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Tough day to be a retailer here at Lululemon, Nike, some disappointing number of stocks taking a hit here today. Let's get the analysis and we can do that with Goyle. She's the senior research channels covering all things on the retail space for Bloomberg Intelligence. Joining us from Princeton via
zoom here pun them. Let's start with Nike here, stock off about you know, eight percent here, I guess a tough first half outlook here in Bloomberg reportings, talking about some competition from upstarts on and Hoka talk to us about Nike. What did you take away today?
Sure, the outlook is definitely much weaker than we would anticipated, but I think they're positioning themselves for longer term growth. So they talked a lot about innovation in the air franchise that they have and really expanding that to other sneakers, aloettes, and we think that will position them for longer term growth. But definitely there is a softer start to the year. The first half of fiscal twenty twenty five will be challenging.
The light at the end of the tunnel is that two h twenty five will be better and will end the year on a positive note based on their expectations. And I think the real key here is to focus on the product innovation that they're going to bring forward over the coming twelve to eighteen months to really see if Nike can continue its journey to maintain its brand lead.
It is a fifty billion dollar company owned Paul, So when you know, folks talk about on in Hoka, when you look at the size of the two versus what Nike has, they're still very very very small in comparison, you.
Know, put them. I look at Nike and the one of the other stocks you're watching Lulu Lemon today really the big decliners in the S and P five hundred and I wonder if there's any sort of broader takeaway, sort of a macro takeaway to be had here about the health of the consumer, or is this very much you know, sort of just brand specific issues for these two or is there sort of a return to office story still at play with these two brands at all.
I think it's a combination of a multitude of things. So I think the first is that, yes, there is a consumer pullback that's happening. We heard that from Adidas and Puma tou with their softer guidance, So that's not necessarily a big surprise of the consumers pulling back on discretionary spend, and we saw that with better numbers at Walmart and Amazon, where you kind of push for value
a little more. On the other hand, you do have to worry about the product because the one thing that Little Lemon said that was interesting is yes, traffic was down at stores, but conversion was also weaker, and that means that there's something happening with the product. And they did talk about the need to really up their product cycle and replenished to have inventory in stock because they
did see some weakness from that. So I think it's a culmination of a pullback in the consumer the product, and also that the app leisure market I think is still strong. I think there's still potential there Globally, I do think coming off from the pandemic that you will have some normalization of a wardrobe where it's going to be more balanced today than it was let's say two or three years ago. Oh, it was probably eighty percent
at leisure, twenty percent work life. Today it's probably leaning back to fifty to fifty.
So you'll be relieved to know that I am not a Lulu Lemon customer. But talk to me about like fashion is it? I mean, it's all a similar type of fabric and fit. So is it just colors and patterns and things like that? How do you change that up? Because I know getting the fashion right is so important, you know for the companies that.
You follow, actually fall for Lululemon. Yes, it's about getting the color and fashion right, but it's also about the fit and the fabric. They're a ligne pan which are their best sellers, you know, the biggest sell on that is the way that they fit you. They make you look good, and every woman wants to look good. So that's the differentiator between a Lulu Lemon yoga pant and let's say, on Nike yoga pant. There is a difference in the quality of the pant that you're wearing and the fit.
That it has.
Don't kid anyone. Paul's wearing yoga pants right now. Actually their dress pants. They have some pretty good blue Lemonas Rice men's dress pants.
Yeah, I've got a couple of pairs of those.
Ye, put them back to Nike. One headline I saw that kind of shocked me is that Nike was able to get the sponsorship of the German national soccer team, taking it away from us from Audidos.
Yeah, which which is pretty Yeah, it's pretty you.
Know, shocking for a soccer fan. I mean, you grew up watching Audidos on the shirts of every basically every team. But how big of a deal is that as far as that global soccer market for Nike and sort of this rivalry with Adidas and that sponsorship.
Yeah, look, I think it's a big win for Nike because Adidas is a German brand and has held that sponsorship for I believe over seventy five years. So to lose that to Nike is a big deal and it puts Nike on a stronger foothold across the globe in the field of soccer. So we do think that this is a big win for them, But make no mistake They paid a premium for this, so it wasn't something that they took away at a steal. They definitely paid.
Up for it.
So I did just watch or recently watch it with the Jordan, you know, and kind of story about how he got and the relationship with Nike and kind of how that all plays out. But now the dollars are just so much bigger. So you know, so put me as you look across the Punams, I mean the Nikes of the world, and the Adidas and the Pumas and things things like that. Is that still a huge part of their marketing strategies is to align themselves with teams
with individual players. Is that still as big as it always has been.
It is as big as it's always been, But now it's harder to come up in that playing field with some of the major players unless you have deep pockets. So really only Nike and Adidas can afford to spend the money that they're spending to win these leagues and their players. These smaller companies like Puma you mentioned and under Armour they're making a bet on rookies. So you saw the success that under Armour has had with the Curry franchise, and that bet was made a long time ago.
You're not going to see these smaller brands chase after the established, bigger players and the bigger teams because they don't have the pockets for it. And that's where Adidas and Nike win, and that's what makes them really keep their number one and number two positions in the global sportsware industry.
Well put them. How about all the other sort of also plays out there. Is there any sign of the dominance of these two companies being threatened at all? You know, we see a lot of these sort of Instagram brands, you know, in Amazon brands. Is that a threat to these these major players in this industry?
Yet?
I'd say that the industry is broadening, right, So in the sports where world, traditionally it was all about performance and being on the field playing. Today it's about walking the roads and really wearing it in your day to day life. So competition is growing, and there is also competition growing on the perform in side with the Hokahs and the Odds, they're very popular shoes and they've actually
taken share in the running category. So I do think that both Arida and Nike have to step up their game to really add more innovation, but they're still small, so I don't think you know Nike is at risk of losing its number one position just yet. They win by a wide margin. But it's something to keep an eye on over time.
Put them.
Let's step away from these two stories, share and look at your overall coverage. You follow a wide range of retail. You've done that for decades. One of the top retail analysts on the street, What are some of the stories that you think are interesting? Now? What are you talking to your clients about these days?
I think we're talking about the consumer a lot, right. The consumer is clearly pulled back and what does that mean in an election year? So we think the consumer is going to remain soft this year. But we think the consumer is stretching their dollars so they're looking for value. So value will remain top of mind. But that's that they're traveling. So it's not that we're going into a
recession by any means. They're not going to fall off a cliff, but they're spending money where they feel that they're getting the most bang for it, and we think there'll be a trend that we continue.
To see as a er on I mean, is that a Walmart slash target story or does that steer me to the maybe the dollar stores.
I'd say, you know, the winners here would probably be and what we've seen in the past in the fourth quarter is the Walmarts. Right, the Walmart's where you find value and you find a broad range of assortment and where you have a customer that's more broad based versus the customer of a Dollar General, where there are more low income and they are too pressured. Walmart attracts a broader market and they offer the value that you get.
All right, put them excellent stuff, as always put them. Boil, senior analyst. She covers all the retail space for Bloomberg Intelligence. We were talking about Nike and Lulu Lemons some disappointing numbers. Nike off about eight percent, but as Michael's reporting earlier, Lululemon off about almost eighteen percent years so a big
pullback here for those two retail names. And the question I think a lot of people might a lot of investors when they look at their earnings from a Nike er Lulu Lemma, what does it tell you about the consumer?
That's yeah, And it was interesting to hear put them talk about that how they you know, it's not just execution, it's not just market share. Story here, it does seem like on top of everything else, there is a little bit of some either spending pullback or at least bargaining hunt.
And then you compare that to what you hear from like the cruise lines. They're still backing them. Yeah, I mean, so people are spending money, They're just spending a little bit differently than maybe a pre pandemic. I don't know, still on that experiential track, I guess if you will, because again you think about some of these the theme park operators, the cruise directors of the hotels, the casinos still sing really good traffic.
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Let's get right to it. Lee Glasgow in the house, darkening the door. Whenever we see them walking around, we just grab them, you know, because it's a long walk for me down to Princeton. So anyway, Lee, you've been covering FedEx forever. You've been covering all these logistic companies, the rails, the trucks, all the shippers, you know, this stuff end to end. FedEx seems to me to be a core core story within that global logistics. What went wrong and then what have they been doing to fix it?
Yeah, so FedEx is a is a great story, and it's an improving story. And the reality is that over the years it got too big for itself and it got too fat, and there was a lot of hesitation to combine its network. So as an air network and
a ground network. Its ground network is mostly independent contractors and its air network are employees, so they're you know, there's it's not easy to integrate those networks, and a lot of analysts have always said we should integrate them, we should integrate them, and management say, you guys don't understand our business. We can't do that. Well, fast forward,
they're doing it. And that's their Tricolor strategy where they're you know, which is re re redesigning their air freight network and they're also combining their express and ground and services business into one.
