:15:48.480 --> 0:15:51.720 CEO of the company is sort of among the biggest news. 0:15:52.360 --> 0:15:53.840 Give us an update. How's the business going. 0:15:54.800 --> 0:15:57.640 The business is doing really well. I mean it's it's 0:15:58.320 --> 0:16:01.320 it's doing better than we expected. We've had some change 0:16:01.360 --> 0:16:05.160 earlier this year and we've pivoted, and really the focus 0:16:05.160 --> 0:16:07.120 for the business has been really around like what can 0:16:07.160 --> 0:16:10.320 we do to supercharge our community, I think, which is 0:16:10.360 --> 0:16:13.800 the most valuable asset that we have. So we are 0:16:13.840 --> 0:16:17.160 a leaner team and we're finding that we're moving faster. 0:16:17.320 --> 0:16:21.120 Of course we're doing less, but we're you know, we 0:16:21.240 --> 0:16:23.640 get to focus on the things that I think we'll 0:16:23.960 --> 0:16:26.240 really move the needle for us. So the business is 0:16:26.280 --> 0:16:29.840 doing great, and you know, we launched new hardware this 0:16:29.920 --> 0:16:36.680 year and it's it's surprisingly doing very very well, and 0:16:36.760 --> 0:16:39.600 you know, over the next few months is really the 0:16:39.640 --> 0:16:40.640 height of our season. 0:16:40.760 --> 0:16:42.200 I do want to explain to people who might not 0:16:42.440 --> 0:16:45.280 know what Swift is. When Eric says new hardware, we're 0:16:45.280 --> 0:16:49.760 talking about an actual like bike that Zwift has released. 0:16:49.800 --> 0:16:52.720 It's called the Swift Ride smart bike, and typically the 0:16:52.720 --> 0:16:55.480 way that people use Swift as they hook up their 0:16:55.840 --> 0:16:59.000 own bike to what's called a virtual or what's called 0:16:59.080 --> 0:17:02.120 a trainer, and one that can be hooked up to 0:17:02.200 --> 0:17:05.800 a virtual world using Bluetooth or another type of connection. 0:17:06.000 --> 0:17:09.560 So instead of using or you're using a you're still 0:17:09.640 --> 0:17:12.480 using a trainer with the smart bike. But what's the 0:17:12.520 --> 0:17:14.600 idea behind a thirteen hundred dollars bike? 0:17:15.000 --> 0:17:18.040 Yeah, I mean the price point is an important one. 0:17:18.240 --> 0:17:21.760 It's probably less than half or third of what you 0:17:21.800 --> 0:17:24.119 would typically pay for a smart bike, So we've i 0:17:24.160 --> 0:17:28.919 think innovated on price. We've also developed and designed it 0:17:28.960 --> 0:17:31.119 in a way that you can leverage existing hardwad that 0:17:31.160 --> 0:17:34.880 you've already invested in. So what you have is essentially 0:17:34.880 --> 0:17:38.199 a bike frame that slides onto a trainer that you 0:17:38.240 --> 0:17:41.159 probably already purchased. The other piece of innovation that we 0:17:42.480 --> 0:17:45.840 pushed about a year ago is what we call the ziftcog. 0:17:46.480 --> 0:17:50.240 And you know, for non cyclis, it's very complicated to understand, 0:17:50.240 --> 0:17:53.199 like what kind of gears you need to put on 0:17:53.240 --> 0:17:53.840 these trainers. 0:17:54.200 --> 0:17:55.400 We got rid of all that. 0:17:55.440 --> 0:17:58.439 With a single cog, and then what we layered on 0:17:58.480 --> 0:18:02.560 top of that is a a little device that can 0:18:02.600 --> 0:18:07.480 control and create the gears virtually. And you know, Our 0:18:07.520 --> 0:18:10.880 goal is to of course bring down the cost of 0:18:10.920 --> 0:18:13.199 the hardware to get onto is with, but also just 0:18:13.240 --> 0:18:16.680 to simplify the onborne experience, and that is how we 0:18:16.720 --> 0:18:20.160 open up the market. All our studies have suggested that 0:18:20.480 --> 0:18:23.600 those are the two drivers for holding us back from 0:18:23.600 --> 0:18:24.760 growing even more. 0:18:25.000 --> 0:18:27.000 Well, let's talk a little bit more about your business. 0:18:27.080 --> 0:18:30.119 I assume you make money off of a subscription based 0:18:30.760 --> 0:18:33.760 sort of membership. There Where are you when it comes 0:18:33.760 --> 0:18:35.879 to membership. I think the last time you guys spoke, 0:18:35.920 --> 0:18:39.040 you said around a million members. How has that number changed? 0:18:39.359 --> 0:18:43.160 We're over a million. I think the pandemic that wonders 0:18:43.160 --> 0:18:45.400 for us. It also had it was a double edged 0:18:45.400 --> 0:18:48.240 sword because you know, of course, like many companies, we 0:18:48.240 --> 0:18:52.360 thought the growth would continue forever. But what we're finding 0:18:52.400 --> 0:18:56.160 today is that it's these these are we're growing. We're 0:18:56.200 --> 0:18:59.720 certainly growing on a number of different levels, both revenue 0:18:59.760 --> 0:19:03.679 and and subscribers. But I think, you know, to double 0:19:03.720 --> 0:19:05.680 your business like we did during the pandemic is just 0:19:05.760 --> 0:19:10.160 an unrealistic expectation. So we've adjusted our business to that. 0:19:10.760 --> 0:19:12.800 One thing that you've also done within the last year 0:19:12.880 --> 0:19:15.520 is actually increased prices. I believe since the first time 0:19:15.600 --> 0:19:18.560 since twenty seventeen, So for years it costs about fifteen 0:19:18.560 --> 0:19:21.080 bucks a month. Now it's twenty dollars per month. If 0:19:21.520 --> 0:19:27.120 not an annual membership, that's a monthly membership. How did 0:19:27.119 --> 0:19:28.960 members respond? What has churn been like? 0:19:29.200 --> 0:19:32.160 Well, you know, I don't think anyone likes price increases, 0:19:32.359 --> 0:19:35.639 let's be honest, right, But I think I certainly we 0:19:35.680 --> 0:19:38.280 feel very good about it. The value that we offer 0:19:38.800 --> 0:19:42.720 to our community at twenty dollars a month and two 0:19:42.840 --> 0:19:46.399 hundred for the year, is is really good value given 0:19:46.640 --> 0:19:48.199 you know, all the other products that are out there 0:19:48.200 --> 0:19:53.040 and the experiences that we offer. But you know, look, 0:19:53.720 --> 0:19:56.960