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Or Melinda sitting in for Alex Steel Paul Swin. You're live here in on OL Bloomberg Interactive Broker Studio or streaming live on YouTube as well, So head over to YouTube dot com search Bloomberg Podcast. That's where you'll find us. Earlier today on Surveance, we had Dan Ives from What Bush Securities on doing a little victory lap on his bullish tesla call. The stocks up seventeen percent today, the most since March of twenty twenty one, on the back
of some pretty darn good earnings numbers. Let's break it down to Craig Trudell. He's a Global autos editor for Bloomberg News. Joins us from Zoom from London on Zoom on that technology there. Hey, Craig, what stood out to you? Why do you think the stock is up seventeen percent today? What did you see it out of earnings release?
I mean it was really It's really quite a combination, because oftentimes it feels like it's not necessarily the case that you can count on both both earnings and the vision to be positive. In this case, they both both were working in Musk's favor. I think the earnings were much better than expected. I do think that those expectations came down quite a bit over the last year year and a half, but they sort of they did exceed
expectations by pretty significant measures. And the profit margins in particular, or something that everybody keeps a very close eye on their automotive profit margins when you back out the credits that they sell to other automakers for regulatory purposes, those in particular, I feel like, are you know, just quarter in and quarter out what everybody looks at? That was a big beat. And then I think Musk was as self assured as I've ever heard. He's never won lacking
in confidence. And for him to throw out, you know, twenty to thirty percent sales increase for next year, I think was very surprising to people. After you know, we're nine ten months into the year and they've delivered fewer vehicles in twenty twenty four than they did in twenty twenty three.
Hey, Craig, So when I'm walking around New York City ever so often, every so often I will see, to my surprise, a cyber truck. What is the leaatest on that? What do they say in earnings? What can we expect there?
Yeah, they said that it was gross margin positive for the first time in the most recent quarter. And so we're almost we're roughly a year into the launch of that vehicle. So I would I would say that's a little on the early side, just relative to how Tesla has you know, are done with with the new vehicle launches in the past. So so that is another another positive I think, you know, in terms of volume, it's it's still quite low relative to the Model Y and
the Model three. That is still where you see the vast majority of of Tesla's deliveries, so much so that Tesla has even yet to break out that that vehicle. And in terms of you know, quarterly results, and so you know, I think we have a rough idea of how many they've sold. Ironically, based on the recalls that the company has had to do with the vehicle. It's it's as of the latest recall was, which was just
a few weeks ago. It was around twenty seven thousand units, I believe, So, you know, that's that's pretty small for a company that you know, may sell somewhere around one point eight million vehicles this year.
Where is the the focus from the company here in terms of they've seems like they have a lot of balls in their obviously the car business itself, robotaxis, artificial intelligence. What do they what do you think they really want you to focus on? What does Elon want investors to focus on?
Do you think?
I think that's actually really one of the most interesting things here. And I think Liam Denning's column for Bloomberg Opinion this morning, uh, you know, does a great job of laying out this idea that uh, you know, Musk's emphasis has really been on, you know, don't don't bother with the here and now, forget uh you know, forget
that the near term earnings. The sort of big potential for this company has to do with, you know, selling self driving cars and humanoid robots and and things that uh, you know, we've heard Elon talk about time and time again, but not actually deliver. Uh. And I think you know, if if if you're sort of looking at this company
sort of class half full. It's it's uh, you know, I'm I'm less concerned than I am today about the here and now of this company and the earnings power of Tesla and its current business, and therefore, you know, more encouraged that they have, you know, the ability and the time and the financial wherewithal to go out and pursue those you know, big stretch goals that Musk has stepped for the company, and you know, depending on who you ask, you know may or may not be able
to actually follow through on his various predictions.
Well, from an equity perspective, this stock has been all over the place this year. I mean we were just looking earlier and year to date the stock was in the red. Now it seems as though today's games have pushed it to drift about eight ten percent higher for the year. What's the goal case here? What are people saying, how many how much legs do they have to run? Can the stock go much further? What's the consensus there?
You're absolutely right. I mean back in April this was a stock that was down forty three percent for the year, and so for them to have, you know, come all the way back. They it sold off quite a bit, you know, after the Robotaxi unveiling just a few weeks ago, and you know, we we've now seen the shares go go positive again for the year. We'll see if they
stay in positive territory. I think, you know, whether whether or not the company can can actually grow next year with deliveries, I think is really important because even Musk, who's you know, sort of perpetually said, you know, next year will be our year for autonomy, even he is saying, you know that that this cyber cab that they showed a couple of weeks ago isn't going to be ready in twenty twenty six, and so we need this company to bring you know, more affordable vehicles to market, to
to make teslas more accessible to to to more consumers and get back to when it's you know, growing again, to put it to put it, put it simply, and you know, I think it's still unclear what exactly they have to offer that's going to make make help them get there.
Craig, thanks so much for joining us. Really appreciate getting some of your time and perspective. Craig Trudell, He's a global autos editor for Bloomberg News. He's based in London, joining us via that zoom thing. You know, I think for me, and I think for a lot of investors and a lot of people that just think about the EV business, what is the ultimate demand out there for EV's. We had the early adopters, go, We've had the people that just love the technology.
You know, they've bought their evs.
Now it's about okay, Now I got to service the rest of the people the exact one value the people they may want cool design.
Get the rest of us on board.
Yeah, So I'm just not sure how that plays on. We've seen some of the existing auto manufacturers, like the Volkswagens and Fords kind of.
Pulled back a little bit exactly.
They started to pull back on their development there because they weren't really seeing demand as you just mentioned. So I think it's really interesting when we think about the broader landscape and whether or not they're actually going to be able to attract the broader group.
Yeah.
You know, you got that whole thing about the charging network. You got to you know a lot of people I talked to so say, when the charging network is like the gasoline state, network in this country.
That's one I'll think about an EP.
I don't know how that all plays out, but great day for Tesla and Edge shareholders.
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Following not getting the deal done? What's going on there? Because they need to get people back to work. They need to start cracking out some airplanes and getting some cash into the door. Next guest has some thoughts on all this whole labor negotiation, unrest issues, workplace issues.
Jessica Kriegel joints.
It's in our Bloomberg Interactive Broker Studio chief scientists of Workplace Culture and the firm is named Culture Partners. So there you go, joining us here in our Bloomberg Interactive Broker Studio. Thirty five percent seen or thirty percent whatever. It was seemed pretty good to me, helping out with the four to one k's. Then labor comes back with defined pensions. Now my response would be nobody. I'm six years old. I don't know one person with a defined
benefit pension plan that's nineteen seventies. Can you give us your thoughts about what's happening between Boeing and their striking workers.
How do you view it?
I don't know anyone that has a pension anymore these days, but they've been asking for it since the beginning, and it's a non starter. They're not going to get the pensions. I think Boeing will literally go bankrupt if they have to give up those pensions. But they have been asking for forty percent since the beginning. Boeing originally offered twenty five.
They said overwhelmingly absolutely not enough. Then they came back at thirty percent, which was their quote unquote best and final offer, but apparently not because two weeks later they came back with thirty five percent. And they've got two thirds of the union that is still saying that's not enough, a third has been converted, a third did say yeah, I'll go back to work for that. So they're getting closer and they're going to have to bridge that gap.
I think they'll have to go to forty percent, and since they're probably not going to get the pension, they might have to go above forty percent. They might have to go to forty five percent in order to say no pensions. But we'll give you more, and we'll give you a bigger signing bonus to make up for all the time that they haven't been paid. It's hard right now.
For the union workers.
Jessica, I know that you are of the opinion that management has been so focused on their balance sheet that they've pretty much forgotten about the workplace culture. What does that look like? I mean, how do you kind of turn that around? You did say that it seems like it's a little bit too late now.
Yeah, I mean CEOs all over the world are focused on driving results right now, and some can take that so literally to only mean focusing on the financial results. But as we're seeing with Boeing, this is a classic example if you focus so much on the financials and not on the hearts and minds of your employees and bringing people along for the ride. Culture is really about how you think and act. It's not about the buzzwords
you have on a poster board about your values. Kelly Orper did an interview the other day saying we got to focus on culture change, and we're doing that right now by revisiting our values. I mean, is that really going to move the need for the people who feel so much resentment, feel like they've lost so much, they have to see leaders take the lead on culture change, which means pay us what we think we're owed, show up on the floor, stop focusing so much on the
balance seat, and also focus on quality control. Also focus on what we as people bring to the organization and what we need.
High school buddy Mine life long engineer at Boeing in Seattle, and he says, hey, you know, he's not a radical dude, He's just saying, hey, this is what I think happened. They've management left the c suite, left Seattle twenty years ago for Chicago.
Now they're in DC.
That felt to a lot of these engineering types who take pride in the work that we lost their support, or we lost their support of the engineers drive Boeing and they started focusing more on profitability as opposed to the engineering prowess of Boeing.
And that's twenty years ago.
Yeah, and one could argue they think that's the beginning of perhaps some of these problems that we're now seeing twenty years later, I don't know how you get that back.
Well. I think they've done a good job actually, because Kelly Orperg is someone with an engineering background, so they have realized they don't need to be encounter at the c suite level. They need someone who's been an engineer, who understands he's saying, let's get back to the floor. He bought a house in Seattle. He said, we're going
back to Seattle. So there is already a shift to make up for what that is a well documented complaint that the union workers has if you lost the soul of this company, and this is a fight for the soul, right.
I always tell people that one of the great drives from an airport to a downtown is in Seattle. You get out of your plane in Sea Tech, you get on one over that eye whatever that is, and you drive to Seattle.
It's about a forty minute drive in.
On the left of you on the highway for almost forty miles is Boeing, and it's airfield after airfre right, and hangar after hangar, and plane after plane, and they're taken off and flane. All about that to me is Boeing and the fact when senior management left there, it seemed like for a lot of people, oh lost to heart and soul there.
So, in building off of Paul's earlier question, I'm curious, did it seem as though there was a stronger, more intense crackdown after all the hiccups that Boeing has seen this year, or does this seem like it's kind of been a bubbling up point and it's finally bubbling over. As to why workers are so unhappy.
Well, Boeing has had a lot of very public embarrassments right in recent times, and I think the employees are saying the executives are not protecting the company's brand and reputation, so we will We are not okay with the quality control, we are not okay with the way that production has deteriorated over time, and so we are going to fight to do things the right way. Because these are engineers who take a lot of value. They love the fact that they can produce some of the most high quality
machines in the world. Right they don't want to create garbage material anymore. So they're fighting for it. And I think this is something that will get resolved. It will absolutely get resolved. They're going to get back to the table. Maybe a few more weeks. Some people say we're only at the halfway point. Either way, they're going to come together. Boeing will get back on track. I'm not worried about the future of the company.
Let's pivot a little bit away from Boeing get back to another key issue which I keep raising because I just wonder how things revolving. Are people back in the office, what's the new oral? I guess we are when you talk to your clients. Yeah, Are we in a permanent hybrid situation?
Now?
No?
I mean right now. I think twenty twenty five is going to be the year of forcing people back into the office. Amazon just made an announcement that people have to be back five days a week. I think that is regressive thinking, if you want my personal opinion, because think of the language people use when they talk about return to the office. Go back to the office. It's going backwards, as if COVID was just a pause and now we can press play again and nothing's changed. But
the reality is culture has changed. If culture is how people think and act, we had a major experience that evolved our thinking about how we can be productive. And I think companies that are forcing people back into the office are counting on some people to leave that it's a way to do layoffs without doing layoffs, and they're relying on activity based manager. It's easy to manage activity of your employees if you can see them at the desk.
The more elevated way of leading a team is to manage to outcomes and you don't have to be in the office to manage to outcomes. So companies that want the competitive edge on attracting talent from all over the nation, they're going to allow people to work from home. And companies that have a real estate bill that they're worried about, they're going to force people back into the office.
And I mean our incentives enough as food and all the different things enough to lure people back into the office. Or do you think that a lot of people are really hard and fast I want to be removed.
Well, it depends on the person, right There are some people who are just excited to get back into the office. They want the kombucha Fridays and the Hawaiian shirt Tuesdays or whatever it is that people do right now to create quote unquote culture. Those are not culture things. Those are just perks, they're fun. Ultimately, it's how are we making decisions, how are people thinking? How are we committed to the mission of the organization? And I can do that at home or I can do that in the office.
And I would ask, if you're questioning right now as a leader, whether or not you should force people back into the office. Is think about what are the results we're trying to achieve, What are the shared beliefs within our team that are getting in the way of hitting those results, and what do we need those beliefs to be And is working from home going to help drive those correct beliefs that will get us the results or not.
That's really the deeper work of leadership, rather than add do we get people in the office three or five days a week? So that's that's arbitrary.
I think that Amazon might be a little bit of harbring rym. We might see more companies.
Yeah, well absolutely. Also, Amazon is not going to have trouble replacing people that that don't want right because it's Amazon, and so there are companies like that that can do whatever they want and they'll be able to hire other companies. They have to be a little bit more strategic about how theyre going to attract talent.
Interesting.
I guess it's just ever evolving, satary evolved a Bloomberg or four.
Days a week. I don't know, you will see. I'm fine a week working. Just find for me.
Jessica Krigle, thank you so much for joining us. Jessica Krikles, she's a chief scientist of workplace culture at Culture Partners, joining us. Lifer in a Bloomberg interactive studio talking about Boeing and just kind of the workplace in general, kind of the evolving US workplace.
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All Right, it is earnings, fast and furious. I think today was probably the busiest day, or will be the busiest day of the week. What's been a busy week, and we've heard from pretty much everybody across the board, all types of industries. One of the companies is United Parcel Service UPS came out with some numbers. The stock is up five percent, today, So some pretty good numbers. Presumably Lee Claskal is he's right here now to Lee Clascott,
Senior Transport Logistics and Shipping annols for Bloomberg Intelligence. He joins us from our Princeton, New Jersey offices. Hayley talk to us about UPS stocks up five percent. So I guess the market like what they saw.
Yeah, hey, Paul, Yeah, So UPS had a pretty good print this morning, and they all so you know, indicated that earnings might be a little better than expectations are in the fourth quarter.
UPS has been kind of a show me story.
They've been doing a lot of self help things, but a lot of those initiatives really haven't bubbled up to the bottom line or the revenue numbers, just given the difficult backdrop. And what we saw today was earnings per share finally inflected, earnings per share growth finally inflected positively after seven quarterly declines. So I see things seem to
be working for UPS. And you know, we expect earnings expectations for the fourth quarter and probably next year to move higher on kind of the progress that they've made thus far.
Hey, Lee, I mean you mentioned that difficult backdrop. As I'm looking at ups, we're seeing shares down about twelve percent year to date. As we're thinking about the future, I mean, how much of a move higher do you really anticipate as we're thinking about the year end, should investors start to see some gains here?
Well, we don't do buy whole cell recommendations of Bloomberg Intelligence, but you know, what we can tell you is that the company are doing the right things to see their margins expand and and you know, our view is that margin expansion could be more than than where where the market currently is at. And a lot of that has to do with a lot of the cost savings that
they've been able to generate. They've been able to, you know, shut down various shifts, sorting shifts, They've been able to close some facilities and just do more with the network that they have. That and if you fast forward that, you know, maybe you know, volumes could start to improve
a little more meaningfully from here. You know, they expect a better peak season this year, albeit probably not as as robust as they were probably planning for three months ago, but the peak season is expected to grow and the reason for you know, them tempering the outlook for the peak season is given the fact that the peak season is condensed. The peak season, for those don't know, is
from Black Friday to Christmas Eve. And because of that condensed peaks time, you know, a lot of retailers think that some consumers might be going to the stores versus ordering online.
And making that gamble whether or not you get it under the tree in time.
Haylee, we love talking to you for a variety of reason. It's not the least of which is the companies you cover lead give us a real sense of how the underlying economy is doing, whether it's stuff's being shipped by rail or truck or air cargo. What's GPS telling you about kind of underlying activity that they're seeing.
Well, first and foremost, I love talking to you as well, Paul, But you know what I think they're telling us is the consumer is doing okay. You know, it's not doom and gloom going into to the holiday season.
I think that you know, you are going to see growth.
Like I said earlier, that growth might be a little more tempered, but you know, we are seeing a return to kind of seasonality, which is really good because it's not just going to impact the parcel providers. It's going to impact the truckload providers, you know, like the Knights, Swifts and the Warners of the world. It's going to impact the intermodial providers like the JB Hunts and the hub groups of.
The world, and the railroads as well.
So, you know what we're hearing about the consumer and the fact that B to B volume grew for the first time in a long time within their domestic business is also telling me, you know that things might be might be a little better in twenty twenty five. So you know, we're pretty optimistic that demand should be increasing across most of the modes that we cover, and you know, twenty twenty five, in our view, is going to be a much better year than twenty twenty four was.
And I do know back in about April, I remember that it became UPS became USPS's primary air cargo provider. Is that still a topic of conversation? How much does that really add to the business if at all?
Yeah, so it is a great business win for them.
You know, FedEx walked away from it for various reasons and UPS decided to pick it up. It's going to be consistent volumes at a consistently good margin.
And you know what they're doing is.
They're really restructuring their overall business. They've been getting out of businesses that are a lot more volatile. They just sold their freight brokerage business, which was called Coyote to r XO and and then that was earlier last month. And then in twenty twenty one they sold their less than truckload business UPS Freight to TFI and those were not great businesses for UPS. And now UPS can really
focus on being a parcel provider. And to answer your question, what that US postal service business can also do, It's going to build density, and density is the name of the game in any transportation company, and so they can build off that density with other volumes.
All right, Lee, thanks so much for joining us. I'd appreciate getting your expertise and all things logistics, railroads, trucks, the sea transport, the air transport. Lee covers it all and again his transports companies just got to give you a real good insight into the strength of the overall economy when you can see kind of what types of goods are being transported all around the country and the world.
So some good stuff there.
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Thirty R Normal lend us sitting in for Alex still on.
Paul Sweney, You're live here in on our Bloomberg Interactive Broker Studio, streaming video live on what.
Is that YouTube?
That's the interesting that thing the internetew dot com. So just head over there and search Bloomberg Podcast, Bloomberg News Morning Console.
We got to pull out this morning. I'm just gonna guess dead heat.
Jody Schneider joined political news director for Bloomberg Television and Radio. She joined us in Washington, DC. Jody, what do we learn from the latest Bloomberg Morning Console poll.
Well, it reconfirms Paul that things are just very very close. Probably couldn't get any closer. It is that dead heat. We've seen some of that during this last year or so of the polls we've done with Morning Consult, but
this one is as close as ever. And of course it's the last one before the election, So it matters as much as ever we're really seeing, you know, it's up maybe a point or half a point in particular states, but it's forty nine forty nine when you get to all the swing states, and we are focused on those swing states, the ones where they are going to determine who wins the electoral college, which is who wins the presidency.
Definitely, And Jody, as you just said, we are really coming up less than two weeks away from the election. What are you seeing from those swing states? What has really been general consensus of this latest chapter.
Yeah, I think the poll really reflects that that it is so close that almost you know, too close to call. In a number of states. There's some talk about, well, one or the other may win the popular vote, but that is, you know, almost beside the point. It is those swing states where in the past somebody has won
by twenty thousand votes or forty thousand votes. Hillary Clinton lost the blue Wall states of Michigan, Wisconsin, and Pennsylvania by fewer than eighty thousand votes in twenty sixteen, so it really is kind of, you know, down to that so called knife's edge in the final days of the campaign, and that's why you see the candidates in their running mates almost exclusively focusing in those seven swing states, and the Democratic candidate so much on those blue wall states.
She really needs to win there.
Jody, what are your sources tell you about the timing of when we may have some resolution all on the actual vote itself. Will we know eleven pm on November fifth, or will be hours later, days later?
Yeah, that's the question everybody I know is asking me. So that's what everybody wants to know. When are we gonna know? And we may well not know that night, not only the presidential but the House of Representatives. The House is going to be a close race for control of the House and it's going to go through New York and California, So we may not know that night who will control the House will probably know the Senate.
The presidential we may not know. In twenty twenty, of course, we didn't find out till Saturday, but you might recall two thousand, where we didn't know until December when it went to the Supreme Court. So we may be in a situation like that, and you know, the markets may not wake up to that uncertainty until it starts happening as well, which will be something else for us to cover here at Bloomberg.
How exactly are the candidates strategizing in this last stretch to mobilize voters.
Yeah, so they're really going to those swing states, you know, trying to really make their case. They're so called closing arguments. Kamala Harris is trying to do that in and we heard her at a CNN town hall doing this last night, sort of saying, I am you know, I have a plan for the future, but I have experience with I've been the vice president for the past four years, and Donald Trump will be a danger to America. That's her case.
Donald Trump's case has been to kind of double down on his rhetoric of making people feel that this administration has failed them. He's done it on the economy, and he's been successful on the economy, including a chosen our poll that he is the one people trust more on the economy. And he's making the case that to leave this with her would be a danger to the future
of this country. So they're both making arguments based somewhat more on that their other, their opponent, would do harmful things to the future of America than as much on their record. Their closing arguments are kind of mirror images of themselves in some ways.
Jody, turnout, I've been told by the experts is really really important here.
What do we expect turnout to be?
And number two, does either party have an advantage in driving turnout?
Yeah, so I think turnout is key.
It's certainly key.
In those swing states. The other interesting fact, Paul, to edit all this is early voting. We're seeing massive early voting. I think it's as much as eighteen million or more people have already voted, either by mail or in person, and we will be seeing a massive amount of that
in the next week, historic amounts of early voting. Now, in the past people said early voting tended to favor Democrats, but now the Republicans are pushing it as well, and it's becoming more the fabric of people thinking, well, why should I wait? Why should I wait till election day? So some of these closing arguments really might be falling and so called jaffiers because people have already voted. And we'll see when we do the historical analysis of this campaign how early voting played into it.
With about thirty seconds or less. Just how important is age in this election? Is that playing a factor at all?
It's playing a factor, but more gender seems to be. It really does seem to be a very gender focused election. The Democrats, you know, winning more women and Donald Trump kind of doubling down on the mail vote, both older and younger. But it really gender seems to be the dividing line here more than age.
Jody, thank you so much for joining us.
Really appreciate your reporting as always. Jody Schneider. She's political news director for Bloomberg Television and Radio. She joins us from our newsroom in Washington, d C.
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Normal.
Linda is sitting in for Alex Steele Paul Swhen you allow here on Bloomberg in nactive broke restview streaming the video thing on YouTube, so aheadver YouTube dot com search Bloomberg Podcast. That's where your finest is. John was just reporting new home sales give in a little bit better than expect it. Let's break it down with an expert. We can do that with Bloomberg Intelligence. They got everybody over there, Drew reading, he's a Bloomberg Intelligence US home building analyst, Drew.
What you make of these numbers?
Here?
The new home sales seven hundred and thirty eight thousand. Consensus was seven hundred and twenty thousand, so a little bit better than expected.
Yeah, and not surprised to see a good number in September. You have to remember in September we had mortgage rates at the lowest level in about a year and a half, so they hit as low as six point one. So we got the data today and it's already backward looking because since the beginning of October rates have shot back up. It's about six point nine percent, and if you look at the payment on a monthly basis, that's about nine percent higher. So what we have heard is things have
started to slow down. The builders are noting more seasonality, so we would expect things to slow down a little bit as we get October data.
So as we think about the FED moving forward, Drew and people expecting potential cuts what does this mean for home builders when we're thinking about it on a longer scale, looking further out.
Yeah, well, certainly, you know, it's all about affordability, and mortgage rates are certainly a key part of that. Our expectation was that we would get somewhere in that low six percent range that would help spur at a little bit of activity. I think you really need to see a five handle to see more robust activity. But it's important to mind it's not just about rates, it's prices too. Prices are up more than fifty percent since the beginning
of twenty twenty. That's really the biggest component. And you know, we did an analysis on monthly payments relative income and based strictly on that just to show you how how to whack the market is. Right now, prices would need to fall somewhere about twenty five percent in order for monthly payments relative income to fall in line with historical averages. So it's a combination of what's happening with prices and what's happening with rates.
Right, and so if we were to see a potential uptake in we're to see a flight of existing homes to come back on the market. How much competition do you think that would actually pose for home builders when we're thinking about new properties.
Yeah, that's a great question. Inventories are up about twenty percent compared to last year. At the national level, they're still down about twenty percent compared to pre pandemic levels, but it's very market specific. You're seeing markets in Texas think you know, Austin, Dallas, Houston, and San Antonio, as well as most of the markets across Florida where inventories are rising, you know, anywhere from thirty to fifty percent year.
Every year their back above twenty nineteen levels. So the competitive dynamic is certainly shifting for builders in those markets, particularly in Texas, and I think what you'll ultimately see is that builders are going to have to continue to lean on incentives. I think it could start to put
some downward pressure on prices as we move forward. So if builders want to clear that speco inventory that they've build up over the last year, they're gonna have to keep their foot down on the gas pedal in terms of their use of sales incentives.
Hey, Drew, thanks for joining us. We appreciate you hopping on there. Drew reading home Building analysts Bloomberg Intelligence from Princeton, New Jersey a little bit better than expected new home sales, so we note that.
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All right. When I started in the media business on Wall Street thirty five years ago, my clients were radio companies, TV companies, magazine companies, newspaper companies. Then along came cable television, and then seeing the Internet, can You Age?
Which upended everything.
Our next guest was the MNA banker for the old media, and now he's the lead m and A banker for the new media. Terry kwasa JOINTS and he's the founder and CEO of Luma Partners. I work with two moons ago back on Wall Street when we were banking some of those older media companies. Now it's all about Google, Facebook, Snapchat, all these kinds of Amazon now major player and digital advertising. Terry, thanks so much for joining us here in our studio.
You are in the biggest best industry I can think of, I mean digital advertising. It has exploded over the last ten to fifteen years. You banked the companies that support the technology of all those big media companies that we like, like Google and Facebook. Talk to us about the state of digital advertising today. Is this as strong as it it's been over the last several years.
Yeah.
Look, first of all, you're absolutely right to denote that, you know, this is massive. We're talking about a trillion dollars of spend globally. And what's interesting about it is that the vast majority of that spend is actually those ads are bought programmatically and all that that's just a fancy word meaning auction bought in auctions, and so there's a lot of technology that requires sort of real time assessment and targeting of each particular ad slot that happens
in milliseconds. So the technology has completely moved to this sort of software intermediated world. From a from a business model standpoint, the giants that you mentioned there are somewhere in the ninety plus percent of their revenue comes from advertising.
Not everyone can be bloomberg, right, I mean, I mean so and but but it's beyond just those large platforms so media and historically subscription based media like a Bloomberg, but also like a Netflix and like a you know, Disney that had these sort of B to B models in the old TV world that you and I covered well decades ago.
That's all.
They're all now shifting to advertising in order to garner larger audiences and supplement their revenues.
I mean, obviously, this is ever evolving space. It seems like there's something new every single day. How do you all stay nimble?
You're absolutely right, Nora. In fact, I describe this sector as having uniquely sorry, having five attributes scale. I mentioned at trillion dollars, right, growth, So if you looked at the combin and a growth rate of digital advertising, it's over twenty percent for twenty years. Name another industry that has that characteristic of growth. I'll wait, there is none. It has fragmentation. There are thousands of companies across this
ecosystem that either offer services, media, data, software. It's very, very complex. That's the fourth item. Tremendous amount of complexity. And fifth what you mentioned, Noura, it's dynamic. It just keeps changing. If you don't like it. Wait three months, it'll be different. Either there will be a new technology, or there'll be a new media channel witness TikTok vertical video, a short form video, or there'll be a new technology policy Google with you know, removing cookies, which is there
sort of identifier. Or there could be new regulation and we're seeing a virulent antitrust and privacy legislation from both the US government and Europe.
That's kind of where I wanted to go.
Terry and his firm, Luma Partners, they host these leading conferences where all these tech people come together.
And I go to these conferences and.
I don't know anyone, I don't know any company, but I just step back and I say, collectively, these are the people that put all the ads on the Googles of Facebook.
They figure it out. That's how I think about it.
Talk to us about M and A in your business, because it's comprised of in the advertising technology space that supports all the digital advertising that we all experience every day, a lot of M and A. That's where you fit. Talk to us about how that activity has been over the last several years.
So first of all, you're right, your non recognition of these people that are really driving the Internet. I mean, think about it, right, who gets the headlines? Rupert Murdoch, David Zaslov, right, great guys, meaningless as in terms of their power and influence over how this all gets made. The real people are these people that we don't even know, you know, doing sort of B to B advertising technology,
certainly do so. This sector has gone through a wave of new company formation, and there's always new innovation, so there's always new companies, but it's direly in need of consolidation. That's where I identified this as an opportunity fourteen years ago when I formed Luma, and it's completely manifested and has.
A lot more to go.
Lately, the last eighteen months or eighteen of the last twenty four months, we saw a huge slowdown in NEMENA activity at ten year low because you know, the economy, all these macro uncertainties. People weren't sure what was going to happen with interest rates, with inflation, and so basically everyone cut costs, improved their profitability in twenty two and twenty three in anticipation for a recession that never came. I swear to God, if we get to the end
of twenty four and there's not a recession. Jerome Powell deserves to be on the twenty dollars bill. I mean, what an incredible job. And so now everyone is like, wait, we haven't done m and A for a couple of years. We direly need new technologies and new markets to enter and by the way, we've got our ebit done a great place right now and we can't and the ad
market continues to grow. So not only is there not a recession, digital ANTSPENT is growing fourteen percent this year I'm talking about is the trillion dollar industry growing at fourteen percent. Those are large numbers, so every year it forms like an industry size of growth. And next year forecasted to grow twelve percent. So it turns out you can't cut your way to growth. And so they're back on the bandwagon and strategic M and A is coming back.
The biggest platforms, as you mentioned before, the Facebook's, the Googles, the Amazons of the world. It feels like Washington is they got their regulatory sites trained upon them. How does that impact kind of everybody else.
In the industry.
Excellent question. Here is my problem with the DOJ and the FTC so Jonathan and Lena, they're well intended policies to curb big tech. No one would argue with that big tech. Look, come on, man, these companies have enormous power, so by all means rain them in. However, the effect of the well intended legislation was to put a pall
on all M and A activity. I mean, when they blocked the Simon and Schuster deal, it's like it's like, sorry, nineteen seventy seven called and they want their antitrust legislation back.
So it's it's totally ludicrous. They've i think overstepped. And the net result is, you know, if you've got a half a dozen companies that are omni powerful like at Amazon, Google, Facebook, you know, and it's it's it's companies numbered seven through fifty that you need to be doing M and A in order to compete with the top six, and now they're foreclosed from doing so. And so actually it's had the opposite effect. It's actually increased monopoly power.
So let's talk AI. I mean, not that big of a deal, but I'm curious, how does it actually impact your business? Of course, that is something that everyone's been watching in terms of AI and how obviously it trickles into social media and how we think about the Internet and things of that nature. And I'm sure it's very, very critical to digital ad.
So I put AI in the category of shiny new objects, right, I mean, and marketing loves the shiny new object. People in this industry went crazy for Oh my god, five g web three NFTs And you know, I feel there's a responsibility, as someone who understands what's going on here to call balls and strikes. So I said, this is nonsense, this is bunk. You're wasting your dollars by all means. Marketers spend in those categories for experimental purposes to look
cool and speak at conferences. But you're just know that you're lighting all of that money on fire. Now AI. There's a lot of hype around AI. So wait, are we saying this is yet another shiny new object. I believe this is one where there's both hype and reality. In fact, one could make the argument that digital advertising in media is the perfect application for AI because these are large language models that do a lot of interesting things,
but they need huge amounts of data. Well, there is no industry with more data in terms of real time bidded trillions of AD calls daily in real time. It's the perfect application for AI, and we're going to see a spectrum from evolution to revolution. I put them in three buckets. There's, of course, they're going to improve efficiency in and around media data and workflow around how all this stuff works because it's complex and AI will improve that.
Then there is another category around generative AI that's going to improve content and the creative of the ads so that they become more effective, not just more efficient, but more effective. And then there's a third category of who knows it could fundamentally change navigation on the web. What do I mean by that it's gonna change search because search is where you ask questions, whereas AI gives you answers. Right,
why do we need to manually navigate to websites? If the if the publisher can simply publish to the ll M, because the interface isn't gonna be manual navigation to a www dot you know. Uh, it's just you're just gonna ask your AI and a I'll give you the answer. So the whole digital media world from a publisher standpoint, could be going from uh B two C to B two B where the B two B the other the last B on B two B is in fact the l ll ms of the AI.
You haven't lost your energy.
Dude, Oh no, hell no, I'm just getting so.
I told these people when this guy comes in, you're gonna you're gonna know. Terry Quash, I thank you so much for joining us. Tarry Quash is founder and CEO of loom of Partners, really focusing on the digital advertising market, all the companies that kind of fuel the global digital advertising and what's digital advertising.
It's all the ads that come on your.
Facebook feed, each Google search, Snapchat, all that kind of stuff. Somebody's responsible for that. Terry is certainly one of them. The investment banker to the tech world getting an upbeat view of digital advertising. Artificial intelligence a big, big player. You know, if you're an advertiser, you want to make sure that your ad message gets to the right person, the right customer or potential customer, and AI can.
Certainly help in that. So we'll keep an eye on that.
So we appreciate getting a few minutes of Terry's presence here in our New York studio.
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