Segment.
If you will. It's pretty much everything. But they're less than truckload business, so they're doing a lot on.
This sounds like a good old fashion we got to restructure our business.
Yeah, and they're gonna they're gonna emerge is a lot more efficient. They're gonna emerge is a lot more profitable, and that's the hope. You know, their express network has really poor margins. I mean, their margins were two point three percent in the quarter, and that was a real good outperformance and what the street was expecting by one hundred and ten basis points.
Oh function, Yeah, I'm just seeing that very good. Okay, the numbers are the numbers are good. Yeah, okay, all right, So what's next steps for them?
So, as you heard earlier, they announced a five billion dollar stock buy back plan. I think that gives people confidence in management's ability to execute execution. Risk is really the number one concern I think the street might have.
As you probably saw in the Bloomberg terminal today, everyone's raising their price targets and their estimates for physical twenty twenty five and beyond, and that's really driven by you know, they're they're cutting about one point eight billion and cost this physical year, and they're going to do about two point two billion next And if you think about it, one point eight billion is about five dollars and fifty
five dollars and seventy five cents per share. And this is a stock that you know was generating fifteen dollars in EPs. So these are sizable increases in the overall profitability company. You know, management, they've stumbled here and there, but it really seems this last quarter that they're executing and they're focused, uh, and they're building confidence and sentiment is so important when it comes to FedEx, which has struggled in the past.
You know, Lee, when you talk about saving cutting costs by that degree, I mean, I assume that's that's mostly headcount to some degree. Where are they cutting jobs? Is it just redundancy between the separate units now that they're combined, you know, a.
Coupany like fed X.
It seems like it'd be tough to cut those union jobs, the drivers and that sort of thing. Is it middle managers that are that are getting.
The FedEx is a non union show except for its pilots. Their drivers are not UNI drivers. Most of their drivers that come to your house or actually they don't work for FedEx in the US drivers are union right correct with the team stairs. So where they where are they cutting heads? Well, it's they're not really cutting that deep. What they're doing is they're getting rid of middle management. Like I said in the beginning, they've gotten a little fat,
so they're getting rid of some middle management. A lot of that is through attrition, some natural attrition.
Uh.
It's it's not like what was the guy's named Jack, the chainsaw guy coming in with, you know, destroying companies. I think it's going to be more of a gradual shift. And as they combine networks, they're going to figure out what where the redundancies lie. Uh, and they're going to benefit from, you know, reducing those redundancies. And that's through their their drive initiative and their network two point zero initiatives that they have out.
There as FedEx or UPS or any other global shippers that they talked about problems getting planes like from because we Bowing's in the news every day. Unfortunately, we have to talk to George Ferguson every day because Bowing's always in the news. As any of these companies have ever said, we're not getting the planes we need to far flow.
No, that's that's not a problem because what they're doing is they're actually, you know, FedEx is trying to downsize its fleet because with with this whole redesign of their air fleet, they're going to need probably less planes over time, and those planes that they're going to be operating are going to be operating much more efficient. They're going to have a more density. When you talk about freight and
transportation networks, it's all about density. How much stuff do you have in whether your truck or your train or your plane. Uh, And so that's going to be key for them to drive those margins higher in the express business.
You know, Leah, I've read that there's a lot of sort of R and D looking at the automation of package delivery.
You know, is there a.
Chance in our lifetime that we'll see you know, sort of driverless vehicles dropping our packages off that sort of thing.
I'm a a whole huge bull on like autonomous trucks or delivery. But you know what they will be doing is we'll be leveraging technology and AI to make sure a package gets into the right network and gets and it has that delivery promise that they have whether it's overnight or deferred. You know, what they're really and do be doing is using technology to make sure that package gets into the right network.
Yeah, but you don't think the technology is going to be there to actually have a driverless type of.
Do not not anytime soon.
Maybe you know, little little niche markets they might have and kind of just highlighting you know, those little robots that grows that go around towns and you see pictures of people beating up the poor little robots, right knocking them over exactly.
So during the pandemic, Lee became, for better or worse, kind of our supply chain grew, discovers all the companies, like the shipping companies that get this stuff to our shore, then the rails that take them into like you know, Middle of America, and then the trucking companies that deliver them to everywhere and all the all that kind of stuff. So let's start with the rails here. I'm looking at the trailing twelve months, these stocks have done pretty well.
I mean, you know, they're all up mid thirties percent in NORFK, Southern CSX, Union Pacific, pretty good performance. What's the story for the rails?
These stations Yeah, there's really not a homogeneous story with the rails. Interestingly enough, it's really company specific. Norfolk Southern. It's all about activists investors. You know, they're dealing with Anquora, which is trying to kick out management and put their own precision scheduling railroad management team in. Norfolk Southern has come back and said, we have our own guy that we want to put in from PSR. Some investors might be, well,
it's a little too late. You should have done that a couple of years ago. So no matter who wins the battle, Norfolk Southern will emerge as a much more profitable company. And then Union Pacific another story. They had a change in CEO Jim Venna as a PSR Persition Scheduling railroad and guy. And for those out there, PSR is really just six stigma for the railroads. It's just operating really efficient networks, sweating assets, that sort of stuff. And he's coming in and he's got, you know, his
own vision of how that railroad should operate. And then the littlest one, even after a merger Canadian Pacific Kansas City, you know, they have their own growth story because now they are the only road that goes from Canada into Mexico.
It's a great story.
And so they are the only railroad that is probably going to grow earnings in the in this last quarter, the first quarter.
How about the truckers. I'm looking and I put up JBHT. That's the ticker I always remember. You hit the BEQ function. It gives you the relative valuation relative to the what's peers? Truckers not doing as well. I'm looking at JBHD over the trailing twelve months, it's up eighteen percent, but some of the others are down. What's the word on the trucking biz?
So, trucking has been not great, and that's really there's just too much supply out there, and that excess supply is killing the truckloads spot market, which is down, you know, mid teens from last year, and that is weighing on contractual rates and that's where most publicly traded trucking companies play. Some peer play truckload carriers are like Heartland expressed. Night Swift is a major truckload carrier, so as Werner, But you know a lot of them don't play in that
really volatile spot market business. But it does impact their overall earnings ability, and a lot of them have been diversifying into less volatile Businesses Warner, for instance, it's a big dedicated carrier, so it's more like we're going to they'll go to Walmart and say we're going to haul stuff for you between Chicago and New York. We'll do ten trucks a week or between dcs and retail stores. And they even sometimes even you know, load the shelves
at CBS. Them dedicated services. So that's one area. Freight brokerage, which is obviously non asset and higher ROIC, which is attractive to a lot of them. And you know when you started with JB Hunt, JBI Hunt, their trucking company is one of the the trucking company business is probably one of their smallest segments. It's really an intermodal provider and a brokerage provider and a dedicated provider.
You know.
Lee.
The other getting back to FedEx, the other big headline was this five billion dollar share buy back. Is that what you think has investors excited or is it more the actual execute should end their performance?
I think is actually both. I think I think they wouldn't have said five billion if management isn't confident on their ability to execute. Like I said, execution risk is high because things happen at you know, a lot of transportation companies like to say their businesses are outside sports, you have weather to deal with, you know. And that
was something that was really interesting during the quarter. FedEx their express business and their Memphis hub, which is their biggest hub, dealt with a lot of bad weather and they were able to it really didn't impact it that much. And a lot of people were expecting low margins on that express business of around one percent because of the weather. And again they see that expectation by around one hundred and ten basis points.
All right, so that'll step back, we'll put it all together. Supply chain, are we getting is it fixed? Are we back to new normal? Are we back to a new normal? If I order something, or for more importantly retail or order something, they expect to get it by a certain date. Are they going to get it by that date?
Yeah?
And like the biggest risks looking forward is that the East Coast ports are negotiating with their late that's in September that that contract comes due, and so what you could see is some work stoppages. You know, God forbid a strike, and that's putting a lot of retailers and shippers unnoticed. They might be moving freight to the West coast. They might start ordering for peak season a little earlier, so peak could be a little lumpier if you will
start a little earlier. So I think that that's the biggest like risk I guess down the road. Obviously, the geopolitical stuff we can we can never guess when when when that's going to hit the fan.
You know, during during the pandemic, we had Gene Soroka, who runs the Port of la He was on our show a lot. He's really helpful in understanding kind of where these ships are from China, you know, where they go on. How long did they have to sit out
there and import and during their work issues. I guess I'm not sure if they actually had a strike, I can't recall, but they lost some business to the East coast, right, and you know he's been coming back here and kind of trying to get that business back for ye So it is competitive between ports. But now well I can't even get through the Panama Canal easily right because I got a water problem there.
You gotta we got low water go fix that.
You got to get you down there to fix that. I mean, what do you do with a low water in the Panama Canal? Start digging? I guess rain dance maybe, But that's a real issue, right, Yes, it is.
And what happens is that the ships that normally transverse across traverse across the Panama Canal can do so, but they can do so with less freight in it, So it weighs it down because it's it's the canal is more shallow, so there are ships going through, but those ships are carrying less freight, and so therefore the cost per ton of whatever you're shipping increases.
You know.
The Sue West Canal is probably more of an issue of what's going on there with.
The anything going through there these days.
If you're a Chinese ship or an Iranian ship.
Really don't let you go through.
They'll let you go through.
Yeah, they came out and said yesterday they won't touch them.
Yeah.
Yeah. And obviously you know, the Hoothies are aligned with the Iranians and their Indians are partners with the Chinese and the Russians, so I know they're able to traverse through there.
See, I'm telling you logistics supply chain. It's fascinating to me. And you know what, I totally during business school when we had that class, I skipped it probably half the time to go across and play the do golf course.
Was one of those things that no one really worried about until you had until it was crisis time, right And I mean Lee obviously worried about it. But Lee, how do you think sort of you know, now that we're on the other side of the pandemic, it was such a crisis with logistics and supply chains.
Is there a legacy?
You know, no company wants to sort of fight the last war, but are there sort of permanent changes that you can look at and say, these companies have been able to eke out some efficiencies or something about their business that they learned a lesson from these supply chain issues that they'll carry forward.
Right.
Well, the changes that we're seeing as an increase in near shoring and you know, de risking, and the reality is that this is not going to happen overnight. It's going to be you know, like watching grass grow. You know, it takes a long time to put a new facility up in Mexico or even the United States for that matter. So I think you're going to see more and more of that, and that's a that's a net positive for
the domestic transportation companies. It's a net positive for like I mentioned earlier, Canadian Pacific, who has operations in Mexico, Werner, who does a lot of cross border business across Mexico. So these are companies that will definitely benefit from that from that movement, and it's a long term, slow secular growth story for transportation a.
Right, Lee great Stuff is always always appreciate getting your time, Lee Classical. He's senior Transport Logistics and Shipping on us for Bloomberg Intelligence, Joining us life here in our Bloomberg Interactive Brokers studio.
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Story out of Tesla Tesla trim's car output in China as EV sales growth slows, and that is probably the number one issue I would think for the stock, even for the industry A little bit is kind of what is the ultimate demand for electric vehicles here in near term, but then even also going forward, Tesla stock obviously is taking it on the chin. It's not about two percent today, but here to date it's off about thirty two percent. So there's real some concern out there about demands. Let's
get right to it. Steve Man, he's our global autos research analyst for Bloomberg Intelligence. He's based out of Princeton, New Jersey, joining us via zoom here. So Steve talked to us about this news from Tesla trimming its output in China. What's driving that?
Yeah, Paul, I mean the stock's down about one and a half percent. Like you said, I think the consensus have pretty much factored in the potential cuts in production given the demand. I think demand I think in in China it is slowing down. There's a lot of price cutting, not just from Tesla but from by D and GLY. It's a never ending price cutting cycle over there. In the US, we're actually forecasting to be up nine percent, definitely single digit, down from double digit growth in the
past couple of years. So you know, I think the production cuts are probably mainly driven by the US and the China market. European to a lesser extent.
You know, Steve, as you mentioned, BYD the big competitor to Tesla in China. I always hear how fierce that competition is. But I wonder how the vehicle stack up is BYD actually making a car that is as high performance as has all the bells and whistles of a Tesla.
Were they a little bit behind?
I think I think, you know, by D and other local Chinese automd makers, because they're so focused in the Chinese market. I mean, now they're starting to get you know, kind of extend beyond the China market. You know, they they're pretty nimble in addressing some of the needs from the consumer consumer side, especially on the connectivity and all the infultainment system that they have. So they are are you know, pretty much catered to the Chinese market. They're
there a pretty good job on that. In terms of quality, they've come up to curve quite quite quite a bit. I think I remember covering I remember visiting the Boid plant probably around eight nine years ago. You know, I still see like hammers, people using hammers to punch vendors together.
But now they're you know, they've moved well beyond that, I think, you know, not really nationalism, but you know, with their cheaper cars with lower cost of production, the Chinese have been very competitive and been taken market share from foreign brands.
All right, So just what's your view kind of over the overall demand for electric vehicles globally. The concern is I think with a lot of investors that it is materially slowing down. A. Do you agree with that? And B? Why do you think that is?
It's about affordability. If you look at a lot of the vehicles out there in the US and Europe, EV's out there, they're really expensive. You know, they're above fifty thousand dollars. There are a few that are below fifty. There's not that many that are below thirty. So it's really an affordability issues. A lot of the people that can afford EV have, you know, and like an EV
have purchased one. But what's really exciting, I think in the next couple of years, and I think we'll see a potential psychicyclical improvement in evs is actually in twenty five and twenty twenty six, when there's a whole bunch of kind of sub thirty thousand EV's come to the marketplace, especially in the US.
In Europe, you know, Steve, some days, anyone who is on the X social platform might actually forget that Elon Musk is head of Tesla and he's so focused and active on X in these sort of culture war issues. Is there any sign of that in the numbers yet? As far as affecting demand, is his you know, or his political stances moving the needle at all, turning any potential customers off?
Do you think?
I mean?
I think yeah, I think you know, people who buy EV's and are looking to buy a car, I think they are disconnected for some of the rhetoric that comes out from Elon Musk. You know, their performance in terms of sales is actually no different than what everybody else is seeing. So I really don't think there's a huge impact on sales, you know, based on what he writes on aslor, he said, what he says on interviews, not at all talk to.
Us about the profitability of the EV car manufacturing right now. If prices are being cut the unit profitability, what's going on there? Because they had achieved I believe some time ago positive unit profitability.
They have and they still are. And look, you know, the one of the issues that was facing the industry in the past eighteen months is price cutting, and I'm hoping that, you know, we're right at the tail end of it, because Tesla actually has announced price increases in China starting April first. It's about a five percent five to eight percent increase if you also strip out some of the other incentives that are out there. And they're also planning those price increases in Europe as well as
the US. And I think part of that is because the material costs for batteries are actually have ticked up a little bit, so, you know, the material costs for battery increasing could be a catalyst for an end to this seems like a never ending price cutting.
How's the cyber truck doing, Steve? Is it is it meeting expectations.
Cyber trucks? I think it's it is meeting expectation. They're still ramping that up. Uh, you know, sales have been there's you know, they're trying to fill the million unit back order. And according to you know what we're hearing in the marketplace, the used vehicles, uh, while used vehicles meaning a few weeks, few months old they're actually selling at you know, two times the amount that they they that they're selling with the new vehicles.
Wow.
Really so yeah, so I.
Think there is demand for it, but again it's not going to be at the same volume as the Model three, in the Model Why, where they're selling over a million units, close to two million units. This is still going to be relegated to the to ane market, to a smaller group of consumers.
All right, good stuff, Steve Man, Thank you so much for joining us. I always appreciate getting your thought. Steve Man, Global autos analysts for Bloomberg Intelligence.
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All right, so we've had I'm gonna call it a really really good week for the IPO market. A lab which is a great particular I love that alab four astra that stucks up again. Ipude started trading wednesday. Reddit started trading yesterday, was up a gajillion percent. It's down nine percent to they given a little bit back. No big deal there, But I'm going to get into the story here because it seemed like very well received Reddit by the market yesterday. The IPO market. Mandy Singh Joints
is here. He pitched me hard yesterday to go in size on this IPO. So I put a ten percent order and I'm not sure if I got anything but with the underwriters. But Mandy Singing joins us back here in our Bloomberg Interactive Broker studio. So I guess Reddit is a social media platform. You get a big audience, you sell advertising. We've seen that game before big cap ones or the facebooks, the Googles. The smaller caps are the snaps and all that kind of stuff. This fits
into the smaller cap thing. Why can't they make money on that business?
Well, one, if you compare the user base, it's still off the size of you know, Snap in Pinterest. But remember Snap and Pinterests are three to four times bigger in terms of revenue. So this platform is vastly under monetized.
Why is that the thing?
Well, they never had an app platform to begin with, and they started developing ad texts solutions over the last five years. The most exciting thing at the roadshow was really the data licensing business. That's what at least everyone thinks has a lot of potential. They're not going to
take digital ads share from Meta or from Google. It's more about what can they do in this unique data licensing business, which if you believe in the GENAI story, then I think there will be a time when things investors will start looking beyond the pitent shovel semi plays, and that's where companies that have unique user generated data
they will get a lot of attention. And we think Reddit is uniquely positioned, so it's it's sort of refreshing to see an IPO that goes beyond the semi plays and the hyperscaler the max seven that is getting all the attention, and I think that's part of the reason why you're seeing the IPO do so well well.
Bettie, I wanted to ask you about that.
I mean, I guess the no is that a generative AI company will license access to all the posts on Reddit to help AI sort of learn to speak like a human. Although I got to say from some of the posts I've read on Reddit, I don't know how good of an idea that is with the Wall Street bets type of posts. But how big of a potential sort of source of revenue for that is that for Reddit?
I mean, there's a lot of hype around AI. I'm wondering if you can help us sort of really cut through that and figure out how big of a business could that be for Reddit.
Yeah, so the Google license we know is about sixty five million dollars per year. So if you think at least there would be eight or ten large angrige model companies that will license the data that adds to you know, six hundred million, it's not exclusive at all. To at least we haven't read anything to suggest it's exclusive. So that just goes to show that there is a lot of potential in data licensing. And remember this is like
a ninety five percent gross margin business. They don't have to spend any money in terms of rolling that out as a product. So that's one. And to your earlier point about you know, the quality of the posts and the data that's used for training, I think one of the things with large anguid models is not only do you need good quality data, you actually need bad data
to put the guardrails. So it's it's and it's something that every LLLM company is doing is iterating to their models, making sure they're putting the right guardrails and with redded the unique advantages. This is human curated data. This is actual user data, not generated by machines. And obviously with the one billion posts they get every year, this keeps,
you know, getting updated. So as an LM company, you want to make sure you have the most up to date user generated data to be able to design the chat pot functionality on top of it. Whether it's good data or bad data, you actually need both, I would argue, because that's how you put the guardrails in. And remember Reddit is only texts, so they don't plan the images or videos. That's more for you know, the YouTube and
the tiktoks of the world. So this is a text focused LLLM play and I think that's where they are uniquely positioned.
And just on that other IPO again, ASTERI labs a lab up about nine percent today, third day in a row that it's been higher, so that continues to be a really good story. So two good IPO stories this week. Hopefully that can get some of these equity capital market bankers off their fannies and can have to do some more deals. I mean, that's what I'm thinking. All right,
let's switch gears Apple. I guess the question for a lot of people is how significant is this latest round of regulatory scrutiny, various suits by various regular regulators around the world. How material is this to the short, intermediate, long term investment story for Apple? Is this a nineteen nineties Microsoft overhang which is not good for the stock or is it something that the stock can power through.
I mean, judging by the stock reaction it did, you know, suggest that this doesn't vote very well for Apple in the near term, given all the attention they're getting, both in the EU and now in the US. And I think one of the things that happens when you come into this kind of scrutiny is you can't make any product changes. You can't do even tuck in deals. I mean,
I can't imagine Apple or Google buying any company. Microsoft sort of is circumventing that by breaking a company apart and you know, poaching all the employees as they did with Inflection. But it just goes to show that once you are in the cross heres like this it's very hard to you know, roll out a new product without getting more attention. And in this case, the monopoly argument is really geared towards their app store.
So we all know that Epic.
Systems trial has been going on for you know, three years almost, and even though Apple have one verdict in their favor, it looks more and more that Apple has to make changes to open up the platform, whether it's third party billing or other type of changes, and to me,
that doesn't vote very well for the services line. Ultimately, that is the high margin business, and if they have to lower their take rates or open up the platform to third party billings, that's going to hurt their high margin services revenue.
What do you think a resolution would look like.
I mean, could we imagine them actually spinning off the app store as a separate business.
Very unlikely. I mean, it's so hard to decouple app store from how Apple's operating system is set up and how you know, all the devices can interoperate, whether it's your iPhone, your iPad, or MacBook. So I can't imagine them decoupling their app store. At the same time, what they have to do to convince their regulators is basically a level playing field when it comes to heart party
app store. So right now, there are a number of companies that sign up outside their apps, like namely Netflix Spotify. Because Apple takes a thirty percent cut for every subscription that goes through their app store. So that's where you know they have to show to the regulators that even if companies want to deploy their own app store with their own building systems, Apple is open to that. And you can move out of the Apple ecosystem to go
to Android or any other operating system. So all these changes are what I think will happen over time.
And and you've seen great stuff. As always, he never mails it in. He's in our Bloomberg in directive Broker Studios. He's the senior technology channels for a Bloomberg Intelligence. Appreciate getting some of his thoughts Here.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, just say Alexa playing bloom eleven thirty.
All right, there, you have a crossing the Bloomberg terminal. House passes bill to fully fund the government and they're sending it on to the Senate to get more on this. Re Joined by Jenny Sheene Zeno, Professor, a Bloomberg Politics contributor and author of American Democracy in Crisis. Jenny thinks, so much for joining us here. I think, do we have her yet or are we still kind of working? Okay, we got it awesome, So what do we make of this?
I mean, thank goodness they passed this here? But anything unusual going on here in DC? Or is this kind of more of the same let's get it done at the last minute.
It is more of the same. Although I have to say this is highly unusual. We are, you know, six months late on this bill. But since this is a positive day, I'm going to try to be positive. They did pass at one point two trillion dollar government funding bill and they now are moving it to the Senate. And of course, you know, only half of the crisis is averted so far, because of course the Senate is you know, they're effected to take it up pretty quickly.
But as the Senate works, any one senator can slow this thing down. And we know there are about a dozen amendments on the table. So you know, on the plus side, the senators all want to leave town so they can get their two week recess, so that may help them push it to the finish line quicker. But you know, we still aren't over the hunt yet, but we are on our way, so to speak.
You know, Jen, one of the new pieces of news that's emerged over the last few minutes is punch Bowl is reporting that Representative Marjorie Taylor Green has filed a motion to vacate the speakership. Does that have any risk to this bill? I mean, I would guess not since it's passed. But how does that fit into all of this?
Yeah? I mean we always expected this would happen, and this has been the way that the conservatives in the House have operated. You know, what's quite startling about this is that this bill is probably more you know, a little a little bit more liberal or progressive or pro democratic, if you will, pro White House then the bill which
caused them to get rid of Kevin McCarthy. And so you know, it is not a surprise that one or more member of the Freedom Caucus House Freedom Caucus in this case, Marjorie Tayler Green has filed, but you know, at this point it won't impact this particular bill. And Mike Johnson always knew that this was going to be the result of him working across the aisle and of
course waving the seventy two hour rule. There was a lot that happened in the last few days that conservatives and Republicans who are you know, not Freedom Caucus members didn't want, but you know, to avert a government shutdown, this is what they had to do.
Okay, So for us amateurs who don't really know how this plays out, is this from Marjorie Tayler Green. Is this something that mister Johnson needs to be concerned about or no.
You know, I don't think so at this point, if only because who would they replace him with? So you know this nobody wants to be Speaker of the House at this point, So yes, it's you know, it's one of those jobs nobody wants. So yes, you know he has to be concerned that you know a member is doing this, but not surprised. But the reality here is
this rule needs to change. This rule that one disgruntled member, whether it's Matt Gates in the case of Kevin McCarthy or Marjorie Taylor Green now or anybody else in the future can hold up the entire House caucus in terms of the Republican Caucus and quite frankly, in some cases, the government. So I don't think there's much of an appetite for this at this point. We are, you know, so close in the midst of an election period. All these House members have to be back in their districts
and they have to be running for reelection. So I don't think there's an appetite. But I think next term they really do need to change this rule that one member can do this, because it has really made this caucus ungovernable at this point.
And you don't you mentioned that this is a more of a progressive leaning bill than what cost Kevin McCarthy the speakership. What did did the Republicans give up a lot of priorities in this bill?
You know, they did a lot of that was procedural. For instance, having an omnibus or in this case, a minibus bill at all was something they didn't want. Waving the seventy two hours to review the bill something they didn't want. Allowing people to put all of these amendments in they didn't want, and we have seen that, so there's a lot here, of course, you know, just looking at one example, on something as important as immigration and homeland security, they wanted HR two, they didn't get it.
This bill, you know, is, you know, has emboldened to a certain extent our ability for border patrol agents and others at the border, but it doesn't go nearly as par in terms of securing the border as the Republicans wanted. So they did get some up, but of course negotiation is what you gotta do if you're in a Vice vertise in Washington.
All right, Gene, thank you so much for joining us. Genny Sheene Zeno, Professor, Bloomberg Politics, contributor and author of American Democracy in Crisis.
This is the Bloomberg Intelligence Podcast, available on Apples, Spotify, and anywhere else you'll get your podcasts. Listen live each weekday ten am to noon Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal