Alphabet Earnings And A Look Ahead To Facebook

Had some monster names last night, Apple, Google, Microsoft. Today we've got Facebook after the close and some really strong numbers. Um let's check in with Man Deep, seeing he possibly is the most overeducated tech analysts on Wall Street. He's a tech anast for Bloomberg Intelligence. Um Man Deep the story last night, I looked at the Google numbers and this is an alphabet free studio here, we're all about Google. I don't care how much they paid for the consultants

to come up with the alphabet name. UM Google to some monster numbers on the top line digital advertising. I guess that kind of follows up with what we saw from snap in Twitter. But that's the story. It seems like, right digital advertising is just on fire. It did and I think the real standout for me was YouTube. So if you look at the YouTube print growth, I get it the comps were easier, but the magnitude of the

beat really stood out. And I think what it goes to show if you compare YouTube to Netflix and Spotify, Netflix and Spotify both had a deceleration and subscriber growth. YouTube ad growth is growing, and it's growing in proportion to the time spent on their platform. So because people are spending more time on YouTube, it's translating into more ad dollars. And then there's a pricing Kaleman, because every

small business is advertising on a YouTube. So why are I've noticed that I spend a heck of a lot more time on YouTube? And for me, the reason is that they've just got the algorithm right. When I'm watching a video, I'll go there, how to change a clutch on a nineteen seventy two BMW or and then but then they pop up SNL videos on my you know, having nothing to do with changing a clutch, but that I want to see, so I start clicking through them, you know, so they know what I want even when

I'm not searching for it. Well, so that's where the AI element comes into play. They keep emphasizing how critical AI is to search YouTube and it really, I mean, there is nobody out there who can compete with YouTube just in terms of, you know, bringing all the content together that you want to watch. And I think that's what's translating into add dollars. We did some numbers. So if you look at you know, Netflix are poo, that's like a average revenue per user. It's like, at best

seventeen dollars per user. Guess what in case of YouTube or Facebook for that matter, that are poo. In case of Facebook, it's around two hundred dollars in North America. In case of YouTube, it's close to fifty dollars. And that just goes to show it. AD model is much better when it comes to monetizing. The user based subscription kind of puts the ceiling in terms of how well you can monetize, but not in case of ads. It's Facebook has a two R poo yes in North America,

and you're gonna see it in the results tonight. All right, So, just finishing up on YouTube, I'm putting my investment banker hat on. I'm making a phone call out to the folks there and saying, let's spin this thing out. You're gonna get a monster multiple on this thing. Is there any scenario where they spin out YouTube? I mean, if the regulatory landscape, you know, gets the better of them in terms of splitting the other than that, they're not.

They're not. There's not much to talk about that because but I would argue if they spin it out, it will be a market cap that's equal to the market cap of Spotify and Netflix combined at least. See, that's all I think, Mad. You gotta create value, you gotta gotta generate those feast all right, Well that's why you were the banker, you know. I just think about what videos I want to watch on YouTube now? And you know why others are you know how others are losing ground?

For example, why isn't Netflix stepping up to meet the challenge? Why isn't you know, Hulu or what do you watch? You watch the Disney Plus thing, right, Mandalorian, I just watched sports. Yeah, there's not a great sports you know in Europe we have does Zone, D A Z and I don't know what you have here, but that covers all Europe. PSP plus is kind of getting there. So so in terms of tech earnings, well, in terms of

all earnings. Man Deep we were talking earlier on the program a D eight point five percent of companies that have reported so far have beaten the streets estimates. And if you look at what was the chart I was pulling up earlier, I'll find it in one second. But it's it's unbelievable. How more every year, more and more um companies beat the streets estimates. So it looks like the Street just isn't doing a very good job estimating earnings.

And it's not like they getting it wrong on both sides, right, it's asymmetric. They're always forecasting too little revenue and too little earnings. Why do you think that is? I mean the secular trends that we are seeing out there, you know, cloud, online, advertising, online, you're logged in? Are you logged in over there? No? He's not Okay. I just want to say the chart is. I keep telling people because for listeners that have a terminal in front of them, to me, this is shocking.

It goes back to the nineties, g hashtag, b TV. Back then, only fifty percent of companies were beating In the two thousand odds we're beating in the last ten years. You know, it's climbed higher and higher. Now almost everyone's beating. Why can't analysts get it right? Like I said, these trends are very powerful, you know, the online advertising trend, cloud, online streaming. No one really expected the change to happen

this quickly. E commerce. Everyone talks about how we have pulled forward five years worth of e commerce penetration in one year because of the pandemic. So that is the reason Facebook. After the close tonight, are we gonna be blown away what we're looking for? Yes? I I think the nature of the beat will be somewhat different. This will be more of an ad pricing beat as opposed to a YouTube which was really ad impressions because of

the time spent way more than what people expected. So in this in Facebook's case, it's going to be driven by ad pricing because advertisers see value in advertising on Facebook. Is there anything sweet happening on the peripherals when you look at Google at the moon shots, any of those doing well? Where you look at Facebook, like Libra is

that's going to start to take off? So Facebook has pivoted to their own payments now they launched Facebook pay not no connection to Libra, and that's where you're gonna see that transition that it will be e commerce within the app and that's where the payments will come into. Still blockchain based or is it no? No, it's just any other payments like or uh, you know, behind the scenes they're using PayPal. But it's very similar in concept

to Venmo. What's the disappointed? What's their chat thing again? What's their chat service? What's happened? Dude? What's everybody in the world? America uses What's App? That and Russia don't use What's App? Are we going to monetize What'sapp yet? Yes, they are looking to make it more enterprise oriented. There are businesses that are exclusively using What'sapp to communicate with their customers. So, but I think the monetization will still be slow. If you compare the other businesses for end

encryption Instagram. Instagram will be another blowout when it comes to Facebook. I g Insta, what do you call it? I use Insta you know a lot. But What's App is like the way I communicate with everybody. And the interesting thing is, although it's end to end encryption, if I start what's apping you about Arames Ties. I'm gonna start getting ads in my feet for after That's the

way they do it, all right. Mendep Singh, a senior tech analyst for Bloomberg Intelligence, giving us his thoughts on all these tech stuff again Facebook after the close expected to be another blowout quarter. Let's get over to uh Jeffrey Cleveland right now, Chief Economy is of Payton and Regal, talking to us about what to expect from the Fed today. Jeff, We've had a lot of guests say, um, probably not

a big change in policy. But will j Powell have to justify continuing to um spend a hundred twenty billion dollars a month in his asset to purchase program? You had no change in policy, but yeah, I think he's gonna get grilled, probably the assembled masses there on some important questions. You know, for me, probably the most important question is this whole substantial further progress? And and have we made substantial further progress? The classic these I love

these phrases. It keeps me employed Fed watchers. But you know, if you look, we like to look at employment to population four year olds. We on that ratio or that on percentage. We were seventies six three back in December when the Fed started saying they wanted to see substantial further progress. It's now climbed, I guess crawled back to seventies seven point two um for comparison that that that percentage was eight point five before COVID, So I don't

know if that counts. In my mind, that doesn't count a substantial further progress, But I'm curious what Chair Powell has to say. So that would be the I guess if I was the reporter, that's the first thing I would ask to get an update on that, and then forward that question to Michael McKean, Yeah, please do. And then I suppose after that, I want I would want to see what the different disagreements are, you know, kind of kind of tease that out. What are what are?

And I think maybe one for me would be, you know, why continuing to buy the mortgage backed securities given how far we are into the recovery and the fact that the housing market is, I mean, it's on fire for for lack of a better term, So I don't know if that is necessary at this point. So I guess that would be if you put me in charge, I might cut back or curtail those purchases before I curtailed the treasury purchases. So questions around that I think would

be interesting to bring up at the press conference. So, Jeffrey, when tapering begins, what's it gonna look like? How is there going to be a big signaling event? Is that what I'm is that why I'm going to go out to Jackson Hole if in fact I do go out to Jackson Hole in August. I think, you know, tapering was so interested last interesting last cycle because it had

such a huge impact on the fixed income markets. But bond traders jumped to the conclusion that if the FED was tapering, that they were going to soon high rates. That's why we saw such volatility in the spring and summer of this time around. I don't know, I feel like it should be far less interesting. The Fed has done a pretty good job of trying to disconnect the two decisions, the tapering decision from the rate high decision. There they're two distinct things. So it shouldn't have it

shouldn't have the impact. It shouldn't be the signal for for overnight rate that it played last cycle. So I don't know, maybe we're just looking for something to talk about, and that's what we're talking so much about taper. It will be more of a non event this time around.

That's kind of my gut instinct here. Um, you know, I'm looking at real yields here, and uh, we're seeing yesterday we saw a tickdown to negative one hundred fifteen basis points, and I want, I'm starting to wonder, um, no longer why but um, if this is just part of the government strategy to I don't know, monetize debt to somehow inflate its way out of the situation that we've got ourselves into. That's historically what we do, right. Yeah.

I mean, I think what's happening here is that you you had a huge surgeon inflation expectations in the springtime, and that really peeked out in in the March and April period sort of like by the rumor or sell the news kind of we got some strong inflationary means and now but I think by and large, the market is bought into this idea that the inflation we're seeing is going to be somewhat transitory, and you're seeing that

work is way through the markets. So I think that's you know, really what's going on as far as the bigger plot beyond the scenes, I I don't know. I mean, I guess in general it benefits the market to keep sorry, the government to keep right slow. Um, you know, the effective interest on on the dead burden is quite low. But I don't know if there's a grand strategy. Well you know what made me think of it? And this is weird. Um, even I know this is weird. I've

been reading a book, um called Cannibalism. Oh, it's it's a great book. I highly recommend people pick it up. Um, it's totally has nothing to do with economics. But the guy the author quotes um Friedrich Hyak, who says, I did not think it's an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments. Now clearly this is a very Austrian thing to say, obviously, but it just made

me think. You know, um, we're we keep asking why yields are so low, but maybe this is just a way to um, you know, get out of the debt that we've had to spend, had to borrow U to fight COVID. Yeah, I think you know high is correct. You know, history tells you the story of of inflations and government inflations and and in wartime the role of central banks. So I think that's that's important historically. I

think right now, though, why are rates low? We have a huge amount of demand for fixed income security relative to supply. Part of the reason for that is that the FED has taken a big chunk of the supply off off the table. That's why we're talking about taper. They've been purchasing under in twenty billion a month, so they've taken on supply. If they were to taper, you know, I would put more securities back in the market. But I I still think the overwhelming story here is not

so much a central bank or government conspiracy. It's just this mundane supply and demand. All right, Jeffrey, thank you so much for joining us. Jeffre Cleveland, chief econress for paid in regal. Well, we've got a big i PO coming up, particularly for retail investors that are Reddit investors or meme investors that have been just really having an outsize impact on markets over the past several quarters. UM talking about Robin Hood Annie Massa, she's an investing reporter

for Bloomberg News. She joins us here, any, we've got this robin Hood ip I think it's pricing tomorrow. What's the latest here on this I p O. That's right,

Its chairs will begin trading tomorrow publicly. And one of the biggest things that we're watching and thinking about is that robin Hood says that this is one of the largest allocations to retail investors in an I p O. Ever, it's setting aside up to about thirty five percent of its shares for investors on its own platform for robin Hood app users, and they get access to the pre i p O shares um, which is unusual in uh

an I p O process. So it's trying to show that it's opening up this piece of the I p O process to regular investors. What kind of pops have we been seeing this year, Annie, and what's expected for tomorrow. You know, there have been moments in history when it was in vogue to have, you know, a doubling of the stock on the first day, and there have been times when UM companies have said that's leaving way too

much money on the table. That is one of the definite kind of cushion pull type situations with an I p O. I mean, any company is usually looking for that nice like price pop above cent or so in an I p O in most cases, but that question of whether you're leaving money on the table in the process is an important one, And Robin Hood has the additional pressure of having such a large slice relatively speaking of this i p O being allocated to retail investors.

