Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news.
Find the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. A little bit of an investor meeting over the weekend. Now, who has investor meetings like on a Saturday?
The ones that don't want to have them while markets are publicly trading.
I think it's brilliant.
And if you want to be the center of attention, you know that people are going to pay attention on a Saturday.
I think it's great, and some people actually go out the Omaha, Nebraska to attend. One of those people is Matt Palozola. He's a senior insurance analyst for Bloomberg Intelligence. How was Omaha?
I was there. It was fine, it was supposed to be warm. It was a little rainy the first day, but I got to stay in downtown Omaha, which had some nice restaurants.
No, so let's get disappointed, Paul, So, I mean, do you literally thousands of people go into an arena.
Yeah, it's the downtown arena there. They have two days. The first day is essentially a shopping day where all the companies are there, people are buying stuff hand over fist. Did you get to talk to some of the managements of the companies? Which is coal? And then the second day is the actual meeting.
I'm sorry, wait at an arena like college orientation?
Like, yeah, no, I think it's described. It's the Chi or Chai. Actually don't know the name of the arena in Omaha. And there are sports teams that play there, so it's it's kind of like a smaller version of a sports arena that you might see here.
All right, so takeaways here, occidental patrolling, let's start there. What's burshore Hathway saying they're going to do that?
So he shot that down. He specifically brought up, we're not going to buy it. We don't want to buy the whole company. We might buy more of the stock, but we're not interested in owning the whole company.
And is that anything more than that? Like we feel like we've got enough energy, we've had enough exposure. Why wouldn't they take a control you didn't.
Really touch on it. I mean they have a lot of energy, they own a ton of Chevron as well. Those kind of operate in the same space. So and he said, why would we want to do that, I mean, they own the preferreds. Why would they want to lose that yield on those preferreds to own the stock.
That's a good point.
Well, you are at its core, as I discovered this morning an insurance guy. So give us the give us the highlights from Geico here.
So what was interesting is auto insurers have been really taking it on the chin for the pasting year. The first quarter results surprised on the upside because of Geico. So the results were better than I thought they'd be.
A G.
Jane, who's in charge of the insurance business and vice chairman, pointed out they had favorable reserve development and it was a little bit of seasonality and he kind of talked down the next two years. So it was a kind of earnings beat on that. But the go forward outlook not great.
So so like on the auto business, Detroitch making fewer cars, therefore there's fewer insurance policies. Therefore Geico's business growth that is coming down is that kind of the way I think about it.
Not necessarily. So what it is is maybe fewer cars being built, prices of those cars going up, those cars becoming more expensive to repair or replace, thus insurance claims going up. Kiko is actually cutting claim cutting policies to combat that. So their policies are going down, but not for the reason that they're being less cars, for the reason that they're just making less money so they want to stop losing.
And they still spend a lot on advertising.
They certainly do. All of them are cutting across the board, but cutting.
From a large starting right, what else, I'm sorry, what else in the insurance business? Like to explain those what else? Berkshire Hathaway has an insurance.
Business, so they have a I know, this is your favorite business, reinsurance business, which is insurance for insurance companies. And what was very interesting was there's renewal points at certain points in the year, and one of the big ones is January first, and Berkshire was kind of a non player in that huge player in the space. So there was a question of what are they seeing that we're not seeing, because this is the prices in reinsurance
are doing really well. And other reinsurance can be saying this is great. It's a generational market. And Berkshire, known as one of the smartest players, actually didn't participate and we didn't know what happened. A jet actually said at the meeting, you know what, a lot of capacity came on that undercut us in price in January, but in April we saw that capacity come back. So they're jumping back into reinsurance in a big way. Oh my gosh,
so who ensures the reinsurance the retro reinsurance. There's another level of it.
Actually, wait really yes, oh okay, that was scastic hing every single day. Let's talk a little bit about the cash pile of the Brickshire is sitting on here, so.
One hundred and thirty billion ish in cash. What was incredibly interesting is, you know, the takeaway a lot of headlines where Buffett says operating companies going to make less money next year, which he did say, and it was an extraordinary environment in the past couple of years. That demand was through the roof. If people couldn't buy one thing, they bought another, and that is slowing down, it's stopping.
But the cash that they're earning or the interest they're earning right, going from fifty million to five billion on their cash and short term securities, which would essentially offset any decline in demand they saw.
All right, is succession not the TV show? We're talking about succession?
At so excited for just one second there?
Yes, exactly, Greg Abel he is the successor. He was named in twenty twenty one. Is that whole succession question kind of off the table?
Now?
Yeah?
I think, I mean, I think Greg Is is clearly the one who's going to do it. They're trying to get him out there a little bit more. He was on the stage for the first half of the meeting.
Why I mean, I got Charlie and I got mister Munger there. Why don't I have the guy who's actually running the business.
So so he was. Greg and a Jet were in the at the beginning of the meeting for a couple of hours. Greg didn't get a lot of questions. Unfortunately, Ajet actually ended up talking more than Greg, but he talked a lot in another interview. You know, Buffett and Munger will will say that running their business is quote easy. Clearly it's not, but they have a point in that as constructed even just left alone, will generate significant amounts of capital.
All right, I'm going to ask you to go little wonky here, because we're coming into the summer, which means we're coming into hurricane season. How does the state of Florida ensure itself against hurricanes?
It's barely hanging on by a thread. So what is going on in Florida is if.
I go buy a conda down there with like every one of my neighbors who's moving down to Florida, which I'm not doing, by the way, and that'd be the last thing I do. Can I get insurance down there for my little.
You can get it. It would be quite expensive. I believe what was happening is it's not just the weather risk, but the litigious environment in Florida was causing claims to be multiples of what they should be. If a claim was ten thousand dollars, you could end up being one
hundred thousand with legal costs and all these things. So what happened is our friends, the reinsurers, actually said we're not reinsuring you anymore, and that led to the primary insurance companies losing financial strength ratings and going out of business. So the cost of it went through the roof, and the state actually ensures a lot of that. Berkshire to bring it back to them, actually jumped into Florida in
these reinsurance retals. So if there is a hurricane of Florida and you have me back here in a couple of months, Berkshire would actually be pretty exposed.
Now why do you think they got back into the Florida market?
So g was saying the pricing was probably just too good to resist. And look, they're incredibly smart, so they know the balance of what the capital are putting at risk versus what they can make.
So it's not ideal is it to have this state as the insurance backbone of us?
It is not at all the insurance industry, I believe it was Evan Greenberg, the CEO of Chubb, said, we don't want the government taking our business, but there's some point where it just it's not economically viable for them.
Is there a solution? Is it something on political?
So there is, So Florida has been working on it and they have legislation going through. It's a little bit of wait and see, but I think we're cautiously optimistic that they may have helped the problem, maybe not solved, but helped.
You think, I mean again, coming into a hurricane season again and our good friends down in Florida seems to get just hammered it. It seems to be getting worse. So I would think if I were a politician, I'd want to get this thing addressed.
Yeah, the frequency and severity of hurricanes is definitely getting worse than Florida.
All right, we'll see how it plays out and we'll get to it. All right, some good stuff, thank ver Matt Palizoli. He covers all that good stuff for insurance. For Bloomberg Intelligence.
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I guess earnings still matter. They certainly matter. For Tyson Foods stock is down th firteen percent today, fifty two week low, kind of wiping out most of the year's gains here. I guess they missed some numbers here. People aren't eating chicken and what's going on here. Jen Bartash is senior Industry analysts for Bloomberg Intelligence. She follows the food industry Jen TSN, Tyson Foods. What happened.
Well with Tyson? It's really a combination of things. One, you've got some structural market issues in the protein market for both beef for beef, pork and chicken, and it's hitting Tyson all simultaneously. And then second, you have some execution issues that are Tyson owned in terms of not running plants at full capacity and weak margins across the board. And so when you put all this together, it turned out to be a really weak quarter for the company.
All Right, There's so many cool things on the Bloomberg terminal. PGeo is one of it. It kind of breaks down where companies get their revenue from, and for Tyson it is awesome. Beef thirty eight percent of the revenue, chicken thirty three percent of the revenue, prepared foods nineteen percent of the revenue, and pork ten percent of the revenue. So that's a breakdown for you. So let's just focus on you mentioned one's kind of an industry wide you know, protein issues.
What's going on there? I'm meaning my proteins.
Well, I think everybody's eating their protein. But but when it comes to the actual cycle of growing animals, there's
some structural issues that are happening. So if you remember, not that long ago, we were talking about the beef market and we were talking about how herds were just being we're just being obliterated, and it takes a long time to actually rebuild beef herds, and so what we still haven't really hit the bottom of the beef cycle yet, And so what that means is that there are fewer animals and the prices are higher, so it costs more to get them, and prices at retail have been high,
so the demand hasn't been as strong. So there's some some awkwardness going on there. And with Typhoning, everything everybody wants to think about is with the chicken market, and Tyson is underperformed in chicken for a long time. They've made some moves, they've you know, announced to their closing a couple of plants, things like that, but that takes
time to actually see the benefit from. And so even though they're you know, they're improving their full rates to customers, there's still there's still a lag in terms of execution versus where the market is.
So you guess you can't blame those darn vegetarians at all. Talk to us a little bit about the timeline there when you're talking about Tyson rebuilding that kind of hurt. Is that a story of a quarter or years?
Well, you know, beefy By, you know, takes takes the longest in terms of the cycle. We're talking probably twenty twenty late twenty twenty four or early twenty twenty five until we see a real change in that market. You know, for pork that's a slightly shorter time span, but we're talking probably twenty twenty four, and for chicken it's a short time span, but there are a lot of moving parts to it. And that's the area where Tyson's business
has had the most execution issues. So although the company is expecting proof performance in the second half of this year, realistically we may be looking at twenty twenty four before things really settle down.
You know, I watch Yellowstone, I think I fully understand this whole ranching cattle thing. Where does Tyson where do they get their cattle? Like how many ranches are out there? The Dutton ranch on Montana, mean, like how many ranches are there out there? Like supply beef and all that kind of stuff.
Well, there are a large number of ranches out there, and Tyson they have long established relationships with individual ranchers in terms of their supply, so that they are sure that they have kind of that, you know, the supply locked in. But it's been tough times. We've had years of drought. You know, we've had higher costs to feed animals.
It is not an easy time to be a rancher right now, and so that makes it there's less incentive to increase herd size when you've got a lot of those kind of macroeconomic and you know pressures, and you know, even interest rates are higher, it's you know, it's hard or to invest in your in your ranch as well.
I'm really glad you mentioned just the higher pricing and interest rates as well. Talk to us about the pricing the equation. I felt like a lot of food companies and consumer companies broadly, Uh, we're almost rewarded by the stock market when they were able to say we're going to hike up our prices and still see that demand. Just how sticky are those prices?
Well, yeah, the prices so far have been sticky. But what we're seeing when we look at transaction level data from uh, you know, from what's what people are actually buying. What we're seeing is that that that tolerance for the price increases is abating. And so you know, in our perspective, what that really means is that as we get towards the second and a half of the year, there's a real chance that we're going to see an increase in
promotions and so you're going to see retailers running more sales. Now, I think everyone's going to try to minimize, you know, the profit impact of those, but the the macro economic environment is really setting these companies up to where they're going to have to be more promotional in nature, and consumers in parder demanding that so that tolerance for price increases is almost gone. Now it's going to be harder and harder for these companies to put more price more
price increases through. So it's it's going to be a tricky second half of the year to navigate.
So, Jen, the troubles you outlined here for Tyson, are we seeing that with some of their peers like Pilgrim's Pride and some of those others. This is an industry wide type of issue.
Well, some of it is industry wide. So some of those structural issues in terms of like animal availability, the cost of feed, those impact everybody relatively equally. You know, when it comes to actual internal challenges in terms of how you're running your plants, are you fully staffed, you know, are you at your maximum capacity? That's where Tyson has has had more challenges than some of their peers.
Jen, talk to us a little bit about the You talked about the macroeconomic piece of it. Talk to us about the interest rates specific piece of it. I think you talked about how higher interest rates makes it harder to invest in ranches specifically. Again, walk us to the timeline on it. Is there an extra lag of from one the Federal Reserve hikes interest rates to just how much difficulty some of these kind of ranchers face, or is this something that we kind of look at idiosyncratically.
Well, I think that there's there's no there's no easy you know, there's no easy answer to that, to be honest. You know, ranchers, you know, tend to be a conservative bunch by nature, and it's it's not an easy business to be in. And so anytime there in there are factors that impact their ability to grow their business or to invest in their business. That that puts puts them on a more defensive footing, and so there there's definitely
a lag. So it will take time once interest rates, if they start to come down a little bit, it will take a little bit of time for confidence to come back that that is the right time to do more investment. And so it's it's it's it's you know, you're talking about people's you know, long term livelihoods, and so it's it's not something that tends to move or pivot very quickly.
Jen, you also cover the supermarket side of the supply chain here, the food supply chain. So Entyson, they have higher costs, therefore they raise their prices. Are the supermarkets able to pass along those price increases to consumers?
They are passing through selectively, and so you know where they can they do. I think the one advantage that grocers have is because a lot of them offer private label products, they're very in tune with what it costs to manufacture certain products, and so they can have very good negotiations with the packaged food companies and not just
accept price increases for the sake of price increases. You know, what what a grocer will do is they will pick certain products where you know, they would have maintained their their value perception in the minds of their customers, and so if prices like hugely, say on a particular product, they may not pass the full price increase through just so that their customers feel like they're still getting a good deal, but they will pass through price on you know,
other products. So they kind of focus on key items that drive value perception and manage that what they pass through very carefully on those, and then they take a little bit more they have a little bit more flexibility on the rest of the store in terms of price increases.
Jen, very quickly thirty seconds. Do we see buybacks, dividend increases, any of that jazz in Tyson's future.
Well, they say that they're going to kind of maintain the same courses they've had in terms of their capital allocation, and so you know, don't don't anticipate any any cuts to that, to that policy, and we'll have to see what their quarter holds.
All right, Jen, thank you so much. We appreciate checking in with you. Talking about Tyson Food again. They had some a tough quarter, tough outlook for that business. Jen Bartasha's senior industry antal. She covers all the whole food stuff all the way through to the retail and to the supermarkets. So a great understanding there.
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All right, let's talk to professional here about these markets, because time and time you just feel like you're in a market with so many cross currents out there. Ecodata, Federal Reserve movement, here, earnings, we're right finishing up the earning season. We've got a little bit of a bank turmoil here, and we put all that together and it's tough to come up with some big conviction buys. Let's check in what somebody who does this for a living.
Efan Debit Chief Investment Officer of Manetta Group. Again, cross currents out there. I'll be interested to get your perspective about how you think this market is behaving and where you think it's going to go going forward.
It's extremely difficult to give a sense of direction right now because we're seeing such contrary indicators. We even have to look at today's performance and markets versus Friday's performance when we can see that markets really are moving on. The smallest piece of news, most of which is contradictory, was inflation coming into check. It looks like that at some point last week we heard the said we potentially
a pause and that all looks very positive. And now we come back with with commodity prices rising and it looks like it could be persisting and saying quite supple again. This week you mentioned a little bit of turmoil in the banking sector. That is a story that we think has some way to run sometime, and there are potentially a lot of unknowns unknowns when it comes to regional banks and banks in general. So that's creating a lot of uncertainty. And this is may remember May sell a
may and go away. I think traditionally there's not a ton of optimism around the time of year, but a lot going on for sure.
Even let's talk a little bit about the bond market.
Here Apple coming to the market with a five part bond sale known to be timing the market very well, and every time in the last I want to say, pre COVID, going back to twenty nineteen, they've issued five times, including today, and four not including today, have yielded higher yields after that, essentially making them kind of issuing bonds in the troughs that are yields fall it And for lack of a better term, does that mean we should expect higher yields in our near future as we expect
the Federal Reserve to end their tightening cycle.
Well, so many bonds have been the after class I say, of the year, and because certainly they behaved so badly last year, we're seeing a lot of people look again at bombs. And that's part of the reason we're seeing this money flow out of bank deposits, because bombs themselves are paying so much. When it comes to looking again at bonds, we can look certainly, we don't have to take as much risk as in the past to get a very decent, healthy yield four five percent for potentially
very low risk. So it doesn't surprise me that they're would be strong demand for an Apple issue. It's certainly seen as been the bluest of the blue ships in terms of issuing and issuing debt, and certainly the equity is so well supported that the debt has got to be rock solid there. So in terms of what we can expect from I don't see that rate's going that much higher, actually, because I think the overwhelming view of the market seems to be that we're in for a
pause or a pivot. It doesn't look like that today, but that was certainly the mood that was coursing through for the last few weeks.
And to that end, I guess the Federal Reserve will be paying attention obviously Wednesday to the CPI data. I guess CPI X Food and Energy looking to be up five point five percent. That's smidged down from the prior mounth of five point six percent. I mean, when you see numbers like that, it feels like higher for longer. But Boy, as you mentioned, if in the market, the future's market is really pressing in rate cuts later this year, how do you guys think about that?
Yeah, despite the Fed, it's been desperately to my telegraph its actions. I'm really regained US and confidence. Just like other central banks around the world, they've been doing a decent job I think at clawing back some assurance markets still are prone to second guessing them over and over,
and we're certainly seeing that. So as far as the inflation numbers, we do think that a lot of what's feeding into that core inflation number is going to be lagging indicators, say things like employment and the cost of labor. Because that lags, we essentially don't necessarily expect it to persist. But previous to this week, we did see commodities coming down that was going to be again feeding into lower inflation overall, and there are still those deflationary sources out there.
We speak every second day about AI and what that means for employment. If that is in fact that a long term trend, and of course it is at this point, we couldn't deny that will would that be deflationary. So I think investors are trying to really parse this inflation data and see what is in fact transitory, because some of it is, and what's slightly to stick. So a
very mixed picture. But I'd say a pause is what we're looking at at the moment, not a pivot and I don't agree with that We're going to see more rate.
Hikes Ethan, what about the debt ceiling? Do we need to worry about this kind of ticking time clock that we have going June first? I believe Janet Yellen warning about hitting that upper limit. How much of this is just kind of a boy crying wolf.
Very good point. I mean, we are though, if we've learned anything from COVID and beyond, we are very adept at kicking the can down the road. In every single instance there's been pressure and the debt ceiling up to now, we will kick it down the road again. Will there be political posturing and jostling and saber rattling as we get to that point. Absolutely, But just as the inflation data has been moving around, the tax receipt data has
been quite unclear. At the moment. We hear capital gains redown last year, but then again we're hearing about the employment picture being solid and income tax being solid, So for that picture, we really don't know what the picture looks like. There probably was a little bit of crying wolves just to get people to think about this seriously. But again, if we think about how this has impacted markets in the past. Just like most other political developments,
they tend to be pretty short lived. So I think there could be just more the sucking out of some of that confidence out of the stock market as this deadline nears. But I don't see it as being transformational in terms of sentiments.
The only one better Paul than me at procrastinating is the US government apparently even let's talk again about the trade here in our last thirty seconds or so, let's say it's June first, in this last iteration that we've had, I think twenty eleven, when the US did have that credit rating downgrade, the immediate reaction was by American the biggest paradox. Do we see that happen again?
It's full of paradoxes. Just as we've seen a little bit of strengthen the dollar in recent days compared to other currencies, we've also seen it come down from its twenty year peak that it was at last year, and so there's that move into the dollar, that discussion around dedollarization, that betting against the US economy versus not betting against the US economy because it is essentially so tech driven. There is there's been we've heard arguments on both sides there.
So I'd say, to what will happen with the death seating, I think there is definitely a tendency towards needing to take some of the strength out of the dollar. It's been too long for too it's been too high for too long, and as other economies around the world are actually perhaps being underestimated, in particular Europe, we are going to see some strength return there. So I'd say I wouldn't say there'll be a mad rush into the US even if this death seating is resolved.
All right, Ethan, thank you so much for joining us. Ethan Deviitchief, investment officer for Monet a Group. We appreciate getting some of her time.
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Microsoft Activision sixty nine billion dollars. It got your tention and that thing hit the tape, but some UK regulators are saying that they're not to approve it. I mean, so a lot of uncertainty there, even Warren Buffett weighed in on over the weekend saying he opposes the UK blocking this deal. So let's get some of the experts back in the room to kind of talk about where we are with this deal. What does it mean for Microsoft, what does it mean for Activision? Jenrie, she's a senior
analyst covering antitrust litigation with Bloomberg Intelligence. She's got that part of the game covered and on a rag run a senior technology channels with BI he covers Microsoft. He's done that for ages for Bloomberg Intelligence. He joins us on the phone. Jen is in our studio here in New York. So Jen, start with you here. Warren Buffett
ways in over the weekend. That kind of is interesting. Here, just summarize for us why the UK regulators are blocking Microsoft's pending act pending acquisition for Activision.
So what the UK is worried about is what they think is going to be the next big thing in gaming, not not what's going on today where most people would play a first shooter game like Activision's Call of Duty on a console or on a PC, but down the road, when they believe gamers will be playing through the cloud and possibly through sub scription services. So they think Microsoft already has a pretty big hole in the cloud market.
And with this content, I think they think of Call of Duty sort of must have content for gamers person shooter gamers, they will be able to sort of corner this up and coming cloud market. They'll be able to somehow damage their rivals, take market share and dominate that area. And what they're trying to do is protect that, protect what they think is going to be the future of gaming.
So anra come in here. How much does Microsoft need this deal?
No?
I don't think they will do fine without the deal. Also, and you know, I'm no expert in cloud gaming, but you know, people who know a lot more than me in this area, including Matt Miller, has told me that it's you know, so far away latency issue and stuff. And I think, you know, Jen and I have talked about it, and she's taught me that, you know, it's not so much what's here, but what could happen three
to five years from now. And I think that's really the reason why regulate it is that kind of worded here.
But Microsoft shareholders they like this deal, don't They don't They want Microsoft to get into some more content businesses.
Yeah, I mean they should, you know when I think I was surprised once that they took over. One of the first acquisitions was Minecraft, and I said, well, what the hell was Minecraft? I They had no clue about it, and I don't. I'm sorry, I don't know anything about gaming. And you know, they have a console business and they are fighting neck to neck with Sony always about it, and you know, it's it's expanding their studios, expanding the games, the ecosystem, and this is just another way of it.
So yeah, I mean from a shareholder point of view, it's fine if they have it, it's good. If they don't have it, it's not their business is going to die anytime soon. You know, it's just not as strong as it would have been.
So then what's next for Microsoft.
They're going to appeal.
Yeah, well they've talked about appealing, but you know, there are a couple things that could stand in the way. So they do have a mid July end date to the agreement, and at that point in time, unless they extend it, Activision could walk away and collect a three billion dollars fig. Now, they extend that, and it looks like they're pretty serious about going through this appeal. I've seen some news about hiring great lawyers in the UK and they've talked about it a lot, and they seem
to want to do this. It is a very high standard, so you know, it's a long shot. It doesn't mean they couldn't win, but it is a long shot. I dug up some statistics for this and I did see that in the last ten years or so, the UK's one about seventy percent of these merger appeals. So you know, just looking at that, you're looking at thirty percent.
Well, Jen, why doesn't Microsoft just carve out the UK? I mean and the fifth and I mean, who cares?
Well, here's the thing. You know, the UK is a big economy and also it's a big gaming economy. This is what I understand. I was a little bit surprised, but I guess the Brits love gaming, so you know, that's a lot of revenue. And what they're going to have to do is they're going to have to do the economics of that and see is it worth it for them to go ahead and close this worldwide? And then withdraw out of the UK?
Does the US follow what the UK does?
How likely is that well, the US has actually already sued. But there's a really big difference because Microsoft here in the US, I believe would winning court. I think they have a really good shot. This is a vertical deal. It's very speculative as to whether there's going to be this big cloud gaming in the future and whether this
deal would actually harm that area. You know, whether call of duty is so important that everybody has to have it in order to have a successful game subscription business, so they have a better chance. Here in the UK it's different. The standard's much higher. So what the court has to decide that the decision is completely and totally irrational, and that's worse than just bad judgment or not a good decision.
It has to be really bad an rac How what's what's Microsoft saying in terms of their willingness to and how far they will take this? How hard are they going to fight for this deal?
Do you think I think they'll fight now whatever options they have they have, I think given all the concessions they could from their side, I don't think there's going to be any more from here. But you know, from my side, if it doesn't go through, I'll be happy with some more buybacks.
So this is just signal we've got a democratic administration in the there's a new sheriff in town, and we're just gonna take a tougher stance on M and A in general. Is that reflective of that or is that or is this more specific to this deal?
Oh no, I think it's absolutely about taking a more aggressive stance, particularly in big tech, particularly when it's a big incumbent that's buying a smaller company. And I think also it's regrets regrets for past deals that the FTC and the DJ allowed through like Google Dobble.
I would say, well Live Nation for sure.
You know, even Comcast NBCU from way back, there are some regrets about that one, absolutely because they're allegations that they violated their consent order. You have Facebook with Instagram and WhatsApp, so you know, I think that the agencies think we were asleep at the wheel too long, especially when it comes to big tech, and so we have
to be really careful. And technology moves fast, so we need to be thinking about those future markets instead of just looking at the market as it stands today.
An rag is there an acquisition then that if this doesn't go through that you would rather Microsoft be focusing on or are to your point, are you just dividends focused?
Buy back?
Right?
He's a tech guy. I like, I'm a dividend guy, but I don't know it's strictly a buyback, sool.
I apologize the way I think about it. As far as big tech is concerned, they can't even buy pizza now.
I mean.
I would agree, all right, So you know.
I think they the only thing left is buybacks then.
All right?
So I mean so if I'm a Microsoft, I'm looking at the P and L. I'm looking at the business model. That's it. Now, It's only a question of what do I do with the cash?
Exactly?
All right?
All right enough for you then, I mean, so Jen, let's go back to you here. I mean, it's interesting here if is there a sentiment out there that big deals in general are facing a much higher hurdle just in general, even if it's not tech. I mean, if one consumer product company wants to buy another, it's a different world than it was maybe three or four years ago.
Paul, Absolutely, And it's not just a sentiment. I mean the statistics show it. In the last I think, well, for sure, this quarter and possibly even in the last year. Until this weekend, the DJ had not settled a deal with a consent order, so they just settled a lockcase. The company asked to Abloyd that was in the middle of trial, and they settled with some divestitures. And I think it's because they could tell from what the judge was saying, things weren't going very well for the DOJ
in trial. But it used to be that about four percent of the deals that got filed would get these in depth investigations and most of them would close with settlements. Now hardly any of them closed with settlements. So from the actions of the agencies, we're seeing that it's really any big company, any big deal.
What does like my mom need to know about this, Like, if these deals are less likely to go through, is that good for the consumer in the end because it means more competition?
You know, Well, first, is your mom a merger arbitrages because she was going to have some serious concerns?
You know.
It depends on the deal, you know, And I think it depends on your perspective. I think there are a lot of people looking right now at Kroger Albertson's and thinking, oh, I don't want that deal to close. You know, I have a Kroger branded supermarket and announ person supermarket that I go to. I don't want that to be owned by one company. And that's a very consumer facing area. Pharmaceuticals. I think people who you know, getting older, they need
to have prescription drugs. They're not going to want to see these big pharma deals. And actually, you haven't seen a big farma deal in a while. You know that's going to be a tough deal to close right now. So I really think it depends on your perspective. I'm guessing your mom probably wouldn't care very much of Microsoft blod Activision.
I have a feeling no one in the Mills family is not as.
Team honrog Ronnie. He covers all the tech stuff along with his team at Bloomberg Intelligence and generally follows all the anti trust stuff, which is just critical when you get a big deal, and then you get a big deal that runs into some regulatory issues. We immediately turned to Jen and say, what's up, what's going on and how's this going to play out? And she's got great experience and we appreciate it.
Getting it here, you're listening to the tape cancer Live program Bloomberg Markets week days ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven.
Thirty Today, time for our c suite conversation. Let's go a little tech uh, and we'll do that with Amitt Wallya. He's the CEO of Informatica. Informatica is a public traded company. I n FA is a ticker to put into your Bloomberg Professional Service. You see that stock, it's got a market cap at about four point two billion dollars, up about four tens a one percent today, stocks off about ten percent year to date. Thanks so much for joining us.
For our listeners, Let's just take a couple of take thirty seconds to just give me an overview of what you guys do at Informatica.
Well, thanks for hosting me, Paul and Madison. Great to be here.
Well, I'm actually talking to you from Vegas maybe us doing our annual user conference Informatical World. Where's we are doing our user conference here?
Annual user conference in Las Vegas.
So speaking well, Informatica is the leader in what we call data management. You know, it's the only platform out there, and we help customers bring data from any source at high quality, make sure you can make the most out of it. Do analytics, make business decisions and govern it for all kinds of regulatory compliance, and provision that data for any user across the enterprise. That's what we do across pretty much all large enterprise globally.
So in your description, I'm stealing a Paul joke, but you've got cloud in the title. I know you've got some AI stuff going on. You've got all the good buzzwords that markets are liking these days. How's the business doing, especially following some of the market reaction to your earnings report.
Well, we had a great Q one, so to give you some context, we guide it this year. Cloud is a big number for us, and we guided this year to a thirty five percent growth for our cloud RR and we actually grew forty one percent in Q one, so we're off to.
A great start. In fact, we crossed a big milestone for subscription.
RR, which is what Cloud is a part of, and that grow twenty percent at a billion dollar round rate. In fact, you've guided to a half a billion of cloud r R in Q two, so we're feeling great. In fact, another good test of that is the usage of a cloud platform I DMC and that usage grew sixty nine.
Percent year a year.
So we feel good about cloud data and II the trifactor and we see it in the middle of it.
So, you know, big data another term that's that's certainly in the news. I mean that kind of feels like your company is is benefit beneficiary of just kind of big data? Is we put more and more stuff in the cloud, more and more data in the cloud. How did your business kind of evolve, transform, manage its way through the pandemic when there's such a you know, increased increased importance of data.
That's a great question.
I mean, you know digital transformation, which is what's been happening for the last many years.
It's all about cloud and data.
And to the point you made, it's not only about growth of data, it's also about fragmentation of data.
So that was a tail ring to us, and our.
Transformation was that, you know, we pivoted more aggressively towards the cloud, In fact, walking into this year, we only sell cloud and our platform, as I sheard with you, blued sixty nine percent year over year. So that has been a tailment because the more the data, the more the fragmentation, the more the complexity. That's where data management
becomes very handy. And given our scale, we'll be helping that to customers like Kroger, Unilever, American Airlines, you know, Banco to Brazil Cell comp you name those, those end up being.
Our customers within your customer base. Are you seeing any potential recession signs just yet or are you still seeing some strength?
Billion dollar question right I would say I'm not seeing a recession sign for sure. I think what we when you walked into this year the macro, what we saw in Q four, we saw definitely enterprises as stretched, we are being thoughtful deal siles as are obviously elongated. We saw the same in Q one. In fact, we guide it based on that macro. We assume that will stay for the year, and as I said, we guide it for like our thirty five percent cloud at our growth number,
qan ended up being better than that. Right now, I'm at in fmat cover I user conference actually it's the highest ever attended conference so far, we've exceeded twenty nineteen numbers. So I'd say the conversations around digital transformation are high. AI powered digital transformation very high. We do see a macro that stretched, but no verse or no better than three months ago.
Met talk to us about cloud native AI powered platform. I think the kids call it Claire. What does that mean for you? What's that business for you?
Yeah?
For us, you know, we built out one cloud native platform. All of our services are on one platform, so that's one thing.
But the big thing there is that we natively integrated Claire, which is our AI engine.
And the beauty of Claire is that we what we all see in the world of consumers. We took all of those machine learning algorithms and curated it for enterprises. As an example, you do photo tagging on Facebook, we do that. Apply that for data taging, you do recommendations on Amazon, you apply that for when people want recommendations and data sets. NLP becomes data quality. So that's what
we've been doing. And in fact, to kind of give you some sneak preview of tomorrow when we do keynotes main stage, we're going to showcase clear in the context of generative AI and how we're expanding it. There huge amount of intelligence and productivity improved for enterprises and we see tremendous interest over there.
Talk to me about that interest. Then, what specific tools regarding generative AI, both on the intelligence and automation side, have you found to be most helpful for your customers.
Well, one is everybody wants more productivity and automation, so our tools end up being infrastructure tools.
So for example, you know, bringing.
Data together from many places, we're automating that. You know, claier can infer what kind of data should go where it can bring it to you and you can see and if you have to do nothing, it just does it. If you want to give it some intelligence towards the last minile, you can do that call it you.
Data. You know we talk about.
AI EI is as good as the quality of data you put in that model. So data quality is becoming even more important. Governance of data, you know, in the world of AI, ethics compliance become even more important.
So governance is seeing a big tailwin. So we're seeing all of those.
Natural things bringing data from many places, quality and obserablity of data governance of data. See tremendous amount of tailmind and interest from our customers.
Ahmed got about thirty seconds left. I see your stocks down about twenty seven percent over the trailing twelve months. Is the market getting something wrong or how do you view that?
Well?
I think we went through a big transformation going from on premise to cloud. I do believe that as we go through this year and we have a great start, I think they'll understand that.
I believe obviously we are supremely undervalued.
Our job is to go execute, get our customers to get value from our platform, and you know, the rest of the things take care of itself.
There's a pretty fluid macro out there.
Our job is focus on the customer, keep innovaiting and focus on the long term and things take care of itself.
Well, is it?
Equity analyst myself? I like one of my management teams say that I got nine buys out there, five holes and zero cells as per the A n R function on the Bloomberg terminal for Informatica. So the street seems to be behind this company, this management team. I'm at wallya CEO of Informatica, joining us here, giving us the latest on another segment of the tech space that is influenced greatly by the cloud and the transformation for a
lot of these tech businesses. In this case, you know, kind of big data into the world of the cloud. So it's good a couple minutes with mister Wallya.
You're listening to the tape cans are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
You're a company. Let's say you're a company and you look at your balance sheet and you got about one hundred and sixty six billion dollars of cash, you got some one hundred billion dollars or so of debts. You're net cash positive. You're in a business that will somehow throw off one hundred billion dollars a free cash flow every year. So what do you do? You go issue debt? Go figure. They didn't teach that to me in business school.
But that Rob Shiftman, he knows all this stuff. Rob Shiftman he's a tech credit analyso Bloomberg Intelligence he joints is here. So Rob, is this just a case of me, as a banker being really good at my job saying, Hey, you raise it when you can, you don't raise it when you need it. Let's go ahead and throw some bonds out there. There's demand. Is it as simple as that?
Not?
Really? I mean, I think it's more about.
That was my pitch that for many years.
Last week it sounded good. I think it's more about simple math. I mean, there's a weighted average cost to capital, and when you've got nearly three trillion dollars of equity, even if you have one hundred billion dollars of debt, you're weighted out of average cost of debt for Apple is effectively zero. So it's really a cost effective method of spending your money. And I think, you know, we got a lot of people asking us today, with rates
so much higher, why today, and why not just wait? Well, when you have ten odd billion dollars of debt maturing every single year and you don't know where rates are going to be in three minutes, let alone three months or three years, I think that's when it does come to your theory is that you take the money down now because it really doesn't cost you anything. The bigger question is why aren't they just using their cash for something else? Why do they have to borrow more? And
it really boils down to their target. They want to be net cash neutral. So what does that mean. It's the same amount of cash as they have debt, and there's some fifty seven billion dollars away from that right now. If you borrow money, So you borrow ten billion dollars today, their net cash position doesn't change at all. It stays exactly what it.
Is because they get all the free cash coming in.
No, well you borrow ten billion, yep, so it's ten billion a debt ten billion of cash.
That's nice. They need a balance sheet.
They need to start spending money. And you've asked in the past, like why don't some of these companies just raise their dividend, Why don't they create a dividend? Well, Apple just raised their dividend four percent.
I could raise my I mean please, So they're just trying to placate me. Now, Tim Cook knows I'm looking for them.
They're spending let's say in and around fifteen billion dollars a year in their dividend, but they've got one hundred billion dollars of free cash well every year. I think you know, years ago when we first started talking about Apple, I said, for all the drinkers out there, it's like you go to a restaurant, you order a bottle of wine, you drink half your glass of wine, and a waiter walks over and refills your glass. And that's sort of
what what Apple's balance sheet looks like. As soon as they start spending the money, it gets reloaded and there's nothing out there that they can really buy. So what do they need to do. They need to meaningfully increase shareholder returns, and I think they're going to be doing that. They added ninety billion to the buyback authorization that gives them about one hundred and ten billion of stock they can buy back over the next year.
They did the same ninety billion last year.
I mean, well, they still had twenty billions sitting there. Okay. What it does is it sets them up that over time, as they continue to use money for dividends and buybacks, they're always going to be sitting on a mountain of cash. If your net cash neutral, and they end up would say one hundred and twenty five billion dollars a debt. You know what that means. The mean you're going to have one hundred twenty five billion dollars of cash on
the books at all times. And don't forget like you know, Apple's services business is exploding right now, it's still a tiny percentage of their top line. The vast majority of what this company is selling is hardware. And when you're a hardware business, over the long term, you better have a lot of capital and reserve. In this case, you need to have tons of extra capitally one hundred billion plus of cash sitting there all times. So why borrow now?
Because it doesn't cost that much, It actually improves your cost of capital, It gives them tons of flexibility, and it just doesn't It doesn't take away from their long term goals, which is they can do whatever they want, whenever they want, where they're capital and if they find a business they want to buy, they can buy it. If they find a business they want to invest in,
they can invest in it. And it looks like the bomb market's always going to be there, because it seems like this company is only one more notch away from being triple A across the board.
Is that the same thinking behind why Apple is working with Goldman on the Hygield savings account or do you think that's a different goal for them, No, like become the bank for everyone as well for everyone.
So I think you need to you need to diversify your revenue stream over time, and they've done a really
good job of that. I mean, you know, a few years ago people laughed at their watch, you know, and you know now they're selling billions worth and I think there's a lot of different things that they can sell, these sort of add ons when it comes to Apple Pay or payment processing or savings account, it's just it's a way to expand their ecosystem and get their products at a little stickier It doesn't really move the needle at all.
Though.
The way they move their needle is they come up with a really cool new iPhone fifteen and they sell three to four hundred million of those.
Rob e colover all of Tech for Bloomberg Intelligence Credit. What's the best thing you're looking at right now, what's the best opportunity, what's the best that you're most excited about out there in tech?
Honestly, I think it's really the sector. I mean, people nowadays are looking for safe havens, and I've actually always thought tech is the safe haven. It's not the it's not banks, it's not treasuries. It's buying cash rich, cash flow generating businesses that have long term competitive advantages where there's huge barriers to entry, and whether that's Microsoft or Apple or Alphabet or even names like a Qualcomm or
a Broadcom. I think across the spectrum of investment grade tech, there's lots of opportunities not to earn incremental spread, but to park your money when you don't have something better to invest in. I'm wildly bullish still on the tech space, and it doesn't mean excess returns this year are going to be enormous. It just means that the risk of underperforming versus other asset classes I think is really very low.
We had a webinar I think I mentioned this with you last week, paulse We had a webinar with S and P and they went through all their low triple B global tech names and they said, not one of them is at risk of being downgraded. So when we've got high quality banks that know if they're going to be out of business tomorrow. You know, buy a name in a ten year part of a treasury curve for a spread of one hundred basis points and getting you know,
four and a half percent on your money. Man, I think it's a great trade when you don't have to worry about that cash disappearing. So it's not one particular name, it's really the sector. And I think that volatility and equities has skewed what people's thoughts are about the defensiveness of the credit space. But I think across the board, I think you want to have a barbell strategy from triple a's down to triple b's, all across the curve.
All right, Rob, thank you so much. We appreciate it as always. Rob Shiftman technology credit analysts of Bloomberg Intelligence. Before that he was doing that at Credit Swiss.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
An I fall Sweeney, I'm on Twitter at Ptsweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio,