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On today's Bloomberg Intelligence Show. We dig inside the big business stories impacting Wall Street and the global markets.
Each and every week, we provide in depth research and data on some of the two thousand companies and one hundred and thirty industries are analysts cover worldwide.
Today, we'll look why the athletic apparel company Lulu Lemon sees signs of a rebound in the fourth quarter.
Plus a look at why the tech giant Meta is beginning to cut more jobs at its reality Labs division.
But first we begin with the aerospace industry.
This week, Delta Airlines reported fourth quarter earnings that missed Wall Street's expectations. The company also said it will be taking a more cautious view for twenty twenty six.
For more, Alex and I were joined by George ferguson Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst.
We first asked George for his take on Delta's recent earnings.
Really, what we saw here from Delta was a continuation of the you know, the premium and the loyalty revenue are rolling in strongly, rolling in I think sort of five to seven percent if I recall correctly, you know above sort of GDP growth rates.
But the back of the airplane, you know.
They call it the main cabin or bas the economy that's there was that revenue was down seven percent and a quarter where Delta was growing a couple percent. And so I think we still see this premium trend, and I think we're going to see a lot of growth in.
Premium seats this year.
We've got Southwest converting to some you know, to more of a full service carriers premium. Delta plans to go premium, United plans to go premium. Alaska Jet Blue, everyone wants to go premium. So I think there's probably some concern in the marketplace that maybe premium gets crowded and pushes closer to that main cabin kind of kind of fair rather than main cabin coming up.
Delta said they're bracing for risk to their forecast, noting the geopolitical environment, whether it's international or domestic POLICI ge or is this unusual for them to issue this kind of morning Well, I mean.
Again, I think we're at the beginning of the year, and management teams like the caveat things right, and so I guess what I would say is we had plenty of geopolitical challenges in twenty twenty five. You know, we were watching transit demand closely because you've got a war raging in Ukraine's been doing that for a bunch of years now. Didn't seem to slow down that demand. That demand seemed to do okay some days. I wonder if
there maybe there's more risk domestically, right. One of the other things we're watching is the President wants to cap interest rates for the credit card companies at ten percent. Loyalty through the MX program brings a lot of money in for Delta, definitely a source of their competitive advantage. And I think if you're capping interest rates, I think some of those credit card programs have to change and that would hurt some of those loyalty programs. So there's
I mean, there's risk all over the place all the time. Again, the geopolitical didn't seem to hurt demand as much as we would expect it in twenty twenty five.
Right, It kind of always threatens to hurt demand, but in the end, people still prioritize traveling and paying for traveling. One of the comments from Delta was that the airline industry could see consolidation in twenty twenty six. Which players would that most likely involved.
Yeah, so we're already starting to see some of that, right. We had an announcement the other day that Allegiance and Sun Country are going to put themselves together. They're two smaller low cost airlines, some of them pretty quickly growing there, quickly growing, so they'll consolidate. Uh, you know, we've heard discussion about Frontier potentially buying Spirit Airlines. We still have to see, you know, the ultimate outcome for Spirit yuring
Chapter eleven. We're trying to figure out what their structuring looks like the second time they've been there.
So you can see on the edges.
Especially where in that low cost marketplace, you can see consolidation beginning.
It takes a long.
Time and that's the challenge, but you can see some of that consolidation already begin. We don't see the big players getting consolidated, but you're not You're not going to put together. I think you're not going to see sort of a united to Delta and America and the Southwest. They're not going to We're not gonna put an any of those together. I think that's too much, but I think a lot of other stuff is potentially in play.
George.
We also got news that Delta is ordering thirty Boeing seven eighty seven Dreamliner jets, aiming to boost the company. How much do you expect this purchase to impact its bottom line?
