This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
All right, I knew when Netflix reported last night and we were breaking down the numbers, I knew that. Ultimately I wanted to get to Keeta Ringanathon, who follows this name so closely and picks it apart, goes through the details and really explains the story. She has Bloomberg Intelligence, Technology and media analyst. As I said, Geeta Ringanathon, she
is with us on zoom from our Princeton, New Jersey bureau. Hey, geta stock's a little bit lower today, but if you looked at the aftermarket last night, it was getting killed Netflix like down ten to eleven percent, now down about four percenters. So initial stock reaction, what were they reacting to? And then maybe why did investors maybe rethink it a little bit?
Yeah, thank you so much Carolyn Madison for having me so. Obviously, the nee jerk reaction, as always has been to the subscriber numbers, right, and so the one Q subscriber numbers came in a little bit lighter. The two Q revenue guidance wasn't looking too great either, and you know, that was kind of what prompted that initial sell off in the stock. I think as investors kind of had time to, you know, go back a little bit into the report
and digest some of the other details. Remember, Netflix itself is pivoting away from, you know, just being a subscriber story to becoming more of a profitability story, becoming more of a free cash flow story, and I think they did absolutely spectacularly on that front. You know, if you look at the operating margins, they came in well above what they had projected. If you look at operating profits again,
they came in very well. And where they really kind of stunned, you know, the street was with their free cash flow numbers. So over two billion dollars just in first quarter free cash flow. They upped their guidance for the full year to three and a half billion, and we think that that still is pretty conservative. It it could well go to maybe about four billion dollars just a free cash flow.
I heard Jens surveillance this marrity, so I got to chee a little bit in terms of your thinking. But that's amazing, right for media company essentially.
That is absolutely amazing for media, for streaming, and especially for Netflix. Remember, this was a company that was getting criticized left, right and center for not you know, not generating cash, for losing, for burning three and a half billion dollars in cash maybe just about four years ago. And how they've turned the story around has just been, you know, miraculous, And of course it gives I think the whole of the media landscape now a playbook. Right,
this is what everybody wants to do. This is what everybody's aspiring to do. Get to those twenty percent operating margins, not only break even on their streaming business, but then really get out to churning profits and charning free cash. Remember, everybody right now is losing money in the streaming business. Whether it's Disney they're going to lose about three billion dollars this year, whether it's Paramount again two billion dollars
in losses, Peacock three billion dollars in losses. So the fact that Netflix is going to throw out seven billion dollars in EBITDA and three and a half billion in free cash flow is is just marvelous.
You know, media companies have always been fun. If you go back to kind of the likes of traditional cable companies, and we always talked about them not being necessarily huge money maker, Like how do we think about streaming. Should they be making money KITA in this environment or should they be as a class be making money?
I mean, that is such an excellent question, right. I think after that initial dust settled from that streaming land grab phase and everybody was just kind of in that rush to get streaming subscribers, I think then this question kind of really started to evolve being you know, what is what is the endgame? What are the unit economics
in this business? Is it ever going to be as good as the old TV model where we saw networks linear TV networks like a USA or a CNBC generate you know, thirty thirty five percent margins quarter after quarter, and so what we've kind of now, you know, obviously, with you know, companies spending handover fist when it came to content, you know, there was this question about whether they're ever going to be able to break even. I think Netflix finally has provided the intry with some sort
of a template of how to go about it. I mean, obviously they did have a lot of bumps down the road, especially in their early innings. But I think now now that you know they're in a slightly more mature face, I think we do have this finally, this this kind of playbook.
So that's my exact question for you. In terms of the cash flow, what do you anticipate Netflix pouring that cash into to increase profits even more? Are they going to lean into more content creation for those programs that are really cheap to produce.
That's a fabulous question. I think what they said last night is yes, they're holding content. So they are curbing their content spending a little bit this year especially and also for twenty twenty four. They kind of gave some guidance there. But I think after that, you know, kind of everything becomes you know, fair game. So they talk not just about you know, necessarily TV shows or film content. They're going to expand into different categories. They're going to
expand into gaming. They already are. In fact, they might look at different genres, you know, whether it's sports, pro gramming, and all of that is going to take a lot of money. So yes, they're definitely going to invest in more content, in more programming. But they also talked about return of capital. So they already bought back about four hundred million shares in the first quarter, and they're going
to accelerate their whole share repurchase program. So this is becoming very much like a traditional, you know, low growths tech company.
Really well, real quick on that, because you mentioned sports and I feel like the live stream of the Love Is Blind reunion was a good test run for them when it comes to live programming. Is it a big deal that that didn't go well?
You know, and they addressed that yesterday a little bit, so they did talk about, you know, some technical bugs. It obviously is important for them to have all the infrastructure in places before they embark on something as ambitious as sports programming. I think they'll get there. I mean, obviously they are. There are going to be some kings, some hiccups on the way. I don't think it's as
big of a deal. They did finally get the show up and running, and they're going to learn along the way, so you know, eventually they will have all the infrastructure.
Isn't it funny though, Geita that you feel like the streaming services all this highly produced content you know, you know, you can watch it at any time, doesn't matter when you watch it. Is now kind of going back to the linear model of destination viewing or specific times, whether it's through sports or something like a live feed.
Yeah, I mean that's kind of interesting, and I think what Netflix is really trying to do here, I think is just kind of build anticipation, create bus. I mean, if you look at reality series and something like you know, Love is Blind or I don't know, Nailed It or all those making competitions. I mean that's something that you typically have on in the background as you're folding laundry
or kind of you know, unloading your dishwasher. But I think they want to just create the bus, create anticipation, so that you have this audience kind of coming in to watch it, almost like appointment television. So it's really just more ways for them to you know, have a captive audience, which eventually, hopefully they can sell to advertisers.
At some point on that exact note, advertisers, they were going to roll out this ad supported model, What is the plan for that? Because I have not seen that yet.
So the ad supported model is up and running. They did not give us necessarily any subscriber numbers around that, but they did give us some directional data points. So what they did say is that it is going according to plan. They probably I mean, by our estimates, they probably have about two twenty half million subscribers on that AD plan. There's still a lot more market to capture.
But I think the really interesting point that they gave us is even though the plan is priced at seven dollars, they are actually making sixteen dollars per subscriber because they're able to attract all those advertising dollars. So essentially they're agnostic between an AD supported consumer or an AD free consumer. Because you remember the standard plan, the standard Netflix add free plan costs about fifteen and a half dollars.
So the AD supported tier and the cracking down on password sharing, that's catalysts for the stock to move to the upside ultimately when they get it all in place. And I'm just worry coutely and should we be concerned about the delays here and kind of rolling this out or nah, not.
Really, I picket it in the scheme of things. I mean, it's probably a few months out and they needed to kind of they need to execute well, and it was essential for them to kind of roll it out in a few test markets, get those learnings, and then kind of implement it. Was it was really interesting that they first rolled it out in Canada, and they pretty much look at Canada as kind of this proxy for the US. So they've got all their learnings from Canada. They know
how exactly the audience reacted, the users reacted. They kind of know what to expect now when they do a much broader rollout in the US, which is by far their biggest market and where they need to execute really flawlessly.
Hey, one last question. You know Netflix has been telling investors stop fixating on my subscriber model, take a look at like sales and profit. Are they right to do so in your view?
I think so? I think investors and Wall Street has to pick a lane, right if you wanted. I mean, all along it was the subscriber story. Then last year you had the great Netflix meltdown, the great Netflix correction, and you know they said, okay, subscriber growth has hit a wall. Start focusing on our aftability metrics. And you know,
investors rightly started focusing on profitability metrics. Nobody is chasing subscribers anymore, and so now when they are reporting plug you know, good profits and good free cash flow, we got to give them credit.
This is why we want to talk to you. Gita ring Anathon. She's technology and media analyst at Bloomberg Intelligence, knowing all when it comes to Netflix. Joining us from our Princeton, New Jersey bureau. Gita, thank you.
You're listening to the Bloomberg Business Week Podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App, or watch us live on YouTube.
All right, let's get back to Tesla because that is certainly a big focus for investors. Dot down just about one percent. Here in the aftermarket, we talked about the valuation, especially as the company continues to cut prices. We talked a little bit about margins, a little bit light based on what the street was expecting. So let's get to the valuation side of the story and the fundamental Esha Day is Bloomberg News Equity Markets reporter here in our
Bloomberg Interactive Broker's studio along with gay couple Lot. She is Bloomberg News Auto reporter. She's on the phone in our Detroit bureau, and I do believe you know, Gabby, We've got to start with the fundamental story. What are some of the key takeaways that you see? We just were kind of running through the numbers with our TV colleagues, But what jumps out for you, hey, Carol?
So yeah, I think going into this, we all knew that margins were going to suffer because Tesla has been implementing price cuts around the world. But I think a floor that the street had was twenty percent gross margin, and they came in with nineteen point three percent gross margin. So it's not a lot of difference, but that's sort of the floor that we thought they would try to
stay above, and they did in this quarter. And if you look at I'm just going through the letter, Tesla's letter to investors, and the opening line talks about in this current macro economic environment, this is a unique opportunity for Tesla. It talks about how basically they are going to underprice their competitors.
We see this right with I mean, China has done it right on steel and close and you know, so, I mean, we understand the strategy to be fair, yes.
But I mean, I mean Tesla does. China is a huge market for Tesla, and I do have an assembly factory in Shanghai, but that I don't think, you know, it's not totally the same thing as like the China. I mean, Tesla still builds vehicles in America, I think, and employees people in the United States, and you know, DOES is doing this in the United States, a lot of it, so, including the cyber truck, which they just said also that it's on track to come lader this year,
start production later this year, I should say. So it's really about thinking about you know, Elon Musk from the beginning, even when he was talking about going through production. Hell, we didn't think he was going to make it. He's always always always stressed that he was going to drive down cost, and now we're going to see him leverage that.
And it's just a matter of if you've been doing this, you know, for a decade versus you know, GM or four or Stilantis or Volkswagen or whoever, who are kind of just now coming into this. Even though they're you know, legacy automakers with a lot of manufacturing experience, they don't Tesla has more experience than they do at building evs and that gives them the advantage to do that. I mean, that's part of it.
So, and this is what's key. We're talking about, not just the cost when you say driving down cost, the cost of producing it as well as the cost of the actual vehicle both.
Yes, I think yes, yes, I mean the way he can cut he's betting that. I mean, you see other I mean I cover Stalantis, right, So the CEO Stalantis will always brag about how he has a that you know, car sales around the world could drop forty percent, he would still make money. And that's because you have you take a lot of cost out of your manufacturing. And that's I mean, Tesla has sought to start producing batteries in house. They're talking about processing their own lithium to
make batteries in Texas. They have you know, they make a lot of parts in house. You know, they're not like other car companies that buy all this stuff from suppliers, you know, down the supply chain. That's what we saw during the chip crisis, Tesla did. You know, everybody suffered in the auto industry, but Tesla did fair better because they did so much of this stuff in the house
that they could be nimble. They could take a semi conductor chip and rewrite the code and make it function for another purpose or another thing inside the vehicle.
Yeah.
So yeah, well, Asha, I want to bring you in here. Tell me what you're thinking about the market reaction. Is there more disappointment than you anticipated.
That's a great question. So, as Gaby mentioned, you know, the twenty percent cross margin was sort of the hard line that everybody was looking at. Investors are trying to understand, you know, this land craft that Tesla is kind of getting into, at what price is it coming for?
So let's talk valuation, right because if you pull it up, I mean we've got Tesla at a current pe of about fifty two, a forward looking pe of almost forty six, and we know investors were and be focused on, especially with a company that's been cutting prices absolutely.
So that margin is the like one of the big corner stores of the valuation that Tesla has. And the Tesla is valued at like, you know, forty seven fifty times earnings forward earnings when you talk about GM or four, that's about six seven times, So you know, the disappointment on margin is a big disappointment when it comes to Tesla compared to like any other automaker, because that that is sort of the corner store that's holding up the valuation. So if GM has to cut prices or four has
to cut prices, that's still understandable. But Tesla, even though it has scale, doesn't have scale at that point where it can hold up the valuation. Can it bring in as much revenue, even more scale and really cut down the cost of making those cars to at some point, you know, drive these margins back up.
Yeah, So, Gabby, should we be valuing Tesla differently than a GM or a Ford.
Ooh, that's a very controversial question. Obviously, for years we heard Wall Street say that this was a tech company, not a car company. I kind of feel like both are true.
How do you report on it?
Like, how do you think about it?
I take the technology company stuff with a grain of salt, because at the end of the day, they are making their still metal bashers. However much they don't make you want to escape. I mean yes, And you know, when you see Elon and I look at this investor letter and they talk about their strategy going forward, they're talking about we're still making investments in autonomy and vehicle software, so that speaks to the tech question you're talking about.
Tesla believes that they you know, obviously they're quote unquote full self driving, which is not full self driving, but they're you know, autonomous features in the car that have gotten them into hot water with regulators. Nonetheless, they believe Elon still seems to firmly believe that that is a growing revenue source in future, along with other software services in the car, and that's something that all the carmakers
are looking at now. They're trying to not just be metal bashers, but they also want to sell services to consumers through the car, which obviously pits them against Apple and things like that. There's one other point I wanted to make Carol. As we think about this, don't forget about China. I'm just looking at you know, there's been a lot of headlines about what's going on the auto market in China. Elon had a very interesting relationship with China.
All the other automakers were forced to do joint ventures where there would be tech transfer with their Chinese competitors, not Tesla Tesla. Elon held out right he never did that. He came in and built a plant, you know, once
he owned it himself quickly. Nonetheless, nonetheless, you see by d you see these other domestic Chinese car companies gaining share in the Chinese market, not just Tesla, but everybody is kind of feeling the pressure there from some of the you know, the Chinese car companies have matured and they're making some good product now, which is another say.
To think about when we think about the valuation. And Maddie, I knew you wanted to ask that one thing when.
Its Tesla Gabby Real Quick Inflation Reduction Act, they reported an increase in regulatory credits this quarter. How big of a deal is that for Tesla moving forward?
Okay, well, I think it is going to be significant. And the CFO, Zaka Kirkhorn, talked about that last quarter and I'm definitely going to be watching for his comments this quarter. But just let's just make it clear in
folks minds. Like one thing is the regulatory credits that is that's been around for years and that's basically when another car company can't meet the EPA's fuel economy rules, they can actually buy credit from Tesla, which has nothing Tesla does not make combustion engines, right, there's no they're all zero emission vehicles, right, So that has been another kind of revenue cushion. Margin cushion for Tesla is his credits. But as more car companies get electric vehicles, they don't
need to buy from Tesla. I mean, you know, for example, Chrysler and now Stiland has had a huge deal with Tesla, and they weren't the only one. So I'm trying to look at it there the let's see regular and trying to look for regulatory credit. But basically, let me just say, yeah, IRA is a different deal. The IRA is about Biden administration. The federal government is paying companies to make batteries on US soil.
Right.
Tesla already has a completely scaled and they're going to expand it giga factory in Nevada, and they have one in Texa. They're building it. They have it in Texas. They're building batteries in Texas. So that's another source of government revenue. And it's all about how many batteries, how many kill a lot hours of batteries you made? Guess what? Like I said, they have first moved for advantage. Tesla has been doing this longer, and they're further along.
This is what is like when it goes back to Esha's story that's on the Bloomberg and you should check it out. This is why you know, it's like, yeah, my valuation, I got it, I'm worth it.
All right.
Well, let's see what Ross Gerber has to make out of all of this. He's president. You have Gerber Kawasaki Wealth and Investment Management, a Tesla shareholder, a Tesla car owner once wanted a board seat and then did not. He's with us, back with us on Zoom from Santa Monica, California. Hey, Ross, good to have you here. I know you're looking at all the news coming out of Tesla's stock is still down I think about three or four percent here in the aftermarket. What jumps out for you.
Well, what jumps out for me is what I've been saying forever, which is Elon needs to spend some money on advertising instead of just sacrifice some gross margins and cash flow to lower prices. And he's treating the car like a commodity, and so you know, if there's less sales, they just lower the price, and if there's more sales, they raise the price, but that's actually not how you sell cars. So I think that this quarter was in line with our expectations, so that's the positive. It wasn't worse.
But you know, when sales are up forty percent but revenue and profits are down, there's an issue you got to deal with. And blaming the macro environment, like a lot of people want to do, isn't isn't accurate, you know, So Tesla needs to address the demand side of their business, whether they like it or not.
Well, to be fair, they also blame the weather in California.
Ross do you suy that.
That was for solar deployment though, but yeah, yeahyeah, yeah.
Yeah, fair enough.
Do you do you think on the valuation side, has your perspective changed at all? Do you think the valuation is fair?
Yeah?
I think the valuation is fair, and I think we've been running at fifty times earnings and originally about six eight months ago, our earnings expectations for this year we're six dollars, So we were at around three hundred dollars for Tesla and now they've been lowered to under four dollars. So if you do do fifty times four dollars, you're at two hundred dollars right now we're seeing earnings that might not even make four dollars. So I don't think
the stock's acting irrationally. And I think for investors who have a long term focus, you know, Tesla's trading for what it's worth, and so if you're a long term investor, it's a good value. But if you're a long term Tesla shareholder like myself, it's very disappointing. You see earnings going down, right.
You buy, you sell shares of Tesla. We know that we've talked with you a lot. Would you buy at this valuation? And as a stock is going down about three or four percent here, at least in the aftermarket.
Well, I think you have to look at it from the perspective of if I'm an investor with cash and I'm looking to make investments with Tesla still be one of our top investments, and absolutely it would be. But the question is is if you're heavily invested in Tesla today and that's all you own is Tesla, is this a smart investment strategy? And I would say no, there's a considerable amount of risk that wasn't in Tesla a year ago.
So are you upbeat though that they're saying they are seeing an ongoing cost reduction of its vehicles. You know what they're doing, right, They're cutting prices to grab more of the market. But they're also saying, we're gonna be able to cut the cost of production. Do you believe it? Can they do it?
Well?
I was just there. Absolutely they can do it because they got a massive factory that's only producing a couple hundred thousand cars that can produce over a million cars. So when you think about the point of scale that they're in, there's no doubt that they can cut the cost of the car. But the problems is as they increase production, can they sell all these cars? And if they continue to lower prices faster than costs are going down,
then we've got a real bad situation for Tesla. And that's what my concern is when you haven't tried all the leave to sell cars. But one thing I think we can safely say that Elon's new job at Twitter is not helping Tesla sell cars.
Yeah, and if they're going to do some advertising cuts into margins, do you hate that he's cutting prices? Just got thirty seconds twenty five? Absolutely?
I think Tesla's a premium product, and I think it serves what we call the mass affluent marketplace, which is massive. And I think the continuing and cutting prices actually hurts the brand, and so I'd love to see Tesla try to hold prices here and try to sell cars any other way.
All Right, Gonna leave it on that note. We know a busy afternoon, so so appreciate you weigh Have you been buying prices any Tesla's on the price cuts ten seconds?
Well, no, I already have to Tesla's and they've lost value, so I'm not happy.
All right, Well said, Well said Ross Gerber. Thank you so much, President and Chief executive Officer Kerber Kawasaki Wealth and Investment Management.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business App, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Continue to track developments daily when it comes to AI, in particular, generative artificial intelligence, increasingly creeping into the conversation is also the creepy thought that AI is like a person sentient. There's a great story on the Bloomberg about that and reminding us that machines are not conscious. So let's get to our next guest. See what he has to say about what's going on when it comes to AI.
He is head of and co founder of a company that has been named to Fast Companies prestigious annual list of the world's most innovative companies for twenty twenty three when it comes to the AI category. With more on that, and let's get into the company. It's an AI powered app development platform builder dot Ai. I think I need AI right now to help me read. We welcome co founder Satan Doogal. He's Dev Doogal, co founder and chief wizard a builder dot Ai. He's here in our interactive
broker studio. Sorry my introduction was too long. I should have just said hello, come in.
Thank you so much for having me.
Good to have you here with us. Tell us, first of all, what your company does specifically.
So we allow people who don't understand technology to be able to.
Build software, so anybody can build.
Anyone And why is that important?
Right?
If we think about every small business every department in a large company, every entrepreneur with an idea they need to be digitally native, but they have no idea how to be digital native. Like the average person when you say Java, thinks coffee being at Starbucks. And when you ask them how do they use Excel? They use a calculator with it. And that's the average audience. And how suddenly do they become relevant in a world that's so digital?
Can they just hire somebody to be digitally native?
Yeah, and you have five hundred million developers worth a demand and fifteen million developers with a supply. But the issue is much bigger than that. I give you a really funny an average. So I have two little children, and if you say to them, paint me Picasso and art class, it's pretty bad. Then you put five pictures of Picasso around it and say, paint me pickass So it's much better. And then you say to them you can cut up these five paintings and make Piassa. And
now it's something you'll put on the wall. And I think, you know how we build software to people that are not technically it is the same thing. They need people to pick and choose things from things they recognize just like they order food at lunch or they order a kitchen and that's how software should be.
So what are you seeing in the trends of the entrepreneurs that are coming to you to use your platform. What's changed? What's been the single biggest change you've seen over the past couple of years.
So I think firstly the speed at which people are coming and the sheer of velocity COVID it was interesting. It was like a massive tailwind, but it was a gating function. It's like, we're not going back to the old way. I think the second thing we've seen is it went from a nice to have where I might speak to my cousin or the person down the road to help me build a website or help me build an up to my business is not going to work
unless I have this working or this problem solved. Right, I'm not going to succeed in my job in the finance department in a company.
Yeah. That two year plan to be really all in on digital.
Yes, got to do it now. Yeah, it's accelerated. And I think that the third has been for us is people have basically let go of the idea that I need to be a developer or I need to be a programmer, and they are all in and saying I just need to get on with this now. So to the extent that someone can help me, I will take it.
You guys are powered, as we said, or I tried to say the introduction AI powered app development platform. So what is the role of AI in this?
So there's a couple of things. Firstly, our user experience with the customer is like a Domino's Pizza experience plus conversational AI. So you talk to the system and as you talk, NATASHAI I will understand what you're saying and we'll say, okay, let me ask this question. But she may not ask the question that the human might ask the question. And that's important because we're sill at a stage where AI is a toddler, not an adult, and so having a human in the loop is really important
and we realize this our own experience. The second is there are things that a machine can do, for example, like does the app look like the design? It's a computer vision problem. We don't need a human to look and go through every single screen on every single device and highlight you know what's wrong. And so those are really good examples. Our entire platform is powered by knowledge graphs. I think about a knowledge graphs like a synthetic brain.
It knows what you want to build before you know, because it's got so much data and so many relationships between them. But the most important thing is what we're what we're really seeing as an industry trend is the shift towards making humans more creative so you don't have to do the benign work?
Is it kind of like I love editing, so like somebody writes something and then you go off and edit it.
Is that kind of how we even further?
Yeah?
Look, so I think the editing is even I think the editing is a great analogy, right, And I think that's what you're getting. What's what we're seeing now is eighty percent of the work can be done by machine.
Yeah.
The last twenty percent is the human power of creativity? Right?
Is chat GPT then? And I'm calling it that, but I know it's a lot bigger than that. Is that a tailwind or a headwind for you?
I think it's a tailwind, you know. I was joking with someone this morning that suddenly llms are things that you hear on the tube. The large language models, which the acronym that obviously what chat chiped's underlying is six months ago, no one talked about llms in the tube or chatchiped in the tube. Now suddenly everybody talks about.
Airbody this, and this is something we were trying to talk with. I was with our Rachel Matt, who covers AI for Bloomberg News. I mean, what is it what happened that all of a sudden this is dominating our conversation. AI is not a new thing. We've been using it already. We were talking about before you or as you came in that I read a sentence and you know, whatever program and it helps me finish the sentence. What is it that happened? Was it just Microsoft buying something or
what was out there? What was technologically that happened?
So I think it was like the perfect storm, and it's it's like, you know, you had a piece of technolog that had just reached the light level of inflection. It got in the hands of general public, they could actually do things with it. You had enough people writing about it, and it drove into mainstream news so quickly. Keep in mind that the reason has become so prolific is a part of also how news percolates today compared to say when AOL came out with the internet way
back when, right in the early intern days. Easy to quickly, it's very easy to go very quickly.
It's all bite size your business. Tell us about growth rates. We're Bloomberg. We like numbers. Tell us a little bit about what you guys are doing, and you're profitable. What's your growth rate?
So we grew last year at two hundred and thirty percent year on year. The year before we grew to an.
Eighty two Are you talking toplant?
What are your top line revenue?
Okay?
And two?
Tell us what kind of numbers.
It's it's the it's in the in the in the high hundreds of millions. It's low in the hundreds of millions, okay. And the year before we grew it three hundred percent year in year. We've only been out of beta for
two and a half years. Profitable, we're almost there, okay this year on and off, I mean technology, these were also investing a lot, right, So, but for us it's the more important thing is we're really focused around building a business with strong economics, and so you know, we we return between four to six times marketing and sales, so our customers really stick onto the platform and they spend more.
All right, really interesting, and it really just plays into so much that's going on in our world. Come back, let's know how the growth is going.
Thank you really appreciate it to come back.
Yeah, really fun, really appreciate. Sachan dev Dougal, co founder and chief wizard. What does a chief wizard do?
Just you got ten.
Seconds learning to be a CEO?
Okay, that's cool, CEO adapt that's a nice cover. He is a chief wizard and more of Builder dot Ai in our Bloomberg Interactive Brokers studio looking forward to and coming back and giving us an update. All right, you're listening and watching Bloomberg Business Week right here on Bloomberg Radio.
This is Bloomberg Business Wait inside from the reporters and editor who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.
All Right, everybody, Well, the repo man is, why.
Are you I'm so sorry that I can't control.
It's kind of funny.
Well, this whole idea is just really charming. He's back, perhaps a sign of our times. We're talking about the Repo man. Yeah, it was not just a movie. It's actually a real man or woman who's out there repossessing our cars. Let's get into it with Bloomberg News Personal Finance reporter Claire Valentine, who tracked him or her down and a convention. Who knew there's actually a convention out there?
The stories of the upcoming new issue of Bloomberg Business Week on newstands starting tomorrow, already online at Bloomberg dot com, slash Businessweekend on the Bloomberg terminal. So let's get to it and more on her reporting, Claire joining us in her Bloomberg Interactive Broker studio al the editor of Bloomberg Business Retil Weber, and Jill I have to say when Claire I was in the makeup room a while ago and she's like, you don't even believe what I'm doing.
I'm like, Repo, what what's going on? So so glad we can talk about this story.
Are we not going to talk about Boys to Men? Because the Boys to Men was.
Movie?
I mean, it's a certain movie. I don't know if it's going to be this one. But somebody got to the end of the road. All right, Okay, the connection, so you get yeah, you get that, there's the road there. Yeah, the producers all over that one. Okay. So this immediate with the moment Claire started talking about that story about the return of the rep a man, I was like, oh man, you had me at the But the repost
story is a really significant one. The car is so central to the American economy, and when people start to lose that car, I think it has some bigger implications for the US economy. But I do want to start with this convention because lo and behold, there's a convention for everything, and of course there's one for REPO men. What goes down at the REPO convention? Claire, Well, as.
Soon as I heard that this existed, I told my boss I have got to go to this and just see what it's all about. And it did not disappoint. It was a two day convention in Orlando, Florida. So I went down on an airplane full of screaming children going to Disney World and college students on their way to spring break, and got this convention and the first thing that really struck me was how many tow trucks they managed to get in this hotel. They had displayed
all their tow trucks. There was all these vendors, all this technology on the best way to repo cars. And it really got real when one convention attendant looked at me and said, yeah, everyone in this room has been shot at at least once.
Why these individually? Is it largely men?
A lot of men? But it's you know, it really is all small business. And I'm really glad I went because in doing stories about the repoman and the consumer, it was nice to put actual phases to this. And what really struck me was that, you know, there is this narrative of the evil repo man, and I'm sure it's true in some cases, but no one here is getting super rich off repoeing cars. He's a very down to earth, regular Americans that just happened to make their money taking cars from people.
Okay, so how is that business trending? And by business I mean repos Right, this is not something that you know, we've really seen for a while, right is it? How is it back? And how big is it?
Yeah?
So during the pandemic, repos largely dried up. There was stimulus checks, a lot of leniency from lenders on pain auto loans. Now things are kind of starting to turn, and I think this convention really marks almost the start of what we're going to see as a surge in repossessions. The estimates are that they were about one point two million in twenty twenty two. It's up from last year, but still down from about one point seven million in
twenty nineteen. So these are really picking up, and I think the convention as a whole was this great window into the economy. Right now, do they.
Play any jokes on each other at a convention like this?
The jokes that I saw, Let's see who's there. The highlight was definitely the repo demo. There's some jokes thrown around.
There with the demo.
The repot demo was all of the convention attendees filed out to the parking lot, where I thought this was very poetic.
It was a.
Giant tow truck that was repossessing a Toyota Hybrid. So it was like this very liberal car that they were like re possessing, and they everyone was crying around the tow truck was getting hooked up to take this car away, and they were demonstrating all the best techniques and how you know what the repro agent honing techniques, towing techniques,
That's what I thought that was the best one. Well, the thing that that stood out to me the most is that they really emphasized that when your back is turned to the situation behind you, that's the most vulnerable because you're at risk of violence.
Because you have to do it right as somebody who's repossessing right. You have to physically do it so like you're not.
Yeah, and it can get really dicey. That was another big takeaway. I had no idea how dangerous this industry was.
There's the other side of this. You talk to people who have had their vehicles repossessed, and I'm curious what came out of those conversations.
A lot of people really struggling right now to afford their car loans. We saw car prices skyrocket during the pandemic, a lot of supply chain issues. A lot of people in America just have to have a car, no way to get around if you're you know, don't live in a city with good public transportation. So people are taking out loans with insane interest rates, I mean nineteen twenty percent, and their car payments are just so high. There's not enough money to go around, especially with inflation.
You talk about Sarah Fader in your story, and she's the one right who's got a nineteen percent interest loan from American Credit Acceptance.
Yes. I went up to New Haven and met Sarah, met her family, saw the car, really talked with her about her situation, and it really hits home just what a lot of people are dealing with right now. I mean, her rent had gone up, her groceries were so expensive, She's got two teenagers, and with a high car payment, there's she's such a tough spot.
And lenders are excited about making these loans, even if they're lending out that money to people who they know can't necessarily afford it.
Right, Yeah, it's the whole way they package up these auto loans into bonds. In some cases, investors would still get their money back with interest if even three quarters of barers so falls it on the loans. So it's of course, you know, moves to Wall Street where they're eager to package these up and sell them and make money off of them.
Okay, So with the people that you talked to. See your car gets repossessed and you know you've lost out in that vehicle. Where does the story go from there? What do they have to do to get it back, to get back to work, to get all that stuff that not only has impacts for them, but also the economy as a whole.
Ring. Yeah, in many cases, it's not just the back payments that they have to make that they haven't paid so far. It's additional fees for repossession and for towing, and then there's the hit to their credit score, which is going to affect them in the future. I talked with a couple of people who'd had their cars repossessed that essentially just had to count it as a loss. They didn't have the money to get the car back, so they were going to have to just move on
with their lives in any way they can. But it definitely you know, when people suddenly don't have a car, they can't get to work, maybe they lose their job, and it's just this whole spiral cycle.
So you know, what I'm also curious about is the individuals who are the repo man or woman. Do they think about this like in terms of that there are people and you know, with problems and financial problems. I just wonder, is it a job or is it a lot more than that.
I think that's a great question, and it is, you know, I don't think they're ignorant of that. But I do think what came away from me from the conference was very much I think there's this attitude that REPO men are misunderstood, and it was a bit of a.
That's another new movie or we're talking about but go ahead, go ahead.
That the REPO men were sort of like, we're the good guys and we're just doing our job. No one understands how hard or how dangerous that is. And I think, you know, it's it's easy to point your finger at at the villain in these situations. I do think the truth is more nuanced. You also have in some cases predatory lenders that are giving out loans was kind of high interest rates. So it's a whole system that contributes to this kind of crisis.
Okay, I'm curious about the Python. Can we talk about the Python?
Yes, the Python.
The Python.
It's a pretty impressive truck. I'm not gonna lie.
It must just like make this room get really excited a room full of REPO people.
I wish I had seen them get these tow trucks into the conference room because it was a very nice conference center. I mean this was like palm trees this one. I mean it's Florida. It was Florida. It was very nice. And then all of a sudden you look around and there's five tow trucks sitting around. It's I mean, they were huge. And what I love the most is that to sort of demonstrate how they work, they had this little toy car that they were towing that was just
like the size of a kid's little tricycle. It's showing how you hook it up.
So they have a sense of humor.
There was a certain extent I eighty eight thousand dollars.
Though, and these are small businesses, you know. I found that to be really interesting, Like it's it's not like it's some big company. It's like you're out there on your own reprossing vehicles. Was that true for everyone in the room? Were they all small businesses or how many of them work for somebody else?
I mean, I would say most of them were small businesses. I mean you look around at the clientele and These are not you know, millionaires, businessmen in suits. These are very you know, blue collar kind of workers. And I'd say maybe they have, you know, a place with at most to thirty employees, but there are really giant firms doing this well.
It makes me wonder, Claire, like, on a personal level, was it ever hard for you to walk up to people and just say like, hey, can you give me your life story?
Were you like nervous at all? I was only because I'm pretty sure I was the only journalist there. I'm sure I am one of the only women, one of the only women. These people are not huge fans, so got a lot of that, got a lot of people coming up to me and being like, oh, hey, I heard you're the journalist. Yeah, so it's me.
Honestly, I went to a men's rights conference for Bloomberg a few years ago.
It sounds very similar.
You're like, hey, yeah, sorry it was Did.
You talk to the journalist?
Yeah? I do think. You know, there are pros and cons to being a young woman in this industry, and you know, lots of cons, as you and I know, but one of the pros is that kind of non threatening.
Yeah.
I think if i'd been a big guy coming in there talking to the reputman. It may have been a little different. So it was a very unique situation recording wise that I've been in.
Does make me wonder who do these people work for? You know, like and like how do they get their next job?
Oh?
This is fascinating. I had no idea the technology behind all of this. There were so many firms that were advertising their databases. So in some cases these small businesses sign up to have access to databases with all this license plate data. Oh, it's all proprietary, right, And it was fascinating to me. I mean, these are all this is public sector, this is or private sector. This is not government data.
So somebody's feeding it into these these apps if you will, or.
Whatever, like basic like readers that compile all of this and then REPO agents can access it to then track down your.
Car AI's work. What do they make?
How can they afford that?
Eighty eight?
That's a dullar?
What is it called?
Python?
Yeah?
What I want to see is with the Python get.
Repossessed'll circle right? Yeah, definitely? Yeah. I you know, in terms of profit margins on these, I don't have an incredible idea. I do think they have had a tough couple of years.
Yeah, because the numbers went down, right like the pandemic there was you know, the chart in the story sort of says it all. It's like it's backed because you know, there was a lull and so and speaking to everyone there, though, do they think that this these numbers are going to keep going up?
I think so, yeah. I mean that's I think the fact that they dropped so much really has contributed to this sort of you know, our industry is in crisis and risk kind of mentality. And now what I saw at the conference was a lot of people getting more excited or getting more like, our industry is on the upswing now we are.
Bad news is good news.
Bad news is good news. Yeah. Yeah.
I also thought it was interesting that, you know, one of the things we talk about with I feel like everybody who comes on is like the tight labor market, and they're dealing with that too, just quickly they are.
Yeah, they're having a lot of trouble hiring workers, especially because many of their repo agents from pre pandemic went to other industries.
Right, right, exactly did they try to recruit you?
Just I'm just curious.
I quite have the profile.
Unbelievable, really funny. You took us to a place that I think nobody has really seen. Claire Valentine, she's personal finance reporter at Bloomberg News here in studio with us, longing till were the editor of Bloomberg Business Week, and of course the stories we mentioned coming up in the new issue of Bloomberg Business Week out on newsstands tomorrow, already online at Bloomberg dot com, slash BusinessWeek and also on the Bloomberg terminal.
Are you gonna get a python anytime soon?
Explain the song to me? Was that from the movie It's Boys.
I was just laughing from boys to men.
I didn't anticipate boys to men playing in my ears. Like the wedding. He wanted to get like all the couples get up on the floor.
This is Bloomberg.
I'm brother Marc, a journal How about you let me drive?
No, no, no, no, honey, please, how do the riding gravels?
Let's wat I want to drive.
It's a good question time.
This is the drive to the Globe.
Dot com for me.
I think we'll buy around you on Bloomberg Radio.
All right, everybody, just at your eighteen minutes left in the trading day. Really the little changed here just down about point three percent on the DALLA. So the biggest move on a percentage basis right now is for the Dow Jones Industrial Average call it flat as you heard from Charlie on the S and P and the Nasdaq just one tenth of a percent here. Our next guest notes that with earnings releases picking up, some companies weren't
some pretty close watching. So let's get to it with Burns McKinney, portfolio manager at the Global Value Equity Manager and Texas based NFJ Investment Group. He is on the phone from Dallas, Texas. Hey, Burn's, good to have you here with Maddie and myself. So tell me out in Texas. What are people talking about? Yeah?
I think that people are still you know, they've we've been talking about inflation, inflation, inflation for fuite sometime, and it's something that you know, that's it's probably of all the economic statistics you look at, you know, whether people focus on GDP or earnings, it's the one thing that's kind of right in your face and you go to the grocery store, you see the price of Eggs. I mean, the price of gasoline is is advertised in you know, in five foot letters on huge designs, and so people
have been talking about inflation for quite some time. But you know, we are starting to see a shift such that I think the focus is kind of moving towards the fact that the economy is starting to slow.
So talk to me Burns about the stickiness of inflation versus the indications that you're seeing in terms of slowing. Because I have to wonder, I know you're in Texas, big oil state, but are you worried at all about these OPEC cuts making inflation stickier than we might be seen in the data right now?
Well, you know, OPEK, it really does appear that they've kind of settled on trying to establish a cost more for oil of around eighty dollars. That's something that probably in many ways makes it sticky. But at the same time, you know, that's something that as well, you know, at some point you start lapping you know, these figures and it no longer actually has the impact on inflation today. But you know, really investors are focused on inflation being sticky.
You know, there's there's been a lot of consternation of the fact that it hasn't been it's been pulling back, but it hasn't been coming down as quickly as a lot of forecaster, a lot of investors would would really like to see it come down. And you know, I
think that's something that just really involves patients. You know, they say that, you know that it took about you know, a year and a half or so for inflation to kind of peak, and expectations should really sort of remnage themselves such that it might take a year and a half for it to actually come down to prior levels, and even then it probably won't go all the way back down to that two percent sub to two percent level, because you know, there are some structural factors that may
actually keep it a little bit more elevated than it's been. You know, really, I think the primary one being just the you know, the reversal of the globalization and and the you know, near shoring of supply chains and may keep prices higher. But we do think that it's probably going to pull back and continue to pull back the remainder this year.
All right.
What we love is when a guest comes on and they say, we've got some names you want to talk about because we can get into the specifics which I think our audience really appreach it, appreciate, appreciates about around the much you know, debate that we are having on so many different macro issues. So, having said that, Zoetes zts is the ticker Animal Pharmaceuticals. If you will, this is a name that you like. It's up roughly twenty percent so far this year. I know people spend a
lot on their pets. I know I spend a lot of my pets. I know private equity likes the pet space. What is it about zoetis so that.
You really like?
Sure?
Yeah, and private equity definitely does you know there was one of the European competitor was just announced to an acquisition, Decra Pharmaceuticals. Yeah, an acquisition was announced just earlier this week. But yeah, I think this is the name that you know, you're looking for companies that have the company specific you know, benefits from long term structural tailwinds and they have a
couple of big ones. You know, this is the name that you know for those who an't is familiar with it, it's you know, really the leading pure play global animal health company. It was spun out a few years back from Pfizer, and you know, they split their business pretty equally between what they call companion care i e. Pets and livestock. So the two big secular trends, one of which is you're just seeing increasing demand for global protein
as you have a growing middle class. And then on the pet side, you're just seeing that you know, as you know correctly noted, you know, pets are becoming increasingly important members of people's families. And as that's happened.
Costly members and costly members families, there's been more Yeah, there's been more penetration of medicines used for pets.
And you know, I could say for our for our household, they probably have me forgo my meds before we would, you know, have our cat or our dog, you know, forego theirs. And that's something that makes it. It tends to be defensive for that reason, and it tends to give them pricing power, which is what you should look for in an inflationary environment.
So talk to me about true as Financial another pick of yours. It's a Charlotte based bank. Why why do you like it? Because we're obsessed with the regional bank story. So tell me more.
Yeah, this is one you know for contrarians who are kind of looking for, you know, the proverbial babies that have been thrown out with the bath water with respect to you know, some of the recent banking turmoil. But you know, for one thing, we do tell our clients that that a lot of the turmoil that we've seen around Silicon Valley Bank really was very company specific to them.
You know, they had some issues with hedging, hedging their assets as well as a very concentrated deposit base, whereas you know Truest it's uh, you know, it's now I think the sixth largest US bank, So it does have good diverse diversity of their clients. It was born with the merger of bb and T and sun Trust, and so they're located in a lot of the great places the South, the sun Belt, where you do have good
demographic and population growth. Right now, it trades at a discount to book value, which is a discount even to the regional banks. You have a six percent dividend yield that that does look pretty safe. They hiked it by eight percent over the past year, which demonstrates management confidence in the business. And you know, yeah, and you compare it to you know, where there has been some of
the turmoil. You know, roughly, you know, only half of their their deposits running shirt, which does prevent them from having any sort of run on a bank like you saw in Silicon.
Valance, Hey Burns. One last one I want to ask you about, certainly because real estate is on our minds, as you know, and wondering if that's the next shoot a drop coming off of the bank crisis not crisis, if you will. Alexandria real estate ticker is AR. It's up about off about fifteen percent so far in twenty twenty three, twenty one billion dollar market cap. They play in the Pharmer space personal care research thirty seconds.
Why though this name, you know, it's you know right now, it's traded about thirteen and a half time spun from operations. You have a nice four percent dividend deals, which we love. And what they do is they own office and lab space. They least a pharma, biotech and diagnostics, and so you know,
sometimes people sort of misclassify it. They think of it as being more of a real estate play, but really it tends to trade more with the biotechs, and you know, they have long term relationships with where there's academic institutions, all the places you want your kids to get into college, you know, Harvard, Stanford, Duke, as well as a lot of the big form of companies. And they have a great track record of growing their funds from operations every
quarter for just like five years. And so it doesn't really trade like the reefs, and as a result it should give investors a little bit of defensiveness in involved the market.
All right, but as we said, down about eighteen percent so far here in twenty twenty three, and that's after a year. Well, we know a lot of assets classes and assets where are really beating up?
Who was down about twenty sixty percent?
Hey Burns, thank you so much. Bernie McKinney, he's portfolio manager at NFJ Investment Group. Joining us on a phone from Dallas, Texas.
This is Bloomberg Radio. This is the Bloomberg Business Week Podcast. I'll a little lot of Apple, Spotify and anywhere else you get your podcast. Listen live weekday afternoons from three to six easterning on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch US live every weekday on YouTube and always on the Bloomberg terminal alone.