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- [00:00]
Ed Ludlow
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Host (Bloomberg Businessweek Daily)
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- [01:45]
Podcast Announcer
Bloomberg Audio Studios podcasts radio news this is Bloomberg Businessweek daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy. Plus global business, finance and tech news as it happens. The Bloomberg businessweek Daily Podcast with Carol Massar and Tim Stanweck on Bloomberg Radio
- [02:15]
Host (Bloomberg Businessweek Daily)
Apple's overall second quarter revenue beat analyst estimates, as did earnings per share, in particular China sales topping expectations. IPhone revenue matched the average analyst estimates and this was a big headline. The company authorized up to $100 billion share buyback and boosted its dividend to 27 cents a share. Doing those big buybacks is not unusual from these companies Right now. Talking to our anuragrana Bloomberg Intelligence Senior Technology Analyst out there in Chicago and out there in San Francisco is Ed Ludlow, co host of B Tech. We continue to track the stock reaction.
- [02:47]
Tim
Tim here yeah, just going through Apple's press release going seeing there's anything that that we missed Extraordinary iPhone demand.
- [02:56]
Ed Ludlow
Yeah, exactly does that.
- [02:58]
Tim
So I feel like we're talking about the Federal Reserve and the Fed's language here. Quote extraordinary.
- [03:02]
Ed Ludlow
What does that mean Exactly. So that's exactly the thought that went through my head. How much does language in a statement matter? And so I'm actually going to throw that question to to anorak but basically that is the language extraordinary demand but they also basically specifically calling out the 17E. Is that enough an arrag to infer an upgrade cycle? Just that, that one sentence in a statement.
- [03:27]
Anurag Rana
See if you go back and look at the previous quarter we saw Apple iPhones doing really well this quarter it's done well. We think the consensus of you know, roughly around 8% increase in iPhone may not be enough. I mean they may have to raise those numbers but we'll only find that about on the conference call because they don't give guidance on the there, you know, in the release. So you know, I'm expecting now based on what I read that there is a high likelihood that they will talk about another strong iPhone quarter. You know that's the upcoming quarter.
- [03:58]
Host (Bloomberg Businessweek Daily)
Honorag you said too in our preview before these numbers you said Apple's the only one who has not taken up prices because of memory shortages and it has given them an opportunity to gain share. Should they continue to do that in your view, not raise prices and go after share? I mean is China indicative of that or is that some something else?
- [04:15]
Anurag Rana
100% especially if the gross margins were 49 which is 200 basis points above last year. Absolutely. Because it looks like they are doing better deals with their memory providers than the rest of them. Now I could be completely wrong. And on the conference call they say memory prices is hurting us and we may take some prices but as of now what I see is them gaining market share.
- [04:38]
Host (Bloomberg Businessweek Daily)
Ed, same thing. You know your thoughts in terms of what Anurag said in terms of pricing versus market share. This is, you know, the potential for a little bit of a grab here for Apple in somewhat.
- [04:48]
Ed Ludlow
Yeah, I mean, you know, historically Apple, which you know has a relatively recent CFO in the seat has been the master of the bottom line. Right. And so when it comes to memory we have fixated on margins. Apple's price strategy has been less controversial. Should we say generations, generation. They, they would argue they keep the iPhone entry level, price static or even if it goes higher they give you more memory storage for that, for that number. So the way that I look at it is like is there any evidence that they share with, with the Investor base about consumer behavior. In other words, like right now, is there a macro concern about the health of consumers in different markets? If you read down the release, they talk about strength in all geographic segments, but actually if they gave a bit more granularity of like, okay, well China's good. How, how's things going in Europe, North America, Latam, Southeast Asia. That to me is kind of interesting.
- [05:48]
Tim
It is, is that where the NIO comes in? And that's sort of like a gateway drug to get more people into the iOS ecosystem.
- [05:56]
Ed Ludlow
The MacBook Neo though, like remember it's different to the iPhone. It's an entrant into a market where Apple's not really played.
- [06:05]
Tim
Like a Chromebook category.
- [06:06]
Ed Ludlow
Yeah, exactly. Lower price point go off to students, people in higher education.
- [06:11]
Tim
I would imagine though. I would imagine those people, though Ed would like experience using the interface of a Mac and then say wait a second, I don't have an iPhone right now, but I want to be able to use imessage as well as I could on this Mac. Would I buy an iPhone? I don't know. I'm just, especially in other parts of the world. I don't know.
- [06:29]
Ed Ludlow
I don't have anything intelligent to say about that other than, you know, what's interesting about the NEO is the processor is basically the same as the latest iPhone, you know, and that is one way that they were able to get it at that price point. I don't, I don't know how Anurag sees the NIO is like a sort of category defining piece of technology. But again, like while you guys chat, I'll go back and look at the Mac numbers overall and see what we learned about everything outside of the iPhone just from the statement alone.
- [06:59]
Anurag Rana
So I mean when I look at the lower end back frankly, I mean whether you're a student or you are an emerging market, this is a very good place for you to get in. Macs are much more stable than Windows devices. You know, I've had only two Macs in the last 18 years. I mean it's just unbelievably stable. I mean it's, you know, it's a completely different ecosystem. But what you, what you actually do is you get more people to buy your services. And remember, that's a high margin business. There it is, that's 75% gross margins, whether it's the App Store or you know, Apple Care, whatever it is. So I think the going down the curve and having an entry level product is extremely important, especially because the growth is only going to come from emerging markets. It's not going to come from Europe, Western Europe and it's not going to come from the US So I think it's a very good strategy.
- [07:50]
Host (Bloomberg Businessweek Daily)
I want to just. I'm looking at our live blog guys and Mark Gurman weighing in. We're going to hear from Mark shortly too. He's going to join this conversation but he points out I mean the stock's going back and forth between green and red. He says the main reasons are likely that although the iPhone sold extremely well it didn't blow out Wall street expect instead it met them. And he says the other factor is the weaker than anticipated revenue coming from the Americas region 45.1 billion versus forecasts of 45.8 billion. It's just interesting and to watch this share price in the aftermarket it's investors kind of going back and forth. I thought it was going to be like maybe settle in and say seems like you know, investors like it, it's solid, they're ok, let's move forward.
- [08:29]
Ed Ludlow
But well let's remember that we started this show and segment with Bloomberg's Mark Gurman who leads our coverage of consumer technology and is generally regarded as the leading journalist covering Apple on planet Earth saying this was not going to be about the transition of CEO and it was not going to be about learning about John Turner says the CEO what his strategy is. I don't know guys. To me this seems like a current earnings yes, save me.
- [09:03]
Anurag Rana
Apple is trading at 30 times earnings. Microsoft is at 22. Google said 29 after even after blowout results. So even after all of this Apple's still more expensive than why.
- [09:17]
Host (Bloomberg Businessweek Daily)
Yeah and does it warrant it based on this, this result on Iraq or what?
- [09:21]
Anurag Rana
So I think it's a lot of has to do with the business model of the company. This is something we go back to. This is a far more stable business model with imagine 3% of revenues going into CapEx compared to 4045 for Microsoft. They are not raising Capex. They have an absolutely stellar ecosystem of products and and guess what, whoever has the best model they're going to pay them a little bit of money to get them on their on their platform. So it's a completely different business model than than the other max 7 and people like stability, people like the free cash flow nature of it.
- [09:57]
Ed Ludlow
Right.
- [09:58]
Anurag Rana
They're going to spend, they're going to generate over $100 billion in free cash flow and they're going to buy back and are going to build data centers for that.
- [10:06]
Ed Ludlow
Can I Read you something anurag and then you can respond to it. Okay, I'm paraphrasing. Other companies have a clearer AI story and very different businesses to Apple. Apple's bottom of the year was March30. Apple trades at a premium despite slower growth than its peers. And the stock trading flat year to date reflects anxiety on component costs and memory. Do you know who wrote that? It was me. 4:26pm Eastern time. What do you make, what do you make of that? Sounds like we agree.
- [10:40]
Anurag Rana
Absolutely right. Yeah, absolutely right. But, but you know, all I'm saying is, you know, when you look at a company like an Apple and a Costco, it really is a different business model compared to all the others. And I think most people forget that this is something that's going to be around for a very long time. Spits out of a lot of cash. Even if in a quarter they don't grow, does not matter. The free cash flow still comes in and they keep on buying back more shares.
- [11:05]
Host (Bloomberg Businessweek Daily)
Yeah, right. So they, you know, investors are happy. Investors are happy. You know, so top of mind you guys, when we get to that call with analysts and investors, anurag, is it memory prices? Is it, what else memory prices?
- [11:22]
Anurag Rana
What's the iPhone story look like in the next quarter and what kind of new products can we see during the September? There will be questions on Citi, but I think they will punt it and say well log in on June 8th and see it. But to be very honest, thanks to Mark Gurman we already know what's going to happen on June 8th.
- [11:40]
Tim
Yeah, I know. You got to read, read Mark to understand everything and not be not be
- [11:44]
Host (Bloomberg Businessweek Daily)
surprised theory to understand me and answer me back questions like you, you know, a silly little address like it seems so far behind. Ed, you agree? Is it serious? I mean it's funny. Marc has also shared with us, you know, a lot of the products that the new CEO, I think he did a story about a pipeline of 10 major products, whether it's a smart home hub, tabletop robot, security device, smart glasses, AirPods, a pendant. I mean there's a lot of stuff. Are we going to get some, some more details here?
- [12:17]
Ed Ludlow
Well, so like that is just not how, how the earnings call works, right? Yes, you get granularity in detail. Tim Cook, you know, I think he, he's the kind of CEO that goes, well, I'm not an economist but and we'll sort of go into the state of the world and Kevin the CFO is very good at explaining all of the, the plus and minus. Factors of the quarter but those shiny things, you know, Apple intelligence performance improvement on Siri handset innovation foldable. You know, June is wwdc, the annual developers conference. September takes us into the new hardware season. Tonight's not it, you know and so you just need to find out the sort of plain balance sheet driven factors which sounds boring for the audience maybe, but that, that's so key when you cover a company of Apple's scale.
- [13:06]
Host (Bloomberg Businessweek Daily)
Well, I get that because you're looking at the stock now down about 1%. So investors are obviously looking for a little bit more detail or a lot more detail when it comes to what's on the bal sheet. And Ludlow, we know you need to go at this moment. Thank you so much. Co host of BTECH on Bloomberg Television at 11am Monday through Friday on Bloomberg Television. Anurag is going to stick around, which we are grateful for.
- [13:27]
Tim
We were just having a discussion about margins rag and I know that's front and center for you. I asked you that was the most important number to see. Have you had a chance to do the back of the envelope there and get the results?
- [13:37]
Anurag Rana
Yeah, the gross margins are up about 220 basis points. So that's a very good number. Now that could just be a big shift towards services. But I think the number one call, the question on the call has to be what's what our memory price is doing to all their products and up till how long can we anticipate these margins actually holding up? Because when I looked at consensus even before the call for the next two quarters, consensus is not anticipating any degradation in margins which was a bit surprising to me because we all know memory prices are through the roof right now.
- [14:10]
Tim
So help us out here is this. I just want to make sure we're looking at the right place in terms of. Because it's not broken out in the release. But, but we're, we're gross were gross margins 47.9%.
- [14:22]
Anurag Rana
49.2 compared to 47 last.
- [14:25]
Tim
Okay. 40 compared to 47 last quarter. Okay, thank you.
- [14:28]
Anurag Rana
Yeah. Last year, same quarter.
- [14:30]
Tim
Okay. Obviously I'm not looking at the right place.
- [14:32]
Host (Bloomberg Businessweek Daily)
Okay. We're looking on the FA function on the Bloomberg
- [14:37]
Tim
with us.
- [14:38]
Host (Bloomberg Businessweek Daily)
Well, it's always kind of massive numbers. I feel like with Apple overall, which is kind of interesting. I want to go back to the China revenue story, that 20.5 billion because it's been an area where they've struggled a little bit. Does this indicate a better trend line on a rug in your view going forward or we'll have to wait and see.
- [14:57]
Anurag Rana
So two things happen. One is easier comparison. When you really had a bad year, you know you're going to go into the next year with a baseline that's low. So that's one second. You are also looking at promotions in that geography. Sometimes it's not like all the time but you know, but when your competitor is raising prices, you take your base model and you push it as hard as you can and you actually get. I would be very surprised if they don't say that China iPhone revenue, which they don't give frankly wasn't up more than 20, 25%. I would be very surprised if that's not the number.
- [15:33]
Tim
Why?
- [15:35]
Anurag Rana
Because one of the things, as I said the base was so small, they, I mean in a sense the comparison was easier and they have been extremely aggressive in terms of marketing that product while the others have not been.
- [15:48]
Tim
Okay, okay, listen, you know, can you talk to us a little bit about, remind us just guidance wise what Apple tells us on the call.
- [15:56]
Anurag Rana
So, so they would typically talk about a handful of things. One, they would give overall guidance in terms of total revenue growth. Sometimes they would give iPhone guidance, sometimes they want. Last time they did give some indication of where it could be. They talk about gross margins in total. They don't really go down on a segment level. And again I think the number that usually is consistent is total revenue line. But the others, you know, things do bounce around. But I think the soft commentary around pricing of memory I think is going to be one of the most important factors.
- [16:30]
Host (Bloomberg Businessweek Daily)
How much leverage though? Anurag, I think we've talked about this with you. You know, they have this incredible supply chain. They're massive, they're a big customer. And when it comes to the supply chain, those who supplying the components, they listen to the biggest and the loudest.
- [16:46]
Anurag Rana
You know, I have been surprised because yes, they are the biggest and they are but you know, when something goes up 50%, 75%, 100%, you know, you, you understand even the person who's selling it cannot do anything about it. So you have to eat up some of the cost. So I think, you know, that is probably why I was saying I was a bit surprised when I looked at margins for the next quarter. They still look healthy in a sense. I'm not seeing any degradation there. That's an area where we think there have been hit. We had calculated it a while ago that you know that that number could be anywhere between 2 to 3% or somewhere, you know, in that range. But again, we are not seeing any of that.
- [17:26]
Tim
Stay with us. More from Bloomberg Businessweek Daily Coming up after this.
- [17:33]
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Anurag Rana
Yep.
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- [20:09]
Podcast Announcer
You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [20:23]
Host (Bloomberg Businessweek Daily)
It is great to have back on Bloomberg Businessweek Daily. Kate Gulliver, she's the chief financial officer of Wayfair. She joins us once again from Boston. Kate, good to have you here back on Bloomberg. How are you?
- [20:36]
Kate Gulliver
You know, Carol, we feel great about the quarter that we printed. I think we're very focused on the fundamentals. And are we doing two things? Are we expanding our share gains in a category that, you know, as your team covered is, is complex right now and challenging? And are we expanding our profitability? And we're doing both. So in that print on Q1, we showed that 7.4% net revenue growth. We think that's on a category that was down sort of low singles. So a really nice share spread to the category. And then you saw really strong flow through to EBITDA. That was our highest Q1 adjusted EBITDA margin since 2021. And so I think you're really seeing the strength of the model there. So we feel great about the quarter.
- [21:17]
Host (Bloomberg Businessweek Daily)
Kate, I just want to say first of all, thank you for getting the memo so that we kind of match here. I'm really happy.
- [21:23]
Kate Gulliver
I love it. Blue is blue is the theme. Cerulean, you know, I love it.
- [21:27]
Host (Bloomberg Businessweek Daily)
I love it. Hey, listen, one of the things I wanted to ask you about, you've been at Wayfair for more than a decade. You're interim CFO, CFO since May of 2020 second after those heady and exuberant days of the pandemic. Tough time, we know for the global economy, the US Economy, but everyone was buying so much for their homes. And then we had that reset. And I think we've all now can look back at that time and say that was the anomaly. That was the unusual time. We've seen the reset. You've seen your share of cycles, though, I guess is what I want to point out to tell us about the consumers right now. We've been talking about. They're in a pinch. Gas prices are higher. Other things are higher. They're holding back. Tell us about what you saw with the consumer.
- [22:09]
Kate Gulliver
Yeah, we do think that in our category, the category is challenged and the consumer is challenged. So if we look at Q1, we felt the Q1, the category was down, you know, sort of low single digits. Again, this is on a category that has been down, you know, consistently since 2021. And actually if you look at the trend line, so typically this category in a normalized period grows 3 to 4% a year. If you were to CAGR the 2019 period to now and look at that, you know what that trend line should have been, we're still far below that trend line. So even when adjusting for that pull forward, as you spoke to in 2020 and 2021, the category is off where normalized B and I think that speaks to a, you know, consumer who is challenged right now and not spending as much on discretionary. I think what's important though is that for us at Wayfair, our focus focus is less on, you know, when is the consumer going to recover and when are we going to see those category tailwinds. We want those, those will be fantastic. We it's a cyclical category. We know it'll come back but our own growth is really driven by our share spread to the category and the initiatives that we have going internally around rewards. Wayfair verified our physical stores Paragould, as your team mentioned and those are growing in a really good direction and that's what's driving that, you know, mid single digits revenue guide for Q2.
- [23:28]
Tim
So you're less concerned about potential weakness from the consumer in the current quarter than you are about that being offset by the tech investments that you're making.
- [23:39]
Kate Gulliver
Yes. So our guide for the current quarter does not contemplate any improvement in the category dynamics. So we're quite confident hitting that mid single digits revenue, you know, absent any category recovery. We said on the call actually we thought April was down low to mid single digits in the category. So the category, you know, maybe further challenge in April. Even with that, you know, we still are confident this mid single digits number for Q2.
- [24:04]
Host (Bloomberg Businessweek Daily)
Hey, talk to us a bit more Kate about Perigle. That's really your luxury online marketplace. What are you seeing the dynamics and and metrics of that marketplace in particular?
- [24:15]
Kate Gulliver
Yeah, I think there's been a lot of discussion around the, you know, the K shaped economy and certainly where we see that play out is with Paragould which is, as you pointed out, Carol, are a luxury brand. We also have our specialty retail brands. So Joss and Main, Birch Lane, all modern and those play a bit above mass, not quite at the luxury level, but above mass. And all of those brands are doing quite well. They're growing very nicely now. Those are small brands so wayfair.com has to be growing nicely, too, to get, you know, that 7.4% compared to. But we are seeing strength in the higher end, for sure.
- [24:50]
Tim
What about when it comes to the pro business?
- [24:53]
Kate Gulliver
Yeah, that's a great question. Appreciate you asking about that. The B2B business is actually held in quite nicely. You know, last time we gave a stat on that, I think we said it was around 2 billion. That's an important category for us. One we, we can continue to grow. That's a place where I'd say our ability to continue to improve. The site has sort of nicely added to how the consumer engages in that category. So the pro consumer, for example, wants consolidated delivery, all of the products arriving together versus piecemeal. They want to be able to plan projects on the site. And these are things that we've rolled out over the last year or so to really help that shopper in that category, who tends to be a designer or a contractor.
- [25:32]
Host (Bloomberg Businessweek Daily)
So, you know, when we, you know, you're talking about the different aspects of the business, Kate and I want to go back to. All right, so some weakness now, you know, in terms of what we just saw for the last quarter, but you guys seem to have confidence about momentum for the second quarter. Is that fair?
- [25:48]
Kate Gulliver
Yeah, I think what you're hearing from us is, you know, we know the categories under pressure. We've been, you know, as you point out, we've been operating in a challenging category for a few years now. And what we're seeing is the benefits of several different initiatives that we've launched over the last year, plus really hitting and combining together. And that is what is sort of driving this share acceleration.
- [26:11]
Host (Bloomberg Businessweek Daily)
And, you know, one of the things to Kate, I wanted to dig into, we've talked with you about this. I mean, and everybody talks about, you know, housing. It's not been great. Right. People aren't buying homes. But the last time we caught up with you, or I think we've talked about it in the past about the refresh cycle, is that where you're really seeing a lot of activity? I know we have been in a house for a long time and we are doing some refresh work overall. But I'm just curious. Give us, give us some context and color around that.
- [26:39]
Kate Gulliver
Well, I hope you're shopping the sites, Carol, as you're doing the refresh. You know, it is, I will say, with the category down so much, eventually we do think we'll start to see some of that refresh. I think people stay in their home Long enough, you know, to your point. And there's a desire to sort of simplify or improve. I think we've talked before about categories that have done well during this period are categories that are more, you know, decorative accents, seasonal decor, the types of things that you might use in a refresh. Whereas the bigger ticket items, the bigger furniture items, that category has been even, you know, that subsegment of the category has been even more compressed, you know, within all of that, though, our focus continues to be on the share gains in each of those sort of subcategories that we play in.
- [27:27]
Tim
Can you, can you talk a little bit about the, the calculus or the equation that goes into when someone returns something or wants something returned? You have this calculation that says, okay, we can give you a partial refund and you can keep the items or we'll take a full refund, but you have to pay for shipping and back. Because we're talking about stuff that isn't as easy as just returning to a store. Sometimes not as easy from a shipping perspective. Just curious how that equation works and sort of how that hits your, your bottom line.
- [27:58]
Kate Gulliver
Yeah. So you've actually introduced a number of the pieces in the, in the way that you frame the question. You're right. We think about, you know, one, what is the customer experience here? Right. We customer to have a great experience. Some of these items are very difficult for that customer to return. So how do we make that easy for her? You know, we actually have opened up a number of outlet stores across the country where the customer could return the product. We have two large format Wayfair stores open, Chicago at Atlanta. The customer can bring the product into those stores or if it's smaller parcels, she can certainly ship that back. But would she perhaps prefer to keep the product and not return? That's always an option, but the focus is really, how do we simplify this for the customer? It's really important for the customer to have a great experience with us, even if she needs to return, because that's what keeps her coming back and shopping consistently with us over time. And I do, it's that trust in the brand and the trust that you're going to have a high quality experience even if you have an in the product. That, you know, has really been one of our strengths over the last two decades that we've operated in terms of how that impacts the pnl. Our returns rate has remained very steady over many, many, many years. And what we try to do is actually, you know, prevent returns from the start. Right. So how do we make the product detail page as rich as possible? How do we help you understand all the dimensions around that product? How do we make sure that the imagery is rich and clear? That's really a place too where I can accelerate. We talked about that. A on the call today, AI tools that we're using to improve merchandising, which then, you know, ultimately over time gives the consumer more conviction in the product and less likely to have a return.
- [29:37]
Host (Bloomberg Businessweek Daily)
Okay, how is the retail stores doing? How are they? You guys are, it seems like you're, you're very thoughtful in terms of how you expand and build out. What can you share with us about that?
- [29:47]
Kate Gulliver
You know, we're thrilled with the performance of the Wayfair store. So the Atlanta store soft opened a few weeks ago, the grand opening or about a month ago, the grand opening. Over a week ago that store opened, you know, know, nicely stronger than the Chicago store which opened two years ago. We should expect that. Right. We're obviously going to take the learnings from the Chicago store and incorporate that into new store openings. But I think it shows the ongoing opportunity for folks here to have this omnichannel experience for the consumer. And I think what we're really excited about the store is we see existing customers coming in and shopping us in categories that they may not have typically shopped us for in the past. You know, for example, storage and or, you know, kitchen accessories that they see in the store. And it's really helpful to understand the breadth of what we offer and then we see new customers. You know, what we've said about the Chicago store is that more than 50% of the customers buying in the Chicago store are actually new to the customer file. We have 100 million customer file. Right. So to get new customers at this stage is a really exciting thing and I think shows the benefit of that incremental chance.
- [30:50]
Host (Bloomberg Businessweek Daily)
All right, really interesting stuff. Always have a lot more questions, but we know we'll, we'll come back to you in the future. Kate, thank you so much and again for joining us and here to talk numbers as well as the business and outlook. Really appreciate it. She's Kate Gulliver. She's the chief financial officer of Wayfair. She is joining us from Boston.
- [31:07]
Tim
Stay with us. More from Bloomberg businessweek Daily coming up after this.
- [31:14]
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- [33:29]
Tim
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- [34:05]
Podcast Announcer
You're listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [34:20]
Tim
I want to bring in Ed Ludlow. He is the co host of Bloomberg Tech. He joins us from San Francisco. Ed's with us for the long haul today and we always appreciate that. Ed. We're going to talk about Apple as we count down to earnings crossing in just a little under 20 minutes. But before we do that, weigh in on Roblox, down more than 19%.
- [34:41]
Ed Ludlow
Yeah, I mean Dave Bouzouki, the CEO is on the show tomorrow. You know the, they've, the headline is that, you know, slashing their full year's booking forecast is what's driving the slot stock here. This, that's, that's pretty big. They've made some changes, rules based changes, protection of the user base, changes that he was on very recently to discuss. We asked him have you internally modeled how those policy changes will impact, impact the user base in terms of active users and therefore bookings? And he said we've modeled it. He just didn't tell me what the model said.
- [35:19]
Tim
Can you, can you explain the context here? Because Bloomberg and Bloomberg Businessweek have done a lot of reporting around roadblocks and child safety and safety on the platform. Explain what that reporting has been and are these changes a direct result of that reporting?
- [35:34]
Ed Ludlow
Yes. So basically there's no way of doing this succinctly. Roadblocks has a number of policies and pieces of technology in place to protect young users. And on the policy side in particular, you know those rules, the street would, would say in preview of earnings. Right. That it would either disincentivize somebody from actively using the platform or it would encourage them to do so. And so that's the trade off here. Daily active users came in very soft, 132 million. I think the estimate you have it on the screen, 144 million almost. But the problem is the companies have a really explicitly quantified how changes in policy and tool technology, tools that protect the user base, we're talking, you know, child safety and against bad actors impacts users. That, that, that is true of all platforms like social media platforms and gaming platforms. And so this is kind of the first look we're getting of it. That's kind of my read.
- [36:39]
Host (Bloomberg Businessweek Daily)
I want to go on over to Reddit because we're seeing that stock move as well. Read it out. With its numbers and the company projected sales in the current period that surpassed Wall street estimates. Continuing a streak of strong revenue growth powered by the company's surging advertising business. First quarter sales gained 69% to 663 million, outpacing the average estimate there. And Reddit's user growth increased 70% year over year. 226.8 million unique visitors each day. That was in line with Wall street expectations. That stock ed up about 6.6%.
- [37:13]
Ed Ludlow
Yeah. What they've tried to do with Reddit and I don't know how much time you guys hang out on Reddit, but
- [37:18]
Tim
I so honestly add, I had to quit. I was too addicted.
- [37:21]
Host (Bloomberg Businessweek Daily)
You're on it for.
- [37:22]
Ed Ludlow
Right. So it was crazy. To the BusinessWeek audience that's not familiar with Reddit, it's very community focused focus, thematic focus. Each forum has rules. And so the advertising story. And remember, Reddit still relies on advertising to make money, just as Metta or Facebook does. It was a very small pool of advertisers that kind of got it. And so Jen Wong, the CEO that Riley Griffin, our colleague, has interviewed and is the subject of our story on the earnings. Her kind of job has been to go out and convince a wider pool of advertisers love of how Reddit works and what's red and what Reddit's value is. And you know, the print that they've just put in place seems to be evidence that that's paying off.
- [38:02]
Tim
Have you, have you had to quit Reddit?
- [38:05]
Ed Ludlow
You know, it's, it's sometimes a dark place when you're reading about yourself and people saying, oh well, Bloomberg said Ludlow reported this. Yeah, but, but you know, for example, I'm an amateur gardener and I find that the community around, you know, people struggling with lawns in Northern California, so niche. Yeah, but that, you know, that that's a well of knowledge that I was grateful for.
- [38:24]
Tim
I love the home improvement stuff on there.
- [38:27]
Ed Ludlow
Yeah.
- [38:27]
Tim
But that also speaks to the way that they use the data to train AI.
- [38:33]
Ed Ludlow
Yeah. So the value of data pulled from Reddit, which Reddit then licenses to the Frontier Labs for training models, is that it represents real human knowledge and sentiment. Reddit is a place where people constantly post as them, you know, not as themselves. Sometimes they hide behind an avatar. But the point is, is that the data is human generated. It is input by a human. So if you're trying to train an AI model that you want to capture human behavior as close as possible. Reddit's platform has a lot of value and so that's a younger nascent business for them. But they've been licensing the data. In that respect, I gotta say, I
- [39:12]
Host (Bloomberg Businessweek Daily)
increasingly go to it. I'm not really active on it, but when I, I've got a question about something or a product or I'm suspicious about something, I kind of go to Reddit and to see what people are saying and I kind of, I tend to trust it.
- [39:23]
Tim
You know, one of the reasons I quit is because they did this like yearly end of the year wrapped sort of thing like Spotify doing. And it was like how much scrolling you'd done, how much time you spent on it. I said there's no way I should be spending this much time on this platform.
- [39:36]
Host (Bloomberg Businessweek Daily)
All right, let's go to Rivian because we're seeing that stock bounce around the aftermarket. Slightly higher review, narrow mirroring its loss ahead of a plan to boost EV output in Georgia. Ed, you know this company like no other. You were just talking to the head. So what do we need to know?
- [39:53]
Ed Ludlow
Rivian is such a mixed bag. They've just, just started production of their mass market vehicle, the R2. Previous products were very niche. They had to pivot to do that in Illinois instead of a shiny new plant in Georgia. And what they're telling us is they've now got their act together on the long term plan for Georgia. So it's going to be 300,000 units of capacity longer term per annum. But, but right now it's just kind of still in ramp phase in Illinois. Everyone looks past that and it's still a company that's burning money, simple as.
- [40:25]
Tim
Is there going to be demand for those new cars?
- [40:28]
Ed Ludlow
You know, I tried my best in that interview last week to just get some crystallized data on that and it seems like there is demand. The problem is that they're saying this is the $45,000 EV. Actually it's not like all companies, they bring the high spec 57k to start. So if you want the 45k version, you wait for it.
- [40:49]
Tim
That's a lot of money. But it's not too much above the average cost of a new car in 2020.
- [40:54]
Ed Ludlow
Well in line. Exactly. Well in line. But that's, you know, know again, the pitch was our future is a mass market, mass volume vehicle at 45k that does not exist yet. And there's some other technology things we can get into if we ever have time. But yeah, they have a long way to go still.
- [41:12]
Podcast Announcer
This is the Bloomberg Business Week Daily podcast available on Apple, Spotify and anywhere else you get. Your podcasts listen live weekday afternoons from 2 to 5pm Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg Business App. You can also watch us live Every weekday on YouTube and always on the Bloomberg Terminal.
- [41:43]
Host (Bloomberg Businessweek Daily)
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Ed Ludlow
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Kate Gulliver
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Anurag Rana
from OK Storytime this summer.
- [42:51]
Host (Bloomberg Businessweek Daily)
Find your next obsession on Prime Video and listen. We're not saying you need another obsession,
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Anurag Rana
but there could be a lot worse ones. Steamy romance, addictive love stories and the book to screen favorites you've already read twice. So why not watch them a third time off campus? L the Love Hypothesis and more Slow Burns Second Chances chemistry you can feel through the screen and it makes you wish you were actually in that movie. We've got binge worthy series can't miss movies, movies perfect for when you're ignoring your own problems or procrastinating as one does. Your next obsession is waiting. Watch only on Prime.