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GameStop Investor on 'Good Guy vs Bad Guy' Trading Face-Off · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day
0:06
Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
0:10
Speaker 1: along with essential market moving news. Find the Bloomberg Markets
0:13
Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,
0:17
Speaker 1: and on Bloomberg dot com. Now, I want to get
0:20
Speaker 1: to somebody who knows I'm no aful lot about game Stop.
0:22
Speaker 1: He's been involved with the company for a decade. He's
0:25
Speaker 1: portfolio manager at Permit Capital and his name is John Broderick. So, John,
0:30
Speaker 1: thanks for joining. I have to ask you if you
0:33
Speaker 1: can give us any details that you can about you know,
0:36
Speaker 1: how you own game Stop and what you own right now.
0:39
Speaker 1: I'm sure I can't really go into the details of
0:42
Speaker 1: what we own right now. We reduce our position somewhat
0:46
Speaker 1: given the meteoric rise of stock. UM but we UM
0:50
Speaker 1: and I'll just I'll just leave it there. UM. But
0:53
Speaker 1: you know, we got involved with the stocks ten years
0:55
Speaker 1: ago because it was just just this amazing UM it
0:58
Speaker 1: had this amazing business where they were engaging with UM
1:02
Speaker 1: this very dedicated group of customers. The power of rewards
1:06
Speaker 1: customers and it was a very efficient business model that
1:09
Speaker 1: that fell on hard times with digital disintermediation, a lot
1:13
Speaker 1: of turnover in C suite. UM. But we believe, we
1:17
Speaker 1: believe in the company, and we stuck with it. UM.
1:19
Speaker 1: In fact, we we I partnered with Kurt Wolf that
1:23
Speaker 1: has to be a capital uh this time last year,
1:26
Speaker 1: and we ran a proxy campaign successfully and got ten
1:29
Speaker 1: new board members, including Kurt Um onto the board. And
1:32
Speaker 1: I think that that, UM my sense is that that
1:35
Speaker 1: caught the attention of other people and special to retail,
1:38
Speaker 1: particularly Ryan Cohen, who UM you know it understands a
1:43
Speaker 1: lot about specialty retail, at least on in the online domain.
1:46
Speaker 1: And UM, it's just we we've never looked back from there.
1:51
Speaker 1: So game Stop is a trading halted. Uh. Once again here, John, Look,
1:56
Speaker 1: can you tell us I'm not sure if you've if
1:58
Speaker 1: you've been in touch with anybody at the company over
1:59
Speaker 1: the last level days. What are they thinking, uh in
2:03
Speaker 1: terms of what's going on in the marketplace. I have
2:04
Speaker 1: no idea. I have no idea. My my sense is
2:08
Speaker 1: that they're talking. I would have to imagine that there's
2:12
Speaker 1: been a lot of internal discussion about this. UM. Uh.
2:15
Speaker 1: You know about the situation, UM, but I have no
2:19
Speaker 1: I have no idea. I I what the what the
2:21
Speaker 1: company UM's planning to do, what they might do? I
2:25
Speaker 1: just have no idea. I think they're about to were
2:27
Speaker 1: about to close the quarters. So they are in a
2:29
Speaker 1: blackout period and they will be UM for another couple
2:32
Speaker 1: of weeks. UM. But you know, certainly with the move
2:34
Speaker 1: in the stock, I'm sure there are a lot of
2:36
Speaker 1: people inside game stop talking about what they you know,
2:40
Speaker 1: what they can you know, what they can do UM strategically, John,
2:44
Speaker 1: I have to ask you what you make of this movement? So,
2:46
Speaker 1: I mean literally more than three million members of this
2:49
Speaker 1: Wall Street Beth subreddit now, and the kind of language
2:52
Speaker 1: on here is so I mean, it's it's deserves studying
2:56
Speaker 1: in itself. It's that rhetoric that we've been getting used
2:59
Speaker 1: to about, you know, the think going to the moon
3:02
Speaker 1: and the rocket emojis and so on, and you know,
3:05
Speaker 1: take all the cash you can afford to lose and
3:06
Speaker 1: bye bye bye. Is this something that should ever be
3:10
Speaker 1: associated with a stock? UM? I don't know. UM, I
3:16
Speaker 1: guess I guess I would say why not? Uh, you know,
3:18
Speaker 1: it's a it's a it's a free market, and it's
3:20
Speaker 1: a free wold and um, you know, as long as
3:24
Speaker 1: the people in those chat rooms are are not you know,
3:28
Speaker 1: telling lies or you know, or disclosing material not public information.
3:33
Speaker 1: I just don't see how that's an issue. People are
3:35
Speaker 1: free to talk about investing ideas, you know, I think
3:38
Speaker 1: that there is something there's always you know, you want
3:41
Speaker 1: speech to be free, but you also want to speech
3:43
Speaker 1: to be responsible. And I'm not I'm not that familiar
3:46
Speaker 1: with small street sets, but what I have seen is
3:48
Speaker 1: it's really just a lat of um um recycling of
3:52
Speaker 1: the same you know, of the same emojis, you know,
3:55
Speaker 1: the rocket to the moon and and uh diamond pans
3:59
Speaker 1: and and so on. And I think that the I think,
4:02
Speaker 1: what what what these amateur investors have have sniffed out
4:07
Speaker 1: is how vulnerable um the short the short sellers are here.
4:11
Speaker 1: There's a short interest based on the most recent AS
4:15
Speaker 1: three data that I thought, maybe it's a little bit higher.
4:18
Speaker 1: I don't know how that resolved. Yeah, I just want
4:22
Speaker 1: to follow up if I can, Paul, I hope you
4:23
Speaker 1: don't mind. Um, how are they sticking it to the man?
4:28
Speaker 1: If there's pushing the stock higher, they're only sticking to
4:31
Speaker 1: the short sellers, John, I, I don't understand how they
4:33
Speaker 1: think they're getting the better of the institutional money that
4:37
Speaker 1: are in some of these stocks. And we're talking about
4:40
Speaker 1: the major institutions like black Rock and Vanguard. They're happy
4:44
Speaker 1: out with this movement. That's a fair point, you know,
4:47
Speaker 1: it's a fair point that you know, if they're if
4:50
Speaker 1: they're sticking it to um, you know, a large hedge
4:53
Speaker 1: fund that has a big short position, or is Wong
4:56
Speaker 1: Poots or something, certainly, you know they might be hurting them,
5:00
Speaker 1: but creating an enormous opportunity and and windfall for other
5:05
Speaker 1: long oriented institutional holders. UM I would I would say
5:09
Speaker 1: to that that, uh, you know they I think the
5:13
Speaker 1: narrative here is just it's sort of the us against
5:15
Speaker 1: them narrative. It's the dark side and the light side.
5:18
Speaker 1: It's a it's a and it's it's you know where
5:21
Speaker 1: Ryan Cohen is. They're kind of hero. Um. There's a
5:24
Speaker 1: guy named d F D. I'll just leave it at that,
5:27
Speaker 1: UM who's also kind of a folk hero. And it's
5:30
Speaker 1: them versus the sort of big guys on Wall Street,
5:33
Speaker 1: whether those big guys right, the big guys on Wall
5:36
Speaker 1: Street quote unquote or not a monolithic group. It's a
5:38
Speaker 1: very diverse group of people. But UM, they just that's
5:41
Speaker 1: kind of a simple narrative. And whether or not it's
5:44
Speaker 1: whether or not what in fact they're doing is really
5:47
Speaker 1: sticking it to the man, as you say, I uh,
5:50
Speaker 1: you know, I don't think they see it that way.
5:51
Speaker 1: They just say, okay, if we can, um, you know,
5:54
Speaker 1: take a you know, a hedge fund to its knees.
5:57
Speaker 1: That that's that's good enough for them. All right, John,
6:00
Speaker 1: you've been a shareholder in this company, UM, what can
6:04
Speaker 1: you tell us about the business? What's the investment thesis here? Yeah?
6:09
Speaker 1: I mean this is a company that UM, you know,
6:12
Speaker 1: if you if you if you turn back five years
6:15
Speaker 1: when um, maybe even longer than that. Now with Paul
6:17
Speaker 1: Rains a CEO, is a company that was performing really
6:19
Speaker 1: really well. The returns on invested capital far keep that
6:23
Speaker 1: of the other UM of the other specialty retailers out there.
6:28
Speaker 1: And they again they just fell on hard times. They
6:29
Speaker 1: had a lot of turnover in the CEO suite. UM
6:32
Speaker 1: Digital disti amreiation really hurt, the length of the console
6:35
Speaker 1: cycle really hurt. And the UM the the there is
6:40
Speaker 1: just the company just fell on hard times. UM. But
6:44
Speaker 1: when you when you when you think about this category,
6:46
Speaker 1: how big the video game industry is, and what kind
6:49
Speaker 1: of role they can play in it. There's a big,
6:51
Speaker 1: big opportunity here. I don't know if they're going to
6:53
Speaker 1: be able to capitalize that. I don't think anybody knows, UM,
6:56
Speaker 1: but there is a big opportunity where you already have
6:59
Speaker 1: four millions dedicated power up rewards members to UM. You know,
7:03
Speaker 1: if you can figure out a way to re engage
7:05
Speaker 1: that customer, you can figure out a way to uh
7:10
Speaker 1: to to just excite I think that's Ryan Cohen's wards
7:12
Speaker 1: more in his UH in his letter to the shareholders.
7:16
Speaker 1: If you can figure out a way to excite these
7:18
Speaker 1: these members, you know, there's a lot of uh you know,
7:21
Speaker 1: there's there's a lot of revenue potential there. What would
7:24
Speaker 1: you say to the leadership now of game Stop? What
7:26
Speaker 1: should they do with all of this extra cash? Presumably
7:29
Speaker 1: they should be very very afraid that it will all
7:31
Speaker 1: go away very quickly and that the stock might drop.
7:34
Speaker 1: Don't don't know that that would happen, but it's a
7:36
Speaker 1: sure possibility. What should they do today and tomorrow? You
7:41
Speaker 1: know they're look pretty deposition is actually pretty good. So
7:43
Speaker 1: I don't think that they need could necessarily issue stock
7:46
Speaker 1: um and uh, I think that they should just sort
7:50
Speaker 1: of keep doing what they're is distracting as this is.
7:53
Speaker 1: You know, I think I've got a hundred million dollar
7:56
Speaker 1: at the money UM shelf registration done. You know, maybe
8:00
Speaker 1: they raised some equity here. I don't know, they don't
8:03
Speaker 1: really need the money. They they they're liquidity again, it's
8:05
Speaker 1: pretty good. Um, if there is an opportunity, maybe they
8:08
Speaker 1: see an opportunity here to raise some more capital to
8:12
Speaker 1: to uh just finance some of those uh those growth initiatives.
8:16
Speaker 1: But I just described you know, I don't know how
8:19
Speaker 1: capital intensive they're uh they're initiatives might be, but you know,
8:24
Speaker 1: it might make sense at these levels to do that.
8:26
Speaker 1: And and frankly, you know, the stock is so elevated.
8:29
Speaker 1: You know, let's say that they issued I'm gonna throwing
8:31
Speaker 1: this number out there. If they issued half a million shares, okay,
8:34
Speaker 1: and they're raised, I don't know where the stock is
8:36
Speaker 1: now A hundred three hundred thirty dollars. If a hundred
8:38
Speaker 1: million dollars of capital, who can't fifty five minutes down
8:42
Speaker 1: in the chair, and you know that's not really not
8:45
Speaker 1: even a surrounding her. As a former banker, that would
8:49
Speaker 1: be my advice. John Broderick, Portfolio managed for Permit Capital.
8:53
Speaker 1: Thanks so much for joining us. We appreciate that. We
8:57
Speaker 1: want to continue this conversation now with two more people
8:59
Speaker 1: who know a lot about what's going on. We have
9:01
Speaker 1: Jim Anderson, the CEO of Social Flow on the phone
9:04
Speaker 1: with us. Sara Phonts like in studio, she's Bloomberg a
9:06
Speaker 1: cross us a reporter. Sarah, let me quickly get to
9:09
Speaker 1: you because give us an update. We've had a clamp
9:11
Speaker 1: down from the brokerages and a lot of these stocks.
9:13
Speaker 1: Right now, where do we stand right? We have so
9:16
Speaker 1: from robin Hood. We've heard from another app called Trading
9:20
Speaker 1: to one two also Interactive Brokers. So where we stand
9:23
Speaker 1: now is that it seems as though robin Hood has
9:26
Speaker 1: actually made it as though no new shares of a
9:30
Speaker 1: couple of stocks can can be purchased. So game stop
9:32
Speaker 1: AMC no kia Over at Interactive Brokers, they made some
9:38
Speaker 1: changes to their margin requirements and they also made it
9:43
Speaker 1: so that no new options positions can actually be opened
9:47
Speaker 1: in some of these stocks as well, and that also
9:49
Speaker 1: includes BlackBerry, the likes of Trading Too one two for example,
9:53
Speaker 1: they seem to be saying that they're no longer taking
9:55
Speaker 1: new users because they're just inundated with volume at the time.
9:59
Speaker 1: And it's just been back and forth really for the
10:02
Speaker 1: past twenty four hours. But yesterday evening after markets closed
10:06
Speaker 1: after four pm, for a short period of time, we
10:09
Speaker 1: saw a reddit go private, then we saw Shar's fall.
10:12
Speaker 1: They came back public. But now this is weighing on
10:13
Speaker 1: the stairs too. Jim, I want to bring you in, Jamanderson,
10:16
Speaker 1: CEO of so Social Flow, Jim, give us a sense.
10:19
Speaker 1: I mean, what's different about this from my perspective. I've
10:21
Speaker 1: been in this stocks game for thirty years and people
10:24
Speaker 1: always trying to squeeze shorts. But what's different this time
10:27
Speaker 1: is social media and how that's leveraging the voices here.
10:30
Speaker 1: What are you seeing? Yeah, exactly, I think you know this.
10:34
Speaker 1: This has some of the hallmarks of a pump and
10:36
Speaker 1: dump scheme. I know you've been talking about that, and
10:38
Speaker 1: that's obviously a concern, but it sort of meets the
10:40
Speaker 1: emotion of a mega rally, right. That's what difference is
10:43
Speaker 1: time is the social media is the mechanism by which
10:46
Speaker 1: is being amplified. But it's it's not clear if the
10:48
Speaker 1: greater joy is coming from actually making money, but from
10:51
Speaker 1: sticking it to the hedge fund in the long street types.
10:53
Speaker 1: And that's pretty remarkable. Yeah, But as I keep saying, Sarah,
10:56
Speaker 1: you know, they're only sticking it to the short hedge funds.
10:59
Speaker 1: They're not sticking to the long hedge ones of anything.
11:01
Speaker 1: They're helping them out, you would think so. But something
11:04
Speaker 1: that has been interesting lately is if there's an E
11:06
Speaker 1: t F that's g v I P GO and it
11:08
Speaker 1: actually tracts hedge fund long positions too. And while today
11:12
Speaker 1: it's having a bounce back up about three percent or so,
11:15
Speaker 1: so outpacing the market, the SMP, for example, is up
11:19
Speaker 1: a lesser. I'm trying to pull it up right now,
11:20
Speaker 1: one and a half percentum. But if you look for
11:23
Speaker 1: the past couple of days, there's been talk of some
11:24
Speaker 1: of these hedge funds having to de gross and what
11:26
Speaker 1: that's done is weighed unpopular long hedge fund positions as well.
11:30
Speaker 1: Before today we had seen this g v I P
11:32
Speaker 1: E t F down five straight days. Yesterday was down
11:35
Speaker 1: four point three percent. Meanwhile, your most shorted basket was
11:39
Speaker 1: up nine percent. So you see others being pulled into
11:43
Speaker 1: it too. And yes, they might mostly be sticking it
11:45
Speaker 1: to Melvin Capital, to Andrew Left, to Citron, for example,
11:48
Speaker 1: But the way they view it, it it seems, especially when
11:50
Speaker 1: you look at these message boards and you read the
11:52
Speaker 1: way that they speak, they see it as a a
11:54
Speaker 1: larger entity. They see it as a larger establishment, and
11:58
Speaker 1: they say that if they can be successful and they
12:01
Speaker 1: can prove that they can move markets and get a
12:05
Speaker 1: group of people together and make a lot of money
12:08
Speaker 1: on on the behalf of some of them, then then
12:10
Speaker 1: they're sticking it to the man. So yeah, it's interesting.
12:13
Speaker 1: And Jim, you know, I've seen from some Wall Streets strategists,
12:17
Speaker 1: you know, lists of stocks that have a lot of
12:20
Speaker 1: short interest. I mean, is your expectation as you take
12:22
Speaker 1: a look at what's happening on social media, is this
12:24
Speaker 1: something that's a flash in the pan or do you
12:26
Speaker 1: think this might be with us for a while, this
12:28
Speaker 1: type of trading. You know, my expectation, this is gonna
12:31
Speaker 1: be with us for a while. Again, the emotion is law, right,
12:33
Speaker 1: I mean, look at where we are politically and what's
12:36
Speaker 1: going on in the world of politics, and I think
12:37
Speaker 1: this is just the financial manifestation of that. So to say, oh,
12:40
Speaker 1: it's just a flash on the plant pan and it's
12:42
Speaker 1: going to go away maybe not supported by people's emotion.
12:46
Speaker 1: But the other thing I'll add is, you know, we
12:47
Speaker 1: we typically look at big tech, right, look at the
12:49
Speaker 1: facebooks and the twitters and YouTube and by Google, et cetera.
12:52
Speaker 1: But look at the names that we're talking about. Those
12:54
Speaker 1: are there, But really this is read it and Discord
12:57
Speaker 1: and the stock trading app robin Hood. You know, this
13:00
Speaker 1: is not just a big tech story. There's lots of
13:03
Speaker 1: smaller tech involved as well. And I think that the
13:05
Speaker 1: morphing and evolving of this to not just be a
13:07
Speaker 1: big tech story is another piece that we need to follow.
13:11
Speaker 1: Sarah mc is down the moment. I'm just curious, is
13:14
Speaker 1: this because of the rules that the brokerage is put
13:17
Speaker 1: in place? And are we going to see a return
13:19
Speaker 1: to some kind of normality because runaters are not happy
13:22
Speaker 1: about this. They're not happy about not being able to
13:25
Speaker 1: take on the free market in all its glory. They're
13:27
Speaker 1: not happy about it at all. And it does seem
13:29
Speaker 1: to be the case earlier today. So for example, game
13:31
Speaker 1: Stop is currently down. You mentioned a MC currently down.
13:36
Speaker 1: They were just halted due to a volatility halt and
13:38
Speaker 1: they just became unhlted and are moving once again. But yeah,
13:41
Speaker 1: when you looked at the news coming out this morning,
13:43
Speaker 1: the first to really cross the tape was from Robin
13:45
Speaker 1: Hood that customers were saying that they were facing restrictions
13:48
Speaker 1: on buying some of these stocks. And you immediately, I mean,
13:51
Speaker 1: I mean immediately you looked at Game Stop and it
13:54
Speaker 1: turned negative after trading above five dollars a share just
13:58
Speaker 1: within a few minutes. So does seem to be where
14:01
Speaker 1: this is stemming from today? All right, both of you,
14:04
Speaker 1: thank you so much for your insights. We continue to
14:07
Speaker 1: follow this story all day. Obviously, the regulators and you know,
14:11
Speaker 1: agencies like the FED aren't or can't do anything much
14:14
Speaker 1: about this yet. But the brokerages are taking matters into
14:16
Speaker 1: their own hands. Will see how the likes of the
14:19
Speaker 1: Reggit traders respond to that throughout the Dame that is
14:22
Speaker 1: Jim Anderson of Social Flow and of course our own
14:25
Speaker 1: Saraponza across as a reporter here at Bloomberg. And once
14:28
Speaker 1: again a MC is down. But don't forget it did
14:32
Speaker 1: have that more than runoff the other day, so it
14:35
Speaker 1: has plenty of room to spare. And in terms of
14:38
Speaker 1: the major industries, we're seeing a bounce back today, the
14:40
Speaker 1: SMB up one and a half percent. But we're going
14:45
Speaker 1: to talk something slightly different now because we want to
14:47
Speaker 1: bring in our next guest, who apparently, as as as
14:51
Speaker 1: far as we know, let's put it that way, he
14:52
Speaker 1: has nothing to do with game stoff these days. Jim
14:54
Speaker 1: Keen is CEO of Steelcase, which is a leading manufacturer
14:57
Speaker 1: furniture for offices, hospitals, and class rooms. Jim, first of all,
15:02
Speaker 1: I presume, I mean, are you tempted as a as
15:04
Speaker 1: a civilian to join this this uh this town car Well,
15:09
Speaker 1: I am a video gamer. I love playing video games,
15:11
Speaker 1: but I'm standing on the sidelines for this. Yeah, I
15:15
Speaker 1: mean I think it's it's it's it's probably wise talk
15:18
Speaker 1: to us about orders. Are people looking for furniture to
15:22
Speaker 1: go back to offices, hospital and classrooms at any greater
15:24
Speaker 1: other rate than they were over the last few months
15:27
Speaker 1: at this point, I'd say it's still pretty um muted.
15:30
Speaker 1: I mean, people are mostly working from home, as you know,
15:32
Speaker 1: especially large corporations, certainly health care classrooms, education are doing
15:37
Speaker 1: things as they prepare for what's next, and uh, of
15:40
Speaker 1: we're seeing corporate office is beginning to take those actions
15:43
Speaker 1: as well. So well, it hasn't necessarily turned into orders,
15:46
Speaker 1: yet we're seeing an increasing activity because with the vaccine coming,
15:50
Speaker 1: there's an end in sight. And what what we're hearing
15:54
Speaker 1: from our clients. In fact, I just had a conversation
15:56
Speaker 1: yesterday with one of our clients, the head of real
15:58
Speaker 1: estate of you know me, your kind of top fifty company,
16:02
Speaker 1: had just got off the phone with his CEO who
16:04
Speaker 1: wanted to know how are they were going to come
16:05
Speaker 1: back to the office. How are they're changing the office
16:07
Speaker 1: to prepare for what's next. So, uh, it's on everyone's
16:10
Speaker 1: mind and I think it's all coming So Jim, I
16:14
Speaker 1: guess we'll all figure out at the same time. Uh,
16:17
Speaker 1: you know how and to what the great people will
16:19
Speaker 1: go back to the office. What do you think employees
16:22
Speaker 1: want and need when they come back to the office.
16:25
Speaker 1: Great questions. So we we spent this last year's studying
16:28
Speaker 1: actually connecting with people around the world as they were
16:31
Speaker 1: working from home to learn about their work from home
16:34
Speaker 1: experience and to try to understand what they might expect
16:38
Speaker 1: when they come back to the office. So and we
16:40
Speaker 1: learned a ton. I mean, we learned a lot about
16:42
Speaker 1: the work from home experience. What we learned about their
16:45
Speaker 1: expectations is, Uh, first of all, safety, You know, safety
16:48
Speaker 1: is not going to be less of the concern. Vaccines
16:51
Speaker 1: are gonna solve a lot of problems, but they're not
16:53
Speaker 1: going to completely eliminate COVID. Safety will still be on
16:56
Speaker 1: the minds of people, particularly as they come back to
16:58
Speaker 1: offices that had over time become you know, really dense,
17:02
Speaker 1: really open. There's going to be some common sense adjustments
17:05
Speaker 1: I think needed to reassure people that when they come
17:08
Speaker 1: back to the office that they'll be safe and it'll
17:10
Speaker 1: be safe to take off their masks again. A second
17:13
Speaker 1: thing we heard from everyone is belonging. Uh, the the
17:17
Speaker 1: relationships we all built when we can work face to face,
17:20
Speaker 1: we're still leveraging. But over time those relationships begin to atrophy,
17:25
Speaker 1: and it doesn't help us with that new employee who joined.
17:27
Speaker 1: It doesn't help us as we change teams or organizations shift.
17:30
Speaker 1: So people want a sense of belonging, They want to
17:33
Speaker 1: be connected with each other, and they're looking forward to
17:35
Speaker 1: coming back to the office for that reason as well,
17:38
Speaker 1: and I think UM thirdly as productivity, we heard this
17:41
Speaker 1: a lot well. In some ways people were able to
17:44
Speaker 1: sustain pretty high levels of productivity at home, and in
17:47
Speaker 1: some cases people felt they were even more productive because
17:50
Speaker 1: they could work in an uninterrupted way for longer periods
17:53
Speaker 1: of time. People also realize they're missing something, they're they're
17:56
Speaker 1: not learning as much from their colleagues. They are not
17:58
Speaker 1: able to have maybe some of the more informal task
18:02
Speaker 1: pascit learning opportunities that you have when you when you
18:05
Speaker 1: kind of just brush up against people, or you get
18:07
Speaker 1: to see how someone handles the situation kind of from
18:10
Speaker 1: the side. So those are some of the things people
18:12
Speaker 1: are looking forward to as they think about coming back
18:15
Speaker 1: to the office. So, Jim, you know, where are you
18:17
Speaker 1: seeing the orders coming in from these days? Is more hospitals?
18:21
Speaker 1: Is it more headquarters with you know, desks and lamps
18:25
Speaker 1: and you know, standing desks and things like that, or
18:28
Speaker 1: or have you had to pivot your supply chain and
18:31
Speaker 1: your your work environment differently. Well, I'd say, first of all,
18:38
Speaker 1: it's different by regions. So it's a global company. UM
18:41
Speaker 1: Asia was the first to see the COVID crisis, but
18:44
Speaker 1: also Asia was the first to come out of it,
18:46
Speaker 1: and they haven't really seen the second and third waves
18:49
Speaker 1: the way we have in Europe and the US. So
18:52
Speaker 1: in Asia we're seeing business return to more normal levels
18:57
Speaker 1: across across a wide range of companies, and that's good
19:00
Speaker 1: sign for the rest of our business because you know,
19:02
Speaker 1: eventually we hope to be in that same spot. In
19:05
Speaker 1: markets like the US, customers like healthcare organizations, education have
19:10
Speaker 1: remained pretty strong throughout. I'd say where orders have been
19:14
Speaker 1: the weak as it's among the largest companies who are
19:16
Speaker 1: often in headquarters buildings in the largest cities. That's where
19:21
Speaker 1: the commutes are the toughest that you have to deal
19:23
Speaker 1: with elevators and things like that. So the very largest
19:26
Speaker 1: customers have cut back the most, and our business has
19:29
Speaker 1: been the strongest among mid market, smaller companies that aren't
19:33
Speaker 1: facing a lot of the same challenges. They're more distributed
19:35
Speaker 1: around the country. So, Jim, when when you talk to
19:38
Speaker 1: UH senior managers of the of the companies that you
19:41
Speaker 1: do business with, what do they ultimately believe will be
19:45
Speaker 1: the kind of the new normal workforce? Will everybody come back?
19:49
Speaker 1: Will everybody come back on a kind of a split
19:52
Speaker 1: type of schedule will what's what's the thinking. So the
19:57
Speaker 1: thinking is that most people will work from home a
20:00
Speaker 1: day or two a week if that's what they choose
20:03
Speaker 1: to do, and that the last part of it is
20:04
Speaker 1: really important. It's about choice. I'd say this is not
20:09
Speaker 1: that different really from what progressive companies were doing before
20:12
Speaker 1: all this. Most of our clients, who are kind of
20:15
Speaker 1: at the leading edge of thinking about how to use
20:17
Speaker 1: the workplace, gave people the choice if you wanted to
20:20
Speaker 1: work from home before a day or two a week,
20:21
Speaker 1: you could do so. And that's that's probably going to
20:24
Speaker 1: just be more common across the broader range of companies.
20:28
Speaker 1: Now some people are are saying, well, you know, there's
20:30
Speaker 1: a handful of companies that are saying, well, maybe we're
20:32
Speaker 1: gonna have everybody work from home, or we're gonna have
20:34
Speaker 1: nobody work from home. That idea that a company is
20:38
Speaker 1: going to try to control that, I think is a
20:40
Speaker 1: bad idea and I don't think it's going to be
20:42
Speaker 1: successful in the long run. So I think the biggest
20:44
Speaker 1: changes that employees will have more choice, and the other
20:48
Speaker 1: change I think is that now that the office will
20:51
Speaker 1: have to compete against working from home, the office will
20:54
Speaker 1: have to step it up. So it's no longer going
20:57
Speaker 1: to be acceptable that when I come into the office,
21:00
Speaker 1: I can't find a place to concentrate, or I can't
21:03
Speaker 1: connect to a video call that I have to be on,
21:06
Speaker 1: or or all the things that maybe you were able
21:08
Speaker 1: to do at home, depending on how your home situation was,
21:12
Speaker 1: you should be able to do that and more when
21:13
Speaker 1: you're in the office. And I think a lot of
21:15
Speaker 1: companies that are looking at that and saying, Okay, we
21:17
Speaker 1: have to we have to make sure our offices are safe,
21:20
Speaker 1: they have to be productive, they have to be inspiring.
21:23
Speaker 1: So this is another I think important piece. You know,
21:25
Speaker 1: if these days everyone's thinking about competitive advantage, it wasn't
21:29
Speaker 1: that long ago when the main conversation would be about
21:32
Speaker 1: digital transformation, or we'll be talking about destructive forces in
21:35
Speaker 1: your industry, thinking about how you can innovate more quickly,
21:40
Speaker 1: and ceo s were recognizing that to have a competitive
21:44
Speaker 1: advantage in those areas, you needed to have a culture
21:48
Speaker 1: that's supported higher levels of trust, that attracted the right
21:52
Speaker 1: kinds of people to your organization. These are all very subtle,
21:55
Speaker 1: but this is what competitive advantage has come to. I mean,
21:57
Speaker 1: it's it's very small things that the fine winner and
22:00
Speaker 1: losers in business these days. If you have everyone working
22:04
Speaker 1: at home, your your people's homes are no different in
22:07
Speaker 1: your competitors homes, you've basically given up an accepted parity.
22:10
Speaker 1: And I think a lot of companies are saying, we
22:11
Speaker 1: can't accept that. We have to have a work environment
22:14
Speaker 1: that competes, where we can advance our culture, where we
22:18
Speaker 1: can help people connect to the purpose of our organization,
22:20
Speaker 1: we can inspire people. Where are people learn faster than
22:23
Speaker 1: our competitors people? And that's that's the new aspiration for
22:27
Speaker 1: a better a better way of working. Jim, What are
22:30
Speaker 1: input costs like these days? Highly volaso right, So in
22:35
Speaker 1: some for some commodities we see lower costs and then
22:39
Speaker 1: for other things in the short run thing, but like
22:41
Speaker 1: steel and transportation, we've seen higher costs. But it's it's
22:44
Speaker 1: a very unstable situation, you know, steal in particular. So
22:48
Speaker 1: how do you deal with that? I mean, do you
22:50
Speaker 1: change the pricing that you charge your customer is constant
22:52
Speaker 1: day or do you just eat the higher prices when
22:55
Speaker 1: they come. Must be so difficult to deal with that.
22:58
Speaker 1: We have long term contracts with our wires, but we
23:00
Speaker 1: also have long term contracts with our customers. We don't
23:03
Speaker 1: try to change the prices constantly us. We can't, so
23:07
Speaker 1: there's a certain amount of observing the ups and downs.
