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Citi, Moderna, Arm, and AI · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller.
• 0:05
  Speaker 2: Every business day we bring you interviews from CEOs, market pros,
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• 0:14
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• 0:20
  Speaker 3: All right, some big.
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  Speaker 1: News out of City Group. Are good friends over there
• 0:23
  Speaker 1: at Citygroup, former employer of mine. Big restructuring, so give
• 0:28
  Speaker 1: me some headcount reductions. Let's break it down with two
• 0:31
  Speaker 1: people who really know this stuff, and that is Shananibossk,
• 0:34
  Speaker 1: she covers all Wall Street for Bloomberg News, and of
• 0:37
  Speaker 1: course Alison Williams. She is our senior bank's analyst at
• 0:41
  Speaker 1: Bloomberg Intelligence. Alison, thanks you joined us zoom chanaledge here
• 0:45
  Speaker 1: in studio. Ali to start with you. How big of
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  Speaker 1: a deal is this for City You've covered this stock forever,
• 0:51
  Speaker 1: so I think.
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  Speaker 4: You know, I recharacterize it as a reorganization perhaps versus
• 0:57
  Speaker 4: a restructuring, where I think they're just really trying to,
• 1:00
  Speaker 4: you know, clean up the reporting lines and maybe help
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  Speaker 4: management to be a bit more focused and also you
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  Speaker 4: know showcase. You know, as an analyst, I'm excited to
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  Speaker 4: get cleaner reporting where we can you know, finally see
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  Speaker 4: what's happening with their private bank, with their wealth unit.
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  Speaker 4: You know, there was some hints at this over the
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  Speaker 4: summer just and you know even prior, I guess with
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  Speaker 4: some of the hires that they made, and I just
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  Speaker 4: think it's you know, another step in James's journey, if
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  Speaker 4: you will, in terms of just making this a cleaner,
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  Speaker 4: more focused banks and bank and hopefully getting to the
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  Speaker 4: efficiency that investors have long wanted them to get to.
• 1:42
  Speaker 2: So yeah, Shanali, I mean, is this going to help
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  Speaker 2: Jane Fraser boost the stock price? Because that's bottom line, right,
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  Speaker 2: And I'm looking at you know, over the last five years,
• 1:53
  Speaker 2: they're down thirty percent, whereas Goldman's up sixty three percent,
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  Speaker 2: Morgan Stanley's more than doubled.
• 1:59
  Speaker 5: It's certainly a time story for Citygroup. We have had
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  Speaker 5: her first set of restructurings here, if you will, where
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  Speaker 5: she let go of certain consumer businesses around the world.
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  Speaker 5: And now what is difficult for Jane Fraser and their
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  Speaker 5: investors of Citygroup is that there are still a lot
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  Speaker 5: of unquestioned a lot of unanswered questions about this reorganization,
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  Speaker 5: one being how many jobs will be lost. Underneath the surface,
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  Speaker 5: our sources say that there could be significant had count
• 2:24
  Speaker 5: reductions here because what City Group is doing is removing
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  Speaker 5: layers of management, and this only this announcement only addresses
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  Speaker 5: the top two layers. The reality is is they're going
• 2:35
  Speaker 5: to be looking across management around the world, across divisions.
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  Speaker 5: One of the things they did in this reorg is
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  Speaker 5: they got rid of many of their regional divisions here.
• 2:45
  Speaker 5: So the way you think about Citygroup now is that
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  Speaker 5: their Citygroup North America and their City Group International, and
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  Speaker 5: you now have five main business lines. It's no longer
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  Speaker 5: just the main two, which is institutional client group as
• 2:57
  Speaker 5: well as the consumer offerings. Most of that can zoomer
• 3:00
  Speaker 5: business now is the United States North America. Okay, So
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  Speaker 5: there was a real reason that they needed to do this.
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  Speaker 5: City Group today does not look the same as City
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  Speaker 5: Group two decades ago, when the initial set of current
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  Speaker 5: structure is.
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  Speaker 6: What you see.
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  Speaker 5: In a way, you can see this as the most
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  Speaker 5: significant reorganization in two decades because this is really getting
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  Speaker 5: rid of the groups that we have known for so
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  Speaker 5: long as.
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  Speaker 2: A day, Well, it strikes me, Allison, as it came
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  Speaker 2: out of my mouth, I realized, probably Golden Sachs and
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  Speaker 2: Morgan Stanley aren't the best comparison to City in terms
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  Speaker 2: of stock price performance. You know, WELLS Fargo over the
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  Speaker 2: last five years is also down only ten percent, not
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  Speaker 2: thirty percent, but also down. Bank America over the last
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  Speaker 2: five years is only up eight percent, So not down
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  Speaker 2: thirty percent, but up eight percent.
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  Speaker 3: Are those better comparisons for City?
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  Speaker 7: I think they are.
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  Speaker 4: I think at the end of the day, when we
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  Speaker 4: look at all of these banks, you know, the way
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  Speaker 4: that investors think about it is, you know, the valuation
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  Speaker 4: is going to be tied to returns as it should be, right,
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  Speaker 4: and so someone like someone like Morgan Stanley that you
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  Speaker 4: refer to, the comparison could you make, could that you
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  Speaker 4: could make is they've improved their structural returns through moving
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  Speaker 4: towards the wealth business. You know, looking at someone like
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  Speaker 4: JP Morgan, who's a very different bank, they're actually executing,
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  Speaker 4: you know, above all of their peers. You know, part
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  Speaker 4: of that is the scale that helps the profitability across
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  Speaker 4: their businesses, and they have leading returns. And so the
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  Speaker 4: struggle with City and I think, you know, part of
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  Speaker 4: the reason why it's been tough for the stock is
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  Speaker 4: they just have not been able to improve the returns.
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  Speaker 4: And if you look across the group, their returns are
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  Speaker 4: the worst. You know, wells Fargo, you know, during certain
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  Speaker 4: periods of times with all their big charges, had had
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  Speaker 4: some weaker returns. But they're sort of on the on
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  Speaker 4: the path to better profitability and so that's really what
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  Speaker 4: needs to deliver on at the end of the day,
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  Speaker 4: it is those returns. And I think why this is
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  Speaker 4: important is, you know, as you clear the structure, and
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  Speaker 4: you know that's been one of the biggest issues of
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  Speaker 4: City is all the bureaucracy and really sort of a
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  Speaker 4: massive organization. But if you can get that cleaner and
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  Speaker 4: you can improve the efficiency of those core businesses, they
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  Speaker 4: do have some good businesses to work with, some higher
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  Speaker 4: returning what should be high returning businesses, Chanalie, what.
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  Speaker 1: Do you think Jane Fraser wants the message to be
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  Speaker 1: about City group? And I think, like Morgan Stanley, I
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  Speaker 1: think if James Gorman pivot towards wealth management so successful,
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  Speaker 1: what do you think Jane Fraser would like that view
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  Speaker 1: of City to be?
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  Speaker 5: You know, On one hand, it's simpler for James Gorman
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  Speaker 5: to sit there and say we're an investment bank and
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  Speaker 5: we're a wealth and asset manager. For Jane Fraser, it's
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  Speaker 5: a different story. Her goal here is to have all
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  Speaker 5: of her managers essentially get one message, which is get leaner.
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  Speaker 5: They have one of the largest investment banks in the world.
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  Speaker 5: But just take the M and A business for example.
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  Speaker 5: The reason I bring up the M and A business
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  Speaker 5: is you are sitting there. They are sitting at it
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  Speaker 5: at number six and the lead tales. Actually I just
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  Speaker 5: looked at it and got kind of stunned because they're
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  Speaker 5: behind cent of you, which is a lot, you know,
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  Speaker 5: and that is in terms of deal volumes, and that
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  Speaker 5: you know, a year, two years, three years ago is
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  Speaker 5: just the stunning thing to see this late in the year.
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  Speaker 5: And so the share that they need to gain to
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  Speaker 5: keep those fees up as well as squeeze every dollar
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  Speaker 5: out of the costs that they have. You know, it's
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  Speaker 5: a twofold story. It's one, get competitive and win two,
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  Speaker 5: be more efficient with every dollar we have to improve profitability.
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  Speaker 5: And so you know, the investment bank is a really
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  Speaker 5: good example because in this reorg one open question among
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  Speaker 5: those five business leaders is who will run the investment
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  Speaker 5: bank over at City the banking business. Currently they have
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  Speaker 5: tapped an interim head, Peter Bubbey, who is the CEO
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  Speaker 5: at the Asia business. You have to consider this. This
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  Speaker 5: is one of the top five M and A businesses
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  Speaker 5: in the world. It is one of the hottest jobs
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  Speaker 5: on Wall Street.
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  Speaker 6: And guess what.
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  Speaker 5: They have a huge IPO business, a huge det unready business,
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  Speaker 5: and that person, you can't imagine wouldn't one day be
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  Speaker 5: the successor for Jane Fraser herself.
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  Speaker 7: You know.
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  Speaker 5: Again, they have a consumer business that's quite large as well,
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  Speaker 5: but they have a massive investment bank and it is
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  Speaker 5: a seriously competitive spot.
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  Speaker 1: And my buddy Tyler Dixon still running the investment bank over.
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  Speaker 5: There, and he is under the new banking I.
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  Speaker 1: Know that's interesting, but Tyler is just one of the
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  Speaker 1: smartest guys in the room, every room he's in. Shanali Bassett,
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  Speaker 1: thank you so much. We got Allison Williams, thank you
• 7:33
  Speaker 1: so much as well.
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• 7:45
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• 7:49
  Speaker 1: Lots going on here today. We want to pivot hard
• 7:52
  Speaker 1: here and we want to talk pharmaceuticals and we want
• 7:56
  Speaker 1: to talk drugs and all that kind of stuff. And
• 7:58
  Speaker 1: we can do that well.
• 7:59
  Speaker 3: And one of the biggest winners the day, biggest.
• 8:00
  Speaker 1: Winners of the day, Stefan Bonsel, CEO of Moderna that
• 8:03
  Speaker 1: is a Nasdaq traded stock. Mr NA is the ticker
• 8:07
  Speaker 1: to put into your Bloomberg terminal. You know nobody. I
• 8:10
  Speaker 1: guess when you sit around your Thanksgiving table, everybody likes
• 8:13
  Speaker 1: to just complain about drug prices, right, everybody does it.
• 8:15
  Speaker 1: It's crossed the aisle. But I turned it around a
• 8:18
  Speaker 1: couple of years ago and said, okay, we can do
• 8:20
  Speaker 1: that because we always like to complain about drug prices.
• 8:23
  Speaker 1: But these guys in the farmer, in the biotech industry, mandad,
• 8:26
  Speaker 1: they come through with COVID.
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  Speaker 7: Yeah.
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  Speaker 2: I think actually, as a society, we were all a
• 8:31
  Speaker 2: little bit relieved.
• 8:33
  Speaker 1: I'm like, in twelve months, these guys came up with
• 8:35
  Speaker 1: a vaccine. I mean, who does that, But you guys did.
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  Speaker 1: Thank you very much. Thank you to the five for
• 8:40
  Speaker 1: folks and all the other farmer and biotech folks out there,
• 8:43
  Speaker 1: that mandad they come through with that vaccine. Appreciate it. Now,
• 8:47
  Speaker 1: what are you doing modern now? Tell us that you
• 8:49
  Speaker 1: guys have your R and D day today, you bring
• 8:52
  Speaker 1: out all your new stuff for your investors, for your stakeholders.
• 8:56
  Speaker 1: What's the big message for your R and D day today?
• 8:59
  Speaker 9: That's well, not the COVID company, yes for the kind
• 9:02
  Speaker 9: of word yes, thank you though, and the money platform
• 9:05
  Speaker 9: company and the platform is firing on every cylinders today
• 9:09
  Speaker 9: went on seeing positive fluid data in phase three. So
• 9:13
  Speaker 9: if you think about it in terms of vaccines, we
• 9:15
  Speaker 9: are free out of free COVID working URSV file to
• 9:19
  Speaker 9: VFDA and to the positive flugh data. In cancer, we
• 9:24
  Speaker 9: are now products showing forty four percent improvement versus the
• 9:29
  Speaker 9: best drug available to patients today, which is immunotherapy in
• 9:33
  Speaker 9: melanomas kin cancer. And we're going to start before the
• 9:36
  Speaker 9: end of the year a phase free study in learn
• 9:38
  Speaker 9: cancer cancer.
• 9:40
  Speaker 10: We really going to transform as well.
• 9:43
  Speaker 2: First that is that, by the way, because of MR
• 9:47
  Speaker 2: and A technology. And I'll just remind listeners we are
• 9:49
  Speaker 2: talking with Stephan Bansel right now. He's the chief executive
• 9:53
  Speaker 2: officer of Moderna. And as you said, you're not just
• 9:57
  Speaker 2: a COVID company. You did have have an mRNA vaccine
• 10:01
  Speaker 2: for COVID that maybe save the world a lot more
• 10:04
  Speaker 2: pain than it would have seen. But you also have
• 10:07
  Speaker 2: a flu vaccine that is driving the stock up today
• 10:09
  Speaker 2: six and a half percent, and cancer treatments that we hope,
• 10:14
  Speaker 2: we all hope, I think are going to be successful
• 10:17
  Speaker 2: and could drive revenue another fifteen billion starting in twenty
• 10:20
  Speaker 2: twenty eight. So tell us about the mRNA technology that
• 10:23
  Speaker 2: we all kind of learned about a couple of years ago.
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  Speaker 11: Sure.
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  Speaker 9: So, Emmania, as you learned about, is an information molecule.
• 10:29
  Speaker 9: We basically code in that molecule what protein we want
• 10:33
  Speaker 9: your body to make. That would be your drug, your medicine.
• 10:37
  Speaker 9: And in cancer, now what we have shown is a
• 10:39
  Speaker 9: huge impact on survival and being able to not have
• 10:44
  Speaker 9: recurrence of disease compared to the best drugs available to
• 10:47
  Speaker 9: the two patients. And the third chapter for us after
• 10:50
  Speaker 9: infictio zas, vaccine and cancer is real genetic disease. We
• 10:55
  Speaker 9: are now free out of free real genetic disease, showing
• 10:58
  Speaker 9: positive data in kids with those diseases.
• 11:00
  Speaker 10: That have no hope today, zero hope.
• 11:03
  Speaker 1: All right, So back to the flu, because it's we're
• 11:07
  Speaker 1: getting into flu season. What is your flu vaccine? What
• 11:11
  Speaker 1: is new, what is different? It just tell us about
• 11:14
  Speaker 1: what you start today. Why are people so excited about
• 11:16
  Speaker 1: the flu vaccine?
• 11:18
  Speaker 9: Because first we're going to be able to participate and
• 11:20
  Speaker 9: provide a very high efficacy flu vaccine. What we've showed
• 11:24
  Speaker 9: in actually over studies is that actually it's as good as.
• 11:27
  Speaker 10: The best vaccine on the market for flu.
• 11:29
  Speaker 9: But what people I think I excited about is the
• 11:31
  Speaker 9: idea of combination, Meaning we're going to show before the
• 11:34
  Speaker 9: end of the year flu and covid combine in the
• 11:38
  Speaker 9: single shots, so in the following years you won't have
• 11:41
  Speaker 9: to go and get a flu shot in one arm
• 11:42
  Speaker 9: and the covid shot in ther arm.
• 11:44
  Speaker 10: They'll be combined.
• 11:45
  Speaker 9: And then over time we're going to keep adding more
• 11:47
  Speaker 9: and more respiratory virus like RSV to the combination as well,
• 11:52
  Speaker 9: so that you can have only one shot early in
• 11:54
  Speaker 9: the four at the pharmacy, and then you have a
• 11:56
  Speaker 9: happy follower in winter you're not sick.
• 11:58
  Speaker 1: So but this is for next year, This is not
• 12:01
  Speaker 1: for this cournflusing Okay, got it. I just want to get
• 12:03
  Speaker 1: clear on the timing.
• 12:04
  Speaker 3: You can still get your flu vaccine for this. I'm
• 12:06
  Speaker 3: gonna go.
• 12:06
  Speaker 1: Down to LL two and get my flu vaccine. I mean,
• 12:08
  Speaker 1: who doesn't do that? So with mr mRNA tech technology,
• 12:14
  Speaker 1: what's it three to five years down the road, what
• 12:17
  Speaker 1: do you expect that technology to tackle next?
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  Speaker 10: Maybe?
• 12:20
  Speaker 9: So we're announcing today at Adiday that we should launch
• 12:24
  Speaker 9: fifteen new drug in the next five years.
• 12:26
  Speaker 1: Fifteen new drugs in the next five that's.
• 12:28
  Speaker 9: How incredible across cancer, infect disease, and genetic disease. We're
• 12:32
  Speaker 9: also working on an autoimmune disease I think althatries, chron
• 12:36
  Speaker 9: disease and so on. We believe we're going to bring
• 12:39
  Speaker 9: fifteen more drugs on top of forty we have in
• 12:43
  Speaker 9: development fifty five zero okay from the lab into the
• 12:47
  Speaker 9: clinic in the next five years, or around ten new
• 12:49
  Speaker 9: drugs per year moving from the labs into developments. So
• 12:52
  Speaker 9: what you see here is a true platform. There has
• 12:54
  Speaker 9: never been platform in the biotech far my industry. As
• 12:57
  Speaker 9: you know, most drugs go to the clinic. Yep, they're
• 12:59
  Speaker 9: fair ninety percent of drug starting a phase one will
• 13:02
  Speaker 9: never get launched Okay, I look at Moderna because of
• 13:06
  Speaker 9: our platform, because am money is an information molecule. We
• 13:10
  Speaker 9: are three out of three in vaccines, we have three
• 13:12
  Speaker 9: out of three in real genetic disease cancer. Incredible improvements
• 13:16
  Speaker 9: and it's just the beginning.
• 13:18
  Speaker 2: All right, this is all because of the mRNA technology.
• 13:21
  Speaker 2: And I have a funding question. Then what happens if
• 13:25
  Speaker 2: you know the COVID vaccine revenues don't meet your expectations?
• 13:30
  Speaker 2: Can you still fund that kind of growth?
• 13:32
  Speaker 7: Sure?
• 13:32
  Speaker 9: I mean, if you look at it, we say that
• 13:34
  Speaker 9: this year we should be six to eight billion dollars
• 13:36
  Speaker 9: of cells, which is still a very significant number.
• 13:40
  Speaker 10: For turnover.
• 13:41
  Speaker 9: We are fourteen billion dollar on a balanch sheet that
• 13:44
  Speaker 9: we got through the COVID sales over the last two years,
• 13:47
  Speaker 9: and so we can fund around we think twenty five
• 13:49
  Speaker 9: billion dollar of RD growth by cash directing, by the
• 13:52
  Speaker 9: business and the balance sheet. And we will also not
• 13:55
  Speaker 9: be shy to partner if we have to. We're obsessed
• 13:57
  Speaker 9: about getting those drugs to patients to be finish line.
• 14:01
  Speaker 9: But if you look at for example, with Vertex, we
• 14:03
  Speaker 9: partnered for cistic fibrosi, it's for inhale. The money getting
• 14:07
  Speaker 9: to the long of a kid that have cistic fibrosis
• 14:09
  Speaker 9: by inhalation, we develop that technology yet another fourth cylinder
• 14:13
  Speaker 9: for moderna to develop a new family of drugs. And
• 14:16
  Speaker 9: so that's what we're trying to do is push a
• 14:17
  Speaker 9: boundary of science, get more and more drugs and if
• 14:20
  Speaker 9: we have to partner, and we'll partner.
• 14:21
  Speaker 3: But it's expensive to do.
• 14:23
  Speaker 2: And you know, because of recent legislation the United States,
• 14:29
  Speaker 2: the bidance strategs past, the United States is going to
• 14:32
  Speaker 2: not only negotiate prices with drug makers, but set prices
• 14:37
  Speaker 2: with drug makers.
• 14:39
  Speaker 3: Is that a concern to you very much?
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  Speaker 9: So as the rest of the industry as voiced, you
• 14:45
  Speaker 9: cannot set prices because ird is risky. As we just
• 14:49
  Speaker 9: talked about ninety percent of drugs entering the clinic failure,
• 14:54
  Speaker 9: very high failure rate of the industry as a whole.
• 14:57
  Speaker 10: If you start to set.
• 14:58
  Speaker 9: Price and not look at value that is bringing by
• 15:00
  Speaker 9: the drugs, you're going to reduce the ability of pharmasty,
• 15:04
  Speaker 9: core and biotech companies to invest in innovation.
• 15:06
  Speaker 10: And that's a big worry.
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  Speaker 2: But they're going to set prices, So how are you
• 15:09
  Speaker 2: going to deal with it?
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  Speaker 9: So we just need to keep innovating and figure out
• 15:13
  Speaker 9: ways to go after smaller disease type selling around the world,
• 15:18
  Speaker 9: because again the US of course is the number one
• 15:20
  Speaker 9: market in the world, but other markets are also very important,
• 15:23
  Speaker 9: like Europe, you know, Japan, and so we're going to
• 15:26
  Speaker 9: have to grow internationally as well.
• 15:28
  Speaker 10: But it's a big issue. I'm worried about it, all right.
• 15:30
  Speaker 1: How about I always joke that in my next life
• 15:32
  Speaker 1: I want to come back as a healthcare m and
• 15:34
  Speaker 1: a banker because every Monday we come in and there's
• 15:37
  Speaker 1: another healthcare deal that you are one of your competitors.
• 15:39
  Speaker 1: Do is there something that you need to buy in
• 15:44
  Speaker 1: the next couple of years to get to where you
• 15:46
  Speaker 1: want to go that maybe is not in your pipeline
• 15:48
  Speaker 1: right now.
• 15:49
  Speaker 7: No.
• 15:49
  Speaker 9: What is cool about Amani is we are the world
• 15:51
  Speaker 9: leader in AMANI. Even BioNTech, which is a great company,
• 15:54
  Speaker 9: they are doing small molecule, a lot of molecule, a
• 15:56
  Speaker 9: lot of different technologies. We are only doing AMMONI. What
• 16:00
  Speaker 9: we're doing through obed activity is ever buying. We bought
• 16:03
  Speaker 9: a company in Japan over the Christmas breaks a cool
• 16:06
  Speaker 9: technology to make our EMMANI operating system stronger and bigger.
• 16:10
  Speaker 10: So we can do more drugs.
• 16:11
  Speaker 9: We are nowso mon there dealing cancer with a company
• 16:14
  Speaker 9: in Germany that has very cool science and biology that
• 16:18
  Speaker 9: we can code into the EMANI molecule to do new drugs.
• 16:21
  Speaker 9: So this will do to expand the potential of impacting patients.
• 16:26
  Speaker 3: All right, excellent to have you in here.
• 16:27
  Speaker 2: I really appreciate it, and I know you're going to
• 16:29
  Speaker 2: go on television in just a moment, so our listeners
• 16:32
  Speaker 2: will be able to watch you with Alex Steel and
• 16:35
  Speaker 2: Guy Johnson on the European clothes. Just a fascinating discussion
• 16:41
  Speaker 2: and also a fascinating move in the stock up six
• 16:44
  Speaker 2: point seven percent.
• 16:45
  Speaker 1: Yeah about that, Stefan Bansel, thank you so much for
• 16:47
  Speaker 1: joining Usteffan as the CEO of Momoderna again the taker
• 16:50
  Speaker 1: symbol free stock Jockey's out there, mr Na. We appreciate that.
• 16:55
  Speaker 1: Thank you so much. All right, looking ahead here at
• 16:56
  Speaker 1: this market here we are pretty much unchanged, so you know,
• 17:01
  Speaker 1: we're gonna be very interesting to see how this market.
• 17:03
  Speaker 1: But you know Moderna that again, that's stock, as you mentioned,
• 17:05
  Speaker 1: Matt up six percent today, down thirty seven percent year
• 17:10
  Speaker 1: to date.
• 17:10
  Speaker 8: You're listening to the tape cans are live program Bloomberg
• 17:14
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 17:17
  Speaker 8: tune in app, Bloomberg dot Com, and.
• 17:19
  Speaker 11: The Bloomberg Business App.
• 17:21
  Speaker 8: You can also listen live on Amazon Alexa from our
• 17:23
  Speaker 8: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
• 17:30
  Speaker 1: Uncle Crawford joins us. She's a portfolio manager and executive
• 17:33
  Speaker 1: VP at Aldre. Encour thank you so much for joining
• 17:35
  Speaker 1: us here in our Bloomberg Interactive Broker studio. I just
• 17:38
  Speaker 1: love looking at people's you know, kind of how they
• 17:40
  Speaker 1: kind of came up through the business. So, but you've
• 17:42
  Speaker 1: been at Alger since September two thousand and four, so
• 17:46
  Speaker 1: you've seen some market movements. What are you telling? What
• 17:51
  Speaker 1: are you guys at Aldre doing now? Stock market's up
• 17:54
  Speaker 1: double digits this year, We've had a little bit of
• 17:55
  Speaker 1: a bounce back off of an ugly twenty twenty two.
• 17:58
  Speaker 1: Now what do we do?
• 18:00
  Speaker 12: Yeah, I think it's not going to be quite as
• 18:02
  Speaker 12: easy as it has been over the last nine months. Okay,
• 18:06
  Speaker 12: and we're going into chop your waters, and in part
• 18:09
  Speaker 12: because we're just waiting for the economy to respond and
• 18:13
  Speaker 12: we just don't know the magnitude of how it's going
• 18:16
  Speaker 12: to respond. Is it going to be a soft landing,
• 18:18
  Speaker 12: hard landing, no landing? And I think no landing is
• 18:21
  Speaker 12: coming off the table. I think the expectation is now
• 18:26
  Speaker 12: for soft landing, and there's arguments for hard landing. So
• 18:29
  Speaker 12: I think because of that uncertainty in the market right now,
• 18:33
  Speaker 12: the consumer resilience is starting to taper. The job market
• 18:37
  Speaker 12: is starting to come off a boil. We're going to
• 18:41
  Speaker 12: see you chop your market.
• 18:42
  Speaker 3: Does landing imply cuts?
• 18:45
  Speaker 2: I mean in hard landing, clearly think the fed's going
• 18:47
  Speaker 2: to cut because that means we're in a bad recession.
• 18:51
  Speaker 2: I don't totally know what soft landing means in terms
• 18:55
  Speaker 2: of a FED reaction, and do they cut or you know,
• 18:59
  Speaker 2: I know what the soft landing is like in terms
• 19:01
  Speaker 2: of an airplane.
• 19:02
  Speaker 3: I'm just saying, like.
• 19:03
  Speaker 2: When you come down right and just set it down gently.
• 19:07
  Speaker 2: I guess growth doesn't contract, but it's also not expanding
• 19:11
  Speaker 2: at a massive pace. And does the FED then cut
• 19:14
  Speaker 2: or do they leave rate higher for longer?
• 19:16
  Speaker 12: You know what? And that's the risk they could actually
• 19:19
  Speaker 12: leave rates higher for longer in that scenario. So it's
• 19:23
  Speaker 12: funny because the people that believe that the FED is
• 19:26
  Speaker 12: going to cut, and they're excited about the FED cuts.
• 19:30
  Speaker 12: I look at them and say, well, you know what, first,
• 19:33
  Speaker 12: the economy has to get really bad if they're going
• 19:35
  Speaker 12: to cut at this pace.
• 19:36
  Speaker 2: I will warn you that Paul thinks that we're going
• 19:38
  Speaker 2: to have a nice soft landing and the Fed's gonna cut.
• 19:43
  Speaker 1: The former equity analys I'm always on Freggre optimistic.
• 19:46
  Speaker 2: Yes, a former equity analyst with a floating rate mortgage.
• 19:50
  Speaker 3: So he would like to rEFInd you.
• 19:53
  Speaker 12: Know, maybe that's wishful thinking.
• 19:54
  Speaker 1: I know, I know, I couldn't accuse that before. All Right,
• 19:57
  Speaker 1: you know we're just talking to Kaylee Lines from Bloomberg Television.
• 20:00
  Speaker 1: She's done a DC kind of reporting on this AI
• 20:02
  Speaker 1: thing in Congress. How do you guys alter review AI
• 20:06
  Speaker 1: because you could argue that's been a big driver of
• 20:08
  Speaker 1: the performance this year.
• 20:09
  Speaker 12: Yeah, we are very very bullish on AI. We've been
• 20:13
  Speaker 12: bullish on AI, and we think that jen AI and
• 20:17
  Speaker 12: what we're seeing with these LLM models, large language models,
• 20:21
  Speaker 12: the large language models that are democratizing.
• 20:23
  Speaker 1: Sing your PhD in engineering, I like it, see I.
• 20:26
  Speaker 12: Like it that it's basically democratizing technology and it's going
• 20:30
  Speaker 12: to create a step function up in adoption rates for
• 20:34
  Speaker 12: all kinds of businesses through healthcare, industrials, tech. So highly
• 20:39
  Speaker 12: bullish on AI. The adoption is going to be we
• 20:42
  Speaker 12: think thirty to forty percent by the end of this decade,
• 20:45
  Speaker 12: which is in any kind of industrial revolution that we've seen.
• 20:49
  Speaker 12: It's the fastest adoption rate we're going to see.
• 20:51
  Speaker 3: But will it hit the labor market?
• 20:53
  Speaker 2: I mean, right now, we saw unemployment come up to
• 20:55
  Speaker 2: like three point eight percent, right but that was all
• 20:57
  Speaker 2: because more people were coming back in.
• 21:00
  Speaker 3: So it's still a very tight, very strong labor market.
• 21:04
  Speaker 3: That's what we hear.
• 21:06
  Speaker 2: Is AI going to displace a lot of jobs in
• 21:09
  Speaker 2: the by the end of the decade.
• 21:11
  Speaker 12: I think it's hard to say. But just on the
• 21:13
  Speaker 12: before we move on to AI, on the unemployment and employment,
• 21:17
  Speaker 12: Walmart and best Buy both the conferences this week indicated
• 21:21
  Speaker 12: that Walmart, we know, is taking down starting wages for jobs.
• 21:25
  Speaker 1: They're taking down they're.
• 21:26
  Speaker 12: Taking down wages really. Best Buy indicated that you know,
• 21:30
  Speaker 12: maybe they would do low single digits or worse than
• 21:33
  Speaker 12: low single digits, which would be you know, we we
• 21:35
  Speaker 12: think that means zero. So wage growth is now starting
• 21:39
  Speaker 12: to come off a boil, which is the first indication
• 21:42
  Speaker 12: in the economy that employments starting.
• 21:44
  Speaker 2: To turn interesting to see the labor market kind of
• 21:48
  Speaker 2: flagging a little bit.
• 21:49
  Speaker 12: Yeah, So if you look at ours worked, ours worked
• 21:52
  Speaker 12: is coming off its peaks. It's been declining for a year,
• 21:55
  Speaker 12: year and a half hourly wages. Right now it's still rising.
• 21:59
  Speaker 12: I think we start to see a moderation. But that's
• 22:02
  Speaker 12: just on the employment side. So as for GENAI and
• 22:05
  Speaker 12: what the impact will be, what we're hearing right now
• 22:08
  Speaker 12: is companies that are deploying GENAI inside of their own
• 22:13
  Speaker 12: businesses today, they're not firing people, but they don't have
• 22:17
  Speaker 12: to hire as many people because productivity is increasing. So
• 22:20
  Speaker 12: does it change the composition of the labor market and
• 22:23
  Speaker 12: the demand for labor. It might. But what it means
• 22:26
  Speaker 12: that we're going to have to retool. We're going to
• 22:27
  Speaker 12: have to retool our economy and our workforce.
• 22:30
  Speaker 1: Oh boy, that's just what a lot of folks want
• 22:32
  Speaker 1: to hear.
• 22:32
  Speaker 7: Right.
• 22:32
  Speaker 1: First they got and mean by people going across jobs
• 22:36
  Speaker 1: going across seas and now they have to do this
• 22:37
  Speaker 1: whole worry about AI. All right, When I think of
• 22:40
  Speaker 1: Fred alger Asset management or algie. I think growth investors.
• 22:46
  Speaker 1: Where are you guys looking what sectors are kind of
• 22:48
  Speaker 1: interesting to you? We mentioned maybe tech and AI and
• 22:50
  Speaker 1: that type of thing, or else are you guys looking
• 22:52
  Speaker 1: for opportunities?
• 22:53
  Speaker 12: You know, I think when people think of AI and
• 22:56
  Speaker 12: investors think of AI, they automatically say Nvidia or Microsoft,
• 23:00
  Speaker 12: and yes, we are investing. We are big holders of
• 23:03
  Speaker 12: both Microsoft and Video and the common AI platforms. But
• 23:07
  Speaker 12: what they forget is that in order to deploy all
• 23:10
  Speaker 12: of this AI, we also need to be you know,
• 23:14
  Speaker 12: we need to build data centers. Okay, there are no
• 23:16
  Speaker 12: data centers. Data centers are full. We need electricity.
• 23:20
  Speaker 1: So data centers are full. Where are the data centers
• 23:24
  Speaker 1: and why are they full?
• 23:25
  Speaker 12: Well, in part, they're full because there's no electricity going
• 23:28
  Speaker 12: to the data centers, and so there's going to have
• 23:30
  Speaker 12: to be this CAPEX cycle that supports the utilities to
• 23:34
  Speaker 12: provide electricity to the data center. And so, you know,
• 23:38
  Speaker 12: there's a lot of interesting names the like Quanta, Quanta,
• 23:42
  Speaker 12: PWR or you know, we have an investment in a
• 23:45
  Speaker 12: company called Vertice, which is a cooling company and so
• 23:50
  Speaker 12: they basically they provide widgets into a data center and
• 23:54
  Speaker 12: one of those widgets is the new cooling mechanism that
• 23:57
  Speaker 12: you're going to need for these GENAI servers.
• 24:00
  Speaker 3: So there's digital bridge.
• 24:02
  Speaker 12: There's different ways. Yeah, there's different ways to play this
• 24:06
  Speaker 12: trend in industrials and other parts of the economy that
• 24:10
  Speaker 12: we're also focused on.
• 24:12
  Speaker 3: That's interesting.
• 24:12
  Speaker 2: You know, we did a big story about Mexico and
• 24:14
  Speaker 2: how difficult it is to be reshoring there because they
• 24:17
  Speaker 2: just don't have the infrastructure. Okay, right, and I guess
• 24:20
  Speaker 2: the same problem faces Generative AI because you need to
• 24:24
  Speaker 2: have a lot more giant server farms set up to
• 24:28
  Speaker 2: run all the Nvidia chips that are getting ordered.
• 24:30
  Speaker 1: Well don't we have a lot of you fly over
• 24:32
  Speaker 1: territory that put a big server farm out there.
• 24:35
  Speaker 2: Yeah, but you got to put it up. I mean
• 24:37
  Speaker 2: it takes money, right. You need the bulldozers, you need
• 24:40
  Speaker 2: all the cat equipment, you know, that's what we're talking about,
• 24:43
  Speaker 2: and you got to put in the computers.
• 24:44
  Speaker 1: So are you concerned about valuation in this marketplace because
• 24:48
  Speaker 1: a lot of folks say, hey, if you strip out
• 24:49
  Speaker 1: the magnificent seven, this market's not so expensive. How do
• 24:52
  Speaker 1: you guys think about valuation?
• 24:54
  Speaker 12: So we kind of do it as a sum of
• 24:56
  Speaker 12: the parts, and we look at the components. So you
• 24:59
  Speaker 12: look at Microsoft. Microsoft currently trades at you know, on
• 25:02
  Speaker 12: a grunt you have to look out to twenty twenty
• 25:04
  Speaker 12: five when they have a full blossoming of their AI
• 25:07
  Speaker 12: or least they're on way to that. It trades at
• 25:10
  Speaker 12: a high teens multiple. You look at Meta, Meta trades
• 25:16
  Speaker 12: at a mid teams multiple. Google at a mid to
• 25:18
  Speaker 12: high teens multiple on twenty twenty four numbers. So you know,
• 25:23
  Speaker 12: there are portions of the market, big portions of the
• 25:25
  Speaker 12: market that actually don't screen as having necessarily an incregious valuation.
• 25:32
  Speaker 12: Look now there's other portions of the market that you know,
• 25:34
  Speaker 12: one can say, you know, the growthier stuff that has
• 25:38
  Speaker 12: worked this year, could it pulled back?
• 25:41
  Speaker 1: It could, Okay? On Core Crawfit, thank you so much
• 25:43
  Speaker 1: for joining us, Really appreciate it. On Core Crawford, she's
• 25:46
  Speaker 1: a portfolio management and executive vice president at Alger the
• 25:49
  Speaker 1: asset management folks. Some good folks there.
• 25:51
  Speaker 3: I've known a doctor and an engineer.
• 25:53
  Speaker 8: I know you're listening to the Team Cancer Live program
• 25:57
  Speaker 8: Bloomberg Markets weekdays at ten am Eastern.
• 26:00
  Speaker 11: On Bloomberg dot com. The iHeartRadio app and.
• 26:02
  Speaker 8: The Bloomberg Business app or listen on demand wherever you
• 26:05
  Speaker 8: get your podcasts.
• 26:08
  Speaker 1: All right, let's talk to IPOs because we got the
• 26:10
  Speaker 1: IPO market. Actually have a little interest out there. We're
• 26:13
  Speaker 1: gonna we got the belly Lipscholtzho covers all the markets
• 26:15
  Speaker 1: for us. And then Kunjohn Sabani, he leads semiiconductor analysts
• 26:19
  Speaker 1: for Bloomberg Intelligencies, based out there in the beautiful San
• 26:23
  Speaker 1: Francisco awes on peer three. Uh down there in the Embarcadero.
• 26:27
  Speaker 1: Great stuff out there, he joins us via zoom Belly.
• 26:30
  Speaker 1: I want to start with you, uh, Birkenstock. When I
• 26:32
  Speaker 1: think Birkenstock, I think Matt Miller, you know, and they're
• 26:36
  Speaker 1: going public. Talk to us about this company and what
• 26:38
  Speaker 1: this deal is.
• 26:39
  Speaker 11: Yeah.
• 26:39
  Speaker 1: The company filed for.
• 26:40
  Speaker 13: Their IPO yesterday evening, kind of an anticipated Bloomberg had
• 26:44
  Speaker 13: been all over that expecting that they will target an
• 26:46
  Speaker 13: initial evaluation about eight billion dollars.
• 26:49
  Speaker 1: Looking at some of the results.
• 26:50
  Speaker 13: That they laid out, though profitable, growing, the two things
• 26:53
  Speaker 13: that investors are really looking for their el Caterton backed.
• 26:56
  Speaker 13: So uh, interesting deal l out for this company when
• 27:01
  Speaker 13: you look at kind of where we are talking to
• 27:03
  Speaker 13: some of the analysts and investors. Latest in a string
• 27:05
  Speaker 13: of consumer facing companies that have filed. So consumer, if
• 27:09
  Speaker 13: you're profitable, if you're growing, and you have durability, some
• 27:11
  Speaker 13: insight into where you're going going forward, seems to be
• 27:16
  Speaker 13: one of the areas alongside tech that there is interest
• 27:19
  Speaker 13: both from the company and from investors.
• 27:21
  Speaker 2: All right, So that's that's nothing that Kunjon cares about. No,
• 27:25
  Speaker 2: he's a lead semiconductor analyst. Maybe you're wearing birkenstocks, Kunjohn,
• 27:30
  Speaker 2: but you're focused I guess primarily on ARM.
• 27:33
  Speaker 7: Right, Yeah, all right, right.
• 27:35
  Speaker 1: Talk to us about this this ipo ARM is a
• 27:38
  Speaker 1: tell us what ARM is and tell us kind of
• 27:40
  Speaker 1: what the pitch is from your perspective.
• 27:42
  Speaker 7: Yeah, So ARM is a semiconductor design IP company. They
• 27:45
  Speaker 7: don't make chips. They make an IP which other chip
• 27:48
  Speaker 7: makers can use and create for creating chips. Historically, the
• 27:53
  Speaker 7: because they have been they have the largest i mean
• 27:56
  Speaker 7: entire market when it comes to a smartphone, ninety nine
• 27:58
  Speaker 7: percent market share, so that what they wear historically. Then
• 28:01
  Speaker 7: when Software bought them, the play was that IoT is
• 28:05
  Speaker 7: supposed to be this big thing, so they got into IoT.
• 28:07
  Speaker 7: They have their Internet of Things, yes, and they're still
• 28:11
  Speaker 7: a dominant player in that market. The pitch right now
• 28:14
  Speaker 7: for the IPO is really on AI, as is for
• 28:17
  Speaker 7: every sevilconnector company these days. Right now they have single
• 28:21
  Speaker 7: digit market share in data center and AI, but the
• 28:26
  Speaker 7: pitches that that market share will grow and they are
• 28:28
  Speaker 7: expected to be the fastest growing in that.
• 28:32
  Speaker 1: But but Kunjin, you've been around. We hired you away
• 28:35
  Speaker 1: from Deutsche Bank, so major upgrade there, Kunjin, You've seen
• 28:39
  Speaker 1: this stuff come and go.
• 28:40
  Speaker 6: You know what the real deal is.
• 28:41
  Speaker 1: They're asking me at the IPO to buy a phone
• 28:44
  Speaker 1: chip design company, but pay an AI multiple? Is that?
• 28:47
  Speaker 7: Is that the gig that is almost yes, okay, are
• 28:51
  Speaker 7: you buying it? So when they came out with the
• 28:55
  Speaker 7: initial target of sixteen seventy, we wrote that this seems
• 28:58
  Speaker 7: very ambitious even exactly one of the reasons what you
• 29:01
  Speaker 7: pointed out. But the pricing with they came out, which
• 29:04
  Speaker 7: is midpoint of fifty, we like that as a starting point.
• 29:07
  Speaker 7: We thought that would invite some attractive positive discussions from
• 29:11
  Speaker 7: the investors, and it seems from the data we have
• 29:13
  Speaker 7: heard that get their numerous times over subscribed, so that
• 29:16
  Speaker 7: seem to have worked. But yes, to answer your question,
• 29:19
  Speaker 7: I mean, look, this happens. I was also in banking before,
• 29:22
  Speaker 7: so I've done IPOs for semi companies and this is
• 29:24
  Speaker 7: how usually the conversion goes. During IPOs, people are pitching
• 29:28
  Speaker 7: way far out, like what this can be in five years.
• 29:31
  Speaker 7: And the theory is, if you believe that thesis, you're
• 29:33
  Speaker 7: buying it today for lower because once it gets there,
• 29:37
  Speaker 7: once they have a lot of data center revenues, they're
• 29:39
  Speaker 7: going to get a lot more premium for their evaluation
• 29:42
  Speaker 7: and that's where investors can generate their return.
• 29:45
  Speaker 11: Very good.
• 29:45
  Speaker 1: Hey, Billy Birkenstock, I mean it's is what's the pitch
• 29:50
  Speaker 1: here is is this going to be a lifestyle kind
• 29:53
  Speaker 1: of are.
• 29:53
  Speaker 3: Going to be five years out?
• 29:54
  Speaker 11: Yeah?
• 29:54
  Speaker 2: I mean the same thing as there were fifty years before.
• 29:57
  Speaker 2: I mean what's changed?
• 30:00
  Speaker 13: No, I mean they were in the Barbie movie, so
• 30:01
  Speaker 13: that reinventiated interest with the youths. When you look at
• 30:06
  Speaker 13: their sales, they're one of the things that stood out
• 30:08
  Speaker 13: in the filing is kind of this push towards direct
• 30:10
  Speaker 13: to consumer sales, so trying to cut out the cost
• 30:13
  Speaker 13: of going through a traditional.
• 30:14
  Speaker 1: Brick and mortar or other kind of website.
• 30:16
  Speaker 13: When you look at it though, eight billion dollar price
• 30:19
  Speaker 13: about eighteen times forecasted adjusted EBITDAH, so in line with
• 30:24
  Speaker 13: the Nikes of the world, though margins are typically higher
• 30:29
  Speaker 13: for Birkenstock. It is going to be interesting though what
• 30:32
  Speaker 13: they pitch comps at. Though you look at Decker's brands,
• 30:34
  Speaker 13: one that comes to mind talking to a couple, ay us,
• 30:36
  Speaker 13: maybe a Lulu could be really seen as the high end.
• 30:40
  Speaker 13: But it's going to be an interesting, more kind of
• 30:44
  Speaker 13: typical IPO in terms of consumer facing company that doesn't
• 30:48
  Speaker 13: have these ambitious kind of pitch in terms of AI
• 30:51
  Speaker 13: or massive hockey stick growth.
• 30:53
  Speaker 2: But do they have to pull back their pricing ambition
• 30:58
  Speaker 2: the same as we've seen with ARM and others. I mean,
• 31:02
  Speaker 2: are the is this a down round for everybody?
• 31:05
  Speaker 13: No, because this was bought by el Caddatan Private Equity
• 31:08
  Speaker 13: House back by Luxury Group LVMH for essentially four point
• 31:12
  Speaker 13: three billion US dollars. So this is actually kind of
• 31:15
  Speaker 13: on the growthier side, which at least in terms of
• 31:19
  Speaker 13: the ARM deal where SoftBank bought the MAT which right
• 31:21
  Speaker 13: now would be implied about it's seventy percent return, they're
• 31:23
  Speaker 13: actually seeing marks up to the positive as opposed to
• 31:27
  Speaker 13: Instacart Claviow the two IPOs that are set to price
• 31:29
  Speaker 13: sometime next week.
• 31:30
  Speaker 1: Who are taking White the haircut?
• 31:31
  Speaker 3: Kunjohn?
• 31:32
  Speaker 2: It is a down round for ARM in a way,
• 31:34
  Speaker 2: right because SoftBank just bought a twenty five percent stake
• 31:39
  Speaker 2: from itself for much more.
• 31:41
  Speaker 7: Yes, exactly, yes, So so if you take that as
• 31:44
  Speaker 7: a benchmarket is a down row.
• 31:45
  Speaker 3: Yeah, but why what?
• 31:46
  Speaker 7: What?
• 31:47
  Speaker 3: What happened there? What's the deal?
• 31:50
  Speaker 7: I mean they didn't publicly say a lot, but it
• 31:54
  Speaker 7: seemed to what being for from it is two things
• 31:58
  Speaker 7: that ARM doesn't think, that Softman thinks that ARM is
• 32:01
  Speaker 7: just getting started. So there will be a lot of
• 32:03
  Speaker 7: more opportunities for them to come on with follow on
• 32:06
  Speaker 7: offerings at much higher valuation, especially when that data center
• 32:09
  Speaker 7: part becomes a larger portion of the revenues.
• 32:12
  Speaker 1: All right, thirty seconds, Kunjohn, what's what's your feeling about AI?
• 32:17
  Speaker 1: Are you drinking kool aid like everybody else?
• 32:21
  Speaker 7: Fundamentally, it definitely seems to be here to stay. I
• 32:27
  Speaker 7: don't know, it's too soon to talk about valuation, right,
• 32:29
  Speaker 7: So it's barely been seven months we started talking about it,
• 32:33
  Speaker 7: But fundamentally we definitely see real activity and sustainable demand
• 32:38
  Speaker 7: going here.
• 32:39
  Speaker 1: All right, Kunjohn, next time you're in New York, you
• 32:41
  Speaker 1: have to stop by here and see Matt and I
• 32:43
  Speaker 1: in the studio. We haven't met yet, so.
• 32:44
  Speaker 2: You got But since you're out there in San Francisco,
• 32:46
  Speaker 2: are you on Peer three?
• 32:47
  Speaker 1: Is that where you are?
• 32:48
  Speaker 7: Yes?
• 32:48
  Speaker 3: There, Yes, you got to go over.
• 32:51
  Speaker 2: There's a market down the street that has a Slocum
• 32:55
  Speaker 2: and Humphrey or Humphrey and Slocum ice cream place.
• 32:58
  Speaker 1: Yep, right, Daniel.
• 32:59
  Speaker 2: They have a flavor called Secret Breakfast, and I'm gonna
• 33:01
  Speaker 2: go ahead and recommend that Secret Breakfast all right, so.
• 33:04
  Speaker 1: We got that go and tattage grill as well for
• 33:08
  Speaker 1: the eats. Kun John Sabanik tech analysts for BIA in
• 33:11
  Speaker 1: San Francisco, Belly Lipshots covering the markets for Bloomberg News.
• 33:15
  Speaker 8: You're listening to the tape cans are live program Bloomberg
• 33:18
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 33:22
  Speaker 8: tune in app, Bloomberg dot Com, and.
• 33:24
  Speaker 11: The Bloomberg Business app.
• 33:25
  Speaker 8: You can also listen live on Amazon Alexa from our
• 33:28
  Speaker 8: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
• 33:34
  Speaker 1: Well, a lot of folks I think probably came up
• 33:36
  Speaker 1: in the business kind of thinking about that sixty forty
• 33:39
  Speaker 1: portfolios being kind of ideal stocks and bonds. But a
• 33:42
  Speaker 1: lot of folks, you know, over the last decade plus
• 33:44
  Speaker 1: I have been saying, hey, you can juice returns if
• 33:46
  Speaker 1: you go with alternatives. Put that into your mix somewhere,
• 33:49
  Speaker 1: you know, maybe ten percent or something like that. But
• 33:51
  Speaker 1: one of the risks of alternatives is the less lower
• 33:55
  Speaker 1: liquidity and sometimes you know illiquidity. Our next guest tries
• 33:58
  Speaker 1: to address that issue. Ryan King. He's the see of
• 34:01
  Speaker 1: Lotus Markets. He joined us here in our Bloomberg Interactive
• 34:05
  Speaker 1: Broker studio. Brian, welcome, talk to us about Lotus markets.
• 34:08
  Speaker 1: What do you guys do there, What are you trying?
• 34:10
  Speaker 1: What market demand are you trying to meet?
• 34:13
  Speaker 6: Yeah, thank you so much for having me. We are
• 34:16
  Speaker 6: essentially a stock exchange for alternative investments. We're actually registered
• 34:20
  Speaker 6: as an ATS, which functions a lot like a stock exchange.
• 34:23
  Speaker 6: But to the point that you just made, most alternative
• 34:27
  Speaker 6: investments are largely ill liquid and we're seeing this massive
• 34:31
  Speaker 6: shift of where most alternative investments have historically been invested
• 34:37
  Speaker 6: in by major institutions, and the pendulum is is moving
• 34:41
  Speaker 6: more to individual investors, and you know, the closer you
• 34:45
  Speaker 6: get to a true retail investor, the more important liquidity becomes.
• 34:48
  Speaker 6: And so that's really what we're doing, is we're allowing
• 34:51
  Speaker 6: the opportunity to match buyers and sellers of these I
• 34:53
  Speaker 6: liquid assets.
• 34:55
  Speaker 1: All right, so how is it done before? Like, how
• 34:58
  Speaker 1: did you could I just not get quity in the past,
• 35:00
  Speaker 1: or how does how does this work? Give me an example,
• 35:02
  Speaker 1: maybe a trade or the types of trades you guys facilitate.
• 35:06
  Speaker 6: Yeah, so we started our market in the registered fund business.
• 35:10
  Speaker 6: So they're registered filing ks and ques, but they aren't
• 35:14
  Speaker 6: listed on an exchange. In many cases, these funds were
• 35:17
  Speaker 6: completely illiquid, so you couldn't have a liquidity event until
• 35:20
  Speaker 6: the fund decided that there was one. In some cases,
• 35:24
  Speaker 6: maybe you could pledge your shares into a redemption queue
• 35:26
  Speaker 6: and then they would buy back your shares. But for
• 35:30
  Speaker 6: the most part, though, if you needed you had like
• 35:33
  Speaker 6: an urgent need for liquidity, you would call up a broker.
• 35:36
  Speaker 6: The broker would try to find the other side of
• 35:38
  Speaker 6: the trade. They'd give you a dramatically deep discount of
• 35:41
  Speaker 6: you know, fifty sixty percent and you would pay a
• 35:44
  Speaker 6: ten percent commission to do that.
• 35:45
  Speaker 3: So you get ripped off.
• 35:47
  Speaker 6: Yes, your face is literally ripped off.
• 35:48
  Speaker 2: And you I mean, and that's part of what drove
• 35:51
  Speaker 2: you to create this, right because what happened? Did you
• 35:54
  Speaker 2: get ripped off before or you didn't want to get
• 35:56
  Speaker 2: ripped off when you needed liquidity or what happened?
• 35:58
  Speaker 6: Yeah, so i'd do. You have some very specific experiences
• 36:02
  Speaker 6: in my past, not me directly, but family members and
• 36:04
  Speaker 6: others that that were kind of locked up into alternative
• 36:08
  Speaker 6: investments and so for them situations specifically during the financial crisis,
• 36:15
  Speaker 6: they were looking to get out, they wanted to be
• 36:17
  Speaker 6: able to get in front of it, and ultimately some
• 36:20
  Speaker 6: of these funds went completely belly up. And so you know,
• 36:23
  Speaker 6: you you you live with those moments and you see
• 36:25
  Speaker 6: that type of a situation occur and you want to
• 36:28
  Speaker 6: be able to say there there's got to be a
• 36:29
  Speaker 6: solution for it.
• 36:30
  Speaker 1: Okay, So if you, if you, you know, facilitate a
• 36:34
  Speaker 1: trade on your exchange, how do you get paid? What's
• 36:37
  Speaker 1: kind of your business model?
• 36:38
  Speaker 6: So we right now, it doesn't the sponsor doesn't get
• 36:41
  Speaker 6: charged anything, the buyer doesn't get charged anything. But we
• 36:44
  Speaker 6: do charge the seller of three percent commission, so it's
• 36:47
  Speaker 6: not nothing, but these are a liquid so that's that's
• 36:50
  Speaker 6: the charge that we typically takes two point nine.
• 36:52
  Speaker 1: And how do you find the buyer? How do you
• 36:54
  Speaker 1: find the other side? You just you have relationships with
• 36:56
  Speaker 1: people that buy and sell these types of investments.
• 36:59
  Speaker 6: Yeah, there's a lot of natural buyers of alternative investments.
• 37:02
  Speaker 6: You can think of a lot of institutions like insurance companies,
• 37:05
  Speaker 6: hedge funds, size for you, so it can range, so
• 37:10
  Speaker 6: it can be all the way. We're an ATS. It's
• 37:11
  Speaker 6: actually sorry. ATS is an alternative trading system, so if
• 37:16
  Speaker 6: you think so. My background, I was part of BATS
• 37:18
  Speaker 6: as a startup company. BATS was an ATS before it
• 37:21
  Speaker 6: became in exchange. It functions a lot like a stock exchange,
• 37:25
  Speaker 6: but isn't regulated in the same way. It's a little
• 37:27
  Speaker 6: bit different.
• 37:27
  Speaker 2: And this is how you have a lot of experience
• 37:30
  Speaker 2: at BATS at n y C. And this is how
• 37:35
  Speaker 2: you not only know how to find buyers and sellers,
• 37:38
  Speaker 2: but how to put the infrastructure together, because that, I
• 37:40
  Speaker 2: have to guess is also an important part of it.
• 37:43
  Speaker 6: That's exactly right. So we're a technology company at our core,
• 37:46
  Speaker 6: so you build the technology, you build the framework. You know,
• 37:49
  Speaker 6: we're highly regulated both by FENRA and the SEC, and
• 37:52
  Speaker 6: so there is a lot that goes into it. But yeah,
• 37:55
  Speaker 6: we're you know, my background comes in helping to match
• 37:58
  Speaker 6: buyers and sellers and finding those in institutions. And then
• 38:01
  Speaker 6: we also have a lot of rias and family offices
• 38:03
  Speaker 6: that say, hey, we've already invested some of our clients
• 38:06
  Speaker 6: money in this and so we would be in many
• 38:08
  Speaker 6: cases wanting to buy more of it, and if you
• 38:10
  Speaker 6: could buy it at a discount, that's even better.
• 38:11
  Speaker 2: So I mean, I've read you're the third biggest ats
• 38:15
  Speaker 2: in the country and you've got some big players on
• 38:17
  Speaker 2: your platform.
• 38:20
  Speaker 3: Let's just look into list Blackstone.
• 38:21
  Speaker 2: Starward, Deutsche Bank Funds. How big is the platform if
• 38:26
  Speaker 2: you put all those assets together.
• 38:28
  Speaker 6: Yeah, so I think if you added up all the
• 38:31
  Speaker 6: assets that are on the platform, and'd be around two
• 38:34
  Speaker 6: hundred billion that we're trading today. But we made an
• 38:37
  Speaker 6: announcement a week ago, so you know, I talked about
• 38:40
  Speaker 6: registered funds is where we started. But we just launched
• 38:43
  Speaker 6: our first private real estate fun group, Walton Global is
• 38:48
  Speaker 6: now listed on our marketplace. We had four different you know,
• 38:52
  Speaker 6: large transactions in that but that was our first foray
• 38:55
  Speaker 6: into private real estate. Private real estate is a fourteen
• 38:58
  Speaker 6: trillion dollar marketplace, so it's a it's a it's a
• 39:02
  Speaker 6: wide addressable market.
• 39:03
  Speaker 2: But what do you mean by private real estate. It's
• 39:05
  Speaker 2: not like the Sweeney the Sweeney ranch on the Jersey Shore.
• 39:10
  Speaker 2: I mean, what are you talking about.
• 39:11
  Speaker 6: Yeah, So a lot of times you have sponsors that
• 39:13
  Speaker 6: put together private real estate deals. They raise capital from,
• 39:18
  Speaker 6: you know, large investors. Typically you have to be accredited
• 39:21
  Speaker 6: to invest in those types of investments, and so they
• 39:25
  Speaker 6: put those deals together, and typically you have to wait
• 39:28
  Speaker 6: for the sponsor to have a liquidity event before you
• 39:30
  Speaker 6: yourself can find one. So we're now starting to work
• 39:32
  Speaker 6: with sponsors to help them find liquidity for their shareholders
• 39:35
  Speaker 6: that wanted early.
• 39:36
  Speaker 1: Right, if i were a shareholder in one of those
• 39:37
  Speaker 1: things and I'm looking around Manhattan, I need to get
• 39:41
  Speaker 1: out of this thing because I think when XYZ Building
• 39:44
  Speaker 1: on Third Avenue trades, it's going to trade a fifty
• 39:45
  Speaker 1: cents on the dollar. So you're getting into a marketplace
• 39:49
  Speaker 1: that is going to have incredible volatility, I would say
• 39:52
  Speaker 1: over the next five to ten years.
• 39:53
  Speaker 6: So I mean, yeah, I do agree that there are
• 39:57
  Speaker 6: some segments of commercial real estate that are going to
• 40:00
  Speaker 6: be very volatile, and there's they're definitely if you're looking
• 40:04
  Speaker 6: at New York, you're looking at It's San Francisco, those places.
• 40:08
  Speaker 6: When you're looking at commercial real estate, office buildings, they're
• 40:11
  Speaker 6: they're really in a tough spot. I think the biggest
• 40:15
  Speaker 6: thing that they have right now is the financing right
• 40:17
  Speaker 6: the sponsors themselves trying to find the ability to refinance
• 40:21
  Speaker 6: those deals. It's going to be really challenging.
• 40:23
  Speaker 3: But not a lot of volatility.
• 40:25
  Speaker 2: If you're looking in like the Columbus, Ohio metropolitan area
• 40:29
  Speaker 2: of course, looking at student housing, looking at medical offices,
• 40:32
  Speaker 2: looking at movie theaters, multi families Okay.
• 40:35
  Speaker 6: Yeah, multi family is having like some real success though
• 40:38
  Speaker 6: too as well.
• 40:39
  Speaker 1: Yeah, exactly who do you compete against?
• 40:42
  Speaker 6: There aren't any There aren't many direct competitors. You know,
• 40:45
  Speaker 6: Nasdaq has a private funds division that they are they're successful,
• 40:51
  Speaker 6: but we don't compete head to head right now. The
• 40:53
  Speaker 6: things that they do we don't, and most of the
• 40:55
  Speaker 6: things that we do they don't. So there's so there's
• 40:59
  Speaker 6: it's just now people starting to move into this space.
• 41:02
  Speaker 6: So it's a great opportunity right to be kind of
• 41:04
  Speaker 6: the first to do it.
• 41:05
  Speaker 1: Now, do you put up capital to facilitate facilitate these
• 41:08
  Speaker 1: trades or you just simply a broker.
• 41:10
  Speaker 6: We're agentcy, we're agency. Yeah, so we're not buyers, we're
• 41:15
  Speaker 6: sellers of the asset.
• 41:16
  Speaker 1: We're matching and get an average transaction sise for you
• 41:18
  Speaker 1: on average.
• 41:19
  Speaker 6: Let's say one hundred to five hundred thousand dollars. It's
• 41:23
  Speaker 6: probably the average. And the more private it gets, the
• 41:27
  Speaker 6: larger the size of the transaction.
• 41:30
  Speaker 1: And how many trades do you do a day or
• 41:32
  Speaker 1: something like that.
• 41:34
  Speaker 6: It varies because it's an ill liquid market. It varies.
• 41:36
  Speaker 6: You could have a couple a day or you could have,
• 41:39
  Speaker 6: you know, twenty a day.
• 41:41
  Speaker 1: But it's how long does it take you to kind
• 41:43
  Speaker 1: of execute a trade? I mean, it's not like me
• 41:45
  Speaker 1: back at Paineweber pushing my button for Alliance and I'm
• 41:48
  Speaker 1: dumping my four and one thousand shares of you know,
• 41:50
  Speaker 1: XYZ stock to Alliance.
• 41:52
  Speaker 11: Yeah.
• 41:52
  Speaker 6: So it's actually we do We've set our marketplace up
• 41:55
  Speaker 6: in a very traditional way.
• 41:57
  Speaker 1: All Right, thanks so much for you're listening to the
• 42:00
  Speaker 1: Cat's Are Live program.
• 42:01
  Speaker 8: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
• 42:05
  Speaker 8: the tune in app, Bloomberg dot Com.
• 42:07
  Speaker 11: And the Bloomberg Business app.
• 42:09
  Speaker 8: You can also listen live on Amazon Alexa from our
• 42:12
  Speaker 8: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
• 42:18
  Speaker 1: We're talking a lot about AI and for a good reason.
• 42:20
  Speaker 1: We've got as we have just heard from Elon Musk.
• 42:22
  Speaker 1: Elon Musk and a lot of other tech leaders CEO
• 42:25
  Speaker 1: types down in Washington, d C. Meeting with a select
• 42:28
  Speaker 1: group of senators talking about AI. Kind of an education process,
• 42:32
  Speaker 1: if you will. So you know, AI in the overnight
• 42:36
  Speaker 1: has become the front and center for global Wall Street
• 42:40
  Speaker 1: and global regulators as well, and we want to continue
• 42:42
  Speaker 1: that conversation today with Ashley Still, Senior vice president and
• 42:45
  Speaker 1: general manager for Creative Cloud and document Cloud at Adobe. Ashley,
• 42:50
  Speaker 1: thanks so much for joining us here. Again, a lot
• 42:53
  Speaker 1: of attention on AI now today down to Washington, d C.
• 42:56
  Speaker 1: Some of the regulators trying and some of the politicians
• 42:59
  Speaker 1: and are trying to get a little bit educated by
• 43:01
  Speaker 1: some of the tech leaders. How do you folks at
• 43:04
  Speaker 1: Adobe approach AI in your business.
• 43:09
  Speaker 14: Well, first, Paul, thank you so much for having me.
• 43:12
  Speaker 14: It's great to be with you today.
• 43:14
  Speaker 3: And as you.
• 43:15
  Speaker 14: Said, AI just has huge power to enable many things.
• 43:21
  Speaker 14: At Adobe, what we're really focused on is how AI
• 43:25
  Speaker 14: can accelerate creativity. We believe every human is creative, everybody
• 43:30
  Speaker 14: has a story to tell, and we're using AI to
• 43:36
  Speaker 14: enable anyone to create content and to share their story.
• 43:41
  Speaker 14: The way that we do that is through Adobe Firefly,
• 43:44
  Speaker 14: which is our family of creative, generative AI models, and
• 43:48
  Speaker 14: we are announced today that Firefly is now generally available
• 43:52
  Speaker 14: after very successful beta. It's available both as a standalone
• 43:56
  Speaker 14: web application, so anyone that has access to a browser
• 44:00
  Speaker 14: and can type into simple text prompt can create content.
• 44:03
  Speaker 14: But it's also now built into the fabric of our
• 44:07
  Speaker 14: incredibly powerful creative tools like Photoshop and Illustrator, so that
• 44:12
  Speaker 14: professional creators and designers can use AI to add expressiveness
• 44:18
  Speaker 14: and bring their ideas to life in even richer ways.
• 44:21
  Speaker 1: And actually, one of the concerns, early concerns of AI
• 44:25
  Speaker 1: and its applications, we're seeing a play out in Hollywood
• 44:28
  Speaker 1: a little bit. A lot of the writers are concerned
• 44:31
  Speaker 1: about AI. They're concerned about a number of things, but
• 44:33
  Speaker 1: one of them is AI. How do you think about
• 44:36
  Speaker 1: just how the protections around the content that can be
• 44:41
  Speaker 1: created through AI, how do you expect that to evolve?
• 44:44
  Speaker 1: Does Adobe have a point of view on that?
• 44:49
  Speaker 3: Absolutely?
• 44:50
  Speaker 14: So, first, we've been really thoughtful about how we even
• 44:55
  Speaker 14: train our models, and they're different approaches out there with
• 44:58
  Speaker 14: different AI services. The approach that we take is we
• 45:02
  Speaker 14: only train our models on content that we have licensed
• 45:05
  Speaker 14: to as well as content that has an open license
• 45:10
  Speaker 14: on the Internet. And this is different than going out
• 45:13
  Speaker 14: and kind of scraping the Internet, which has a lot
• 45:17
  Speaker 14: of implications for artists rights and their protections.
• 45:22
  Speaker 7: Right.
• 45:23
  Speaker 14: So, obviously Adobe, we are very passionate about our role
• 45:28
  Speaker 14: in advancing creativity and being a part of the creative community,
• 45:32
  Speaker 14: and it really starts with how we're going about training
• 45:36
  Speaker 14: our models. It doesn't stop there. We build those protections
• 45:41
  Speaker 14: into our services, right So, for example, artist's style is
• 45:47
  Speaker 14: something that is very concerning right now to the creative community,
• 45:51
  Speaker 14: and you reference Hollywood. People spend you know, a decade
• 45:57
  Speaker 14: or more developing their style, whether they're in, whether they're
• 46:01
  Speaker 14: an advertising, whatever it might be, and there's real concern
• 46:05
  Speaker 14: about AI's ability to transfer that style instantaneously.
• 46:11
  Speaker 3: We build that.
• 46:11
  Speaker 14: Protection into our products and we also are supporting regulation
• 46:17
  Speaker 14: to protect artist style as well.
• 46:19
  Speaker 1: So what at Adobe and Firefly give us us some
• 46:23
  Speaker 1: examples of kind of how your technology is used, maybe
• 46:27
  Speaker 1: who uses and what and what do they use it for?
• 46:30
  Speaker 14: So we are building Firefly across our family of applications
• 46:35
  Speaker 14: and our mission, Adobe's Creativity for all. We have applications
• 46:40
  Speaker 14: that anyone can use. Again I referenced Firefly dot Adobe
• 46:45
  Speaker 14: dot com. That's a new web application that is a
• 46:48
  Speaker 14: playground for anyone that wants to explore creative expression using AI.
• 46:54
  Speaker 14: All you need is a browser and the ability to
• 46:57
  Speaker 14: write simple text prompts and you can create images, you
• 47:00
  Speaker 14: can create text effects and really anyone can use that.
• 47:05
  Speaker 14: But we also have Adobe Express, which is an all
• 47:10
  Speaker 14: in one creativity application where you can create text image
• 47:15
  Speaker 14: as well as text effects, create posters, flyers, social media posts. Again,
• 47:21
  Speaker 14: so people that want to generate content easily can use
• 47:26
  Speaker 14: Adobe Express. And as I mentioned before, we are really
• 47:30
  Speaker 14: deeply building AI into our professional workflows across Photoshop, Illustrator
• 47:36
  Speaker 14: and more applications will be coming soon. What this does
• 47:40
  Speaker 14: for our creative professional community is increase the value of
• 47:45
  Speaker 14: our applications that enables them to idate faster and be
• 47:48
  Speaker 14: more productive.
• 47:50
  Speaker 1: And who's a typical user of your products? Is it?
• 47:53
  Speaker 1: I mean, like, how much of your customers are they
• 47:56
  Speaker 1: individuals versus corporate that kind of thing. Who's a typical
• 47:59
  Speaker 1: user and who do you think I think that'll evolve?
• 48:01
  Speaker 14: It ranges right, we have we're in We're very fortunate
• 48:08
  Speaker 14: that we have an incredibly broad customer base, whether it's students,
• 48:13
  Speaker 14: our products are used in K twelve schools, of course,
• 48:18
  Speaker 14: creative professionals and creative professionals they often work for themselves
• 48:23
  Speaker 14: or they can work for the largest companies in the world.
• 48:27
  Speaker 14: And what we're really seeing across the board is whether
• 48:31
  Speaker 14: you're a consumer or whether you're a professional, the demand
• 48:35
  Speaker 14: to create content to tell your story is continuing to
• 48:40
  Speaker 14: explode businesses. Every business is a digital business, and they
• 48:44
  Speaker 14: need content to power how they're engaging with customers across channels,
• 48:50
  Speaker 14: whether it's TikTok or YouTube or their own website. And
• 48:54
  Speaker 14: certainly from a consumer standpoint, I mean, I just look
• 48:56
  Speaker 14: at my own kids. They create content all the time,
• 48:59
  Speaker 14: and it's to make people laugh, it's to express an idea,
• 49:03
  Speaker 14: whether it's with friends or at school. And so we
• 49:06
  Speaker 14: serve all of those needs. And what's incredibly exciting about
• 49:10
  Speaker 14: Firefly and AI, it's enabling us to serve all of
• 49:15
  Speaker 14: those needs in unique and new ways, and so it
• 49:18
  Speaker 14: really expands the tent of who can create.
• 49:22
  Speaker 1: So what's the next step do you think, what's the
• 49:25
  Speaker 1: next new thing? You guys are working on an Adobe
• 49:28
  Speaker 1: as it relates to AI.
• 49:30
  Speaker 14: Absolutely, so we continue to advance our core models and
• 49:36
  Speaker 14: you know, it's still early days right in the era
• 49:39
  Speaker 14: of generative AI, and so the quality, the breadth, and
• 49:43
  Speaker 14: the depth of those models continues to evolve, and that
• 49:48
  Speaker 14: just gives us the ability to bring rich capabilities across
• 49:51
  Speaker 14: all of our applications. We also are working on new
• 49:56
  Speaker 14: media right, so we're we're doing great search in video
• 50:01
  Speaker 14: and three D and how again, we bring the power
• 50:04
  Speaker 14: of AI to all of the types of media that
• 50:08
  Speaker 14: people create through our applications. So stay tuned for more
• 50:13
  Speaker 14: on those all.
• 50:14
  Speaker 1: Right, Ashley, thank you so much for joining us. Really
• 50:16
  Speaker 1: appreciate it. Fascinating stuff ever changing, that's for sure, Ashley
• 50:20
  Speaker 1: Still she's a senior vice president and general manager at
• 50:23
  Speaker 1: the creative cloud and document cloud business over there at
• 50:27
  Speaker 1: our good friends at Adobe. So interesting stuff there and
• 50:30
  Speaker 1: again AI kind of hitting pretty much every part of
• 50:33
  Speaker 1: the economy, it seems like when you listen to some
• 50:34
  Speaker 1: of the use cases, but certainly when it comes to
• 50:37
  Speaker 1: content creation, that's where the opportunities are and that's where
• 50:41
  Speaker 1: for a lot of people the potential risk are. And
• 50:44
  Speaker 1: we're seeing that again play out with the Hollywood writers.
• 50:48
  Speaker 1: One of the things we're looking at is maybe some
• 50:49
  Speaker 1: protections from AI impacting their business and getting credit for
• 50:55
  Speaker 1: what they actually create. So keep an eye on that.
• 51:00
  Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
• 51:03
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• 51:07
  Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
• 51:10
  Speaker 2: at Matt Miller nineteen seventy three.
• 51:13
  Speaker 1: And I'm Faul Sweeney. I'm on Twitter at pt Sweeney.
• 51:15
  Speaker 1: Before the podcast, you can always catch us worldwide at
• 51:18
  Speaker 1: Bloomberg Radio.