Spotify Layoffs, Markets, and Salesforce (Podcast)

Here's a story. It's just I don't know if it's just another tech story, another tech company laying off people, but I mean the stock like the other tech names. So naming these announcements. It's up two point three. Let's bringing Githa Rogan Anthon. She covers all things media, digital media, all that stuff for Bloomberg Intelligence. So keita talk to

us about Spotify. What's going on there with the company. Yes, it looks very much Paul, like you know, this company also fell into the same trap as other tech companies. They kind of overestimated demand just based on pandomic trends, and they, I guess they hire too many people. They basically double their head count from you know, about four thousand, five hundred people to all most close about ten thousand just over a span of two years. And now what

are they faced with. Their faced with a subscriber slowdown, They're faced with advertising headwinds. Uh So there's a pullback across the business um and so they have to react. And this is exactly what they're doing. Is about a six percent got in their workforce that they announced this morning. So but you know, it's Spotify. When I think about the revenues drivers that you just highlighted advertising and subscriber goth but didn't Apple Music just you know, raise their prices.

Doesn't give Spotify some rooms or maybe raise some prices. You know, that's a great point. I mean, you know, as we think about pricing power in the music streaming business, yes, exactly. You know, Spotify has held its price constant for you know, the longest period of times at about ten dollars. Apple just just raised it about eleven dollars a month. So the general expectation is, yes, they will be able to raise prices or they potentially will do it sometime in

the first quarter. But again, where does that get you? Okay, you have about two hundred million subscribers, so that gives you an additional two million dollars of revenue annually. Again, not enough to mop the needle. You know. There's an opinion piece by Sarah Green Carmichael. I don't know if you've seen it, but she says layoffs often leave companies worse off, and she goes through the data, um, not just in terms of profitability, but just in terms of morale.

Morale A lot of times it seems to break companies. You know, even those who are left are scurrying to look for other jobs. They hate management now, um, you know, they're not on board with the mission. Are these companies, not just Spotify, but across you know, the board, especially after they had such a difficult time hiring people last year? Are they shooting themselves in the foot themselves in the foot trying to um, you know, sail so close to

the wind? I don't think so. I think and especially if you read kind of uh, you know, Spotify the CEO danielis letter, he said he might have been over ambitioned is And I think this is one of the things that we're seeing across in all of their investments

actually with Spotify. So if you just look at Spotify, just very basically at their business model for every one of dollars of revenue that they generate, they pay out about seventy to seventy five cents to the record labels, so they really have no control over their content costs, which is what has kind of prompted this whole move for them to kind of really push into podcasts. This has been this really big source of investments for them.

They've invested over a billion dollars right into the podcast market. They signed on the Obama as they signed on Prince Harry. Uh, you know, Joe Rogan, was that the only differentiator otherwise, get Apple Music and you're good to go. Yeah, exactly, so that you know, you have to own content. This is exactly what Netflix did, right. You have to have your own shows because content is the differentiator. The only

thing is they've just spent too much for podcasts. They've already spent about one to one and a half billion dollars. It's only generated about two hundred millions so far in revenue. So there's just you know, we've come to a point when the industry really doesn't care about subscriber growth. And Spotify they already have a share of the music streaming market. There is a lot of runway for them to go grow in terms of subscribers, but nobody cares about subscribers anymore.

They care about profits. And there's just no sustainable um or there's just the model just doesn't show us that this company can get to significant profitability anytime soon. So is you own the stock just on the come here that you just think it's it's a growth market. It is a growth market. And you know, if you just kind of look at music streaming, I think it's a

defensive business. We have traditionally we've just not seen um as much churn in the music streaming business as compared to let's say video streaming, because you know, typically you you you subscribe to multiple video streaming services, whereas in the audio business it's just it's either a Spotify or an Apple or an Amazon. Um. So you know, there's there's uh, there's much less chance for streaming, much less

chance for churn. Sorry, but um you know, these investments had a really kind of depressed to stop, all right. Keith a great stuff as always, Keith Roganathan. She's a US media analyst for Bloomberg Intelligence. She covers it all. She is the expert. We love getting a few minutes of her time or three weeks in to a new year. So far, so good. We got stocks up three and a half percent, we got bonds up a couple to

three percent, a little bit better than last year. How about the rest of the year, Hans Olsen, We're gonna ask him that question. He's the c i O fiduciary trust company that got a jillion dollars of assets under management. He joins us here in our Bloomberg Inactor Broker studio. We appreciate him taking to schoot you down from Connecticut, Hans, when coming into this year, what were you telling your clients after what was really a disastrous year for the

sixty forty portfolio out there? Yeah. Yeah, a lot of the trends that we saw in force last year we thought would bleed into this year, you know, sort of the reset of the price of money, Uh, concerns about you know, where interest rates top out and would we

see a recession or not. So what we're what we thought right this The rally that we've seen over the last three weeks or so sort of fits, uh that of a of a counter trend rally, you know, bear market rally amidst a trend that I'm not sure that we've we've necessarily seen the bottom yet, could retest the bottom, but um, certainly we're like to see some more downside

volatility here. So we're just about to get into the thick of it in terms of earning season, right, we get the big industrial companies reporting, UM as well as you know Microsoft and Teslas of the weirdos as well. Um, what do you expect in terms of the earnings? You know, we thought there would be an earning slowdown or is it going to materialize? We've had we lowered the bar enough.

I think we will see an earning slowdown. Right, So if you look back even um, I don't know, eight weeks or so for the fourth quarter, Uh, the expectations that the earnings would be up something like three or four percent. Now the expectations will come in close to down somewhere four or five. So I think we're going to exit a very awful year in a difficult way, right, Um. And the question is does that set the stage for

more I think in the early part yes it does. Um. You know, the expectations for this year are are I think modest and growing more modest by the day. The question really is what happens to margins? Right, So you know, the expectation this year is that revenues will be up what three percent but two or three percent, and earnings will be up four five So that says that the margins have to expand at this point in the cycle. Against this inflation back black backdrop, you would expect to

see margins contract rather than expand. So that's got to get resolved. We will talk about earnings, and we'll talk about it a lot over the next few weeks. But at the end of the day, it still feels like the Fed is kind of the narrative here that people need to pay attention to. I mean, Matt's in the argument we need to see the FED remain firm here fifty basis points. Here's just one man's opinion. That's just

one man's opinion. But the man has a beard, um, So we tend to pay attention um, and a good bed and a good beard, thank you. But what what are the good folks that fiduciary trust? Those are people I really pay attention to. What what are you guys thinking about this federal reserve? And maybe what's a good policy for them to pursue. Yeah, I think you have to squeeze the life out of inflation, and that means that you you keep rates high enough until there's no

question that it's gone. And there's still a question. I mean, I think Larry Summers has been right on the mark with this, right. He says it's going to be hard, it's going to take some time. If you look at the PC numbers, which will see later this week, UM, my guess is that they're going to come in with that four and a half five, which is still a multiple multiple or so greater than where the Fed wants it.

So the job is not done yet. And you know, they really the question will be what is the relationship between the price of money and the price of stuff? And that's the question that the Fed hasn't asked, and I think it was said in the earlier segment. You know you have to Um, no one wants to go down as the FED chairman it fails. No one wants to be the twentieth century g William Miller, Yes or right? Who wants that, uh you know, sort of next to

their name. Um, yeah, totally agree, And I guess we'll see. I've noticed financial conditions keep getting looser and looser. Um, we three and a half percent unemployment. Uh, it seems like they have a long way to go, although we do see insurance inflation coming down. I want to ask about hedge funds, and I guess only your wealthiest clients get access to the Citadel's, the Bridgewaters, the d E Shaws.

But if you get access to the biggest hedge funds, the biggest multi strategy hedge funds, you still knocked the ball out of the park last year. It doesn't matter what happens. Earnings doesn't matter for in a recession, doesn't matter, stocks go down. What do you think about, um, the shift that we're seeing from you know, long only hedge funds. You know, you could be a single pick a single name, a superstar and ride it with them to now multi strategy,

multi manager hedge funds that are doing well. Yeah, I'm I'm a skeptic of hedge funds, and I think you're right. You know, if you f you that top one percent um, that's where to be, and you're going to pay for it to right in the top twenty made two billion dollars last year, but they lost two hundred and eight billion. There you go, there you go, And I just think you can replace a lot of that that market exposure

with with other vehicles at a fraction of the cost. Again, they're always exceptions, um, And the Citadels and the like will will always stand out, and the ELTs will always stand out that way, But um, they are the exceptions. The rule is much more disappointing. You know, I noticed last year international markets. We talked to our international Bloomberg Intelligence people like Tim Craig head over in London and pointing out throughout the year, how you know international markets

have outperformed the US. How do you think about that? In Yeah, I think that's probably going to be the sleeper story, right, the sleeper market three, which is, um, we expected the worst for Europe in many respects. It did not happen. Right, didn't have a cold winter, they didn't run out of energy, the pipeline infrastructure didn't collapse. Um. You know, inflation seems to be abating there. Uh and uh,

you know those those markets have performed exceptionally. Well, if you're an American investor and we're right about the dollar that we've essentially seen peak dollar in this in this cycle, then international markets of all flavors are are gonna look pretty interesting this year. So I think that's gonna be the sleeper story. I mean, when your most exciting tech company is s A P. Yeah, that's definitely a sleeper story, that is right. But that maybe is the good thing.

You know, they like semens and big manufacturing and that kind of stuff. That's the cultural energy. Look at the rotation that you've seen in both the sp and UM the MSc. I acqui. So the some of the Darling stocks fell out, like Tesla's, the metas the endvideos, right, what come? What replaces it? Exxon? Uh uh, Proctoring, gamble Um and Berkshire halfaway. We're just a few, So I mean it's it's there's an interesting rotation that's going on in the markets right now that will likely continue well

into this year. How much attention do we have to pay to Washington d C. I'm so jaded by this whole debt ceiling thing because you know, I remember back when um Adam Johnson was here at Bloomberg, he did a special when the US got downgraded and everybody poured into treasuries. So it wasn't the horrible faith that we expected. Now they're doing it again, and I think everyone believes

they'll eventually find a solution. Is totally political, but it could cause some ripples in financial markets, right yeah, it could. It could. I mean you don't when you start playing around the full faith and credit, Um, you know that's hostage that you don't want to take. Um because some people want to take that hostage gladly sell. Yeah. Not a good outcome. But the interesting thing last time that we went through this, we actually it up in a really good place, right so we saw we saw the

deficit come down after that. What the credit rating agencies didn't like was the process. And this process isn't going to get any better at this time, right Um. If anything,

it will be worse. I think the thing that we should be looking for is a resolution through the most unusual ways, which would be a discharge petition, which is where basically, because of the what happened a couple of weeks ago in the House, and because of these factions that exist in the in the majority party, you could see basically a coalition of the willing cut a deal, go right around the part of the party leadership and take it to the floor for a vote and get

it done. You know, Hans, one of the things I've been I've been asking is just kind of what's who are gonna be the leaders of this market? To the extent we do have a sustained move upward here, I mean over the last twelve fifteen years it's been technology, but it just feels like that might not be the

case here. How do you think about market leadership going forward? Yeah, which is this gets back to the whole idea of of this rotation going on within the market, a new leadership emerging, and I think it's more of the average stock versus the favored stock, right if you and if you proxy that for the SSP equal weight versus the market gap weight, that equal weighted version of the index has done very well over the last couple of years.

Last year it outperformed the market cap weighted by about four basis points, pretty noteworthy, and it's doing the same thing this year. If if the narrative is correct around um China reopening, we don't go into recession. If your escapes recession, which is the story this morning, and we have we we escape it, or at least have a mild one, then you're going to want more of the cyclical names, right, Energy I think will be one of

the standouts. Industrials will be another one, materials um and that's very different from the communication services the text of the past four or five years. Yeah, I mean energy. I'm just looking at x on mobile up on a trailing twelve month basis, So that was certainly a leader question is for a lot of folks like me that I missed trade. So but you know we've got w tech crude oil up again here at barrel. Hans Olson

Hans Olsen, ce IO of Fiduciary Trust Company. Uh, he's based in Boston, but he's in here in New York for some unknown reason, nefarious reason, I'm sure, but he has to come to New York. I know. There's a lot of reason, a lot of ways to get in trouble here. So that's what I'm just calling out. Anyway, he joins us in a Bloomberg and studio. We appreciate it. Our c suite conversation for the day. We're talking information technology grid dynamics g d y N is a ticker

to put in here your Bloomberg terminal. We're joined today by Leonard Lipschitz. He's the CEO of grid Dynamics. Uh, Leonard, thanks so much for joining us here. First of all, just give us the thirty thousand foot overview of what grid Dynamics is. How do you fit into that tex stack? Thank you for having Grid Dynamics is a global tech story engineer company. We generally consulted conidate with the largest most respective global brands and were so optimize and deliver

the digital solutions to our clients. We drive the business of jewelity. We create innovation into the solutions, and we are known in digital commerce, artificial intelligence, the cloud roll out to help all clients expanding prospers. So that's pretty much what greeting empasies. So one of the things we we've noticed just from some of the big tech companies over the last couple of quarters is that the economic

headwinds which are are are global in nature. They are in fact hitting the technology growth story and we're seeing tech stocks reflect that in the under performance we saw last year. How's it impacting your business your clients? Well, um, it is always you know, the headlines about something which happened in the world. When it comes to our specialization and I consulting specifically, UH, with addressing the client needs

were broadly um, diversified. So yes, when we see some pressures coming in the tech world, UM, we find some continuous growth in a manufacturing space, there are you know, life signs that are broader way of addressing them. You know, they need some digital transformation. So UM we should kind of mixed signals. Some of them are extremely you know, prospering and growing, some of them more moderate and constraint.

Before we go any further into what's going on at grid in the in the tech world in general, I gotta ask what you did as UM global lighting business head at at Ford Motor Company. What does that? What does that mean you you design and implement the headlights

strategies or how's that work? You're going back decades ago? Um, well, I was very fortunate to start my career after the advanced degrees from various universities at Fort Mootor Company, and UH, right of the bat, we were facing the again the revolution and lightning with modern technology like H A D lamps and uh, you know Elergy technologies, and I just

happened to be in the forefront. So we were working with Ford and then later when Ford spun off this Janet the division I was again fortunate to spare had a lot of innovations in the global very very renowned brands to change their entire behavior and comes to front lighting. No, that's fascinating. Let's get back then to tech. Now, I'm wondering how much of a concern rising rates are for

you and for the industry. UM. And we've heard from a number of players on the West Coast that, um, the software spend uh, and I guess in general I T spending could be challenged this year. UM. How do you how do you see that good dynamics? Well, um, well, let's just let me answer the second question first, and they'll come back to the interest rates. So yes, UM, and the and the soft forth spend. Um, you see

some pressure. So is with the industrial budget? Um? Start the first downturn we've facing the company, We've been around for sety years. Typically what makes the difference is how critical the applications are for the client. Again, when we come to the health of the company, it's about the pricing, personalization,

supply chain, logistics. UM. You know, competitive innovation. So typically when you are in the midst of the very critical path for the competitive advantage and the clients are relying on you. There's a little bit of another behavior during the you know, some of the constraints with the client, they rely on their partners, like the supply partners like gre Dynamics, UM, just to lebage some of the risks in turn to their own budgets. So in general, I

feel very bullish for the year. Of course, UM, you know, everybody kind of watches where the raids are. But this is more about the sentiment than the true behavior. And then I mean we'll go to the earnings call um and you know very soon in a month, and then we'll have more details about our performance. But I see that we have the UM, I would say for three on the road map perspective, a pretty comfortable expectation going

toward the second half of the year. As part of the interest rates, UM, everybody is watching them because again many industries depend on our loans and particularly United States and again how plans. Majority of the are you large brands, enterprises and texts in the US. So yes, as we see a little bit over the tampering on the forecasting in terms of the future of the interest rates, some of their clients become a little bit more open to

discuss long term plans. Um. You know, I don't have the magic one to you know, the crystal bolt of forecast exact numbers, but we we definitely have a little bit better sentiment today than it could have been like two or three months ago. So, Leonard, your your companies based out there in Silicon Valley, San Ramon, California. What are you and maybe not you guys, but what are your neighbors doing in terms of firing people laying off people. We've seen, you know, a whole bunch of tech companies

announced layoffs, you know, including today most recently Spotify. What's going on out there with you guys. Well, we are headquartered in in the Bay Area, but we also have a very strong presence in Texas, you know, Atlanta, Georgia, New York, Jersey, you know, South East, as well as mos As West, so we're quite diversified around the US from the client bates as well as Europe. Still, yes, I think, you know, Silicon Valley is notorious for those

ramp up and ram downs. Um. I would say if you read your own you know publication, which you're a big fan of, Bloomberg in a subscriber for a while. Uh, you can tell that in the last two years some of the big tax you know, expressed a very very strong growth, and during the growth they added a lot of headcounts. So it's a little bit of opportunity to um. Somebody mentioned green the addicts. I hope that people not offended by that term, because of of course, as a

treasure of people lose the job. But if you compare the head count of the big tech today versus three years ago, it's still very very strong for us frank as an opportunity to hire really good people are out of the industry and we were constrained with you know, crazy uh spendings, but we are very bullish that you know, there's a place of great e many school quality people

as will continue to expend all right, great stuff. Leonards Lifts, CEO of grid Dynamics, the ticker is g d y N for your Bloomberg terminal got about a nine million dollar market cap there in the information technology consulting business, uh, you know, and their business, as Mr stated, it's still pretty strong. But again, as we've heard from a lot

of tech companies over the past couple of quarters. You know, the economic headwindes that are affecting so many other industries, Uh, they're also affecting uh information technology and just the tech spend in general. So we'll pay attention to some of those tech companies coming up in this earning season to get an outlook for It's a good day in the Market's not so much if you're you know somebody's tech companies just you know, last year is such a tough

run for them in a rising interest rate environment. We got some news out today on another big tech name, Salesforce dot com. It's got an activist investor in there. What does that mean for the company? What does that mean for management? On a rock ran a senior tech anals for Bloomberg Intelligence Joints is on the phone. What does Elliott want? What do you think when if they get a voice at the board, if they get a zoom call with the board, what do you think they're

gonna ask? So I think they're gonna ask them to be a little more responsible with the way they spend their money. Frankly, and you know the number one thing for us is Salesforce spends more on sales and marketing than any company their size, you know, on a gap basis of their revenue goes to sales and marketing compared to let's say for Article or the SAP or about eleven percent for Microsoft what it calls for that difference. Do you think did they just buy more expensive dinners? Yeah?

I think see what happens is in the cloud based software world and everything is growth was everything, you know, they would just push a lot money on sales and marketing and some get some you know growth out of it. They do a lot of conferences, they are all over the world. But factly speaking, that is absolutely true when you are a startup, a brand new company. But Salesforce has been around for twenty four years now, so they

really don't need to do that anymore. Um So, I think that's going to be a big area of focus and ARBUO in terms of the rest of the layoffs. Um do you see this as a concern. I mean, if they're starting to cut people, it's gonna be hard to turn that around anything need to. I mean, Salesforce, I think is a special case because as we pointed out, they've hired thirty one people in two years. They you know,

boosted their head count by like sixty. But the other big tech companies are in this in the same boat. So the way you want to think about it is there is a very large correlation between revenue growth and employee growth. Let's say, you know, for the sake of argument, it's one is to one or slightly less than one is to one. Now, if these if if your thes is is right, or if you believe take spending will come back, you know, next year or the year after.

They have no choice but to hire people because they needed not just in sales and marketing but software developers to come up with new products or to expand services. So I'm not concerned about the head counter you know edition. The question is where the allocation goes. Are you going to put that money in R and D or you're going to put that money in you know, sales and marketing. And I think that's really going to be a big

difference for salesforce. I think they will have to be a little more responsible with the way they spend money. And then also about their you know, acquisitions. They have spent so much money the last few years in acquisitions. I think that the Elliott can ask them to you know, focus more on organic growth, cost control, and then buybacks. So all right, so let's stay with just kind of the Silicon Valley layoff story, if you will. I mean, are these the you know, the high and demand engineer

software folks. I can't imagine, because all I've heard for the last twenty years coming out of Silicon Valley, and that includes you know, some of the you know, the Googles of the world in the Facebook, they just can't get enough of that talent. Are they letting that talent go?

I think it is a mix of both. I'm not you know, I've never looked at the breakdown of you know, who got laid off in this particular you know cycle, but I think it will be a lot of people in you know, sales and marketing, a lot of people in HR and other support functions, as well as some developers also. I'm sure that's not the case. But having said that, I've said this repeatedly that the unemployment rate for a lot of these categories, whether it's software developers,

database administrators, is so low. I mean it's it's you know, two percent or sometimes even below that. Um, you know, they will have no problem finding a job anywhere, and the reason for that is every industry it doesn't have to be taking you know, energy transportation. You know, all of these people are hiring technology people to digitize their businesses. By the way, I wanted to ask you about at GPT. Right, Microsoft is investing in this AI company, well, an Open

Eye AI, which runs chat GPT. I've been trying to get on it all morning, but it's just too crowded. Everybody wants to use it. It's an artificial intelligence. I guess to paper, I was going to use it to build an e t F. Me and Katie Greifeld, we're gonna do that. My brother wants to use it to write a song. You know, UM investors are using it or or or UH bankers are using it to pitch investors. UM. Is this going to be incredibly successful or is it just a fat right now that's going to burn out.

Ce AI in general is going to be generally successful because it's not going to be only a product like this where you know, it's it's a chat, you know, judge, GPT like a product, but almost everything that we do, any software application that we use, and it could be Spotify as well. As you were discussing or Microsoft Word or or anything else. Um, it has to get more sophisticated. It has to have the ability of to to understand

things and give you better results. So AI infusion across all software products is one of the biggest trends that we will see over the next few years. And then one of the key things about you know, this investment is you know, the back end for this is Microsoft's cloud platform. So the more people use, you know, it's good for the usage or the consumption of those cloud services. And I think that is going to be a big story for the next few years. All Right, good stuff

as always on a rogronic. He's a tech analyst at Bloomberg Intelligence, talking about all things tech, tech, labor force layoffs, and chat GPT. That is the new thing, right, I mean, that's kind of like the last few weeks, and I'm excited to get on it. I'm in line. I'm waiting. Let's talk a little bit about the venture viz venture debt investing in startups. How's that marketplace these days? In a rising interest rate environment. We're gonna check in with

Kyle Brown. He's a c IO and president of Trinity Capital. Nastack simbol T r I N. Mr. Brown graduated from Arizona State, whose best men's basketball team is coached by the greatest college point guard of all time? Who's that? Bobby Hurley, Jersey City, New Jersey, St. Anthony's and Duke uh Kyle. Thanks so much for joining us here. Talk to us about just to start off, what is Trinity Capital. Where do you guys play in the capital markets? Well,

thanks Matt, Thanks Paul. Trinity Capital. We are a provider of capital to growth stage companies' introre dead as one product we provide, but we really focus on companies growing in annual growth rate who have raised significant equity dollars fifty plus million dollars of equity, They've proven out their technology, they've really identified a market, they've got a they've got a moat around that technology, and they're really scaling and we come in to provide capital to help them grow.

And we really focus on execution type risk um and so we're helping these companies go from you of of run rate as they reach either profitability or head towards an I p O or M and a type transit action. So we're an extension of runway and a compliment to the equity that they've raised. So what's the market like for those companies? Um, is it harder and harder for them to get access. So it's a really interesting market

right now. Um, You've got a ton of equity out there, right, maybe even a record amount of venturer capital and private equity that's looking at to be placed. And then you have the idea that they want revaluations. Right, there's been very lucrati evaluations for founders to the last you know, five years, and so there's a lot of capital, but they are looking for deals. And so you have a

variety of situations. One is a company that really needs equity um, and maybe it's not growing at the pace that they were before and it's gonna be difficult for that company to to get that equity. And then you have companies that continue to do well in the face of adversity, but in spite of that, they're going to see their company revalued. And so it's really you know,

it's it's happening slowly. I don't know that it's quite happened yet, but you know, these these tech companies are getting revalued similar to what's happened in the public markets. And talked to us about I mean, you know, the startup companies. It was for the longest time, it was this top line growth, top line growth, maybe even just subscriber growth, don't worry about profits. But that's really seemed to change. Talk to us about that and how how

you factor that into analysis? Sure, I mean, so our underwriting is always factored on you know, does this company have the ability to turn the corner? And do they have lovers in place to control burn? And does the burn make sense? You know, are they spending to grow because the unit and economics makes sense. And I think you know what's interesting is our portfolio. We've got ninety

plus portfolio companies today. Our portfolio started making changes twelve to eighteen months ago, kind of in advance of what you're seeing in the public markets today. So many of these companies made the hard decision a year ago, knowing that they were in the middle of tough times. Uh, their and their investors of course, have seen this before, and so a lot of those changes have already been made, and so a lot of these companies are really kind

of weathering the storm. They're raising the amount of capital they need to get to you know, plus years down down the road. UH, so they can get to better days and raise equity at better valuations. So it's it's UH. I think the most most changes have been made. They continue to be made, but I think it just happens

sooner than what you're seeing in the public markets. Have you seen an increased demand from investors UM for access to your UH, to your firm, because it does seem like, you know, private credit has been a huge UM trend over the last sex say, six months to a year. Yeah, we we certainly have UM. You know, there's the idea is that there is if you do, if you invest right during this time with valuations in some cases kind of being had, there could be an opportunity for some

outsize warrant returns. And you know, in our world, the majority of our returns and if you look at the returns we've been generating for a long time, it's all it's mostly current pay. It's it's it's rate, it's fee. We are a true lender, secured lender, but we also get warrants. There's some additional upside and in our world that that tends to kind of cover your losses and

provide investors with some additional upside. If valuations are being had and we are getting warrants that those newer valuations, it provides some potential for some some additional upside down the road. And so I think investors see that certainly, and UM, I think we see it as well. What's the concern about um uh non performing loans? I have a listener who writes in to ask, you know, assuming you have none right now, um, if if we get a recession, what do you expect that that number to

grow to that zero percent to grow too? So, I mean, losses are a part of our our world. You know, we we have you know, you can look at our warrant gains recently. We we have significant kind of equity realized gains that cover some of our losses. It's just part of our model. So we expect there to be losses. We expect there to be um, some non accruals. It's just part of how our world works. Can you quantify that? I mean what I know Matthew have earlier was saying

he thought, um, we'd see nine percent default rate. Now that was I think an outlier, But what what what do you expect this year? We've seen a historic loss right. We've been doing this since, you know, going back to the the real estate crash in two thousand and eight, we've seen a kind of annual two percent, historic kind

of loss rate. UM that really hasn't changed much. UM. You know, the companies that we have in our portfolio and that we're seeing in our space, it's not it's not really a matter of are they going to go away or not? UM. These companies have real technology, there's real value, real I P. And in our world we

do a lot of equipment financing. There's really equipment value there that's that's worth something in a in a downturn scenario, it's really more about at what value are they going to raise capital at and and what that And that impacts equity investors and shareholders more than it investors secured

lender who's sitting at a very low loaned value. I think we are average loaned values under fift loan to value, and so UM that impacts us less because most of our returns made up of rate and feet like I said before, so we haven't historically seen that be a huge impact to us. UM. I I do expect will continue to see it. You know, companies struggle raising that capital.

That might lead to some some defaults, but you know, being senior secured against companies that have you know, a hundred plus million dollar valuations and real i P were typically in a pretty good spot to weather that type of storm. Kyle, what are some of the sectors that you guys favor investing in? So we focus a lot on manufacturing. Uh, there's a lot that goes underneath that. It could be food and beverage, it could be frontier tech like an Axiom space where they're using our tools

to build the first commercial space station. We focus on mission critical equipment, equipment that company cannot survive without. And so whether or not they turn into Google or not, you know, there's real value there whoever does buy them or or or you know, there's real value in that equipment. So we focus on manufacturing. Actually really bullish on that space. I think you're seeing more and more focus on infrastructure in the US, and they need a lot of tools,

a lot of equipment, so we see a lot happening there. Um. You know, we also we continue to see a lot of enterprise sas although you know, I think you're seeing a lot of revaluations happening there. Um, that's not going away, and that's a that's a pretty big part of our portfolio as well. So you know, Manufacturing, Enterprise SASS and

then uh, you know, life science and healthcare. I think that that correction happened a long time ago, and you're starting to see some really interesting opportunities there as well. What's you know that Uh, what's the biggest challenge to your growth? Because I just reminded that it's difficult to find workers. I know that in tech, Uh there are a lot of pink slips going out, so maybe that would help, um, but a lot of people we talked to say they have to go to Canada to find um,

you know, workers with the skills that they need. Ye know. Um, I don't know that our our portfolio companies, you know, think about our portfolio there, maybe they're not quite big enough. But I'm just wondering what are the challenges to growth that you see out there? Sure, Um, you know, inflation

obviously continues to be a difficult, especially for consumer type products. Um. You know, I think that if you see a recession, there's gonna be a one to your time period where it's just gonna be a little bit slower, you're not gonna have these growth rates. Maybe it's a little bit less than that. So I think, you know, capitalization and making sure you've got runway to whether a storm is absolutely on the forefront of all of our all of our company's minds, and and it should be. Um, they've

got real technology. It's very disruptive. Uh, and they were disrupting old archaic businesses. But it's not necessarily the best technology that wins the day. It's the best capitalized company that wins the day. Often, he Kyle, you took your company Trinity to Capital Public. What was the strategy behind

that for you and your your colleagues? So, Um, we decided many years ago we want to be the best in the world at this We wanted to be a solution that was everything for growth stage companies, above and beyond that cheap receivable financing you can get from a bank. We wanted to be the alternative lender of choice, and access to the capital markets was key. We're a BBC. We distribute out the majority or all of our earnings annually,

so we can't grow unless we can raise capital. And uh, you know, recently we just got approved by the SEC for our public companies. Is really interesting our public company to manage an r I A where we can manage additional funds off bouance sheet and it's owned by our public company, so it gives us the ability to grow on balance sheet when the public markets are open, and it's the creative and it makes sense to investors, and then we can raise money privately, all to the benefit

of our shareholders as well. So, um, you know, it's gonna take a lot of capital to continue to build and grow and become that one stop shop for growth stage companies. But I think we've got the platform, uh, and it's the opportunities right for us to be able to do that. All right, good stuff. Appreciate getting the low down. Kyle Brown, cee IO and president of Trinity Capital. Again that is a public traded company on nastack. The

company rang the bell list Tuesday. Actually the tickers t r I, N they all know how much Matt and I love the big take stories in depth reporting, some really cool topics in our reporters and editors. They go deep and needed to bring you some really good stories. It's so good, and we've got a podcast for the Bloomberk Big Take, and it's hosted by West Kosova. West, thanks so much for joining us share Westcasova, what do you got for us here on your podcast? Coming up?

So today's episode is really interesting. It's about how Americans are driving more. We're all getting back in our cars, driving instead of flying, and yet we're using less gasoline than ever before. So gasoline usage has not returned to pre COVID levels. And so it's this indication that you know, we've all talked forever about we're gonna reduce our depending on gasoline, and it's actually starting to happen. Now gasoline uses ticking downward even though we're using you know, our

cars even more. Yeah, I mean, I so I'm the wrong person to talk to about this because I've never had a car that gets more than like thirteen miles a gallon but includes the Chevy Silverado with the thin about like thirteen point six it's a six point two lead V eight. But I've been test driving a Kia e V six and electric vehicle over the last week and it's like eye opening. I never even think about a gas station. I would say five dollars a month

if I had an e v UM. Is this why the figures are moving down, More people using the e vs, more people uh driving cars that get you know, better mileage than me. Yeah, you nailed both of them. Ev use is um you know up you see it now like it used to be. Oh, tesla is the whole thing, and now everybody's getting into it. So that's going up. Even though evs are only one percent of car sales,

it's going to start kind of picking up. The other big thing is joining the Obama administration, they started putting stricter you know, mileage standards, and they started in California and then everybody else followed. And so the cars on the fleet right now just kind of cars on the road are more efficient than ever before. And those two things largely are combining to just let us drive longer with less gasoline. By the way, is that everything I

mean gasoline? I assume that the lion share of gasoline usage globally is personal transportation vehicles. It's cars, and of course it's a lot of delivery. And me think about what happened during the pandemic. You know that so much more delivery you have instead of text cabs, you have many, many more ubers and lifts all over the place on the road. So I mean you even think about that, like all those miles piling up and gasoline used going down. It really is this indication of kind of like what

the future holds. But I am seeing a lot of the lot more. And I just noticed over the past few weeks of the Amazon electronic vans delivering stuff, so a lot of that fleet is switching to cleaner fuels too. So all this stuff coming down the road, and part of the podcast we talked about as well, Okay, so fine,

but does that mean gasoline is going away? And of course the answer is no, And it's gonna be a very slow, bumpy, kind of painful ride down because we still have all of these refineries and everything in business and trying to unwind that is going to be pretty messy stuff. What does the future look I'm looking at right now. I gotta buy a Dodge Challenger hell cap before they stopped making them. This is the last year. That's a very much gasoline. You have to you have to.

I want I want it desperately. But um, I'm worried that at some point there won't be any as stations, you know, or you know, it might not be legal for me to drive a car that imbibes gasoline like that? Is that, um a legit a valid concern? Wes I think you're gonna be okay for as long as you're gonna drive that car. I mean, I really that they're going to say, okay, these cars are legal. Look what

happened when gasoline became unleaded. You know, you could still drive your leaded gasoline car, but over a long period of time, it finally became impossible to find leading gasoline. Probably a similar thing like that. You've got plenty of time to to get your phone out of that car. So West, what are what are the what's the energy complex the energy industry? What are they saying about kind of the future of gasoline demand and maybe how they're

gonna adapt. Well, I mean they're already preparing for it now. I mean they're looking at the future you're thinking about, okay, so what sort of investment should we make. One of the things we talked about on the podcast is how Biden administration is saying, you know, hey, why don't you guys build refineries? We need more. You're saying, well, you know, looking down the road, is this gonna be viable? Costs billions of dollars to build these things, and so they're

instead investing in another the things. You know, of course there's um, there's these al and there's jet fuel, and there's a lot of plastics you know, I'll derive from petroleum. So there could be shifts to those more profitable things as gasoline rides down, and so all of that is going to kind of be this this big kind of major change over from gasoline to other petroleum kind of products, hopefully not plastics that's nasty. Um, what do you think

about E VS versus hydrogen? I guess it's not necessarily an either or question, but um, what I'm asking is are there going to be more alternative power sources to rival gasoline? That's a really good question. I mean all of it comes down to can you make money off of it? I mean, just now we're starting to see that, you know, battery powered cars can be profitable. That's why

everyone's getting into it. I don't know that anybody in a serious way has invested in like hydrogen or sometimes you see these cars run on you know, uh, you know, waste material and this other kind of stuff. Becoming like a really big thing. But I don't know, like you only takes one person to do it, and suddenly there's a market in our You mentioned California. I mean you think of California and I just think it traffic jams. I mean, you know, I mean, everybody drives. There's no

little to no mass transportation. You know this. I wont if that's ever going to change. I mean, it doesn't seem like mass transportation gets the support or the I guess that nobody cares in America. So is that gonna is that the future was? I don't know. I mean they've always been talking about it and we've been terrible. You look at Europe, you can get anywhere on mass transportation.

We did an episode of the podcast recently about how cities like London are starting to charge a lot of money to drive a gasoline powered car into the center of the city, and so they're not just trying to reduce the traffic, but trying to say you should buy an e V because you can drive those in the city without having to pay. So they're trying to change people's behavior by making it painful to drive balloting cars.

So what's the bottom line for oil West. Um. You know, we're looking at eighty dollars in change for bail of West barrel of West Texas Intermediate, and some people are saying the reopening of China and the lack of a deep procession in Europe could drive that price even higher. UM. I guess you're you're looking at you're taking a much longer term view. Yeah, and that's actually a really interesting thing.

We get into it on the show today. UM, is about how you think, oh, well, so you know, demand for gasoline is gonna go lower, so maybe we're gonna

get some relief from these high gas prices. And the answer is, yeah, that's gonna happen, um, But it's gonna happen in the long term because in a medium term, especially when these oil companies are trying to adjust to a new future and trying to ride down as profitably as possible, there could be price shocks, there could be temporary shortages, um, all leading to you know, higher prices.

And you know, the three Bloomberg journalists on the show, Lynn Dowan, John z Jou and Millie Munchi are just amazing. They write about this thing about this all the time, and they are really really interested in talking about it, all right, that's great stuff. West Kasova. He's a host of Bloomberg The Big Take podcasts in uh this week to talk about Gasolene. Gasolene starts its long slow ride down.

That's the podcast. I don't know, Matt, I I kind of always envisioned you in a internal combustion engine vehicle. I well, yusting out with a beard. I just can't see you going evy with the beard. I mean I I I'm open to both. So variety is the spice of life. There you go. And again that four D F one fifty ev that I drove, that was awesome. The lightning, Yeah, the lightning that kind of turned my eyes a little bit. Thanks for listening to the Bloomberg

Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller. Put on ball Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio