Tesla Is Not Executing Well, Eisman Says

Director of North American Research pull what went wrong? Users? Monthly average active users declined in the quarter, and the company is talking about the more declines on the third quarter, and you know, they're they're talking up to their trying to clean up the platform of you know, some bad accounts,

of fake accounts, some accounts that are just troublemakers. And so the you know, the monthly active users has been a metric that investors focus on for Twitter, you know, it's it's it's kind of struggled to gain scale we need we need compared to Facebook with a couple of billion users and um, and so I think people are concerned that ge if this, if the company is not growing its user based then it's going to become less

attractive to advertisers, and that's kind of the concern going forward. So, UM, you know, the monthly active users was disappointing here and trying to understand the bullish view on this stalk this morning. Monthly three active users stalled. They stall because they're cleaning

up the platform. They reset revenue expectations. Is there a good story out there associated with this over the long term, pool, Well, the good story is that you know, there are three thirty five million users roughly, and they are a very active, passionate users. UM. There's some influencers there if if you will, uh, including uh Donald Trump. UM. So you know, if advertisers want to reach a you know, a audience of over three million, UM, passionate audience uh tends to be younger demos. Uh,

then this is a good audience. Uh. The problem, however, in digital media is it's it seems to be if you have less than a billion users, you're just not relevant. So, you know, the good news for Facebook because they have four platforms with Facebook and Messenger and WhatsApp and Instagram

all north of a billion users. UM. Obviously uh, Google and and and even at Amazon Uh, you know, have have that kind of scale, but anything sub a billion users tends to be deemed not really an effective advertising by for for advertising. What's your point called You've got Facebook with four franchises with a billion users plus and Twitter are struggling to get past the five hundred million mark. There is a question mark about the whole sect of

the whole space today in social media. I notice his Facebook pad it's gains after these Twitter results came out. Are we finding out there's just limitations to growth in terms of social medi idea? You know, it's um probably, I mean there's certainly from a user perspective, you know, there's some close to matrization in some of the more mature markets such as the North American Western Europe, but there's a you know, a lot of growth, uh and

and other parts of the world. But what we're seeing is I still think the long term bowl case for digital advertising is still very much intact because we see across all me including Twitter today, their daily active users are actually up eleven So people are spending more and more time on the Internet, including social media, and the advertisers are are are following. And I put a personal note on this. I mean, I'm looking here at the

bold letters of the fabulous Bloomberg top live blog on Twitter. Folks, I can't say enough about this. If you have a terminal, these top live streams are unreal. And they say we have made we wait, Twitter says, reflecting impact from decisions we have made to prioritize the health of the platform. I went down over two thousand followers, you know, in my puny world, not not Donald Trump's world, but I want to down two thousand followers one day. Is they

cleaned up the health of their platform. I would suggest the the m a you miss there's a lot to do with them getting these idiot bots and computer stuff off. I think you're probably You're probably right. And I think, um, you know, the bullish call here is this is for the long term benefit of the platform and advertisers will ultimately reward this platform down the road. Um so, And I think you know what, I think what investors are saying is g where where where? Where is the end

of this? We we saw it here in the second quarter where they they kind of talked about it in the third quarter. So again, I think concerns for it for Twitter have been you know, you know, scale, it's one of scale. Will they ever have scale to be relevant to advertisers? And anytime you you talk about re reducing the amount of users on there, I think that just heightens the concern. And John, you've got a followers size like area on a grand Did you lose like

seven year eight tho? I lost nothing, Seriously, I lost nothing. I don't know I lost seriously. I was like one oh seven, one oh eight and all of a sudden boom and at one oh five, just one day. Help us. Have you've seen this before? Facebook hysteria, Amazon omg, phenomenal, Twitter hysteria. What's next? You know, I think the uh, you know, what we're seeing out there in the tech

world is very high valuations. The stocks have been just phenomenally just think about this like mar one hopefully not hopefully not um although that was a good year for me, but um. I think the you know, the Fank stocks and and tech stocks in general, you know, they have been one of the very few consistent areas of growth that investors could feel confident about. And and and to the extent that there's any miss there, whether it's a you know, even you know, on users are on revenue

or EPs, the stocks get get hit hard. But let's talk about the A and fang for most people. Amazon. Amazon did this really interesting thing yesterday where they said, don't look at that, Look how vega UM. We've been looking at revenue and growth there for a long long time, and that all of a sudden they said, look, we can make big profits. How did they disappoint on revenue but beat on profits. You know, it's it's an interesting story.

You're right. For for years and years and years that the company has done a wonderful job of conditioning at shareholder base to say, don't worry about profits, just focus on the top line growth because we're playing this long game for the growth of e commerce, and we are

the play in e commerce globally. UM. But every once in a while they will dial down their expenses in terms of opening up new fulfillment centers and distribution centers and R and D and so on and so forth, on all the crazy things they invest in, whether it's groceries or whatever, they will dial that back a little bit, and then the EPs will just explode and and and

really surprise people. And that's what happened again. Yesterday. So you know, the the drivers for the improved profitability of Amazon today versus just even two years ago are really two areas. One is the cloud business, the Amazon Web services business that has operating margins in the mid thirty percent range versus low single digits for the core Amazon business. Uh. And then the second thing is advertising. You know, they they're advertising was up over a hundred percent last quarter.

We think advertising will be an eight billion dollar business for them in two thousand and eighteen versus three billion last year. That's a profitable business. So they are in fact growing businesses that are profitable. Uh. So this is a business that, whether investors wanted or not, are going to show increased profitability. So um, the narrative is changing a little bit here on Amazon is great to have you with it, Seanna, You and I are really on

the same page. On Friday as a time to collect your thoughts, particularly in the summer, and drive forward a weekend thinking and getting to Monday. We have a guest who can jump start the Yes, Steve Asman. It's always great to catch up with Steve, of course, famed for the big Shot I Sman's groups, new Berger Berman Signior portfolio manager Stevis grab to catch up with you a couple of shorts that you mentioned on TV a little bit earlier. But for the benefit of our listeners, let's

begin with Tesla. It's kind of one of those stocks, one of those stories that just separates the longs, which are sort of called fans, and the shorts, which are called the haters. Um, you're sort of in the latter category right now, walk me through it. I'm not a hater, I'm a lover. That's a joke. Um. Look, people who love tests are like the point. They like to say, he's a genius, and he's in my experience over the years,

there are a lot of smart people this world. Um, But just because you're smart doesn't mean you're execute well. And so far he's not executing well. Um. He's building a whole bunch of cars in a tent. He's negative cash flow, he's at war with his safety regulator after the the unfortunate crash for his autonomous driving car. Um, and he's and he's lost a tremendous number of executives

over the last two years. Those are all negative signs. Now, maybe he can pull it out, but as of now, it seems to me all the fundamentals are pointing negatively and some really peculiar behavior elsewhere. Do you factor that in when you have to create short thesis or is that separate to what you're walking us through at the moment um? I don't I factor some of that in. I factor more in that. After the autonomous driving accident, he announced two weeks later that he was no longer

cooperating with the National Safety Board. I thought that was a very poor decision. And the other stuff I listened to, but I don't pay that much attention to. Let's talk about the execution of this short. How difficult is it to execute? How expensive is it? Just walk us through this? It's the fundamental short. It's a very liquid stock. You know, you can put the position on before you go out and get a cup of coffee and come back. So it's for the easiest thing in the world, either by

tesla or short. It must talks about storemy weather and short phil Quite often it's there a risk that you do get that surprise to the upside and all of a sudden the position gets wiped out, Steve, is that something you account for? That's of course, I mean you have to assize it appropriately. It's a very very volatile stock, So it's not the biggest short my portfolio. Um, but you know, I I think the stock could go down about Is there a biggest short out there for you?

Then if it's not the biggest short in your portfolios, but it's it's not the biggest short because of the motility. Interstility is wild and the stock tends to move on nonsense. So you know, just for I like to sleep at night, so I've sized it in a way where it's sleep is still possible. Could you explain what you mean by that? That's a word I use when I get lecture and people go, what what do you mean when you say sized? I'm looking at It's called portfolio sizing. But what do

you mean when you say sized? Well, first of all, my philosophy of investing generally longs and shorts is that no position should be so large that your career is at risk. So you know, as I said on the TV, you know, my biggest long position is four and my biggest short position is about three and a half percent. Um, my smallest short position is about one and a half percent. Position. You know, Tesla is is size more towards the smaller end of the scale. Um, not because I don't think

there's a lot There isn't a lot of downside. I do think potentially there's a lot of downside, but it tends to be an extremely volable stock. And what tends to happen with stocks like that is your day gets consumed completely by that one stock, And when your day is consumed by one stock, you can't think about the rest of your portfolio, and so I try to avoid situations like so, just to be clear here, the same here at bloom Bogs reached down to testa for comment.

UM represent STIPs for for Tesla have not immediately returned a co full comment on this position of yours. Steve, Is it about the space that Tesla is operating in or is it about Tesla? Do you think there could be winners in this space, because quite clearly Elon Muski is having a very difficult time rolling this out in mass production. Well, look, I think when you look at the the car space, the real future is going to

be autonomous driving. You know, he's gotten big in the electric car space, but I really think that we're leap frogging now towards autonomous driving, and the two largest players in a Toronto's driving are Google and GM, and as far as I can tell, um, Tesla is a very distant party in that space. Your other short that you mentioned to us, and there are longs, including your enthusiasm for Mr Bezos and Amazon, was Zillo, which is a

whole different beast. It's again a smaller single story if you would, how do you handle a given short like a Zillo Z versus something with notoriety like a Tesla. Well, Zilla was a larger short, and the vectors up. I mean, you're really going against now, I'm going against I'm going against a trend in the sense that Zillo is considered to be what's called a platform, and the platform space is the hottest space in the Internet, so that I

have going against me Um. But not all platforms are created equal, and this is a platform where I think the addressable market is much smaller than the company is saying. The growth rate of the company has slowed in its basic business enormously over the last year or so. And then the thing that really took tilted me over the edge with respect to Zillo was when they announced earlier this year that they were entering a new business, which was they were going to use their own capital to

buy houses and flip them. And you know, you could have arguments about how good or bad the basic businesses, but it's definitely a cash flow positive business doesn't require a lot of capital. They're now entering into a low margin cyclical business where if we go into recession, that business will do particularly badly. Steve Osman, it has been great to get your thoughts this morning. Thank you very much.

Iisman Group Newberger Berman, Senior portfolio manager. Why don't you bring in mr rupt Gear as we see the the yield come in a solid basis point two point nine six Chris Rapki joining us NATCHI financial economist m uf G a Union bank. You thought, she really thoughts Chris, Yeah, it looks like a pretty terrific number. As they say, it had a four handle. I was surprised by the strength of consumers spending because it didn't look like car

and light truck sales were all that strong. I guess we're of the teen point four million annual rate in June. Um exports look like they're pretty strong. I still think you can say that you can make the case that this is the high water mark for growth here certainly this year, and that everything clicked this quarter, um, and we'll see what happens in the future. I think some of the trade uncertainty is still a problem, even with

the agreement with the European Union. Well, Chris Let's unpacks that first of all, as Tom says, going beneath the headline number you've picked up on that trade story, how much of a contribution did we get from a build up ahead of tariffs being introduced that will likely not be in the number in the back half. Just trying to get my Bloomberg screen going here, Well, better get going net ex Well, exports add at one point one

percentage point, and the drag from imports was minimal. So does look like certainly, uh you know, they people we exported more to the rest of the world to get ahead of some of these made tariff uncertainty that one percentage point. Yeah, I've got a first look at seven point four percent current g d P. That's a whow statistic. I've had a search here to figure out what that gives us. US goes back to is seven point four

percent boom nominal GDP A healthy condition. Well, yeah, I mean you can do the same thing by saying, uh, you know, for some reason, inventories was a huge drag. I mean, first off, we revised the data back to um I wasn't there, so we'll have to study this a little more. But I was surprised that inventories subtracted one percentage point. So even though we missed at four point one percent, it was actually five point one percent.

Which also, you know, if we take out inventories, which are just you know, they go back and forth every quarter. Uh so the underlying potential rate real growth is like five. Really, the economy is quite strong with I think the Trump administration has a reason to crow about it. I don't know if they'll be crowing quite the same way. No, but still real final sales John Ferrell or five and that's a that's around statistic that uh is just absolutely

absolutely extraordinarius. Another way, overwhelmingly, the consensus view now is this is as good as it gets. Chris, tell me why this can't be self fulfilling. Why these kind of numbers can inspire confidence in the economy and drive things forward even more? Well, I mean it comes down to the battle between the Trump administration. Remember the famous US Treasury one page economic growth forecast that came out with

to justify the tax cuts. Now, the administration is looking for three percent growth starting in two thousand and twenty forever as far as the eye can see. But the economics profession, as shown by FED official forecasts, have GDP being two in two thousand and twenty. So the tax cuts that economists see is one year phenomenon in trailing out in two thousand nineteen. So the economics world say has two percent growth starting two thou administrations say is three.

So I mean there's quite a difference. And the reason between the two is the the economists have come down on the idea of demographics are very big. They ignored it for years now. They think the graying of society, low birth rate, that's gonna doom economic growth, or at least keep it down at load percent range. Chris Rob, you, what's your run rate for for US GDP. I think we're gonna get close to three percent, not quite in the next couple of years. I haven't like two point

eight two point nine. I'm not quite as bearish as some of the set official forecasts, but not quite as uh as Blue Skies for the economy, I don't I don't see the administration forecast is being that good either. Thanks so much, Chris ROPPI greatly appreciate it, And for the record, I would note that Mr Rupprie has been an optimist on the American economy. Margie Battell looks at the same day that we look at uh in a high yield in bonds, in dividend, paying in dividend, and

growing equities at Wells Fargo Asset Management. Margat I happened to be looking at contribution to g d P. Exports is jaw dropping goods, boom services not bad, but export, the export char coming off of two thousand and fifteen and particularly coming off the election, is extraordinary. You are very optimistic on the markets. Is it because we're an export juggernaut? Uh? Well, really it's everything everything. US business is extremely productive, globally competitive. Global growth is at least

okay to picking up a little bit. So conditions here are great. Our manufacturers in particular have lowered their costs. They have such a flexible cost structure they can compete with anybody even if the dollar moves up, which of course it has I mean the dollar dynamics are tangible.

Is a kind of report today in the interior data of the report enough to shift the bond market priced down, yield higher, Not as long as you have inflation so well behaved, and not as long as the treasury market is still has a competitive yield compared to yields of other developed countries. It's incredible that our yields are so

much hard and say your yields in Europe. So I think that for a safe haven for investors to get something like a three percent is going to keep a lid on how fast rates can go up, assuming inflation days where it is. Have you changed your portfolio a lot in the last ninety days? I mean the toxic not toxic, the cocktail rather of booming economic growth four point one percent with a real final sales folks nicely above five. I mean, do does that make you change

your portfolio? Have you been you vacationing in Iceland? No? I've been thinking for a long time that the market is set up under estimating how strong and how sustainable the growth is. And I think that a lot of market players still are geared as if tomorrow is going to be two thousand and eight. Again in the market's going to drop. Where do you wrong on rates too? They're not going to go up, that asked. Okay, they're on rates as well, which means price stability. But what

does it mean for dividend growth? And where can you find intelligent dividend growth backed by free cash flow? I think in just about all sectors except for those that are under structural pressure because of global forces. Um. I think retailing is a sector that is continuing to suffer because of the Internet trend. And I think, really you look at a sector like autos. Yes, people have more money to buying more cars, but too much global competition,

too much capacity. We have a headline out now Margie Patel to speak on the American economy at eight one am, and just behind that Bloomberg headline, President Trump will speak to the nation a m this morning, uh New York time on the US economy. Pim Fox, Why don't you jump in here as we speak with Margie Patel, Wells Fargo, PIM. I mean this is this is this is an economy Pim from years in my childhood. Well, well, well we won't go there. This is big numbers. These are big

numbers and market. One point to you is how much do you believe the investors smart investors are willing to pay for every dollar of earnings? Now do you think that's changing? I think they should be willing to pay a bit more um. If you say that, you know, going forward, PE is roughly seventeen is. I see no reason why they can't go up a turn or two. You know, the argument that well as rates go up,

pees gets compressed. Again. I'm skeptical of the naysayers on how well the economy is going to do, how all the equity market is going to do. Is that because they're going to have to be competitive in terms of trying to actually purchase shares some companies. In other words, why would they be willing to pay more? Because you can see this cycle is different because it really doesn't

look cyclical, It looks more secular um. Just as Milton Friedman said, if you have a passive monetary authority, you can allow for more sustainable growth. And we're finally seeing once again he's being true, and I think that's it. And you're not going to see the kind of inflation that would really cram down equity values or or put the financial pressure on sectors. Financial sector, Do you believe that that is going to be one industry group that's

going to perform. I'm extremely lukewarm on the financial sector again because unless you have a boom and bus lending cycle, I just do not see where the growth is coming from. And this whole recovery has not been grown by increased leverage, so I have very minimal exposure. That's really interesting in the sense of how you get to that decision. You're talking about lower rates than people expect, you're talking about a better economy. Those those those bring on this ambiguity

within banks, and that's distilled to yield curve. Is it just they can't make net margin, they don't have to spread between long and short well exactly. That was a big case for I think all the macro stories are are pretty pretty wobbly. But just as far as what sector is going to borrow, it doesn't look like housing, it doesn't look like it's consumers, it doesn't look like it's business. So who's left I didn't see much Markie.

One more question. I want to go to pim Fox in this in a moment, if you look at the first quarter corporate profits. It's amazing the tax effect, the legislation effect. Can you say that this quarter was based off Mr Trump's tax reform legislation. I think we're only beginning to see the positive benefits of that on the corporate side and then flowing ultimately over into consumers. So I think this has very, very long life at the

beginning of it. Markt Ptel, thank you so much, greatly appreciate it with her optimism on the American the County. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.