Yeah, so they're not going to see these airplanes until twenty thirty, so it's a bit of a ways away. They're replacing seven six sevens, which are old airplanes. We have an average age of them about twenty seven years right now, you know the seven eight is going to be a lot more efficient. Delta gave some numbers they fifteen ish plus percent more efficient, so I think that really helps the bottom line. Also very interesting to us is that Delta is traditionally more of an air bus shop.
They buy a lot of Airbus product. The recent wide bodies they've bought. Our airbus is a three fifty and air buses a three thirty. Again, the Boeing wide bodies told you twenty eight ish years old. Interesting to see them come in for the seven eighty seven. That's really, I think, been a category leader in that small narrow body world. Boeing has over one thousand orders for that airplane. We see rates continued to rise, which to improve profitability at.
Boeing as they put more through put in that seven eight.
I thought it was a bit of an endorsement for seven eight, even though Delta is not going to say that.
Probably our thanks to George Ferguson, our senior Aerospace, Defense and Airlines analyst.
This week we focused on a Bloomberg Big Take story titled the CEO Playbook to Navigating Trump. You can find it on Bloomberg dot Com and the Terminal.
So the story looks at how public feuds and protectionist threats have turned CEO's dealings with the White House into a high stakes game of loyalty and leverage.
And for the story, Bloomberg News recently spoke to experts and business leaders on how CEOs should navigate Trump's second term.
For more on all of this, we were joined by one of the Big Takes authors, Matthew Boyle, Bloomberg Senior Management reporter.
We first asked Matt to break down some of the challenges faced while interviewing CEOs for the story.
I mean the usual sort of voices of Corporate America, the Chamber of Commerce, the Business Roundtable. We're just like, you know, we're going to take a pass on this one, and just about every CEO under the sun, you know, just they just don't want to go there. It's like the third rail. So it was challenging to report, but we had a lot of great conversations, let's say, on background, with those who are advising CEOs, and that led to
our playbook. Here the five rules for dealing with the Trump Madness.
Matt We've seen a growing number of business leaders recently kind of push back more than usual on some of President Trump's policy proposals. We had City CFO this morning pushing back on the credit card cap. X On Mobile CEO calling Venezuela an investable. Is this unusual in what might be the consequences for them?
Yeah, it takes a certain CEO to push back. It takes a Jamie Diamond or the CEO of ex On Mobile, who have the clout and the authority and the industry backing to say no, you know, this is actually not perhaps a good idea. But most of the time, as we saw with tariffs, it was happening behind the scenes. You remember, this is going back aways. But when Trump told the Walmart CEO, Doug McMillan to eat the tariffs,
Walmart said nothing, and that was probably pretty wise. There was no reason to get into a public spat on true social with Trump. So but now maybe it's because Trump is in a different position twelve months later, or it's the issues involved. You know, banking CEOs are very happy to go out against interest ratecaps, but we are seeing in certain cases some CEOs pushed back.
Yes, and direct engagement does seem to pay off if you can find your way to the President's mobile phone, which apparently he pans out the number pretty willingly to certain top CEOs. You talk about in videos Jensen Huang having a direct line to the president. Also Lipboon tam of Intel being able to do that as well.
Exactly.
I mean Jensen in video ceo one on Joe in December and said, you know, Trump is extraordinarily accessible. The United Airline ceo said the same thing to us. I mean, you can call this man up. He does answer his cell phone, as we've seen sometimes at four thirty in the morning he will pick up his cell phone. But
not everybody has Trump on speed dials. So a point of our story was that you have to find a way in, whether that's Susie Wiles, a chief of staff, whether it's Scott Besson, Treasury or Commerce, Howard Lutnick, or one of the sort of lower level aids. Also, I mean we found that, you know, the director of the White House Office of Public Liaison is somebody you can you can go to also, So the point is to find a way in, no matter how you do it.
Matt, what are some of the differences in how President and Trump deals with business leaders in his second term from his first term.