23:10
Speaker 1: But if you're managing your business properly, you capture the
23:13
Speaker 1: ups and you capture the downs, and so it kind
23:16
Speaker 1: of takes it comes out in the wash in the end. Yeah,
23:18
Speaker 1: that's kind of where I want to go, Jim. I mean,
23:20
Speaker 1: talk to us about supply chain. We don't. We haven't
23:22
Speaker 1: talked about that in a while here with some of
23:23
Speaker 1: the issues with China that were you know so much
23:26
Speaker 1: in the news. Pre covid talked us about your supply
23:29
Speaker 1: chain and kind of what you're seeing. Our supply chain
23:32
Speaker 1: is distributed around the world and it's primarily set up
23:35
Speaker 1: to support local customers. So in the America's most of
23:38
Speaker 1: our product comes from factories in the Americas. In Asia
23:41
Speaker 1: to serve Asian customers, it comes from factories in Asia
23:44
Speaker 1: and the same in Amia, so we have kind of
23:47
Speaker 1: a regional structure. We do have some components that are
23:50
Speaker 1: made in one region that support the entire world, So
23:53
Speaker 1: they may be made in Asia and they shipped to
23:55
Speaker 1: the US. And they ship to Amia. But for the
23:58
Speaker 1: most part, we try to keep our supply change relatively
24:00
Speaker 1: short and close to the markets so we can keep
24:02
Speaker 1: our lead times down and that helps us during times
24:05
Speaker 1: of destruction. But it doesn't mean we're immune, you know,
24:08
Speaker 1: We're still dealing with you know, making sure that we
24:10
Speaker 1: can get our products on two containers which are in
24:13
Speaker 1: short supply, and and so we still face our own
24:16
Speaker 1: set of challenges. Has been difficult not to be able
24:18
Speaker 1: to travel, you know. It has, of course because you
24:24
Speaker 1: missed that face to face interaction. But like anybody else,
24:27
Speaker 1: we're also using video a lot so and I would
24:30
Speaker 1: imagine in the future and when we're hearing this from
24:32
Speaker 1: our clients as well, everyone is learning what are the
24:35
Speaker 1: things that you can do without traveling, and what are
24:37
Speaker 1: the things that you should spend more time doing when
24:40
Speaker 1: you when you go through the effort of traveling. So,
24:43
Speaker 1: for example, UM, in the past, I might travel and
24:46
Speaker 1: dedicate a lot of time to going through business reviews
24:48
Speaker 1: in different regions. I can do a lot of that
24:51
Speaker 1: over video. But what I can't do is have breakfast, lunch,
24:54
Speaker 1: and dinner with all the people that I meet, you know,
24:56
Speaker 1: and that's actually the most valuable part of the traveling
24:58
Speaker 1: is the things you learn around the edges of what
25:01
Speaker 1: you're doing. Hey, Jim, thanks so much for joining us.
25:03
Speaker 1: We appreciate it as always. Jim Keane, President CEO of Steelcase.
25:07
Speaker 1: They are based in Grand Rapids, Michigan, on the future
25:11
Speaker 1: of the new work environment post pandemic. Busy night for
25:17
Speaker 1: tech investors last evening we had a bunch of big
25:20
Speaker 1: tech NATUS report earnings, including Apple and Down. We do
25:25
Speaker 1: it with our good friend Dan Ives, Managing director Equity
25:27
Speaker 1: Research at web Bush Securities, and a Penn State alum.
25:32
Speaker 1: All right, Dan, let's start with Apple. Some blowout numbers,
25:35
Speaker 1: over a hundred billion in revenue and a quarter. You
25:38
Speaker 1: have the stocks off a couple of percent. I know
25:39
Speaker 1: it's put up about over to traillion twelve months. What
25:42
Speaker 1: did you make of the numbers last night? I mean,
25:45
Speaker 1: I think in all my years cover and Apple, this
25:48
Speaker 1: is one to frame for the history of books in Cupertina,
25:51
Speaker 1: our five billion dollar blowout on iPhones. I think what
25:56
Speaker 1: we saw last night is that the super cycle there
25:58
Speaker 1: was a lot of hype, but the reality meant to
26:02
Speaker 1: high and actually exceeded. And I think this is really
26:04
Speaker 1: going to be the path to a three trillion dollar
26:07
Speaker 1: mark Apple over the next six to nine months. For Apple,
26:10
Speaker 1: despite you know a little bit of a knee jerk
26:13
Speaker 1: negative reaction today, what keeps it going? So you know,
26:17
Speaker 1: we're in a pandemic, people are on their phones a lot.
26:20
Speaker 1: You can potentially see why Apple might do well in
26:22
Speaker 1: this quarter, but what keeps it going from here on
26:25
Speaker 1: out at least for the next few quarters. Down Sure,
26:28
Speaker 1: a lot of it. And the reasons the supercycle is
26:31
Speaker 1: fort of the installed its three hundred fifty million iPhones
26:35
Speaker 1: have not upgraded three and a half years, and you're
26:38
Speaker 1: seeing just a massive upgrade opportunity as well as five
26:42
Speaker 1: G and that's going to continue be a catalyst for
26:45
Speaker 1: the coming quarters. We think this will equipse the record
26:48
Speaker 1: from two thousand and fifty for iPhone units, which is
26:51
Speaker 1: two one million units. We could be looking two hundred
26:54
Speaker 1: forty two and fifty million units this time. But services,
26:57
Speaker 1: that's the key. Services We've believe got the big part
27:01
Speaker 1: of the re ratings. Services alone, I believe it's worth
27:03
Speaker 1: one point two to one point three trillion, and that's
27:06
Speaker 1: why this is still a green light to own this name.
27:09
Speaker 1: And I think we saw last night just puts another
27:11
Speaker 1: feather in the cap for Cook in terms of for
27:14
Speaker 1: investors in the bull case. Dan talks us about China.
27:18
Speaker 1: There was a you know point, let's call it a
27:20
Speaker 1: year or so ago when trade tensions were uh, you know,
27:23
Speaker 1: really ratcheting up here and we were concerned about supply
27:26
Speaker 1: chains and China and tariffs. Talk to us about that.
27:29
Speaker 1: What's the company saying on those those issues this time around. Yeah,
27:32
Speaker 1: when you think about Apple, I mean Apple is really
27:34
Speaker 1: the poster child with the US China called tech boy,
27:36
Speaker 1: and we've seen it overhang over the last year and
27:39
Speaker 1: a half. But yet now China supply chain issues have
27:43
Speaker 1: really corrected themselves, ratching down of tensions between the US
27:47
Speaker 1: and China. Bullets for Apple and Semis. But the most
27:51
Speaker 1: important thing too is demand. About demand is going to
27:54
Speaker 1: come at China in that group fifty seven percent year
27:57
Speaker 1: of the year. So it really just shows the hard
28:00
Speaker 1: some lungs of this upgrade cycle as China and you
28:03
Speaker 1: are seeing massive demand for Apple and for iPhones coming
28:07
Speaker 1: out of China, which is huge. That that's really something
28:10
Speaker 1: that's a signal that we're going to see over the
28:12
Speaker 1: coming quarters at this place more and more of a
28:15
Speaker 1: part not just on iPhones but services. And that's a
28:19
Speaker 1: big part of the re rating that we're seen. Talk
28:22
Speaker 1: to us about Tesla because a sixth straight profitable quarter.
28:25
Speaker 1: It really had a great quarter. Stalk down about three percent.
28:28
Speaker 1: But as you say, this could just be you know,
28:30
Speaker 1: similarly to Apple, a little bit of cell on the news.
28:32
Speaker 1: But what happens going forward with Tesla can to keep
28:35
Speaker 1: up the record. I think right now we're in a
28:38
Speaker 1: golden age of e vs three percent penetration globally going
28:41
Speaker 1: to timber next three to four years. GM just talked
28:44
Speaker 1: about going all e V and when you look at
28:47
Speaker 1: Tesla in the e V markets, Tesla's world, everyone else's
28:51
Speaker 1: paying rent. Last night's numbers route US lit't need jerk
28:55
Speaker 1: negative reaction just we'll call conservative guidance for two thousand
28:59
Speaker 1: twenty one. But that's what you want to see them do.
29:01
Speaker 1: You don't want to see any of these companies, given
29:04
Speaker 1: this backdrop, to come out and have aggressive guidance. And
29:09
Speaker 1: and I think when as we look out right now,
29:11
Speaker 1: the trajectory could be a million plus units of deliveries
29:15
Speaker 1: by two thousand twenty two and a more profitable Tesla.
29:19
Speaker 1: That's why we believe both case twelve fifty with our
29:23
Speaker 1: base case price target. Dan talk to us about profitability
29:28
Speaker 1: at Tesla on a unit basis. Do they make any
29:32
Speaker 1: money manufacturing cars? Is is just the the credits, you know?
29:37
Speaker 1: I think that's always been a bit of the misnomer
29:39
Speaker 1: and the bull bearer thesis is that a year and
29:42
Speaker 1: a half ago that could have been the argument today
29:45
Speaker 1: given increased profitability, especially in China. We think the average
29:50
Speaker 1: car sold in China is about twenty percent more profitable
29:54
Speaker 1: than the US because the Giga three and what they've
29:56
Speaker 1: built in terms of the ecosystem China and go and forward.
30:00
Speaker 1: I believe they're profitable, not just on the actual car.
30:04
Speaker 1: And of course tax credits are going to continue to
30:06
Speaker 1: be a talent even with by administration. I think dub
30:09
Speaker 1: went down on tax credits and restoring them to Tesla.
30:12
Speaker 1: But at the end of the day, the reddings in
30:14
Speaker 1: the rear view mirror, that's how they got in t
30:16
Speaker 1: SUP five D and that continues to be a focus
30:19
Speaker 1: of investors as we look forward into the next three
30:22
Speaker 1: to four years. Briefly down almost at a time, but
30:26
Speaker 1: it could a Reddit brigade do something to any of
30:29
Speaker 1: the stocks that you covered. You imagine, are you a
30:31
Speaker 1: little bit nervous that's something that you know they might
30:33
Speaker 1: train their eyes on one of your coverage stocks. Yeah.
30:37
Speaker 1: And I think when you look at Tessa and some
30:39
Speaker 1: of the fang names, I mean they Robbins had a
30:41
Speaker 1: lot of noise, but ultimately it's a market force that
30:44
Speaker 1: needs to be focused on. It's going to be here
30:46
Speaker 1: to stay in terms of the Reddit social media robin hood.
30:50
Speaker 1: But when you look at these names, fundamentally, I continue
30:54
Speaker 1: to think they continue to go up into the right
30:56
Speaker 1: r V text box, are up another over then next year.
31:01
Speaker 1: And what we're seeing with the rhetory doesn't make is
31:03
Speaker 1: any more cautious or risk off on our names like you.
31:06
Speaker 1: This is a contained risk situation, especially when we look
31:10
Speaker 1: at names like Tessa, Microsoft, Apple or others. Dan ives
31:15
Speaker 1: what Bush Security is always amazing to speak with you.
31:17
Speaker 1: Thank you for all of your analysis on Apple and
31:19
Speaker 1: Tessa that reported yesterday. Of course we'll speak to you
31:22
Speaker 1: again soon. And it's interesting Paul Alexandria Ocasio Cortez jumping
31:26
Speaker 1: in on the side of the redditor saying that we
31:29
Speaker 1: must know more about robin hood Apps decision. At the
31:32
Speaker 1: same time, of course, employees of game stop for a
31:34
Speaker 1: little anois because they're not benefiting at all for many
31:37
Speaker 1: of this. Thanks for listening to Boomberg Markets podcast. You
31:41
Speaker 1: can subscribe and listen to interviews at Apple Podcasts or
31:45
Speaker 1: whatever podcast platform you prefer. I'm Bonnie Quinn. I'm on
31:48
Speaker 1: Twitter at Bonny Quinn, and I'm Paul Sweeney. I'm on
31:51
Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always
31:54
Speaker 1: catch us worldwide at Bloomberg Radio.