Oath Increased Its Users By More Than 10% In Q4: CEO Armstrong

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. I'm very pleased to introduce Tim Armstrong, chief executive officer of Oath, which is a subsidiary of Verizon follow following their acquisition of Yahoo ao L. He comes to us from the Consumer Electronics Show in Las Vegas. Tim, thank you so much for being with us. I want to start by asking what exactly does Oath want to be? Does it want to be a content provider, a major search engine,

or a media distribution platform. So, Lisa, thanks for having me on. Uh, let's take a giant step back and I'll explain Oath in the context of where the world's going from a consumer standpoint. UH, there's one really significant trend that we're seeing across all types of media right now, which is the acceleration of consumers adopting mobile as their

content medium of choice. Verizon is a company that has is a global leader in network technology, broadband and wireless, and is now on the forefront and and the leader in five G which is going to bring even more connectivity and bandwidth the consumers. Verizon acquired ao L and Yahoo informed Oath to essentially bring what is the linear transition of content into the mobile world. And we are one of the leaders in the world right now of

mobile content and distribution for consumers. So when you ask what Oath is, Oath is a moble media company that's attached to one of the best mobile companies in the world, Verizon, and our goal is to superserve consumers and things like sports, news, finance video. We just announced yesterday that we're going to be broadcasting on mobile live video the four NFL games and the United States UH this weekend, the playoff games.

So as a consumer, you can download the Yahoo Sports app and instantaneously watch the NFL games the playoff games this weekend. And for consumer who loves mobile and who's on mobile UH, that is an unbelievably great experience and a real, real visionary on Verizon's part to think about the mobile consumers not just a wirelessly connected UH network connection, But what's the service and what's the content love that

consumers have? And that's really what Verizon's goal is is to bring a lot more great services to the mobile consumer. Is the idea here that the mobile consumer looks at different information or uses media in a different way than just streaming UH and any device or is it that you can get different ad AD dollars for for mobile

specific streaming? Yeah, the you know the mobile consumer. First of all, the mobile consumers we see at the high end, meaning the consumers that consume the most un mobile have crossed over the TV amount of time per day. So the high end mobile consumers right now are consuming about

four hours of content a day on their phones. And that's important because basically those the phones become a personalized cable box to a large degree, and the experiences that consumers have are able to get more and more personal and more and more targeted. So if you think in the future whether or not a consumer would want to trade off their their mobile personalized content consumption and go back to more of a linear consumption, I think most consumers would say no. So the business model is to

superserve consumers on moble with content and services. The revenue part of Verizon's business in our business is to also super serve the advertisers with mobile, and I think if you look at the ad market today, most customers are trump. Most of our ad customers are trying to figure out. First of all, they were trying to figure out how to go from linear to the internet. Mobile came out of nowhere and surpassed just about every usage metric you

can see on the Internet. So now they're trying to figure out how to go from linear to internet to mobile. And we have one of the most significant ad platforms and networks between Verizon and Oath, So we're able to super serve what the next generation of advertising is going to be. And we have a great program, great product, and great platform to do that in a lot of data to help customers target. So that that's the simple business model, but very powerful in terms of how we're

thinking about the future. Tim Marmstrong, how do you respond to questions about the price tag? Verizon spent more than nine billion dollars on a o L and yeah, who I understand that it's going to cost about a billion and a half for these NFL the four NFL games that you mentioned, when do shareholders get to see a return on that more than ten billion dollars on what seems like now a content deal rather than a tech deal.

So PIM, I would say, you know, basically, one of the things that just to take a step back on that on that question is, um there's only three or four companies on the planet that have a billion consumers

on digital and mobile. Oath is one of them. If I told you today was your first day on planet Earth, and you had Amazon, Ali Baba, Facebook, Google, Apple and those companies, and what those valuations were, and then there's a company that is purely based on mobile and purely based on internet technology that had a billion users, and I said that a company was able to acquire that

company for billion dollars, you'd for one time's revenue. For what those companies do, I would say, singularly, it might be the best M and a transaction for the future ever done. The second thing I would say is when you look at the M and a landscape of what's happened in the media landscape and how much people have paid for media acquisitions, and then I told you we did the NFL deal, which is probably the most powerful content and sports and live sports which people are really

competing for. And it was on mobile and it was a five year deal and we had a billion users show two in a hundred millions members have Verizon. Again, I think you'd say, in comparison to the other m and a content deals, smart deal, smartly done at the

smart at smart prices. So I I would uh, I'd put a totally opposite look on your question, which is, if I describe the assets we have, the fact that we're mobile and the fact that we have great content and great brands, what would that be worth in comparison to the other valuations at other companies? Um, I think it's an unbelievably great opportunity for Verizon shareholders to play in the new economy. And Verizon is investing in five G, so we we feel really good about like the future

strategy and where things are going. Tim Uh, you say that oath has more than one billion users now, and I'm just wondering how much that has grown over the

past year and whether it's been accelerating decelerating. What's the trend? Like? Yeah, so our our trend is basically our business basically a mobile Uh, you know, grew double digit percent in Q four overall, and even in comparison to some of the other UH social platforms and mobile platforms, we had what i'd say is probably top quartile growth UH in Q

four overall. And then as a service level, I'll give you another example in mail for instance, which is a major product for US, where we have hundreds of millions of people that use our email products. Emails surpassed mobiles are passed desktop there so I think we're seeing the exact growth we want, which is the transition from desktop to mobile, and our overall consumer usage base has been growing and we expect that to continue to happen with

mobile for for two reasons. One is our services are getting better targeted and getting on more mobile phone tops. The second reason is there's another three billion people that are going to be connecting to mobile and skipping the Internet and going directly to mobile. And because we have very good mobile products, we expect to get growth not just in the US, but also globally on our brands and services and our ad business from that that new

adoption of mobile that's happening globally. I want to thank you very much, Tim Armstrong. He is the chief executive of Oath, a subsidiary of Verizon. He's speaking to us from the Consumer Electronics Show in Las Vegas earlier this year. January, California State Teachers Retirement System one hundred and ninety billion dollar pension, joined with Jana Partners to issue a letter

to Apple. Uh. Calisters is actually a pretty big shareholder in Apple as well as Jana Partners, and they were asking for a study to look at how using iPhones would affect children in particular. I want to spring in and she hand. She's director of corporate Governance for Calisters. Joining us from Sacramento, California, and thank you so much for joining us. I just want to start with how this letter came about. Did Calisters reach out to Jana Partners? Uh,

did Jana come to you? And what was sort of the motivation behind it? Thanks and thanks for having me well. I've had a long standing relationship with Jana Partners. UM. They are one of the activist investors, as you know, out in the market, and we have a relationship with all the activists we employ. Some Janna is not one of our managers, but I've known those folks, I've worked with them and collaborated with them on some other issues

on their whole foods. We were um talking to them about that and some of the work that they did in Falcom. So I've had a long standing relationship with Barry Rosenstein and Charlie Penn are from them, and so we are frequently talking about issues of mutual interest to both of us. With regard to companies, Janna knows that

Calsters is a long time s G focused investor. We spent a lot of time here in the corporate governance program on talking to companies about issues that we think are concerns and risks to the portfolio and to the performance of the company in the long run. So as I've talked to Janna about some of our E s G issues and they had talked to me about beginning to think about putting an E s G type of fund together, UM we came up with the idea of of combining and talking to Apple about this issue. So

it made sense. Apple is a our single largest holding in our global equity portfolio. I have a very good relationship with the Apple folks. They've always been very responsive and we felt that this was a good important issue as we've seen the compelling research about the impact and the more research that's coming about about the impact of some of these products, not just the social media issues of Facebook and all, but also the impact of the

iPhones on kids. And so we thought this is an issue that we showed raise with the company, see what they're doing, See if they could do more, because for us a counselors, it represents a potential risk to the performance, the long term performance of the company, and so our goal was to bring this to the attention Apple, see what they're doing, See what more could be done to prevent any diminution of our value in our investment with Apple.

Can you connect the dots for why uh? A lack of addressing this issue would cause a long term decline and Apple service. I think the issue is a lot of parents are very concerned about the impact of these

devices with their children. We've seen the research more we we as a teacher's fund, we hear from teachers and I've we've got a lot of response back about the letter that we have sent from teachers who have seen what is going on in the classroom with these and so we see this as potentially reputational risk for Apple, and so it's an opportunity to create more choices and options, which we think is good business for them, which could

help their share price in the long run. When we look at some of these issues, they're very long term because we're going to be in these stocks for a long time, So we see reputational risk as a potential to hurting the performance of these portfolio companies. Now, you've got more than two hundred and fifteen billion dollars of assets under management. If you're let me just put it

to you this way. If you don't like what the company is doing, or you wish they would do something else, why not just sell the stock and buy a company that you do support. So you're right. We actually have about two hundred and twenty seven billion assets under management. Over half of that is in public equities and two thirds of that the overwhelming majority of that is in

the index. So we own the entire market, and as Chris Aleman our Cio likes to say, we will own the market as long as there are teachers in the state of California. So we do not believe in selling as a way to address an issue. We believe in engagement because we're going to be in the stock today, tomorrow, in ten years, and twenty years, and in fifty years. So our approach here at Counsels is to engage the companies on issues like this another risk. We've talked to

a lot of companies about these types of issues. Human capital, diversity, capital allocation, whatever the issue is, is the best way to address this because we are the ultimate universal long term shareholder. And have you noticed that other big public pensions have joined you in being increasingly activist. Yes, many public funds. New York City is very active, New York State, UM, the Canadian Public Pension Fund has been active. I mean, there are many pension funds around the world that are

very active in their engagements with companies. What we like to say is we're passive investors and active owners, so we engage the companies in our portfolio. Would you take the same position for the lack of women as CEOs of s I mean, I believe we have. Yes, The answer is yes. Diversity is one of our key corporate

governance issues here at Calsters. We have for the past eight or ten years engage boards on the lack of women on their corporate boards, the lack of women in senior leadership, including CEOs, and so that is another issue that we cared deeply about because the research shows that if you have greater diversity inside the boardroom as well as in the workforce, including in the CEO, you get

better performance in the companies. The with credit, Sweet and McKenzie have shown that diversity creates better shareholder value in the long run. So that's another issue that we have spent a great deal of time and as you can appreciate, and with a teacher's son like us, two thirds of our members are female. So it's an issue that resonates. And here in California, we're a very diverse state. We

gotta leave it there, but thank you very much. And she and is director of corporate governance for a California state teachers retirement system that's Calisters and they're based in Sacramento, California. How will US public policy affect your investments? Well, one person to ask is Michael Jesus. He is the chief US public Policy and municipal Strategists for Morgan Stanley. He

joins us in our eleven three oh studios. Michael, thank you for being here, thanks for having so maybe just outline I know that You've got three policy channels that you say investors ought to pay attention to. What are they? Well, it's regulatory, legislative, and trade. Um. The legislative one is fairly simple. Uh, if you look at what's on the agenda. Uh. The only thing that we think really kind of matters to market in the macro economy is whether or not

to get an infrastructure deal done. Um. In our view, the politics of getting that deal done before the midterm are really tough. And then we've got a lot of questions about the efficacy of the policy itself, right, which I could go into detail too if you want, But where it's basically telling investors is this is something you need to educate yourselves on and maybe the midterms is going to open up a channel to an infrastructure spend.

That's uh. That that's a boost to the economy, but it's not as near term risk as some of these other channels, namely the trade channel, where you actually have some hard deadlines in the next six weeks or so, where the administration is going to make some decisions that are going to tell us whether or not we're actually

moving in a somewhat more protection this direction. I want to home in on the trade issue, because we haven't talked as much about that and that has the greatest potential in the short term to cause some serious market disruption. So can you walk us through the deadlines that we're facing and what the potential market response would be. Yeah, So,

I mean, just quick background. The President has the authority under a number of different US laws to issue tariffs, right, and whether or not those tariffs are in compliance with w t O rules a sort of a moot point.

The administration can do it if they want to. UM. There are a number of actions that were started last year under a couple of different trade laws, the most notable one in the nine four Trade Act UM, which have now moved past kind of the study period, and the administration has to decide whether or not the institute tariffs, so on January twenty six in February two respectively, UM, the administration has to decide whether or not it's going

to put tariff on solar panels and on washing machines. Right, and you seem a little narrow, but these would be the first hypothetical actions, UM, which could be a signaling of a more protection that's bent. On January fifteenth January twenty one. There are reports do so they don't trigger actions per se, but there are reports do on steel and aluminum that are supposed to recommend whether or not the administration that's supposed to begin a tariffing regime on

those products. So the possible market response is that washing machines and solar panels get more expensive or is it? What? What? What? What are we looking for here? Yeah, well, you know, it's interesting that there's a lot of data about how at the end of the year overseas manufacturers of washing machines actually up their exports into the US and anticipation of some of these risk kind of coming to fruition. So whether or not you're washing machines about to cost

more or less, it's kind of an open question. But um, I mean, I think obviously we're we're studying this pretty carefully. FX markets are going to be an obvious potential kind of shock absorber for this. Uh. The easiest thing to say on this is that when there were general fears about the US being a little more protectionist, it showed up in dollar PASO UM and hero meeting declined against

the dolls. Yeah, I would, I would expect that you would see that be kind of a similar signaling mechanism, because, UM, certainly the Trump administration would not be the first administration to pursue kind of a single product terror if the Bush administration did this temporarily in the early two thousands. But given that they were talking about a broader, more protectionist regime like exiting NAFTA, UM, any kind of single product action might be a signal that they're going to

take a harder stance on NAFTA. I'm glad you brought up NAFTA because Tom Donohue, who was the president of the US Chamber of Commerce, in a speech today, said that withdrawal from NAFTA by the Trump administration would be a quote grave mistake. He says, the bottom line is growth will be weakened, not strengthened or sustained if we pulled back from trade. So, if indeed that were to happen, would that just offset whatever economic gains are being predicted

or estimated because of the tax overhaul bill. Yeah. I mean here we rely on kind of the studies from various third parties, and I think the economic consensus is, you know, I don't know, it's a one for one offset. But in the near term, there's there there's some you know, there's definitely some contraction that offsets the stimulus that you're that you're getting in here. Um, you know, how it's executed obviously, is there's a lot of devils in the

details there. But I think yeah, I mean, it's fair to say that the market is going to consume this as not growth friendly for lack of bear's room. Michael, have you ever in your career gotten more calls from

clients wondering what is going on? Um? Probably on election night, but yes, no, no, no, I mean the fourth quarter of last year was just a sort of barrage of tax questions, right and unfortunately have some colleagues are really good on the minutia of tax policy to help us out on that, and um, you know, now we're onto Obviously,

infrastructure is still a big incoming question. But trade is definitely picking up now because a lot of these things were a little little minutia aspects of the law and vote counting and process that didn't matter, and they matter a lot right now. Michael Jesus, thank you so much for joining us. Michael Jesus, Chief US Public Policy and municipal strategist for Morgan Stanley. So if you see an increase in the price of a washing machine, you'll know why.

Right now, I want to bring in Vincent Piazza, senior equity energy analysts and global sector leader for Bloomberg Intelligence. Vincent, I feel like there is an increase seeing amount of disagreement when it comes to the price of crude. You have some saying that OPEC will try to talk down prices if oil top seventy dollars a barrel, where a city group sees the price of crude climbing towards eighty dollars a barrel, which we be paying most attention to here.

I think we always have this type of vociferous debate around New Year, right Uh. A new year starts, we look ahead and try and read all of the tea leaves. Um conclusion is no one really knows, right um. What we have today is a a two pronged attack. Right You have OPEC trying to control capacity to really control that price, and you have prices now bleeding into the sixty dollar range, which allows US operators to turn on to spigot again. Right uh. And we we've talked about

this from time to time. The resilient output, the shorter cycle response of US and U shale to this UH price signal and production has been extremely resilient. We're marching towards UH nine point seven nine point eight million barrels per day. We were looking at output over ten million barrels per day estimates we've seen for twenty nine point to roughly eleven million barrels per day for the US.

So the resiliency of output continues to press forward, and that does concern um OPEC because what tends to happen is as that price bleeds higher, compliance with output curbs tends to decline, and you tend to see those barrels bleed through Vincent. What about the companies that use fossil fuels as a feedstock? Are they still in a good position. I keep thinking of the refiners in their performance last

year and the year before. Right, So if you take a look at this past week um uh fe UH five million barrels of a crude UH fell from the stockpiles UM, but we've added roughly eight eight point four million barrels in gasoline and distill It's so the refiners are definitely taking advantage of that wide price differential between w t I and Brent roughly six dollars at the moment,

and they're definitely continuing to produce those refined products. UH. Fernando Vallet, who is my colleague on the refining side, he covers the space. He does a very good job of it. UM. He noted that the crack spreads have definitely weakened UM and that supply glut from the crude side has moved over to the product side. And even with the export market allowing for a channel to move product, we still have uh this uh increased capacity flowing into

inventories for for refined products. But as long as you have that wider spread, it's advantageous UH for the refiners to maintain that elevated that elevated utilization even during this

shoulder season period. Can you just give us a sense quickly of the interests here, because Goldman put out this report saying that OPEC would try to talk prices down if they got close to seventy dollars a barrel, which seems counterintuitive because don't they want prices to go up, Well, they want prices to be at a level that is

economically sufficient, but what they want. What they don't want is compliance among the nations who have agreed to this supply cut to decline and barrels come back onto the market. They want this compliance to be tight to sort of manage this process, this price process um. It's been an engineered capacity curb curb um and additional barrels onto the market on top of what US can produce that will tend to pressure the price point of of crude benchmarks.

Thanks very much for coming in and sharing this with us absolutely. Vincent Piazza is our senior equity energy analyst and global sector leader for Bloomberg Intelligence. He basically knows everything about the energy market. I think that's a good way to say it. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm

on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.