Well, the second term, he's a little bit more unshackled. Let's say, in the first term, you had a few more traditional Republican voices. You know, you had Rex Tillerson in there and other folks who you know, were able to maybe play a little defense. They were able to slow walk some of Trump's more outrageous policy proposals. Now it's just all true believers. So he's sort of unfettered.
He's unshackled, and there's really not many checks. So what this means for CEOs is, yeah, they really can't hide. They can't just say well, we'll let our industry association take care of this or don't worry. I mean, look at just the past week, what's been going on. CEOs really need to be on watch.
Yeah, shackles is a fantastic word, a free range Trump right, here we go, There we go.
The other thing that you could do, if you're trying to get his attention or curry favor, is to give him a made up award.
Yes, he does respond to these types of trinkets and trophies, as we've seen with the Apple CEO, Tim Cook was able to give him this sort of glass you know, trophy with a twenty four carrot gold base or something, you know, with the Apple logo on it. And you know, guess what, you know, it was over tariffs and Cook Apple we're looking for some relief on foreign microchip tariffs.
So and you know that helped. It also helped though that Cook had really put in the work though, talking to Trump for years now, going back to the first administration, so you can't just you know, sort of throw a trophy at him. But it does take some groundwork as well. But look at the Swiss business executives also giving him a you know, a gold rolex and you know, so these things do tend to have an impact. As we say, everything is a transaction with this president.
Matt, you mentioned it's been difficult getting people to speak to you for this story. Did any of the business leaders you spoke to give you reasoning for why they might be afraid to talk or did they kind of just brush you off?
It's I mean, many brush us off through their gatekeepers. They just the thing is, they just don't see much upside. They don't want to be the one CEO talking to any reporter on the record. But as we've seen now, maybe we might see some more come out of the woodwork now that Diamond and others are talking about, you know, the interest rates. The defense companies also might have something to say about Trump pressuring them to, you know, to up their game.
So we'll see.
But it's that you know, CEO is a yea, and that they might be speaking out on certain issues, but when it comes to Trump again, they just fail to see the upside. But at this point, as we say, or it was a Yale School of Management person wrote in Bloomberg Opinion, the chaos is not just no longer in the background. The chaos is baked in. It's in the system. It's coming for them. So they might want us talk.
Yeah, it's front and center, and it feels in many ways like those who know how to navigate governments and emerging markets might be better positioned.
Yea.
So you have that experience exactly, you know, of that sort of slightly more chaotic, slightly more free wheeling environments, and many of these big multinationals, of course, do operate in those areas.
Our thanks to Matthew Boyle Bloomberg senior management reporter, coming up a look at why the tech giant Nvidia and the pharmaceutical company Eli Lilly are partnering up. You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies and one hundred thirty industries.
You can access Bloomberg Intelligence via Big on the terminal. I'm Alexandra Semenova.
And I'm Scarlett Foo is Bloomberg.
This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney on Bloomberg Radio.
I'm Scarlettfou and I'm Alexandra Semenova filling in for Paul Sweeney.
We moved to some news in big tech this week.
Alphabet's Google confirmed that it has entered a multi year deal with Apple.
This will allow Alphabet to power the iPhone maker's artificial intelligence technology, including the Serie voice assistant.
We reported late last year that the two companies were finalizing such a deal, with Apple planning to pay about one billion dollars a year.
For more on this, we're joined by Ano Agrana, Bloomberg Intelligence technology analyst.
We first asked Ana rog about the specific advantages Google brings to Apple with its Gemini models.
Now we go back in history. Apple doesn't have that big of their own foundational model on which it's running or it's supposed to run some of these technologies. But Apple and Google go back long way. They have a very very good agreement on search, which pays Apple billions of dollars. So you know, there was some legal issue
around it. So we always knew that once that legal issue goes away, Apple may be working closely with Google to basically outsource a lot of their foundational models into the technology that they have.
They have.
Now it's possible that the next CD upgrade, which is most likely going to be in the March April timeframe, could be that one big moment that we are all looking for Apple to finally come out and say that, okay, you know we are not a laggard in AI, that they also have a product that's pretty good.
Ana rag I saw a tweet actually from the official Google account announcing this deal, and Elon Musk replied. He said that this seems like an unreasonable concentration of power for Google obviously has a vested interest here, given you know, his participation in XAI, but does he have a point, what are the regulatory risks around this deal?
Yeah, I mean he won't have a point if his model been used at that point. So I mean everybody is trying to pitch Apple to use that model. But you know, at the end of the day, Apple actually, for the first time, if you go back a year and a half ago, they used open ai. I mean you can still use open ai when you go to Syria and ask a question and it can take you
out of there. But for Apple, it has to be integrated within the iOS, within the software, but they won't do it to an outside vendor where they don't control the data. So what Apple's going to do here, They're going to use the foundational models from Google, but they're going to run a lot of that either on the device or their own private, private cloud data centers, which means they will still protect the privacy of that question and not let it have you know, access to other players as well.
Yeah, the privacy angle is really big for Apple. It's kind of its mark of distinction here among the big tech players.
An rag.
Apple has seen this exodus of talent AI talent going to other big tech companies in recent months. Does this small year deal with alphabet, with Google change any of that. Does that stanch the bleeding at all?
Yeah?
For me, it does only because I am now buying the model outright from somebody who's doing all the hard work. So I'm not in the business of model development. If I can use the best model that's out there into my product and I pay them some money, and the humor amount is about a billion dollars a year, which is, to be honest, nothing compared to how many billions these companies are spending to come up with their own large
language model. And that's what actually Apple said in the search case and says, I'm not in the search business. If Google has the best search, I will outsource that technology into my products from them.
Are thanks to Honor Agrana, bi's technology analyst.
We move next to news from the athletic apparel company Lululemon Athletica.
This week, Lululemon said it's fourth quarter sales would land at the higher end of its twenty twenty five guidance.
It's a sign that the yoga war company is regaining some momentum following a series of disappointing results.
For more, Alex and I were joined by Punam Goyel, senior US e Commerce and retail analyst.
We first asked Poonam to break down how the company's turnaround is going.
So, the loyalty program is not something that Lulu Lemon has had for a long long time, but it does help, just like with any other loyalty program. You know, it gives you perks. You have access to Lulu Lemon merchandise, who have access to Lulu Lemon events, etc. And it does bring the member who enjoys the lul Lemon experience to keep coming back. It's an added reward for those who have been loyal to the company. But make no mistakes,
that is not what's going to drive the turnaround. Their turnaround needs a lot more than that.
Yeah, I mean, loyalty programs are something that most brands have and Lula Lemon has some more structural issues when it comes to Lululemon. Separate from the loyalty program, Lulu has pre announced fourth quarter sales and it comes in at the higher end of its guidance. This is kind of surprising because Lulua Lemon has struggled to connect with choppers the last couple of quarters.
Yes, you can say that it's surprising, but at the end of the day, the sales are still down. The estimate was for sales to be down negative one to three percent, so maybe you're close to minus one. That's still not where we expect Lemon to be. This doesn't tell me that the turnaround is you know, has started and is underway and things will begin to improve quarter after quarter. I think it's good, but I need a lot more to be confident that the turnaround will begin to take place.
What are some of the macroeconomic trends that are driving Lululemon's customer base. Is it inflation? Is it just an overall change in discretionary spending patterns?
What is it?
Yeah, so the macro economy has been you know, good and bad. The luxury consumer has been doing well Lemon. You could argue SIT's in the affluent space of active wear. But that said, it's not that the customer is frushured and that's why their sales have fallen. It is that they have lacked innovation and execution has been weak. So the key here is a company specific issue that they
need to resolve, and they are working towards it. We will be getting a new CEO hopefully at some point in twenty twenty six, and it'll really be then where we can see who comes in, what's the strategy, and how does lul Lemon re engage. It's for a customer that probably still loves the brand but just hasn't found enough new to keep going back and back.
Yeah.
Absolutely. I think about the competitors that Lulu Lemon faces in the space. It ranges from Dorry to all the other big names out there, including Nike, which offers perhaps similar at leisure wear but at a lower price point too. When it comes to this new CEO, Calvin MacDonald, the current c is set to a step down, and I know Elliott has been a big player in pushing for Jan Nielsen, the former CFO at Ralph Lauren, to replace him.
What's the latest on that. Do we presume that Jane Nielsen is going to be the next CEO?
I mean we don't know yet right so it's definitely one of the contenders and could be. And I think as long as they get a product led executive, which he is, Little Lemon could be in good hands to continue this turnaround.
Founder Chip Wilson is also kind of involved here, that's another name that we haven't heard from in a while. He founded the company. He no longer sits on the board, but he still owns about nine percent of the stock. How much do you pay attention to what he says?
We definitely look at it. Look what he said was important. He founded the company. The company was grounded on innovation, on products, and I think he makes fair points that the company needs to kind of really re engage with the customer and go back to its roots, which is, are you still ahead of the competition? Like you know you mentioned earlier, competition has increased, and it has, but competition was always there. But where is Little Lemon ahead
of it? Can you get similar at leisure pants or leggings at Vory or at Aloe or at Latta? How does Little Lemons stand out today? And that's the big question that they need to answer.
Our thanks to put Im Goyel, senior US e Commerce and retail analysts at Bloomberg Intelligence.
We move next to the biotech space.
And this week tech Giant and Nvidia announced plans to invest a billion dollars over five years in a new AI lab. And that's with the pharmaceutical company Eli Lilly for more on this.
We were joined by Sam Fazzelli, Bloomberg Intelligence, Director of Research for Global Industries and senior pharmaceuticals analysts.
We started off by asking Sam to break down the latest news at ELI Lilly.
Well, look, I think these are the brillion dollar club getting together. A billion dollars is probably dropping the ocean for both of them. It's over five years. And what I think the aim of this, at the end of the day is to try and automate and speed up as much of the partly the drudgery of doing lab work, because lab work just like as if you were a doctor in a clinical setting, you need to take a
lot of notes, a lot of detail. But at the same time, I think they're investing in what appears to be automating twenty four to seven experiments, things that human beings just can't do. And I know, having been a scientist, that sometimes your life is on hold because you have to go back and deal with your experiments, yoursells, or
whatever it is that you're running. So a lot of these things I think could speed up and also make the life of the scientists a little bit easier at the end of the day, though I think the am here is to try and get scientific discoveries translated to drugs quicker and get them to market quicker.
Sam, What does this mean for Eli Lilly's rivals? Do you expect that we'll see some of its competitors also ramp up their AI endeavors given its partnership with the company like Nvidia.
Pretty much all pharma companies. And I just want to point you to a recent survey that EI Bloomberg Intelligence has done that looked at ten different industries, one of which being the pharmaceutical industry. Ask executives, what are you doing with this? What are you trying to get to? What is the aim? At the end? Everybody is at this. This is not something specific to Lily. And you know, Google, for example, has has through deep Mind, has created an
agentic KI called Google Scientists. It's like, I think four agents or five agents who interact with each other and check each other's hypothesis. So a lot of this is going on in all companies, but of course here we have Lily, one of the richest farmer companies around in terms of the amount of cash blow that is got really being able to spend the money without really impacting it. It's balance sheet and cash flow, and I'm pretty sure everybody's at this, but clearly this is the news, doujou if.
You like, absolutely, Like you said, it's a drop in the bucket for both of these companies. But when you have a number like one billion dollars and these big brand names, it gets people's attention. What also gets my attention, Sam, is Maderna. Maderna obviously one of the vaccine makers during the pandemic, but it's had a rough go at it recently because it's so dependent on these vaccines and we have an administration that is kind of anti vaccine right now.
Yet madernal pre announced at the JP Morgan Healthcare conference that is the US COVID business did better than expected. Is Madernas starting to stabilize, Well.
One would hope. So they've stuck with their aim of growing twenty twenty six point ten percent. But you know, if you look back at the beginning of the year, where the company in twenty twenty five started with guidance and where we ended up, we're a good five six hundred million dollars short of what the hope was at the beginning of the year. So everybody, I thinking knows that this is a very difficult market to call for
exactly the reasons you just highlighted. There is a constant change in the way that the administration in the US, and not just the US elsewhere is also dealing with vaccination, particularly in the COVID side of things. Other vaccinations are still pretty much well settled and at least outside the US. Problem also that MODERNA is going to face or has
been facing, is that there are lots of people. There's I think my patent colleagues say that at least twenty various directions of legal cases or trials going on different groups saying you're infringing my patents, so you've fringe my patents and you need to because there was billions and billions of dollars of revenues. So some of that is coming potentially in the March timeframe, very lightly against a trial coming up against our Bridges, another company that's listed
in the US. So some of that is I think something that might keep people from getting too excited.
Our Thanks to Sam Fazzelli, Bloomberg Intelligence Director of Research for Global Industries and senior pharmaceuticals analyst, coming up all look at how artificial intelligence is changing shopping.
You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies and one hundred and thirty industries.
You can access Bloomberg Intelligence via big on the terminal. I'm Alexandra Semenova and I'm Scarlett Foo. This is Bloomberg.
This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney on Bloomberg Radio.
I'm Scarlet Foo.
And I'm Alexandra Semenova filling in for Paul Sweeney.
We move now to some news in the tech space.
This week, we heard that the tech giant Meta Platforms is beginning to cut more than a thousand jobs from its Reality Labs division.
It's part of a plan to redirect resources from virtual reality and metaverse products towards AI, wearables and phone features.
For more on this and the latest tech news, we were joined by Mandeep Saying, global tech research head at Bloomberg Intelligence.
We first as Ban Deep what these job cuts mean for Meta's bottom line.
I mean reality Lab segment is almost losing twenty billion dollars a year and cumulatively they've lost about seventy billion dollars over the past three years, so a lot of investors questioned, you know, how long they were expected to remain patient on those kind of losses. And I think the initial rumors were about a thirty percent cut in
that unit. So this is somewhat below expectations in terms of ten percent job cut, but it just goes to show that right now, the companies obviously focus more on the AI side in terms of building the infrastructure, building their own large anguid model, and it may take a while to you know, really bring it, bring that LLLM concept in that variables or the whether it's a VR headsets or the glasses. And I mean when you compare VR headsets or the glasses that they're selling to let's
say AirPods, the number of units pale in comparison. We're talking, you know, ten million, maybe if they do twenty million. Apple does more than one hundred million AirPods a year, So what's the opportunity here? And I think that's where you probably will see more cuts in that business.
That is a really really important contrast to make there in terms of what Meta is trying to do, because they want to be part of the mass market here, but it's not quite there yet. Mindy. As Meta pivots away from VR and the metaverse to AI, what does that mean for spending? I mean, they obviously had to spend a lot to build out the metaverse, to build out their VR offerings, and now they're going to shift everything to building out the AI offerings of large language models,
these AI glasses. What do you think that the pace of spending will just kind of continue, It won't really shift all that much.
Yes, On the AI side, the opportunity is huge. What everyone is chasing right now is an AI agent that can book your travel, your Uber trip, order food, you know, do shopping for you. That's the vision Google is chasing.
That's what Amazon alexaplus launch was all about. So Meta has that surface area with you know, Instagram and WhatsApp, and you could argue they could in theory develop such an agent, but the hard part is integration and getting the AI to where it's you know, reliable and predictable. And that's where I mean, it's anybody's guests who is best positioned. I think the Apple Google partnership that we saw this week is probably a negative for Meta in
this sense. Like, if Apple is setting up defaults in their phone, then that makes it hard for an external kind of agent to do these kind of things. So from that perspective, distribution really matters and operating system control really matters. So Meta is somewhat at a disadvantage when it comes to, you know, their distribution on Apple and Android devices.
Mandy. We also got new Airbnb hired Meta's head of General AI, which is really interesting because wasn't it not too long ago that they declined work with open AI. What does this all mean for its artificial intelligence endeavors.
Yeah, I think Brian Chesky has been quite vocal about using open source llms as opposed to you know, proprietary llms like open AI and Gemini, and so his thing is, I've got a direct customer traffic coming to my website. If I give away you know, my bookings interface to these llms, then I'm losing that customer direct customer touch.
And he doesn't want to do that. He instead wants to build his own LLM based on an open source model that's already out there, and that's where you know, Meta has open source their model in the past, so it makes sense to have somebody from Meta come in and do something along those lines. AB and B has been open to using Chinese open source models and building
on top of that. So from that perspective, it's an interesting strategy that they are going ahead with in terms of using all kinds of open source and not just you know, the US based model.
Who in the tech world is winning the talent war because it felt like for a long time open AI and traffic they were, you know, picking up a lot of talent. Is that still the case?
I mean right now, the talent is going to where the compute is. If you don't have the compute, you just cannot attract the talent because these models need a lot of compute for training. And you may be the smartest person, but if you don't have the computer, you
can't test your idea. So from that perspective, infrastructure build really matters, which is why in Nvidia, even though they are the chip provider, now they launch their own foundational model in autos self driving that just goes to show what compute can do, you know, and Vidia is definitely moving up the stax. It will be interesting to see how many areas where they compete in with their own foundational model man Deep.
We're early into the earning season, but big tech results will be here before we know it. And obviously the bar is really high when it comes to what these companies are saying about how they're monetizing their heavy AI investments. Do you think that they'll live up to the expectations.
I think right now you have to focus on where you will see positive earnings revisions, and given the kapex investments are going up for this year, it's going to be hard to show, you know, positive revisions when it comes to earnings, except for someone like Alphabet that really has seen a big shift in sentiment because one everyone realizes that their models have caught up, and they also are the most efficient when it comes to their stack,
the use of TPUs and low cost inferencing. So from that perspective, I think Alphabet clearly is best position to deliver positive surprises. But for someone like Meta, I mean, if you're hearing job cuts, then you know probably it's going to be hard for them to you know, show positive revisions this year.
Our thanks to man Deep sing Global Tech Research had at Bloomberg Intelligence this week.
We also looked at the e commerce platform Commerce which provides a driven tools for brands and retaillers. This company trades on the NAZAC under the ticker CMRC.
We were joined by the company's CEO, Travis Hess, who discussed how AI is changing shopping and this came on the heels of Google launching its Universal Commerce Protocol or UCP.
Commerce is an active partner in UCP, which enables buying directly across Google's AI surfaces. We first asked Travis to break down Google's UCP and just how exactly this makes shopping easier.
Given the extent of which Google plays in all of our lives and how people think of them, It's essentially setting the foundation and the standard for brands and retailers and other organizations to be able to scale agent to commerce across all of the surfaces that Google AI would hit. So think of the contextualized conversations everyone's having through answer
engines today. Those conversations are then dynamically recommending not only experiences and facts, but certainly shopping and brands based on the enrichment of data against those surfaces, and Google is enabling a standard by which consumers would be able to buy in a standardized, safe secure way. As it serves up discovery, you'll be able to buy seamlessly across those surfaces.
Travis, can you walk us through how AI will change the shopping experience in practical terms? Let's say I'm looking for a bag? How do I go about using your platform?
The consumer behavior has changed more than anything, So the amount of eyeballs and behavior going to the answer engines is probably the fastest adopting technology we've seen. So because the consumers are going there and they're having these conversations, brands and retailers are having to respond in kind, and they tend to have a fair amount of brand ethos, so they're very concerned about where they show up, how they show up, and who they show up next to.
So trust is at the cornerstone of this. So a lot of the foundational stuff you're hearing about now is to set up that trust. So when you're shopping for that bag, it's giving you a response that you can objectively trust. It's not serving up who paid the most to be listed or injected in that conversation. The thesis behind this is based on your own behavior within those answer engines, and of course other behavior within Google. Whether
that's through Chrome or through other Google products. They have a unique advantage there because of the amount of surfaces an individual might use to synthesize that in a hyper personalized way. So think of it as not only shopping either, but think of going into your favorite store and someone as you walk in can scan a code and immediately knows what you own, what you like, where you're going, what you're looking for, so they could curate something for
you immediately. Where that friction is removed through the process. Think of that virtually in this particular capacity. That's the future state.
So all the information that Google has on me, they are also selling who are they selling it to?
Oh that's not for me, that's that's top.
I mean. The reason I ask is because it depends on me logging into Google for them to give me those personalized recommendations. If I don't choose to log in, then I end up with the equivalent of a Google search on a public computer.
You do.
I think the models are changing. Certainly the old model was you're searching for terms, and certainly organizations are optimizing through SEO to be listed organically at the top, or they're through paid search, but listed that still exists today certainly in this behavior that drives that, but where this is evolving to is called GEO, so generative optimization, which is really going to be a combination of structured data, which is like product catalog data, skew, color size, all
those dynamics dimensions coupled with unstructured data, which are brand guidelines, call center, transcripts, blogs, articles, all the things that would contextualize that brand and that product, if you will. That's being enriched oftentimes by us on the petonomic side, which is part of our portfolio, and then syndicated across these different surfaces, be that Google or Open AI or Microsoft
or whomever. And it's going to continue to expand as the channels have expanded over the last several years.
What kind of AI trends and retail trends have you been monitoring.
It's all about AI this year. That's what's hot exactly this right, I think there's two sides of the spectrum. There's a lot of buzz, which is exciting, but at the same time, it's confusing a lot of people. Is everyone is doing everything and it's hard to kind of reconcile, like what's meaningful to the business I think for larger organizations that we work with, brand manufacturers and retailers, trust,
brand ethos, and security are top of mind. So for them, it's less about the sizzle, it's more about the stake and the foundational elements. I think the importance of the Google announcement is they are taking a very pragmatic approach to this to lay the tracks so this can scale and scale properly with trust, with security, and most importantly with a frictionless experience for customers. Because the brands don't
want to lose that customer data. They still want to maintain that experience, even though they're not fully controlling the surface by which they're showing up against. It's not like they're showing up against their own websites, so they're in a surface they don't completely control. They're controlling part of it through the data enrichment in syndication, but they're not controlling all of it. So they're very, very concerned that that experience is a positive one and a frictional list one.
Otherwise it has ramifications, It drives cost up and call centers, it drives maybe negative customer experience, it drives back things exactly we're in turns bad things on the back end. So that's the reconciliation people are trying to have. But yes, that EI has sucked all the oxygen out of the room at Javis.
And it's a big rule.
What will AI not change for shoppers?
But will it not change for shoppers? I think the behavior and the surfaces by which they're going to they're still going to go to. Right. I think new ones are showing up. I think the expectation personalization has been promised for a long time. I think there's some hesitancy there around the trust, So I think overcoming the trust aspect of this and having that reinforced through continued behavior.
The shopping is very new. There was a big rush to do this in holiday and the experiences weren't great, so I think there's a little bit of hesitation. I think you'll see a much more robust offering this holiday season.
Our thanks to Commerce CEO Travis Hess.
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