Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: From Marhart.
Speaker 3: We're Innovation, Money and Power Collie in Silicon Valley, NBN.
Speaker 1: This is Bloomberg Technology with Caroline Hide and Ed Louvelove.
Speaker 4: I Meed Lovelo in San Francisco. Caroline Hides off today.
Speaker 4: This is Bloomberg Technology coming up. Apple saws amid an
Speaker 4: upbeat forecast and record buyback, full coverage throughout the hour,
Speaker 4: plus tech jumps and market traders re up their rate
Speaker 4: cup bets as US jobs data disappoints to the downside,
Speaker 4: and we sit down with the CFO of Coinbase to
Speaker 4: break down the company's first quarter results.
Speaker 5: Let's get right to our.
Speaker 4: Top story, and that top story is Apple shares are
Speaker 4: actually on track in the moment for their biggest jumps
Speaker 4: since November of twenty twenty two, the biggest announced five
Speaker 4: back in US company history. Probably has some part to
Speaker 4: play in that. But then there's the story, which is simple,
Speaker 4: Things weren't as bad for the iPhone in the first
Speaker 4: quarter calendar quarters perhaps we thought they might be. And
Speaker 4: then there's the question, what on earth is Apple doing
Speaker 4: in the realm of generative AI. Let's get right to
Speaker 4: Bloomberg's chef correspondent Mark German and Mark long Day for
Speaker 4: you yesterday, long night. But I think that sums it
Speaker 4: up right, not so bad as we had feared, but
Speaker 4: we still have questions about the path forward. What did
Speaker 4: executives tell us last night?
Speaker 6: Yeah, and I think you're exactly right.
Speaker 7: As always, things were not as bad as we anticipated,
Speaker 7: or not we anticipated. Wall Street anticipated with their estimates,
Speaker 7: but things also weren't great, right. They still had about
Speaker 7: a five billion dollars decline on overall revenue. They still
Speaker 7: had a pretty big decline on the iPhone. The Mac
Speaker 7: and services were two bright spots. The iPad came in
Speaker 7: lower than anticipated, even though people knew that new models
Speaker 7: are coming out next week. And Wearable's home and accessories
Speaker 7: that was quite disappointing, coming in at about seven point
Speaker 7: nine billion, right, the lowest metric for that category in
Speaker 7: several quarters, despite the fact that the vision pro in.
Speaker 6: That segment launched on February second.
Speaker 7: Now looking ahead, the big thing, artificial intelligence. It felt
Speaker 7: like every other question on the call was about AI.
Speaker 7: In Apple's plans for jen Ai, Tim Cook Luku, my history.
Speaker 7: They didn't move an inch on that front. You'll hear
Speaker 7: more about that on June tenth, though the Worldwide Developer Conference.
Speaker 4: You've kind of already set out the chronology of what's
Speaker 4: going to happen on the afront. We'll get to that
Speaker 4: in a second. China is a story in and of itself.
Speaker 4: There are some idiosyncratic things about product lines that do
Speaker 4: well and those that don't. So I think iPhone was
Speaker 4: probably brighter in China than expected. But I think what
Speaker 4: stuck out to me is is a concession maybe from
Speaker 4: Tim Cook, that China is becoming a more competitive marketplace
Speaker 4: for them.
Speaker 7: He certainly mentioned several times that China's the most competitive
Speaker 7: market in the world. Now, the most interesting thing that
Speaker 7: happened with the China numbers yesterday is that China came
Speaker 7: in about a billion better than expected. It was still
Speaker 7: about a billion dollar decline, But what Tim Cook said
Speaker 7: is the iPhone actually.
Speaker 6: Grew in mainland China.
Speaker 7: Right now, this is super interesting because Counterpoint Intelligence, id
Speaker 7: C some other analyst firms came out and said that
Speaker 7: the iPhone was really cratering during the quarter in China.
Speaker 6: Now, the discrepancy there.
Speaker 7: Is that some may be talking about unit sales that
Speaker 7: might be the analysts, and Tim Cook is probably talking
Speaker 7: about revenue. Now, if the asps went up, there is
Speaker 7: a chance that unit sales were still down, but revenue
Speaker 7: actually was up and they probably grew a little bit
Speaker 7: in mainland China. Either way, we still are facing concerns
Speaker 7: in China for Apple. Right there is newfound competition from
Speaker 7: Huawei Shaomi, there are those government bands. But certainly Tim
Speaker 7: Cook and Lukeu Mystry, they actually seemed pretty optimistic about
Speaker 7: China when it came to the iPhone. Where Cook seemed
Speaker 7: less optimistic was about the company's other products.
Speaker 6: Now, he didn't explain what's.
Speaker 7: Doing so poorly for Apple and China why revenue is
Speaker 7: down in China. Clearly it is down, but he didn't
Speaker 7: get into it. But he said Apple does have work
Speaker 7: to do.
Speaker 6: Now.
Speaker 7: One other thing, Apple could have grown quarter over quarter.
Speaker 7: He didn't specify when that growth occurred. They may be
Speaker 7: down on an annual basis for the iPhone in China.
Speaker 7: Maybe they grew over the last quarter, Maybe they grew
Speaker 7: at some period during the quarter.
Speaker 6: So there's a.
Speaker 7: Little more explanation to do from Cook, but obviously they're
Speaker 7: not going to give those details.
Speaker 4: Well, in the big area where explanation is needed is
Speaker 4: the roadmap for generative AI. You know just what I
Speaker 4: would say to our audience. Check out Mark's latest reporting
Speaker 4: next week with the let loose the focus is iPad WWDC.
Speaker 4: In June, we should find out some more about generative AI.
Speaker 4: Bloomberg's Mark German, thank you very much. Let's stick with
Speaker 4: Apple joining us as gene monster of deep water asset
Speaker 4: management and gene You know, you were pretty clear in
Speaker 4: your posts on social media last night how you read
Speaker 4: the the earnings. What's the standout story for you? Just
Speaker 4: one thing that you learned from Apple last night.
Speaker 8: The one piece I learned is that the core business,
Speaker 8: as Mark said, it's not doing great, but it's holding together.
Speaker 8: And there was again this fear that the estimates would
Speaker 8: be revised downward for the June quarter. They basically maintain them,
Speaker 8: and I think that that is testimony to just the
Speaker 8: strength of their brand across the product lines, whether it's
Speaker 8: be the software and the services or to even iPhone
Speaker 8: being down. It's held together. And what I take away
Speaker 8: from that is that in the June quarter we're going
Speaker 8: to see revenue growth really for the first time in
Speaker 8: two years. Over the last two years, Apple's revenue growth
Speaker 8: has averaged down zero point three percent. It's going to
Speaker 8: be up a couple percent in June, probably four percent
Speaker 8: in September, and six percent in December. So that that turnaround,
Speaker 8: that reacceleration is the one thing that stepped out to me, Gene.
Speaker 4: I'm showing our audience and you a table, and the
Speaker 4: table shows the list of largest announced company share buybacks
Speaker 4: in history. And unless you've been living under a rock,
Speaker 4: you'll see there's only one name on that list, Gene,
Speaker 4: It's Apple. What's the point in a one hundred and
Speaker 4: ten billion dollar buyback?
Speaker 8: Now, there's two points. Number one is they're sending a
Speaker 8: message to investors that they're going to continue to return
Speaker 8: capital despite going into an investment phase related to AI.
Speaker 8: They've made that very clear that they think AI is
Speaker 8: going to be significant. Cooke said, it's going to impact
Speaker 8: most of their products, not just software but hardware. And
Speaker 8: so the fact that they're reiterating and increasing this buyback
Speaker 8: during that period, that's one piece to it. A second
Speaker 8: is there cadence to getting to net cash neutral and
Speaker 8: so this of course has been a goal for them
Speaker 8: for the.
Speaker 5: Past five years.
Speaker 8: Right now, it's at fifty seven billion dollars, so they
Speaker 8: want to bring that down to zero. That means they
Speaker 8: have the same amount of cash as they have in debt.
Speaker 8: And what I I see that step up from ninety
Speaker 8: to one hundred and ten billion in the buyback is
Speaker 8: an indication that they want to quicken that pace. The
Speaker 8: CFO Luca did mention on the call that they think
Speaker 8: that they won't get to net cash neutral anytime soon.
Speaker 8: So that shows that just the strength of the overall
Speaker 8: business is really powering this buyback. I think investors should
Speaker 8: remain confident that ultimately that this business is producing just
Speaker 8: an incredible amount of cash, almost ninety billion dollars a
Speaker 8: year in free cashual. It's remarkable despite the revenue being
Speaker 8: down basically five percent year rear.
Speaker 4: Well, we're speaking with Gene Monster of deep Water Asset Management.
Speaker 4: In Gene you do a deep body of research into Apple,
Speaker 4: You yourself hold Apple shares. I believe the firm does
Speaker 4: not argue with me on this one. There is a
Speaker 4: frustration from people around the world. They might not be investors,
Speaker 4: they might just be consumers that have an iPhone and
Speaker 4: they say, come on, man, this is Apple Coopertino, stop
Speaker 4: messing around with buybacks and actually do some on the
Speaker 4: innovation side. Give us the generative AI platform on iOS,
Speaker 4: so give us a serious hard grade hardware upgrade.
Speaker 5: Do you have any sympathy with that?
Speaker 8: Absolutely? I mean Apple has been painfully silent on the
Speaker 8: topic in twenty twenty three. Of course, as Mark mentioned,
Speaker 8: about every other question on the call was related to AI.
Speaker 8: That is, now they've had a coming out, but they
Speaker 8: are late, There's no question about it. And another piece
Speaker 8: to just some sympathizing with that view. Another piece to
Speaker 8: this is that they got to ask a question about Capex,
Speaker 8: basically going back to what happened with Meta and Google
Speaker 8: and Microsoft and all their step ups, increasing Capex by
Speaker 8: fifty to ninety percent in calendar twenty four. And the
Speaker 8: expectation is that if Apple is serious about AI, they're
Speaker 8: going to be pushing their Capex at a similar rate.
Speaker 8: And Luca kind of sidestepped the question. He just kind
Speaker 8: of outlined how they approach Capex in part firsthand by
Speaker 8: their own out and they also work with third parties,
Speaker 8: but he didn't give any indication that that would be
Speaker 8: stepping up meaningfully. And they actually maintain their margin guidance,
Speaker 8: and so I think that investors can show some I
Speaker 8: think some frustration related to kind of again the pace
Speaker 8: we're going to know more in June. I would have
Speaker 8: welcomed them to have said they're spending a boatload on Capex,
Speaker 8: for example. I don't think they're going to build a
Speaker 8: foundation model to the same level that Microsoft, Google and
Speaker 8: Meta are doing. And so I think part of that
Speaker 8: is some of that frustrations to be understood. One last
Speaker 8: piece is that there are on board on this, and
Speaker 8: I think that they're going to show some exciting things
Speaker 8: in June and beyond related to AI.
Speaker 5: Well, let's scratch a little bit deep.
Speaker 4: I mean, as often is the case with Luke and
Speaker 4: Mistrea in particular, it's reading between between the lines. I
Speaker 4: think that's probably a little bit kind. This is what
Speaker 4: Luca Miifu told Bloomberg's Emily Chang last night. We have
Speaker 4: very exciting things to talk about soon. But obviously we
Speaker 4: think it's a great opportunity, it's a great new technology.
Speaker 4: We think it's got a lot of potential. What does
Speaker 4: an Apple generative AI tool or platform look like in
Speaker 4: your mind? If indeed reading between those lines, Apple is
Speaker 4: working on something to that effect.
Speaker 8: So it's going to think of it as in kind
Speaker 8: of two or three phases. The first phase, what we'll
Speaker 8: see in the back half of this year is new
Speaker 8: operating systems iOS and mac os. It's just going to
Speaker 8: simply integrate generative AI into it. Siri may be able
Speaker 8: to have a conversation with Siria instead of just a
Speaker 8: point answer. You be able to I suspect this year,
Speaker 8: be able to ask your phone to book you an
Speaker 8: uber to the airport, and then it will just take
Speaker 8: care of it. I think they'll allow developers to start
Speaker 8: building AI into their apps with some foundation, a small
Speaker 8: foundation model that they'll come out with, So I would
Speaker 8: say early stage. I think the iPhone this fall they
Speaker 8: will talk a lot about having iPhone AI still ken
Speaker 8: in it, and so that's kind of the first stage.
Speaker 8: Not very exciting, but at least the first step. The
Speaker 8: second piece is really exciting, which is related to agent
Speaker 8: or personalized or agentic AI. You can use any one
Speaker 8: of those phrases, but this is the idea of that
Speaker 8: you ask the device to do something for you, and
Speaker 8: it has multiple steps to it, and it goes out
Speaker 8: and does it itself and this is something that Apple
Speaker 8: has a unique opportunity, and especially around privacy, and Cook
Speaker 8: mentioned that in his prepared remarks. He talked about privacy
Speaker 8: as being a competitive advantage for Apple when it comes
Speaker 8: to AI, and I think what he's hinting to is
Speaker 8: their belief in agent AI and so how that presents
Speaker 8: itself as probably in twenty five twenty twenty five, we'll
Speaker 8: start to see this built more into the hardware and
Speaker 8: potentially even subscription services that allow you to do more
Speaker 8: things based on AI. And it's I think that, to
Speaker 8: me is a really exciting product.
Speaker 4: Jane, it's been a while since you've been on the show,
Speaker 4: so let me milk out some value for the audience
Speaker 4: while we got you. Do you understand what's happening in
Speaker 4: the smartphone market in China? Do you understand the trajectory
Speaker 4: of where the iPhone's going in relation to the domestic
Speaker 4: OEM's largely Android base that appear to be doing quite well.
Speaker 8: It's definitely something we pay a lot of attention to.
Speaker 8: And I think that the biggest force there is that
Speaker 8: there is a geopolitical element to it, even though this
Speaker 8: is not explicitly spoken about with Chinese leadership. I think
Speaker 8: that there is a recommendation that any government employee starts
Speaker 8: to move to homemade phones, which makes sense from their perspective,
Speaker 8: and that's.
Speaker 6: A big pool.
Speaker 8: There's a large population. We're talking about fifty million high
Speaker 8: end phone users that work with the government, and that
Speaker 8: can have a big impact on Apples on two hundred
Speaker 8: and fifty million phones a year. If you get a
Speaker 8: little bit of those two push to a competitor, I
Speaker 8: think that that has an impact.
Speaker 6: I think that the.
Speaker 8: Good news that's negative just there's no way to look
Speaker 8: at it any different. The good news is that the
Speaker 8: comps do get easier. And second is the company is
Speaker 8: talking about diversifying away from China. They spend a little
Speaker 8: bit of time on the call talking about that. But
Speaker 8: to answer your question, I think China is still going
Speaker 8: to remain really important. As a percentage of revenue. It's
Speaker 8: about nineteen percent right now. I suspect that's going to
Speaker 8: drift down to thirteen to fifteen percent over the next
Speaker 8: few years.
Speaker 4: Gene Monster Dewar's asset Management. Great to catch up.
Speaker 5: It's been to thank you Edgie.
Speaker 9: All right.
Speaker 4: Coming up on the show, we're going to be joined
Speaker 4: by Jamaira Herrera from Reach Capital to break down the
Speaker 4: latest jobs report and what that means to the technology sector.
Speaker 4: It's coming out next be right back. This has been
Speaker 4: berg technology. So let's crunch the numbers out of the
Speaker 4: April report. They came in softer than expected, with non
Speaker 4: farm payrolls advancing one hundred and seventy five thousand last month,
Speaker 4: which is the smallest gain in six months. The unemployment
Speaker 4: rate also ticked up to three point nine percent and
Speaker 4: wage gain slow. That's the kind of data that the
Speaker 4: Fed's looking at. Let's break it all down, which Amaira Herrera,
Speaker 4: who's a partner at Each Capital, really zeroed in on.
Speaker 5: The future of work, the future of labor.
Speaker 4: When you track the data, what are you looking for
Speaker 4: in these job numbers?
Speaker 10: Yeah, thank you so much for having me ed one.
Speaker 10: I'm generally looking at the data. I'm looking at one.
Speaker 10: What are the sectors that are driving the growth that
Speaker 10: we're seeing And we've seen pretty consistently healthcare has been
Speaker 10: a big driver of job growth across the US economy.
Speaker 2: In this past month.
Speaker 10: We also saw retail, warehouse and transportation as well continue
Speaker 10: to be a big driver in job growth. Some of
Speaker 10: the other things we think about and consider as well
Speaker 10: are wage increases. So wage increased five point two po
Speaker 10: sent in the last month, a little lower than we anticipated.
Speaker 10: And we also look at other numbers like what are
Speaker 10: the openings that we see the job openings and so
Speaker 10: the Jolts report came out on Wednesday and those continue
Speaker 10: to be relatively healthy and stable. And so those are
Speaker 10: some of the numbers were that we're generally looking at
Speaker 10: when we're looking deeply into these labor market reports.
Speaker 4: Right, did you learn anything about the technology sector this morning?
Speaker 10: Yeah, I mean when it came to the technology sector,
Speaker 10: it's a little bit of a tale of two cities.
Speaker 10: There's a bit of a cognitive dissonance. When you look
Speaker 10: at the labor market reports at a high level, you
Speaker 10: see unemployment continues to be under four percent, and that's
Speaker 10: for the twenty seventh consecutive month. You continue to see
Speaker 10: a high demand across some of these key industries. Like
Speaker 10: I mentioned, now you look at the technology sector more deeply.
Speaker 2: At the technology sector.
Speaker 10: Job postings for most tech jobs are below twenty five
Speaker 10: percent from pre pandemic.
Speaker 2: They're still quite.
Speaker 10: A bit of a lag in the tech sector in
Speaker 10: terms of seeing that increased demand, and you see folks
Speaker 10: that have been laid off of the past year continue
Speaker 10: to struggle to find access to two jobs, particularly if
Speaker 10: they're a non technical role. So think operations, finance, human
Speaker 10: resources in these large tech companies. And it's a hard
Speaker 10: feel to swallow because when we looked at the earning
Speaker 10: reports for the past quarter, seen over the last whether
Speaker 10: it's Meta, Microsoft, Alphabet, they're actually quite strong, but they're
Speaker 10: also showing discipline around maintaining operational efficiencies. And so we
Speaker 10: set we haven't yet seen that resurgence in the same
Speaker 10: way that we see the strength of labor market across
Speaker 10: these other industries.
Speaker 4: As see Jamaara hold that thought earlier today we spoke
Speaker 4: to or yesterday rather Savita Supermanian at Bank of America.
Speaker 4: Just just listen to her thesis real quick.
Speaker 11: Look, who's going to benefit from all these chips and
Speaker 11: this AI and you know automation. It's old economy companies
Speaker 11: that get more labor light. And I think that's the
Speaker 11: benefit that we could see over the next twelve to.
Speaker 2: Twenty four to a few years.
Speaker 11: I think the areas are you know, industries like ours,
Speaker 11: the banks, right, I mean banks are very labor intensive.
Speaker 11: Now there is this tool that we can use to
Speaker 11: replace people with bots and processes, et cetera.
Speaker 4: So, taking your read of the technology sector and what's
Speaker 4: the Vita just said, I think you agree with each
Speaker 4: other about the direction of travel right now, about what's
Speaker 4: happening in jobs in the technology sector, and then how
Speaker 4: technology is impacting basically old school.
Speaker 2: Economy completely and totally.
Speaker 10: I think what's really interesting whenever you have a large
Speaker 10: technology shift, oftentimes we're very very good at predicting what
Speaker 10: jobs we're going to lose. We're very very bad at
Speaker 10: predicting them. More jobs are going to be created, and
Speaker 10: so in this short term period, what we're seeing and
Speaker 10: what we're going to feel is increase automation around tasks
Speaker 10: that right now people are doing, and that will be
Speaker 10: a net productivity gain for the economy. But there is
Speaker 10: going to be some real labor market team that is
Speaker 10: felt bye employees in the short term. But over time,
Speaker 10: what we'll see is employees will be able to lean
Speaker 10: into really human tasks and there will be new jobs
Speaker 10: created in ways that we really can't anticipate right now.
Speaker 4: Right Jamira Herrera, partner at Reached Capital, great to have
Speaker 4: you on the program. US prosecutors making their closing remarks
Speaker 4: in the Google search trial, where they reiterated their argument
Speaker 4: that Google has broken antitrust laws through exclusive, multi billion
Speaker 4: dollar deals to maintain a dominant position in the market
Speaker 4: online search and related advertising. Let's bring in Bloombergs Mike Shephard.
Speaker 4: Mike's the editor that leads the kind of intersection between
Speaker 4: technology and politics, which means he's very busy at the
Speaker 4: moment that the search trial, the antitrust pursuit by the
Speaker 4: DOJ against Google, has played out over a long period
Speaker 4: of time. Just explain the basics of the closing statement
Speaker 4: and where we are in the process.
Speaker 3: Well, in this closing statement, as you said, the government
Speaker 3: repeated its argument that Google has violated anti trust laws
Speaker 3: through billions of dollars in payments to companies like Apple
Speaker 3: and Samsung and others, that we guarantee a prime position,
Speaker 3: prime location on smartphones and other devices for its for
Speaker 3: its search platform and tool, and this allowed it to
Speaker 3: turn its search business into the most dominant and the
Speaker 3: most widely used in the world and helps secure a
Speaker 3: nearly three hundred billion dollar annual stream of revenue for
Speaker 3: the company and the result of this is that there's
Speaker 3: been a stifling of innovation across the tech industry. We
Speaker 3: would have seen certain developments like AI hit the market
Speaker 3: much sooner if we're not for this to have taken place.
Speaker 5: Hey, Mike, bear with me for one second.
Speaker 4: On a day where tech Stock's a pretty markedly higher
Speaker 4: alphabet parent of Google's the one stock that's pretty low
Speaker 4: and is a points drag at the index level, very quick.
Speaker 4: I don't draw a cause or link between the move
Speaker 4: and the news headline. Just explain what happens next in
Speaker 4: this process.
Speaker 3: Well, in this case, it now goes to the judge
Speaker 3: once both sides have finished their closing arguments, And to
Speaker 3: be fair to the company, they are arguing that this
Speaker 3: is not a question of anti competitive behavior. Google is saying, hey,
Speaker 3: we just make a better product and you shouldn't penalize
Speaker 3: us for that. But it will take the judge several
Speaker 3: months to deliberate over this, to think about this.
Speaker 6: But we are.
Speaker 3: Expecting a ruling before the end of the year, and
Speaker 3: this is a significant case, he said. This is the
Speaker 3: first in a series of anti trust actions that the
Speaker 3: government is bringing against tech companies. Now we know that
Speaker 3: the Biden administration has made the whole question of competition
Speaker 3: in a focus across a number of industries, but tech
Speaker 3: is really drawing the line share of that attention.
Speaker 4: Bloomberg's Mike Shepherd out of DC, thank you, Welcome back
Speaker 4: to Bloomberg Technology. Ed Ludlow here in San Francisco. Let's
Speaker 4: also talk about Coinbase.
Speaker 5: Now.
Speaker 4: This is interesting because actually in the quarter, Coinbase did
Speaker 4: pretty well beat top and bottom line. Stocks down four
Speaker 4: point seven percent, high bar often going into these earnings quarters,
Speaker 4: and also some questions about the future about cryptocurrency trading,
Speaker 4: the retail trader and app based transactions. Delighted to say
Speaker 4: that Alicia hass coinbased CF he joins me along with
Speaker 4: my good friend Shlai Basseca Bloomberg who's in New York.
Speaker 5: Shnale take it away.
Speaker 12: Thank you Ed, and thank you Alisia for joining and
Speaker 12: to speak to what Ed was talking about about this
Speaker 12: high bar. Even though you brought in more than a
Speaker 12: billion dollars of transaction revenue in the first quarter, a
Speaker 12: lot of investors, I think, have a lot of questions
Speaker 12: about that fall off in bitcut coin prices in April
Speaker 12: after the quarter ended. How do you think about the
Speaker 12: more recent drawdown and what it means for you.
Speaker 1: Yeah, so let me just start with I think it's
Speaker 1: important to zoom out whenever you're talking about crypto. We
Speaker 1: see volatility day to day, we see it week to week,
Speaker 1: month to month, but when you look over the last decade,
Speaker 1: bitcoin has been the top performing asset against all asset classes,
Speaker 1: so we really.
Speaker 2: Focus on long term trends.
Speaker 1: I think it's also important to note when you look
Speaker 1: at all past prior bull runs where you see price
Speaker 1: appreciation over a period of time, there's been intro ad
Speaker 1: week in day, intro month corrections to the price, and
Speaker 1: so coinbase always prepares for all environments.
Speaker 2: We're prepared for the vallatility.
Speaker 1: We've navigated this incredibly well over the last ten years
Speaker 1: of our history. And it's just another day in crypto.
Speaker 1: It doesn't mean that the long term doesn't continue to
Speaker 1: be as rosy as.
Speaker 2: It was last week.
Speaker 4: Alicia, good morning, it said in San Francisco. Just another day,
Speaker 4: and crypto doesn't carry with Schnali and I because we
Speaker 4: have sleepless nights and never ending days of crypto. I
Speaker 4: get that the volatility is a driver, right. We understand
Speaker 4: that particularly when you consider your customer base, but there
Speaker 4: must be a psychological sentimental element of that as well.
Speaker 4: So if you take the newsflow of late spot, BITCOINYTF
Speaker 4: and the Harving as examples of dominated headlines, do you
Speaker 4: see evidence that those headlines drive activity for you guys
Speaker 4: on the platform?
Speaker 13: We absolutely see that cryptos volatility and rising crypto prices
Speaker 13: drive activity on our platform, and so with the demand
Speaker 13: of bitcoin ETFs, it's natural to see then price go up,
Speaker 13: natural c elevated activity as scrypto has been very headline
Speaker 13: driven over the last decade.
Speaker 1: But what is so exciting to us is that we
Speaker 1: now have a material part of our revenue coming from
Speaker 1: non trading activity. So we've been seeing growth in our
Speaker 1: subscription and services through the downturn of twenty twenty three
Speaker 1: through Q one, where it was about thirty six percent.
Speaker 1: We generate over five hundred and eleven million dollars of
Speaker 1: subscription and services and we're really excited now for this
Speaker 1: next wave of crypto.
Speaker 2: Adoption on chain. So we're seeing the.
Speaker 1: Idea that we can now have base as a layer
Speaker 1: two do faster and cheaper transactions. Gives the foundation that
Speaker 1: we might be able to drive into payments and so yes,
Speaker 1: Historically speculative trading very headline driven, but there's so much
Speaker 1: more to crypto than speculative trading, and we're excited about
Speaker 1: what we can deliver with the diversified revenue on our platform.
Speaker 12: At least, I think a lot of people struggle to
Speaker 12: understand and conceptualize how much Base can really translate into
Speaker 12: future revenue for coinbase, how big can it really get
Speaker 12: and what does it mean for the future economics of Coinbase.
Speaker 2: Thanks for the opportunity to talk about Base.
Speaker 1: So first I want to explain what Base is. Base
Speaker 1: is a layer two solution, which means that it's built
Speaker 1: as infrastructure on top of ethereum and it enables transactions to.
Speaker 2: Move more quickly faster.
Speaker 1: What we saw is we now have eight times the
Speaker 1: developers building on Base quarter over quarter. This is what
Speaker 1: we're driving. We're driving a platform for developers to build applications.
Speaker 1: When they build applications, they're looking for less friction, lower cost,
Speaker 1: faster speeds, and that is the environment that we're trying
Speaker 1: to create. We had a really exciting upgrade in the
Speaker 1: quarter where we were able to reduce transaction costs by
Speaker 1: eighty percent.
Speaker 2: Often getting them lower than a penny.
Speaker 1: What that led to now in the last thirty days
Speaker 1: is that we're seeing two x the number of transactions
Speaker 1: on Base than we do on Ethereum. Driving developer activity
Speaker 1: leads to driving transaction volume.
Speaker 2: Transaction volume leads to revenue.
Speaker 1: So the whole pipeline here of activity is trying to
Speaker 1: create that environment for developers.
Speaker 2: Get the transactions leads revenue.
Speaker 1: We broke out a new revenue stream in Q one
Speaker 1: called other transaction revenue. Other transaction revenue is the base
Speaker 1: sequencer fees and other payment related fees, and so this
Speaker 1: really speaks to our ambition to grow these products and platforms,
Speaker 1: and the investors will have that transparency now to look
Speaker 1: at it as we go forward.
Speaker 4: Sanali, just let me have this one, okay. Alisha is
Speaker 4: the CFO of the company, So i'd like to ask
Speaker 4: about expenses. Alicia, I'd like to ask you about expenses.
Speaker 4: They're creeping up a little bit and you're going to
Speaker 4: tell me, well, demand's going up, so but how you
Speaker 4: managing expenses. You can see the eye roll from Schnale
Speaker 4: that she's less than impressed, but I think it's important
Speaker 4: for investors.
Speaker 2: So in Q one, expenses. We're aout five percent.
Speaker 1: That was largely stock based comp that we shared earlier
Speaker 1: in the year, But I'm going to focus on the future.
Speaker 1: So we are seeing expense growth in Q two. The
Speaker 1: vast majority of this is variable spend, as I shared
Speaker 1: in our shareholder letter. When we see high volumes, which
Speaker 1: we saw sharp tickup and volumes in March, we tend
Speaker 1: to then have a lagging effect to our customer support
Speaker 1: cost as we staff up those teams to address the
Speaker 1: cues that have resulted. So a little bit of that
Speaker 1: is spilling into Q two. We also will see higher
Speaker 1: infrastructure costs in Q two. The third expense that's going
Speaker 1: up is USDC rewards. USDC rewards are tied to activity
Speaker 1: on our platform. We doubled the USDC balances on our
Speaker 1: platform during the quarter and that is what's driving this
Speaker 1: increased spence. All of these can be also ratcheted down
Speaker 1: quickly if we see a change in environment. But we're
Speaker 1: excited about the growth and extenses. It's not hard sticky expenses.
Speaker 1: We learned our lessons hard in twenty twenty one and
Speaker 1: twenty two y two when we grew too quickly.
Speaker 2: We will be prudently growing.
Speaker 1: We're looking for good ROI investments, and we really have
Speaker 1: a focus on the cost management and financial discipline alsia.
Speaker 12: It's interesting because if you think about the currency market,
Speaker 12: it's like King dollar, but when it comes to the
Speaker 12: crypto market, it's King Bitcoin and it is still the
Speaker 12: vast majority of what you see in trading. But when
Speaker 12: it comes to Base and the activity that's being brought
Speaker 12: in the world of mean coins, how do you think
Speaker 12: about that movement, if it's sustainable, and whether that's going
Speaker 12: to be where the bulk of activity lies for a while.
Speaker 1: So there is some mean point activity on Base, but
Speaker 1: I would focus you on this is the creative content.
Speaker 2: This is part of the process. We are seeing really exciting.
Speaker 1: New applications being built on Base, like in the areas
Speaker 1: of social gaming, and I think this is just part
Speaker 1: of the journey to get there. I think again, the
Speaker 1: key that I want to focus on is a platform
Speaker 1: that enables quick, fast transactions, just like we move from
Speaker 1: email to text, text to what app WhatsApp, lower frictions
Speaker 1: will be the path of developer growth.
Speaker 2: And when we think about.
Speaker 1: Just the opportunity now to have USDC on Base, it's
Speaker 1: enabled global payments nearly instant, nearly.
Speaker 2: Free, or very few cents per transaction.
Speaker 1: That is a new innovation that we're really excited to
Speaker 1: see how it is built in growth through our own
Speaker 1: product platform, through our wallet platform, through USDC, growth through
Speaker 1: sequence reviees, but also then for just other developers and
Speaker 1: companies that are looking to then adopt these lower cost rails.
Speaker 4: Oh thanks to Alicia has coinbased CFO and of course
Speaker 4: balloon VOTIONALI beast strong way to end the week in.
Speaker 5: The world of crypto.
Speaker 4: Should we look at some other news headlines, It's time
Speaker 4: for talking tech and first start. Microsoft is adding security
Speaker 4: chiefs to its products group to boost resilience to hacking
Speaker 4: after several serious cyber attacks. The software giant said adapt
Speaker 4: adding deputy chief information security officers within its product groups,
Speaker 4: while declining to identify who those new officials are. Plus
Speaker 4: Live Golf CEO and commissioner Greg Norman spoke to Bloomberg
Speaker 4: about its possible merger with the PGA and the future
Speaker 4: of the sport as streaming competition heats up.
Speaker 5: Listen to this.
Speaker 14: What's the definition of tuning in turning on the TV
Speaker 14: and turning on the channel forty four and say, okay,
Speaker 14: I'm going to watch the next four and a half hours.
Speaker 14: That's tuning in, right, But to an eighteen year old
Speaker 14: or twenty five year old tuning in maybe twelve seconds
Speaker 14: on the phone. Okay, let me see this. Then I'm
Speaker 14: gonna go back and do that, and then I'll come
Speaker 14: back over here to another fourteen seconds on this boy,
Speaker 14: That to me is tuning in. That's, to me is
Speaker 14: a market that's enormously wealthy, right, an enormously influential in
Speaker 14: the direction where were you going? So look, we are
Speaker 14: talking to corporations. I'm not going to give you the
Speaker 14: names of those corporations, of course, but we just did
Speaker 14: a great partnership with Google.
Speaker 4: And here's a story I broke yesterday afternoon. Rivian's receiving
Speaker 4: incentives eight hundred and twenty seven million dollars to expand
Speaker 4: in Illinois. Meanwhile, the company's also tapped the former COO
Speaker 4: and deputy CEO Evolvo Cars to be it COO. Is
Speaker 4: it prepares to roll out that lower cost model, which
Speaker 4: is geared for the mass market. BRT all right, coming
Speaker 4: up on the show, we're going to be joined by boys.
Speaker 4: Jason Chapman's talk about the global outlook for the video
Speaker 4: games landscape.
Speaker 5: Stay tuned. That's coming up next. This is Bloomberg Technology.
Speaker 4: After a year of speculation, it's finally here. JP Morgan's
Speaker 4: index GPT tool In a nutshell, Index GPT is a
Speaker 4: new range of thematic investment baskets created with the help
Speaker 4: of open AI's GPT form model. The tool generates a
Speaker 4: list of keywords associated with the theme, which are then
Speaker 4: fed into a separate natural language processing model that scans
Speaker 4: news articles to identify companies involved in specific spaces. All right,
Speaker 4: it's been a hard week for the video games industry.
Speaker 4: AMD told us on Tuesday demand for chips powering games,
Speaker 4: consoles and computers is down a lot, And on Wednesday,
Speaker 4: Bloomberg reported video game publisher Take two plans to shut
Speaker 4: down subsidiaries in London and Seattle amid mass layoffs, joining Sony,
Speaker 4: EA and Microsoft in cutting back. In more positive news, Twitch,
Speaker 4: Amazon's live streaming platform four Gamers is going to launch
Speaker 4: a competitor to TikTok.
Speaker 5: Here to discuss all of that.
Speaker 4: In today's VC Spotlight is Convoy managing partner Jason Chapman.
Speaker 5: It's hard to know where to start.
Speaker 4: But I guess the broad theme is that for those
Speaker 4: big principally publicly traded names, it's tough out there in
Speaker 4: the video games industry right now.
Speaker 5: Your reaction to the week.
Speaker 15: Yeah, thanks for having me ed. It's definitely been a
Speaker 15: big week obviously. Also this is on the back of
Speaker 15: the ban of TikTok, which eighty percent of the House
Speaker 15: just voted in favor of the force to vestiture and
Speaker 15: something just a macro theme to note that is a
Speaker 15: big theme that we're paying attention to today. Is clearly
Speaker 15: byte dances being forced today as TikTok. TikTok is you
Speaker 15: know in day dances at based in China. China is
Speaker 15: one of six foreign adversaries listed by the United States,
Speaker 15: and a lot of people are now questioning, including a
Speaker 15: lot of the companies you just listed, will this force
Speaker 15: divestiture continue to occur? And I'll tell you here at Convoy.
Speaker 15: You know, we've taken a long principle that we do
Speaker 15: not partner with capital based in foreign adversarial nations, and
Speaker 15: we expect that many others will continue to ponder if
Speaker 15: this is the right move for the industry.
Speaker 4: Jason, There's going to be a large portion of the
Speaker 4: bloembog technology audience that say, hold on a minute, why
Speaker 4: is a bench capital firm that invests in and focus
Speaker 4: on video games worried about TikTok.
Speaker 5: It's a great question.
Speaker 15: So TikTok as an entity is one of the most
Speaker 15: used social platforms in the world. After social platforms, you
Speaker 15: start to look at where else do people spend their
Speaker 15: time in digital formats and digital worlds, and naturally go
Speaker 15: to games and so about the basically, it's a battle
Speaker 15: for eyeballs. And we'll also view this as the precursor
Speaker 15: of what is to potentially come to the games industry.
Speaker 15: So this force divestiture of TikTok could then lead to
Speaker 15: force divestitures in the games industry.
Speaker 5: So you extrapolate that out. I get the thesis.
Speaker 4: Now, So let's look at the case study of what
Speaker 4: Twitch is doing. I thought that was really interesting. You know,
Speaker 4: if it's the battle for eyeballs, otherwise they are principally
Speaker 4: a live streaming platform where you can view and participate
Speaker 4: in others.
Speaker 5: Playing video games.
Speaker 4: So now they're thinking of doing a TikTok competitor, what
Speaker 4: advantage might they have in pursuing that business model?
Speaker 15: Yeah, it's definitely interesting to see Amazon try to move
Speaker 15: heavily into consumer Twitch is obviously i'd say the beacon
Speaker 15: in the North Star for them successfully entering into a
Speaker 15: consumer first product, which is Twitch. And obviously Amazon is
Speaker 15: one of the rumored groups that could potentially buy TikTok
Speaker 15: outright itself. There's really kind of three groups that have
Speaker 15: been considered there. It's private equity shorteach and sort of
Speaker 15: i'd say dark horse picks here for me would be
Speaker 15: e commerce platforms, but you know, them announcing that they
Speaker 15: would like to actually go launch their own competitor directly.
Speaker 15: I think it's either a precursor to test the waters
Speaker 15: in the next year. Do we want to actually consider
Speaker 15: bringing this in house ourselves, or is this something that
Speaker 15: we want to just actually launch directly competitively and can
Speaker 15: grow in house.
Speaker 4: As you said, Jason, a rumor that Amazon's waiting in
Speaker 4: the wings to buy TikTok. I don't think that Bloomberg's
Speaker 4: reported them as a candidate, But I'll look into it
Speaker 4: and I'll let you know. I want to go back
Speaker 4: to get keeping your toes ed. I know, I know,
Speaker 4: I'm just being me. More layoffs, more studio shutdowns. What
Speaker 4: comes next, you know, maybe consolidation. You know, as I
Speaker 4: said before, I believe we're right sizing in an industry.
Speaker 4: You know, we got very bloated as an industry when
Speaker 4: money was free in twenty twenty one. In the early
Speaker 4: part of twenty twenty two, we hired tons of individuals,
Speaker 4: which was fantastic.
Speaker 15: We grew a lot. Gaming continues to grow. It grows
Speaker 15: about one hundred and one hundred and fifty million people
Speaker 15: a year. We're expecting actually a strong twenty twenty four
Speaker 15: and very strong twenty twenty five. And I believe what
Speaker 15: you're seeing is right sizing, which is across not just gaming,
Speaker 15: but also entertainment and tech more largely.
Speaker 4: I've been playing a lot of Ghost of Tushima recently
Speaker 4: on PlayStation. Awesome storytelling. Not clear where the next big
Speaker 4: innovation is in gaming, just really quickly, Jason, you know
Speaker 4: what is the next big innovation?
Speaker 15: I think a lot of the next big innovations you're
Speaker 15: going to see is around the creation process of games
Speaker 15: as well as the distribution of games, and so creation
Speaker 15: is getting faster. We're able to produce a ton more
Speaker 15: content a lot more quickly, thankfully, largely and due to
Speaker 15: new new development tools that are often fueled empowered by
Speaker 15: artificial intelligence. So we're very excited about this trend. And
Speaker 15: then secondly, the way games are distributed is a mess.
Speaker 15: How do you find games today? The vast audio gamers
Speaker 15: find that either in Facebook ads or they find it
Speaker 15: with word of mouth, and with the sheer amount of
Speaker 15: content that's coming our way. We think this needs to
Speaker 15: be rethought and we're really excited to back entrepreneurs pursuing
Speaker 15: these problems.
Speaker 4: We almost went in an entire seven minutes without talking
Speaker 4: about artificial intelligence until your answer. Thanks Convoy Managing Jason Chapman.
Speaker 4: I know, I know you can't no, I mean, you've
Speaker 4: done the research there, but we got to go. Thank
Speaker 4: you so much, Jason Chapman. Let's go back to Apple again.
Speaker 4: Shares up six point seven percent, on track for their
Speaker 4: biggest jump since November of twenty twenty two. A mixed picture, honestly,
Speaker 4: like a really tough quarter in the quarter gone, but
Speaker 4: things improving and in China, iPhone surprised everyone.
Speaker 5: Let's get to man.
Speaker 4: Deep sing of Bloomberg intelligency leads our in house research.
Speaker 4: The thesis you guys had or your response and react.
Speaker 4: Was that the broads ecosystem of Apple products offset specific
Speaker 4: product line weakness.
Speaker 5: Just go into the specifics.
Speaker 9: Yeah, I mean, look at the resilience of the services line, right.
Speaker 9: The fact that it grew almost made peints shows that
Speaker 9: you know, they can pull the levers when it comes
Speaker 9: to pricing and just you know how they bundle things out.
Speaker 9: And that's why even though the iPhone revenue was down
Speaker 9: ten percent, they were able to show fourteen percent services growth.
Speaker 9: So I think everyone gets it that Apple controls a
Speaker 9: distribution and if you have to roll out AI, they
Speaker 9: will have a piece of the transactions that take place
Speaker 9: in the ecosystem. And that's why businesses are resilient.
Speaker 4: So Tim Cooks got us all excited. Big event next week,
Speaker 4: another one in June. We think more products will be revealed.
Speaker 4: What's it going to take to keep the stock going
Speaker 4: higher and engage and people believing that something big really
Speaker 4: is coming.
Speaker 9: Mandy, I mean with Apple, you need a large addressable
Speaker 9: market to move the needle. Look, they saw that with
Speaker 9: Vision Pro and obviously they're not pursuing the car anymore.
Speaker 9: So you need a large addressable market to move a
Speaker 9: company of Apple size and in this case, I think
Speaker 9: AI inferencing is that large market. It's just they need
Speaker 9: to show how are they kind of catering to AI
Speaker 9: infrincing they don't have their own LLLM. I think they
Speaker 9: will have to partner with someone. Most likely it has
Speaker 9: to be Google given the arrangement, but it just needs
Speaker 9: to be articulated a lot more clear for the market
Speaker 9: to understand.
Speaker 4: Mandy supercif quick, which piece of hardware will be the
Speaker 4: home of the AI inferencing.
Speaker 9: So Apple controls the chip, and look, I think you
Speaker 9: can't have inferencing done through the cloud. I mean you
Speaker 9: can't have Nvidia GPUs everywhere because your data centers are
Speaker 9: physically located somewhere. So having inferencing in Apple's chip, albeit
Speaker 9: it's a small is what it needs to do in princing,
Speaker 9: and I think they can do that.
Speaker 4: Man deep Seeing, who leads our tech coverage over at
Speaker 4: Bloomberg Intelligence. Great to catch up with you, Happy Friday.
Speaker 4: That does it for this edition of Bloomberg Technology. What
Speaker 4: a week it's been dominated by earning this big news
Speaker 4: flow Recap Friday the story of Apple on the podcast.
Speaker 4: So many of you checking out the podcast on Apple Spotify, iHeart,
Speaker 4: and of course we post it to all the Bloomberg platforms,
Speaker 4: whether you're on your way to work, if you're on
Speaker 4: your way home, you're just taking a break in the
Speaker 4: middle of the day for all things technology.
Speaker 5: Buckle up.
Speaker 4: There's a lot more to come next week as well.
Speaker 4: From San Francisco, This is Bloomberg Technology.