So in an ideal world, you can see how they might want to see that big pop in price so that they can show how they've created value for those retails. But you're saying is basically the sweet spot. That's where people think you're not going too far, that you've lost a lot of um potential capital. But you also have the what do they what do they call that? The hype? The hype that you that you want for your IPO.

The hype factor is definitely something you want with And I'm not the it's not to me to exactly decide where they would want to be, but they certainly want to see the price rise having allocated so much onto IPO to their own customers, and either's to me at least a fair amount of regulatory risk to this company to this deal. The whole payment for order flow was an issue, um that I think is going to get

a lot of regulatory uh scrutiny here. Um just you know, kind of meme stock trading in general getting some SEC scrutiny. How's the market kind of thinking about some of the risk, the regulatory risk for this company in this IPO. In the wind up to this i p O, there have definitely been multiple regulatory inquides that have come to light,

some of them still ongoing. Just this week we found out about two new inquiries from regulators, One having to do with the fact that the chief executive officer and chief creative officer, the two co founders of robin Hood, are not registered with FINRA, so Finner has been asking some questions around that. And then separately, FINNRA and the SEC have been asking about employee trades ahead of that game stop those was that break on game stop trading

that robin Hood put into place in late January. So those are two new lines of examination that we just found out about this week. Of course, that adds to other spines of sixty million dollar fine from the SEC and a seventy almost seven million dollar fine from FINRA that we knew about and that have been settled already. So those issues are piling up for robin Hood, and uh, they'll certainly be something that investors will be looking at

as the company becomes public. What just got thirty seconds here? What time can we reasonably expect Hood to start trading tomorrow? We'll have to watch for it tomorrow, but it won't be right, you know, right at nine thirty. Necessarily you'd have to wait a little bit later in the day for those shares to begin trading. That's what I figured, alright, and so long these days, we used to get them done ten ten, ten thirty if it was if it

was a hot deal, hard to kind of price. But if it was just a running the mill, we'd get it open, you know. Within the first third was down on the floor at the n y s E for Ferrari and they got it done in about thirty forty minutes. Yep. So anyway, but we'll see how how hot this deal is. Any massive investing reporter for Bloomberg News joining us on

the pholde will be paying attention to that. Robin Hood I p O U tomorrow now the FED is coming shortly with the statement and the interview, We're all going to be paying very close attention here. To help us, uh decide what to look for? Is a j Oden investment strategist b n Y melon invest your solutions or at least a J give us what you're looking for, what you're hoping to hear from J Pale on the FED? Thanks for having me here. I think on what we're looking for is really the tone and some of the

language that they're using. Obviously, we we don't expect interest rates to you know, any any conversation about interest rates changing, But it's really just about what their sentiment is around inflation, you know, do they still see it as transitory and any sort of indication of any change from the um expectations of of interest rates moving. I think that's really what we're gonna be looking for today. Alright, So a J let's assume it's kind of steady. She goes low

for longer. Some people would say lower forever again, just just picked a ten year at one point to five. How are you and your team's at bn Y allocating capital. I'm thinking equity, fixed income alternatives. How are you thinking about that in this market, well, in this market, because interest rates are solo, we're really looking at the equities

and real lasses. The commodities is where the place to be, right I mean, with interest rates you know, near zero and we don't see the FED moving right now in the near future, it makes sense to be in those spaces to get a sort of a return on your investment. And ultimately we like US equities right now. I mean we're seeing some dollar stability. Um. Typically, when we were earlier in the part of the year, we were looking at more non dollar developed markets as well as PM.

But when we when you start to factor in things about you know, factor and earnings as well as the COVID Night Team pandemic and looking at some of the variants and how vaccination raids and inoculations are impacting those markets, we really like US equities right now. We have a overweight to the developed markets Europe and in UK, but really have a more of a tilt to US markets over UH than those non dollar US equities. Do you

expect that to change as vaccination rates pick up elsewhere? Um, you know, at some point we could see a tilt to to move back if there's any sort of indication that dollar is going to get a little bit weaker than we would like, we'd have a more of a

preference likely to Europe and UK. But I mean when we're seeing uh, you know, in e M countries, I believe, uh you know, the rates their vaccination rates are so low, and then a lot of the I guess the struggle that they're having with variants, and I guess if you not even look at the the delta variant, but also the potential for other variants to come to come up um and how they haven't moved to to a reopen.

I think that's really sort of the fear that we have or not that's the fear, But are our tilt away from those markets and looking more and and a little bit more stability in the US and those developed market countries. A J. We had some big tech earnings last night, Microsoft, Apple, Google, all putting up some really really stellar numbers here, Yet the stockture, you know, kind

of muted here. How do you think about some of those big tech names that have worked so well for so many investors really since the financial crisis versus you know, some of the cyclical names, whether it's banks, or energy that have been kind of the rotation trade over the last year and a half or so. How how are you guys positioned on the equity side. That's a great question. I think we're because we're in more of a mid

cycle recovery, we're looking more in quality. I mean, if you look at Q one, value performed well, we saw much of a steepening of the yield curve last quarter. It was growth that really performed well. But we're really looking at um quality now since we're more mid cycle,

we're recovery, looking at to that full reopen um. With the tech sector particular, you kind of wonder if there is some reverberation of what's going on in China and some of the uh, you know, regulation that's coming down apply if you kind of think at some point maybe that's the sentiment that is going to come this way. As you know, if you look at there's in three major event types can I think about it that have sort of indicated that there will be regulation down the pipe.

If you look at you know, the January six the interrection, you look at MEME stocks as well as most recently in the last couple of weeks, we've had the conversation from the UM the Surgeon General about the importance of misinformation disinformation. You kind of wonder at some point will there be regulation that these companies have to deal with and not necessarily will tech take a back seep. Will

there be a changing of the guard. Will we see leaders in certain areas that may may have been a little bit stronger in privacy, will they rotate to be more in the forefront in the tech sector, And will you see a rotation in some of those larger names. I don't think text going anywhere. It's where the innovation, a lot of the growth exists. But we could see some headwinds or some rotation in those leaders in those spaces.

I also wonder about um, you know, the effect of China on global stocks so far, you know, we've seen Chinese stocks get pummeled and you can't see it in the SMP or in the MSCI World Index, but sometimes, um there is an effect and it takes a couple of weeks or even months for it to come through. We saw that, for example in Are you concerned about that? You know, I wouldn't say there's a concern there. I

think ultimately, you know, China is a very large economy. Um, and you know, those those changes that they're making, although you know we're seeing the impacts of them in their markets. Ultimately it's it. I think it bodes well for a strong, strong, strong growth for them at some point down the line. Um, it's just it. I think ultimately the market doesn't like uncertainty, and it wasn't really for seen in some instances, and

so I think that's what we're seeing right now. I don't I don't see it as a pause for concerns means all right, A J thank you so much for joining us. Really appreciate getting your thoughts in perspective. A J. Odin These an investment strategist for b n Y Melan Investors Solutions. Again, in terms of asset allocation, A J. S think and uh kind of got to be in equities and with the ten year trading at one point to six percent, that that makes some sense to a

lot of folks in the market. We're gonna more coming up for you. Kind of got a little bit of red and green on the screen. We've got the FED coming up this afternoon. This is Bloomberg. Thanks for listening to the Bloomberg Markets. Podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three pt on Fall Sweeney I'm on Twitter at pt Sweeney.

Before the podcast, you can always catch us worldwide at Bloomberg Radio