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Apple China iPhone sales dive nineteen percent in the worst quarter since twenty twenty. And this is a big issue because we know that China represents approximately twenty percent of the sales for Apple. It's obviously critical to their supply chain. So if there's one company that at least in my mind that has quote unquote China risk associated with it, it's it's Apple. Man Deep Singh joins us here. He's a senior technolog channels for Bloomberg Intelligence. He joins us
here in our New York City studio. So mandeb Apple China iPhone sales dive nineteen percent in the first quarter, the worst twenty what's your takeaway there?
I mean, it's not new news, so we knew this was coming. There was some counterpoint data I think last month that their March sales were pretty bad, so expected, but it kind of solid Desfies the point that you know, the China weakness is playing out much worse than what people expected, and the China revenue probably is gonna be like this for the foreseeable future unless something changes at the geopolitical level, or Apple launches a new device that
everyone wants, that latest iPhone that everyone would want. But for now, Huawei and the domestic competitors seemed to be catching up in terms of features, and that's enough to take the share in the domestic market.
So this is a story then of consumer shifting to competitors, or is it just that demand for phones is down because there's some macro weakness in the Chinese consumer.
Think There is a policy element to it as well, so obviously a lot is kind of driven by what is done at the government level. First they banned the use of iPhones, and now they're making sure that the
domestic vendors have a good chance of taking share. And because the phone is comparable in features, then I guess the Apple lock in that everyone thought was so strong that you just can't get out of your iOS isn't really helping or like in this case, and they are able to kind of move out of the iOS ecosystem and you start using this new phone.
What's Apple say about their position in China? What they may need to do to regain momentum. Do they have any strategy they've articulated.
I mean, look, they are having an event on May seventh where they're launching a new iPad lineup. There will be something very similar for the iPhone. They will launch a new device with AI capabilities. So their play is, we will launch a new phone, a new tablet with AI capabilities that everyone is looking for, and hopefully that drives the refreshed cycle.
And how does the slumping demand in China compare to the US demand? Because I have to admit a lot of people feel very pure pressure to stay with an iPhone versus a different device, simply because if you're in a group chat and you have blue text messages like it seems like that's actually a really strong feature that can ramp up demand, at least in the US. So how does that compare it and how are you so?
I will say, I think Apple is still gaining share in other markets US, India, other pockets as well outside of China, but that China revenue is almost twenty percent of their sales. And if it's going to be zero a couple of years from now. Then you have to ask yourself what makes for that revenue shortfall and for a variety of reasons, as we talked about, you know, related to China, But even if they are doing well in other regions, it's just pressure in terms of unit
sales and what do you do. Do you keep raising the prices of the phone, which they may have to because they have to relocate the supply chains out of China. That's the other aspect of the cost pressures when it comes to making this phone. They will have a lot of that because they have to relocate those supply chains and it's not easy.
I'm surprised they haven't take any more aggressive approach in India, like maybe a lower cost model to appeal to that marketplace. What's their India strategy?
I mean, so far, I think they are catering to that premium segment and they have had success, you know, in terms of that one percent or two percent penetration that they have had, you know, in terms of the region. But a low cost phone it's hard in India simply
because how low can you go? And Apple has tried that with different skews in the past, they haven't had a ton of success with low CON's phones because again, the competitors are quite fierce when it comes to you know, the feature said and the quality of the phones that they offer, and so it will be an interesting strategy if they decide to pursue that. But for now, I don't think anything can make up for that China revenue shortfall because it's declining at a very rapid pace.
So their earnings aren't until May second. They have that launch event on May seventh, but we do have some other big tech earnings coming this week. Can you talk about that?
Yeah, I mean, look, Meta, I think it's a company that has had a great turnaround story, and we know turnarounds are tough intech, but Meta has shown that, you know, it's a remarkable story when it comes to laying off twenty five percent people and then growing revenue twenty five
percent in subsequent quarters. I mean, it just speaks for how well they have executed and now they are at the top of the game and it comes to having their own large a model, So that could make a difference in terms of, you know, the new revenue stream that everyone wants to see with meta and probably the
metaverse may become a side show. I think another company that I feel is not very well understood and probably everyone thinks they're going to get disrupted is Google Alphabet, and that's where it would be interesting to see what they do around search because all the survey work that we have done, it shows that, you know, the new companies chat GPT, Perplexity, they have taken some share when
it comes to the search queries. Now. Still, the counter argument is everyone still needs to go to Google Maps or Google Search to look at what chat GPT is generating because they're not sourcing the links. So in the end, Google is still getting the traffic, but obviously the search is starting somewhere else, and that's the key risk that they have to address.
All right, so does does Google have an AI play per se?
Yeah? So their Gemini large anglid model. I mean, we all know it wasn't a success initially, but now they have caught up in terms of features and look, Google doesn't want to integrate Gemini everywhere because that's going to hurt their ad revenue. So they're very careful with how they roll out and how they make those UI changes because it's going to be disruptive to their incumbent position. When it comes to digital.
Ads market, do you use Gemini?
I do, and I think for certain tasks like generating summaries and you know, video editing, that kind of stuff, image editing, it's great. But I don't use it for my search yet because when it comes to the traditional Google search, it's still the go to place. When I think about you know certain things to do, and that's the behavior I think.
All right, you're a guy, Men Deep sing Senior techounts when you go. When you start using something, I'll start using it when men and when Anna Rock tells me to upgrade my phone, all upgrade my phone. That's how I roll Men Deep Seeing Senior Tech outs or Bloomberg Intelligence. Join us live here in our Bloomberg Interactive Brokers Studio iPhone China Apple. It's a big, big challenge for them, as many you've said, almost twenty percent of the revenue
comes out of China. They need to figure that out.
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Emily Grafao, Paul Swen, you're live here in the Bloomberg INTERACTI Broker Studio or streaming live on YouTube as well. Emily Grafao a proud graduate of the University of Richmond. I'm sorry University of Virginia. Sorry slip slip. As is our next guest, Garrett Nelson, Vice president and Senior equity analyst at cfr A Research. Garrett, my notes here, say you're in Richmond, Virginia. How'd you work that scam?
That's right, only only an hour from Charlottesville. So as a as a proud who, very happy living so close to the album.
Marler, all right, very good. I'm surrounded by UVA folks. Hey, Garrett Elon Musk, let's talk Tesla. You're the auto dude at CFRA. What does he have to do on the conference call today? It seems like he's got to pull a rabbit out of some kind of hat here to reverse the bad mojo around the stock.
Yeah.
Look, there's no question the stakes are extremely high heading into this earnings release. The stock is down more than forty year to date, coming off a year in which shares more than doubled. Tesla's earnings execution also hasn't been great. They've missed on the bottom line each of the last two quarters, you know, but we think the challenges they face at this point are well understood by investors. They're having issues with the ramp up of production of the
cyber truck. The TV market overall is oversaturated and growth rates have slowed tremendously. And you know, there's some uncertainty regarding the future product pipeline when they might bring to market the mass market ev or ROBOTAXI. You know, that's not really clear right now. So certainly a lot to look for. There's always a lot on the line. Tesla is one of the most anticipated earnings releases every quarter, but even more so this quarter.
Yeah. Can you talk a little bit about Tesla's efforts to cut prices on their vehicles and how that is going to play into the earnings. I see a lot of headlines about cutting costs. They recently slashed prices I think two weeks ago on most of their models. Is that something that investors should be watching for? Even more today in the earnings.
Yeah.
So Tesla's been cutting prices steadily for over a year now. Remember just after the New year twenty twenty three, they announced a price cut, a series of price cuts, and there have been, you know, several price cut announcements since then. So it's going to impact both the top line and the bottom line. You're really going to see it in
the gross margins that they report. So but you know, also Tesla's at a point where they opened two new factories just a couple of years ago, in Austin and in Berlin, and they're still in the process of ramping those plants up to full capacity. So you know, if they can do that cut prices and drive sales higher, they can drive down their unit costs by doing so.
Auto manufacturing is a very high fixed cost business, so ultimately they want to run those plants at the highest possible capacity utilization rate without surrendering too much margin.
So I guess to me, thank you blue Button, to me, Garrett, I think the most fundamental issue here, and I'm not sure Elon Musk can really address it, is what is the overall fundamental long term demand for EV's. You know, there's a lot of folks out there that are saying it's it's it's not great, it's not what maybe the industry once thought. What's your view on that.
Yeah, I think that's a big reason behind the sell off in Tesla and other EV manufacturers. I mean, look at the stock price of Ribby and Lucid Fisker. Is that the growth rates have disappointed, you know, compared to what investors thought growth would look like just two or three years ago. So you know, it's been a disappointment. And one thing you can point to is that governments around the world are putting EV mandates in place, and so, you know, we think that's a big positive for Tesla.
Obviously as an EV peer play. You're also seeing a number of traditional auto manufacturers really pull back on their planned EV investment. So over the longer term, there should be a lot less competition in the EV market for Tesla, which really opens up the market opportunity.
What else makes Tesla different than other pure play EV manufacturers. If you read the Walter Isaacson biography of Elon Musk's, you kind of get a sense that Musk never wanted Tesla to just be an EV company, but thinks of it more as an AI company, a battery company. How much does that matter to investors right now when the stock is down, you know, forty percent year to date.
We argue it should matter. I mean, look, they have an energy business, energy storage that if you look last year, it's been growing faster than the auto business. They hardly get any credit for that business, and so you know, we think it should matter. But really, the big distinguishing factor when you look at Tesla relative to to other competitors is its balance sheet. You know, this, this isn't the Tesla of three or four years ago that was
just barely getting by. Tesla had today has an investment grade balance sheet. They're sitting on over twenty nine billion dollars of cash, They have some of the highest gross margins in the industry, and we think they have an attractive development pipeline. So you know, that's really you've seen a bifurcation in the market where you know, some of the smaller, newer ed players like the ones I mentioned, you know, some of them have either declared bankruptcy or
are flirting with bankruptcy. So you know, Tesla is really in a much different position than those companies, and in fact, a lot of traditional automnifact and manufacturers don't even have investment grade balance sheets, so you know, they're in a better position than those companies in our opinion.
Garrett has, do you have the confidence that Tesla can profitably make an EV at a thirty thirty five thousand dollars price point?
Going to be difficult. So you know, when Elon Musk first started talking about this mass market EV years ago, it you know, it was a twenty five thousand dollars EV and that just isn't you know, with inflation that we've experienced since then and the economy continues to experience, we think, you know, if this happens, it's it's more likely to have a price point somewhere north of thirty thousand, maybe thirty or thirty five thousand, And that's really a
price point that they're that they're going to need to produce it profitably in this environment.
I have two questions. One quick question we talked about the balance sheet. Does Tesla still have bitcoin on their balance sheet? Remember when that news came out like two years ago?
They do, And you know, that was a drag on on Tesla for a while. When bitcoin was falling. With bitcoin having rebounded, you know, they've divested some of the bitcoin, but they do have some amount on the balance sheet. I would have to check the ten K for the exact amount, but they do. They do still have some bitcoin.
The other question I had was just when the earnings come out, you know, what are you looking for? Best case scenario? You know, what kind of headline would you have to see to you know, start buying more Tesla after the earnings.
Really the biggest thing is we're looking for some certainty regarding the cyber truck. From as far as we can tell, from the time they made first deliveries of that vehicle in November, you know, through the end of March, they've only produced maybe a few thousand units of the cyber truck. Now the reservation count for that model is somewhere north of two million, So you have two million customers out there who are waiting delivery of their cyber truck. They're
having difficulty ramping up production. There was a recall just announced, and so you know, we're looking for some certainty regarding when they might hit certain production milestones for the cyber truck, which is going to have an impact on their full year deliveries obviously, and then looking ahead into twenty twenty five.
But you know, if you look across the street, Earning's estimates have come down massively for twenty twenty four, and so we think they're at a level which are much more achievable here, and so the really the story becomes more of a twenty twenty five and beyond story, which is what investors are looking for, you know, taking the longer view, but also they want to see better execution in the near term.
All right, Garet, thanks so much for joining us. Really appreciate it. Garrett Nelson, Vice president's Senior Equity analytcfr A Research, A proud Wahoo from the University of Virginia, somehow working his scam from Richmond, Virginia, one of my favorite towns anywhere my twins are born. There a great city, great place to live. Garrett's got it figured out there doing the Wall Street thing from Richmond, Regina. Good for him, Tesla after the close, that's going to be big.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple Car, playing Android otto with the Bloomberg Business app listen on demand wherever you get your podcasts, or watch us live on YouTube.
One of the big names reporting today is UPS, big brown profit higher than analysts estimates, talking about headcount management, restructuring of its delivery rats are beginning to bear some fruit. Let's check in with the expert on all things transport and that would be one lead classical. He's a senior transportation's logistics analyst at Bloomberg Intelligence. He's safely a sconce down in our Princeton office and he joins us there via zoom. So, Lee, it looks like this UPS put
us some good numbers. What are really the drivers here?
Yeah, hey Paul, thanks for having me on.
Yeah.
I think it's really about what they're doing on the cost side. I think that's really the driver of the outperformance in EPs, because revenue did come in slightly lower than expectations on lower volumes. You know, they're dealing with lower volumes from last share last year when they you know, were negotiating their labor contract and a lot of shippers kind of try to find other alternatives in case there was an issue with their network, you know, from a strike.
But obviously that didn't happen now they're being pretty busy trying to win back that share, so, you know, I think what they're all in all, it was a good quarter. I think if UPS is you know, meeting or beating expectations, that's a good thing. Because they've had a rough year, driven a lot by that labor negotiation, which increased costs considerably and resulted in a lost amount of volume, which you know, for a company like UPS, the deleveraging effect
on margins is quite substantial. But there are definitely some good news in the report today that you know, we remain optimistic that they might be even looking to possibly increase, you know, their full year guidance for twenty twenty four, especially as the US postal service contract which they recently won from FedEx starts hitting their.
P and L.
When you talk about average daily package volume down, your over year revenue down year over year, how much of the softer demand for UPS is related to macro economic factors and maybe coming out of the pandemic consumers shipping less. Is that a factor here?
Yeah, I think it's a you know, probably a trieffective things. It's probably a softer great outlook all together that coupled with tougher comparisons, and the fact that they are you know, are still trying to win back the share that they lost from their labor contract negotiation. So I think think those three things are kind of weighing on their their volumes, probably more than maybe their competitors like a FedEx or a DHL Hayley.
I know, labor is a big deal with UPS and these companies here. I know UPS they had a new labor contract that really pushed up wages and benefits starting I guess this year. But then on the other side, they also cut twelve hundred or twelve thousand white collar jobs. That's like fourteen percent of the workforce here. So talk to us about the labor and component they're in the cost structure.
Yeah, I mean that they're they're doing the right things. You know, the contract might have a you know, with the team serves, might have had a negative impact to margins, but you know, we are going to anniversary those in the second half of the year, so those comparisons won't be as bad. And also, you know, does provide them with a steady labor force, because you know, if your
labor is happy, you're gonna have less turnover. You have less turnover, you probably have better service and better safety, and that usually yields better profits. So I think, like when you if you look longer term, beyond the initial shock of that new contract, which is very front loaded, you know, the increases aren't as bad. As we get to year two, it's not going to be as bad.
And listen, you know UPS and FedEx and a lot of these companies, you know they did get a little on the fat side, if you will, on their corporate ranks, and I think they're both doing the right things and terming in terms of trimming it for the new normal of what their operating environment is today.
How should investors be thinking about UPS? The stock is up one point five percent right now, but it's down about six percent year to date, underperforming the broader market.
Yeah, and if you even look even further over the last twelve months, you know it's down almost twenty five percent, underperforming not only the broader market, but you know it's closest peer fed X, which is up around eighteen percent over the last twelve months. So you know, I think what they need to do is they need to execute. They do not only to execute on their twenty twenty four plans, but their twenty twenty six plans, and I do as I said earlier, I think there is some
opportunity for some upside surprise. Given their US postal service contract. It wasn't didn't really make that much money for FedEx. But I think UPS's network is very different than fedexits. It's more integrated, it's not a hub and spoke network, and that will provide them with some profitability. And management is pretty confident, at least it peers confident that this business is going to be not only creative to earnings,
but a creative to margins. And that's kind of what you know, we as we look at the company, really want to see. We really want to see those domestic margins start to improve.
Haylee, what are the companies saying about kind of normalized growth rates in terms of I guess, unit volume. Where's this US economy in terms of just packages? Is it a GDP kind of number? Is that kind of the story.
Yeah, it's a GDP kind of number. But you know, UPS wants to grow beyond GDP and and how they're going to do that is they've made some pretty significant uh not in size necessarily, but in terms of you know, capabilities acquisitions. You know, they bought a company Roady, which you know it's not a drink on the road, well,
but it's it's it is. What they do is they deliver heavy stuff to people's doors, So think furniture, think uh uh, workout equipment, fitness equipment, and that is done through more or less an asset light model where you know, they're arranging the delivery. So that's that's a very good business.
They're also invested or acquired a company that does returns without box, without having it to box it, so it's a lot easier for consumers to you know, either go to a UPS store or one of the other drop points that UPS provides, uh to to to return something.
And that's good for UPS because that stuff goes into their system and it becomes a B two b uh deliver where when we say B to B business business and meaning that there's more density, so it's you know, they're they're shipping, you know, they're consolidating and shipping twenty boxes versus just one envelope, and that tends to be more profitable. Uh. And then their investments in the healthcare space, you know their goal is to be the largest healthcare
logistics provider. Healthcare has above average margins for transportation companies given the high level of service that's involved there. I think temperature control, think you know, uh, the fact that it has to get get get somewhere at a very specific time. So you know, those are higher, higher margin business So you know, I think that those growth areas I just mentioned will help them grow their overall volumes beyond you know, just GDP numbers.
All right, just real quickly, Lea, I'm looking at the stock, my god, Over the last five years, UPS and FedEx both grew at a compounded annuer rate of eight point eight percent, spot on below the S and P five hundred and thirteen percent. But why do investors own these stock? What's the call to own a fed X or UPS?
Well, Paul, as you know, we don't do a recommendation to your bi but you know, it's a really it's a play on e commerce. It's a play on the global economy. And you know, it's more, it's more and more becoming a play on near shoring. You know, the ups is and the Fedexes and the dhls of the world, even the freight forwarders like a kuninaugl You know, they're all going to benefit from the changes and supply chains. At supply chains, you know, change and shifts and get
more complicated. These companies really prove their worth during these times. And you know, I think that if if you believe in near shoring, if you believe in you know the fact that we're going to be buying more online, not less. Uh, these are places where you want to be. And it's really about the management teams that are in place, whether it's UPS or FedEx, can they change their organizations to the new normal. It's and it looks like they're both
doing it. It's not going to be an overnight change. It's going to take time because these are very you know, huge networks and they and they're not as easy to change as it would, you know, changing a menu at a restaurant.
Right right, All right, A league, thanks as always for joining us. Lee Lascal, senior transportation analysts of Bloomberg Intelligence, joining us from the Princeton offices of Bloomberg.
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My data came out here from SMP generally below consensus. I guess the composite came into fifty spot nine versus fifty two. That was a consensus of fifty two point one was for the last period as well. Chris Willimson joins us. He's a chief business economist at SMP Global Market Intelligence. Chris walk us through kind of what we saw here with the pmis for the month of April.
Yeah, so there's two surveys really, one of manufacturing, one of services. So the latter is private sector services. So these are this ranges from consumer based services to business services. It excludes retail importantly, and it excludes government. Now, both of those surveys lost some momentum. Collectively over the first quarter, they'd signal fairly decent growth around two percent annualized, with that upturn becoming increasingly broad based services led, but manufacturing
also starting to pick up some momentum. But in April we've seen both of those surveys lose some output. Growth pace. It's still in expansion territory as far as output's concerned, but with growth sort of slipping below the two percent
annualized GDP rate, that's the signal from it. So looks like the second quarter could disappoint compared to the first quarter based on these these survey data, as your previous interview was referring to these these survey data have been a bit softer than recent GDP numbers, so you know that needs to be born in mind.
So any sense of what's driving there, Like, I'm not sure how to think about this on a month a month basis. Is it just kind of noise month a month and I really want to look at it on a longer trend or does the slowdown in April does that kind of suggest something might be a foot?
Yeah, it does look like there's been some adjustment to demand, so new order inflows, the amount of work flowing into manufacturers and service providers that fell for the first time in six months in April only. Just it is a small decline, but this contrasts with growth of demand that we've seen over prior periods, and it looks like you're getting some adjust meant here to the financial conditions that
businesses are facing. So previously we've seen, you know, companies look forward to rate cuts and that stimulating demand those loosening of financial conditions out and over the course of the last few weeks, we've seen further signs that you're not going to get all those rate cuts that you hope, and indeed market starting to price in now more possibility of a rate hike. That's feeding through to markets. It's increasing borrowing costs and it looks like that's feeding through
to the business environment. We've seen. We've seen this creep in before in terms of how those financial conditions really do seem to quickly affect the demand environment, and it looks like that's what we've got here in April, a bit of a sort of reality check. Whether this persists in coming months is going to be the key thing to look out for, but it does look like that, certainly going into the second quarter, you're seeing the demand environment soften compared to what we've seen previously.
All right, Chris, thanks so much for joining us. Chris Williamson, chief Business Economists at SMP Global Markets, joining us from London via zoom and again the SMP Global manufacturing PMI for the month of April comme in at forty nine point nine. Consensus was fifty two. On the services side, it came in at fifty point nine, still expansionary, but below the consensus of fifty two, and both of those were down from last month, which we're both close to
fifty two, so again at deceleration there. So when you put them all together, the services and manufacturing on a composite basis came into fifty point nine versus fifty two. So we'll keep an eye on out a slowdown in the SMP. It's a survey of manufacturing and service activity out there in economy. Economists kind of take a look at that to see about the outlook for services and for manufacturing.
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Emily Rafe is sitting in for Alex Steele and Paul Sweeney. We're live here in our Bloomberg Interactive Broker studio. We're also streaming live on YouTube dot com, so head over there and search Bloomberg Podcast. I'm in the process thanks to Emily's tip. I'm in the process of logging into and loading clear Space onto my phone the app, and that is to limit self, limit my use of certain social media things that I feel like are wasting my time.
Yes, it blocks your access to the apps, and it actually makes you do a breathing.
Exercise, of course, and.
It gives you a quote and an inspirational quote before you log on. So you really have to question, do I really want to open social media right now?
Good? This is like the lock on the liquor cabinet.
Yes, yes, that's the analogy that from our generation that brings us to TikTok, because that's a lot of what people are concerned about in TikTok. You know, it looks like they might be banned here or forced of a divesture. I don't know what's going on, since I'm not a TikToker, but I know it's huge because most people are on TikTok. Matt Schuttenhelm, I don't know if he's on TikTok. I'm gonna guess no, but I don't know. He's a media
litigation analyst to Bloomberg Intelligence. Yeah, he's a lawyer, but we talked to him anyway because he's really really smart. Matt, can you tell us what's going on with our good friends at TikTok is what is Congress looking to do?
Yeah, so this bill is really advancing in Congress faster than I think many of us expected.
That.
The aim of this bill is that to force a divestiture of TikTok from byte Edance, which is based in China and is the parent company here. And basically the bill operates by saying, if that divestiture doesn't happen within two hundred and seventy days or maybe there's a potential ninety day extension of that, if that divestiture doesn't happen, and then TikTok can't be hosted in app stores, or it can't be there can be no web hosting of the app. So it's effectively a ban if that divestiture
doesn't happen. And so this has cleared the House of Representatives on Saturday. That was their second vote by an overwhelming bipartisan majority. Today it's tied up in the Senate, and this is tied to the Ukraine Foreign aid package, and so it's going to be very unlikely for the Senate to resist it, so very likely that this becomes law. President Biden has said he'll sign it, and so I think we're you know, we're off to the courts now on this question.
What is Congress most concerned about when it comes to TikTok? Why have they introduced this legislation?
Yeah, I think it's it's really motivated by by two concerns. One, it's a concern about access to all of this data. We have one hundred and fifty one hundred and seventy million Americans on this TikTok is collecting all of their data about what they're clicking on, and potentially China has access to that since byte Dance is located UH with within within China. And the other concern is a propaganda concern.
How much can can China play a role in in in dictating the messages that that that TikTok prioritizes and and what the messages that it's that it's UH declaring to our youth you know that are that are using this so so often, so it's sort of those dual concerns that that have really driven this.
And Matt, what have we heard from Bite Dance, if anything, what do they intend to do if Congress passes this?
Yeah, I think I think they've signaled pretty clearly that there will be a lawsuit to challenge this, and so I think that's going to be the next stage. So we saw this when President Trump, before he was against a band hetally tried to ban TikTok in twenty twenty, and there was litigation about this, brought both by TikTok and by TikTok's users. And here the bill itself tells us what court that's going to go to. It's the
d C Circuit here here in Washington. And so I think Byte Dance and TikTok are very likely to very soon bring this lawsuit challenging Congress's action.
I think everyone who's on TikTok wants to know, is TikTok going to be banned? What is the likelihood right now that in a couple months people in the US won't be able to use.
The app YEP.
So right now there's three moving pieces here. So one will Congress pass this, and I think there. The answer is very likely yes, and that's likely to happen today or tomorrow. President Biden will sign it. Then there are two other moving parts. One can TikTok win in the courts and stop this with the First Amendment challenge. I don't give them very good odds to do that. I give them only about a thirty percent chance to succeed with the court challenge. Then the last moving pieces can
there be a divestiture of the app. And that one's sort of the big wild card, because what we don't know is whether China will permit a divestiture or not. It has signaled that it won't approve something like that. So even if you put that at a toss up fifty percent and you say it's you know, TikTok has a thirty percent chance in the courts, you know, there's a fairly good chance that the app does disappear in the next year.
How do you ban an app?
How do you ban technically? Yeah, so, technically the approach here is to prevent it from being carried in app stores. It can't be updated and made accessible to users in the United States, both in the app stores, and then it can't be hosted. So this app has to sit on a server somewhere that in a way that makes
it accessible. And the the approach in this legislation is that if any company makes it accessible through web hosting or through app store access, that they are subject to significant penalties and fines in a case brought by the FTC. So that's the enforcement mechanism here. It's not directly against bytenance or TikTok, it's against those that would would make the app available.
Well, can I just have some server in China or somewhere else, you know, overseas do it?
That might be the workaround. Maybe they'll they'll try to do something like that, and then then you have a question of how how how well the US could it could enforce enforce that. But I guess that that would be maybe the next move if if everything else is failing for TikTok.
All right, So, but the bottom line is for you lawyer types, you think this is going to go to the Supreme Court.
Well, the d C Circuit gets it first, and I think there's a decent chance that the DC Circuit is the final word. I think if the d C Circuit were to rule for TikTok. And to say that there is a First Amendment challenge that's really going to interest the Supreme Court. I think that would motivate the Supreme
Court to take take a look at it. If the d C Circuit issues a definitive ruling upholding Congress's law here, maybe the Supreme Court says, you know, look, the d C Circuit got it right, we don't need to take that up.
Okay, all right, good stuff. That's what we like talking to you. We get it straight, the straight poop and all the legal stuff. He gives you, like percentages of what can actually happen.
We love.
That's why we love talking to Matt schelling Helme. He's one of those people that doesn't carry cash. That's the big, big mark against met schell helm Otherwise he's a great attorney and a great litigation analyst for Bloomberg Intelligence. But he's like the kids, they don't carry cash.
You know, we don't need How do you buy how do you buy a truck outside the office. They took Apple pay.
They took applepay.
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