Latest / Bloomberg Intelligence / Deere’s Disappointing Outlook Shows Farm Recovery Is Elusive

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Deere’s Disappointing Outlook Shows Farm Recovery Is Elusive · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 2: One of my favorite American companies is Dear John Dear Company,
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  Speaker 2: because it just to me. A the products are just awesome,
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  Speaker 2: the big tractors and stuff like that, and B they're
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  Speaker 2: such high quality, and they're just known around the world.
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  Speaker 2: Great engineering, great technology, and they're just the backbone for
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  Speaker 2: the American farmer. It's the tool for the American farmer
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  Speaker 2: who feeds the world. So I just always followed this
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  Speaker 2: company really closely, and they came out with some numbers disappointing.
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  Speaker 2: It's a little tough out there in farm country. So
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  Speaker 2: we want to break it down with Chris Chiolino. He
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  Speaker 2: covers all the big machinery companies for Bloomberg Intelligence, just
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  Speaker 2: one of our top top analysts. He knows this story well. Chris,
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  Speaker 2: tell us what you heard from Deer with their most
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  Speaker 2: recent quarterly results. Yeah, thanks, Paul.
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  Speaker 3: You know, we expected pretty conservative guidance coming into the print.
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  Speaker 3: But this was, you know, well below our expectations, and
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  Speaker 3: I'd say even you know, below some of the most
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  Speaker 3: bearish estimates out there, and really just kind of points
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  Speaker 3: to a lower for longer agg cycle here in North America.
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  Speaker 3: Their twenty sixth net Income guide calls for another ten
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  Speaker 3: percent decline in twenty twenty six. It implies roughly earnings
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  Speaker 3: per share in the sixteen dollars and fifty cent range,
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  Speaker 3: which is, you know, eighteen percent below consensus. So it's
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  Speaker 3: not great news. I would say there are a couple
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  Speaker 3: positive takeaways though. One, we do finally now have I
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  Speaker 3: think visibility and line of sight on trough earnings this cycle.
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  Speaker 3: In two, I think there's probably some inherent conservatism built
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  Speaker 3: into this outlook, just given the lingering you know, trade
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  Speaker 3: and tariff uncertainty.
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  Speaker 4: Yeah. Well, Chris, I'm looking add that net income guidance,
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  Speaker 4: which is down sharply from last year's levels, right, So
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  Speaker 4: talk to us about that. Do you think that is
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  Speaker 4: more of a cyclical thing or are we actually seeing
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  Speaker 4: something more structural that's playing out in this space.
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  Speaker 3: No, it's the cycle, you know. I think we always
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  Speaker 3: tend to kind of undershoot on the way down and
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  Speaker 3: overshoot on the way up. But this cycle is, you know,
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  Speaker 3: playing out I think probably a little bit more severe
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  Speaker 3: than we had initially expected. Large eg. Retail sales here
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  Speaker 3: in North America are going to be down roughly thirty
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  Speaker 3: percent this year. That's the second year of the decline,
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  Speaker 3: and now Deer is expecting another fifteen to twenty percent
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  Speaker 3: decline in twenty twenty six. That would put volumes at
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  Speaker 3: the lowest level in more than four decades. I don't
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  Speaker 3: think I have a model that goes back far enough
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  Speaker 3: that shows that trough level of volume, So I think
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  Speaker 3: it's we're pretty confident that this will be the bottom.
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  Speaker 3: It's just kind of a lower floor.
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  Speaker 2: On the flip side.
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  Speaker 3: I mean, the earnings per share are still, you know,
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  Speaker 3: we think are structurally higher just given some of the
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  Speaker 3: improvements they've made in the business model. But from a
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  Speaker 3: cycle and volume perspective, this is as bad as it gets.
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  Speaker 2: Why do you think that is what's different around about
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  Speaker 2: this cycle versus past cycles here?
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  Speaker 3: Yeah, it's a combination of a couple things. I mean,
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  Speaker 3: at the end of the day, farmers aren't going to
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  Speaker 3: buy equipment when you have crop prices that are down.
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  Speaker 3: You know, we've seen a little bit of improvement in
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  Speaker 3: corn and soy over the last three months, but at
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  Speaker 3: the end of the day, we've had too much production
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  Speaker 3: over supply, so that's put a lid on where crop
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  Speaker 3: prices have been going. We also have high input costs,
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  Speaker 3: so while we're starting to see some of that inflation moderate,
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  Speaker 3: a lot of the input costs for farmers are still
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  Speaker 3: very elevated. Even on the interest rent, labor, fertilizer costs
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  Speaker 3: are still too high. And then on top of that,
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  Speaker 3: you have all the trade uncertainty. Who am I going
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  Speaker 3: to sell my crops to? China had essentially stopped buying
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  Speaker 3: our soybeans. That's our largest ad customer and a particularly
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  Speaker 3: important market for deer in row crop farmers. So the
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  Speaker 3: combination of those three I think has really kind of,
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  Speaker 3: you know, extended the duration of this downturn.
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  Speaker 4: Yeah, well, we know, of course that South American demand
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  Speaker 4: expected to be flat, so I suppose a lot of
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  Speaker 4: growth potentially coming from a North American farm economy. But
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  Speaker 4: what are the signs that you would want to look
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  Speaker 4: out for to suggest that, Look, the worst really is
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  Speaker 4: behind this company. There's a turn and forthcoming in the horizon.
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  Speaker 3: Yeah. I think the first you're going to look at
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  Speaker 3: crop prices, and I think we're starting to see a
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  Speaker 3: little bit of positive momentum there with China, you know,
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  Speaker 3: getting back into the US market and making a few
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  Speaker 3: soybean purchases. So some stability on the crop price front
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  Speaker 3: that would be one. And then two is really having
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  Speaker 3: China back in the market more consistently, right, We need stability,
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  Speaker 3: we need predictability around their purchases. You know, they kind
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  Speaker 3: of fell short on their Phase one trade deal agreement
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  Speaker 3: during the first Trump administration, so we need to see them,
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  Speaker 3: you know, consistently back the market, and I think that
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  Speaker 3: will kind of give farmers confidence then maybe then to
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  Speaker 3: go out and start replacing some of this aged equipment.
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  Speaker 2: Is there a fact concern that again, last time, the
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  Speaker 2: last Trump administration, the last time it deal was to
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  Speaker 2: reach for China to buy more US agg China did
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  Speaker 2: not really follow through at the end of the day.
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  Speaker 2: Is there a belief that maybe this time could be different.
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  Speaker 3: It's a good question, and I don't know that's the
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  Speaker 3: million dollar question, right. So I think ultimately this is
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  Speaker 3: why this is going to be a show me story
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  Speaker 3: and until China, you know, delivers on some of their
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  Speaker 3: commitments and delivers consistently. Farmers aren't going to go out
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  Speaker 3: and spend. So when we see that occur, I think
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  Speaker 3: that will lend more support to improvement and crop prices.
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  Speaker 3: And then I do think, you know, you start to
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  Speaker 3: see farmers start to go out and some replace some
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  Speaker 3: of those you know, aged equipment in the on their fields.
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  Speaker 3: But again it's very much I think we need to
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  Speaker 3: see it to believe it first.
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  Speaker 2: Stay with us. More from Bloomberg Intelligence coming up for this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: get your podcasts, or watch us live on YouTube.
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  Speaker 2: Earnings continued to come in. We had a couple of
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  Speaker 2: the tech companies Dell and HP report numbers. Let's break
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  Speaker 2: it down with Woujinho, senior Technology anals Bloomberg Intelligence joining
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  Speaker 2: us from our Princeton HQ Tennant Jersey. All right, would
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  Speaker 2: you let's start with Dell here. It looks like they're
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  Speaker 2: raising their annual projections for the AI server market. Is
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  Speaker 2: that still the heart of the story.
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  Speaker 5: Hey, Paul, Yeah, so it's the leading part of the
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  Speaker 5: story for results. They raised their AI server guidance from
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  Speaker 5: twenty billion to twenty five billion, a lot of that
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  Speaker 5: coming into the fiscal fourth quarter. And look at the
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  Speaker 5: end of the day, we're starting to see some of
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  Speaker 5: these clustered Blackwell deals starting to come through. Think about
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  Speaker 5: the open aiyes and the core weaves and so on
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  Speaker 5: and so forth. That are billions of dollars for each
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  Speaker 5: of these deals, and that's probably going to carry through
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  Speaker 5: into fiscal twenty twenty seven.
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  Speaker 4: Now ougent a lot of folks. Of course, in that
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  Speaker 4: positive story, I suppose the less positive spin here is
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  Speaker 4: the fact that this is going to cost Dell a
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  Speaker 4: lot of money to deliver these orders, right, And I
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  Speaker 4: think some analys are taking a look at the margins
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  Speaker 4: that they reporter, which came slightly under estimates depending on
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  Speaker 4: the measured are you're looking at. But you know, what
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  Speaker 4: is it. Where does kind of the layer of the
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  Speaker 4: land go when it comes to kind of cost versus
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  Speaker 4: return for Dell's ability to deliver these AI service and
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  Speaker 4: get some profit off of that.
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  Speaker 5: Yeah, Hey, hey Christina, so sore, there's actually a tale
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  Speaker 5: of there are two stories behind the margins. The gross
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  Speaker 5: margin expectations. You know, I was back into about twenty
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  Speaker 5: point three percent, twenty point four percent on growth margins
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  Speaker 5: for the company. Contestants that twenty two percent. Uh, and
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  Speaker 5: you're right, AI server margins are lower, but that's always
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  Speaker 5: consistently been the case. Now, the one thing I will
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  Speaker 5: say the AI several margins have improved this quarter relative
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  Speaker 5: to the fiscal two quarter results, as as their supply
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  Speaker 5: chain has gotten better. Now, the bigger story is, and
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  Speaker 5: it actually applies to HP is that the DRAM pricing
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  Speaker 5: has gone up and these higher commodity costs is bringing
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  Speaker 5: a drag to potentially bringing a drag to not only
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  Speaker 5: their PC business, but their server business as well. So
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  Speaker 5: I think there's something else underlying that's driving the margins lower.
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  Speaker 2: All right, so let's talk about HP HPE. Is the
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  Speaker 2: tickery HPQ, HPQ exactly? Okay, talk to us about the
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  Speaker 2: current I guess it gave an estimate that fell short
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  Speaker 2: on the profits they're going to and I also saw
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  Speaker 2: like they're going to cut four to six thousand employees
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  Speaker 2: through fiscal twenty eight by using more AI tools. See
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  Speaker 2: that goes to my thing. I think my thesis has
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  Speaker 2: been from the beginning that AI is going to be
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  Speaker 2: a net job destroyer. Here talk to us about HP.
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  Speaker 2: What did they tell us this quarter?
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  Speaker 5: Yeah, so, just as I was saying, Paul, the higher
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  Speaker 5: commodity costs is actually going to be pinching gross margins
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  Speaker 5: the way I'm looking at it right now, they cut
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  Speaker 5: their EPs guidance. Well, they're saying that the higher commodity
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  Speaker 5: cost is going to pinch about thirty cents an EPs
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  Speaker 5: and fysical twenty six, and that's roughly about eight to
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  Speaker 5: ten percent of earnings that's being pulled away because of
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  Speaker 5: the higher commodity costs. There's going to be more back
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  Speaker 5: end loaded. So what that tells me is that the
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  Speaker 5: stockpiled inventory at least into the first half of the year.
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  Speaker 5: But I think there's a bigger part of the story too.
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  Speaker 5: You don't cut back on a headcount. It looks like
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  Speaker 5: about an eight percent riff or reduction in force because
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  Speaker 5: of AI if you're in a position of strength. So
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  Speaker 5: they've been in cost cutting mode for the past five
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  Speaker 5: six years now, and they've continued to be in cost
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  Speaker 5: cutting mode. So you know, profits are going to be terrible,
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  Speaker 5: and they're going to try to preserve their cash flow
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  Speaker 5: to pay back their shareholders by cutting headcount.
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  Speaker 4: Yeah, well interesting region. As you mentioned, they've been in
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  Speaker 4: cost cutting mode for years now, this is their second
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  Speaker 4: round of major workforce reductions in three years. The shares
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  Speaker 4: though not really liking what they saw from HP yesterday.
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  Speaker 4: How do you think investors are interpreting this? Are they
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  Speaker 4: wanting more cost cuts? Like? What do you think they're
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  Speaker 4: expecting from HP moving forward?
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  Speaker 5: Yeah? So, Christina, no one likes cost cuts shareholders made
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  Speaker 5: from a profits perspective, but you're not getting the profit gains, right,
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  Speaker 5: So consensus was at three thirty five and EPs, and
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  Speaker 5: if it's thirty cents of the EPs cuts were primarily
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  Speaker 5: from the supply chain edwins, you're not getting the games
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  Speaker 5: from the cost cutting cuts, at least not in fiscal
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  Speaker 5: twenty six, but hopefully a little bit better in twenty
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  Speaker 5: seven and twenty eight. So it's more a wait and
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  Speaker 5: see and what those impacts are going to be. And again,
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  Speaker 5: like I said, you're not cutting costs from a possession
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  Speaker 5: of strength. It's more of a position of weakness.
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  Speaker 2: Hey, for Dell, going back to Dell, silver Lake owns
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  Speaker 2: a big, big chunk of the stock here. What have
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  Speaker 2: they said about their intentions with the stock?
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  Speaker 5: Well, look, look, I believe Michael Dell is a has
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  Speaker 5: a seat with silver Lake. I think they're going to
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  Speaker 5: hang on to it for quite a bit. I mean,
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  Speaker 5: if you think about where where Dell was when they
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  Speaker 5: came out of being a private company to a public company,
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  Speaker 5: the returns on that has been fairly good. So if
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  Speaker 5: the AI story continues to take hold, right and they
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  Speaker 5: continue to take market share and they can drive margin expansion,
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  Speaker 5: you know, I wouldn't be surprised if valuations continue to
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  Speaker 5: expand from here because we're coming we're still coming off
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  Speaker 5: the peak and the performance of the shares or could
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  Speaker 5: continue to drive returns for civil Lake going forward.
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  Speaker 4: Okay, why do you walk us through the Dell operating
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  Speaker 4: leverage standpoint? Here's what's your take on that, because that's
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  Speaker 4: been kind of a point of I guess focus for
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  Speaker 4: markets recently. Just the fact that are these companies that
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  Speaker 4: aim to deliver the servers, are the equipment related to
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  Speaker 4: AI demand? Are they going to have to borrow a
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  Speaker 4: ton of money to be able to deliver that? For
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  Speaker 4: some companies like Oracle is not working out, But how's
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  Speaker 4: it working out for Dell?
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  Speaker 5: Yeah, I mean, the one great thing about Dell is
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  Speaker 5: they have a very solid balance sheet. They don't have
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  Speaker 5: much debt coming out, They deliver a lot of cash flow.
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  Speaker 5: They're only half full of hardware companies that can do that,
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  Speaker 5: So this goes another one that has a strong enough
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  Speaker 5: balance sheet to support that. And also, you know, going
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  Speaker 5: back to Paul's point on the Silver Laker relationship, Soblick
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  Speaker 5: actually has ties to some of these customers who are
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  Speaker 5: buying these larger deals, so funding really shouldn't be an
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  Speaker 5: issue with them. Now to your point about margins and
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  Speaker 5: the marginal leverage, having a diversified business is a very
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  Speaker 5: good thing for Dell. I know that the AI server
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  Speaker 5: margins are pretty weak, and the PC margins are weak
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  Speaker 5: as well, but they have a fairly sizable traditional IT
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  Speaker 5: service business traditional servers as well as storage, and that's
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  Speaker 5: going through an upgrade of modernizations cycle and that has
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  Speaker 5: higher margins that that helps cushion the lower margin profiles
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  Speaker 5: of the AI servers for them. So diversity in the
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  Speaker 5: business model is actually a good thing, not only for Dell,
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  Speaker 5: but for Cisco and Hpe Stay with us.
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  Speaker 2: More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto
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  Speaker 1: with the Bloomberg Business Up. Listen on demand wherever you
• 14:02
  Speaker 1: get your podcasts, or watch us live on YouTube.
• 14:06
  Speaker 2: Lots of earnings out, one of them is Petco. Some
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  Speaker 2: concerns out there. Deanna Ressett Openia, she's a consumer Staples
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  Speaker 2: and at Bloomberg Intelligence, Dianna talk to us about Petco.
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  Speaker 2: What did they what did you learn with their earnings
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  Speaker 2: and what's their strategy going forward?
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  Speaker 6: Yes, so there were pretty much pretty in line with consensus.
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  Speaker 6: In terms of Phase two. EBIDA was very strong. They
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  Speaker 6: grew more than one hundred basis points EBIDA margin, So,
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  Speaker 6: you know, phase two of their strategy of creating profitable
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  Speaker 6: sales growth seems to be on track. Now the next phase,
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  Speaker 6: which is actually getting consent comparable sales to grow, that's
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  Speaker 6: probably going to be an inflection they will probably see
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  Speaker 6: in the second half of twenty twenty six.
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  Speaker 4: Yeah, so, Dana, very interesting that Petco actually managed to
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  Speaker 4: expand their margins, especially in the environment where costs are
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  Speaker 4: rising left and right. Talk to us about what sort
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  Speaker 4: of strategy is they used to be able to achieve
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  Speaker 4: that is something that they can sustain moving forward.
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  Speaker 6: Yes, so basically they try to be a little bit
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  Speaker 6: smarter with their inventory, their you know, displaying better margin
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  Speaker 6: items on the shelves. They're relying more on services. They're
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  Speaker 6: trying to do a little bit more on the on
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  Speaker 6: the grooming side and on the bed side. That generates
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  Speaker 6: a lot of income and a lot of profitability for them. So,
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  Speaker 6: you know, obviously costs store closings also helped in the quarter.
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  Speaker 6: So that is how they have managed to grow more
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  Speaker 6: than one hundred basis points margins in the past three quarters.
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  Speaker 2: What is the competitive landscape of the pet food business?
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  Speaker 6: So they said that it has not it's stabilized. You know,
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  Speaker 6: in the past few quarters we have seen the likes
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  Speaker 6: of Chewy and pet Costs say that consumers remain a
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  Speaker 6: little bit more conservative with their spending, particularly on discretionary items.
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  Speaker 6: It seems that that has stabilized and family formation or
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  Speaker 6: pet family formation has stabilized as well. We actually think
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  Speaker 6: that by twenty twenty six, we're probably going to see
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  Speaker 6: more pets being adopted probably at the same pace as historicals,
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  Speaker 6: which is usually in the low to mid single digits.
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  Speaker 2: Yeah.
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  Speaker 4: Well, I'm certainly not in a market for a new
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  Speaker 4: pet at the moment, and I think my cat would
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  Speaker 4: allow for that. But Dana, well, how you talk to
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  Speaker 4: us a little bit more about what you mentioned earlier, right,
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  Speaker 4: kind of like diversifying the services they offer. They're focusing
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  Speaker 4: on grooming as well. Are you seeing signs that this
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  Speaker 4: is translating into sustained traffic, especially into their stores.
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  Speaker 2: Yes. Absolutely.
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  Speaker 6: We actually run a survey every you know, we have
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  Speaker 6: been running it for the past three years, and actually
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  Speaker 6: this year was the first time that we saw that
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  Speaker 6: people were a little bit more willing to spend more
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  Speaker 6: on discretionary items compared to previous two years. So we
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  Speaker 6: actually saw that coming earlier this year then, you know,
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  Speaker 6: before everybody was saying it that that was happening. So
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  Speaker 6: people seem to be a little bit more. While they're
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  Speaker 6: being very cautious in their spending, they're actually willing to
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  Speaker 6: you know, groom and take their pets to the.
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  Speaker 2: Vet for sure. All right, so we're in your retail space,
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  Speaker 2: where do you see some of the best opportunities when
• 17:37
  Speaker 2: you're talking to clients, what do they want to talk
• 17:38
  Speaker 2: to you about your names of coverage because you cover
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  Speaker 2: a lot of the consumer products that package goods companies
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  Speaker 2: and things like that.
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  Speaker 6: Yes, so on the pet side, definitely, there seems to
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  Speaker 6: be a little bit more appetite for you know, those
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  Speaker 6: companies that seem to be on the upswing. We have
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  Speaker 6: Chewy that they have expanded their you know, their their
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  Speaker 6: revenue channels beyond merchandise and they're doing more ads and other, uh,
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  Speaker 6: you know, revenues that are going to increase profitability. On
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  Speaker 6: the long term. You have pet Co that is probably
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  Speaker 6: going to start growing in the second half of next year,
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  Speaker 6: so by that time it's probably going to be a
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  Speaker 6: good name that is probably going to be in the
• 18:24
  Speaker 6: in the business for a while.
• 18:25
  Speaker 2: Yeah.
• 18:26
  Speaker 4: Well, a lot of disruptors in the space for sure,
• 18:28
  Speaker 4: But you know, as far as kind of Petco is concerned,
• 18:31
  Speaker 4: it seems like no dividends, really no by passes are
• 18:34
  Speaker 4: on the table at the moment. Is that something that
• 18:37
  Speaker 4: could turn away investors, maybe something that could push towards
• 18:40
  Speaker 4: some of these emerging competitors in the space.
• 18:43
  Speaker 6: Yes, So that is something that they mentioned last night
• 18:47
  Speaker 6: in the call. Obviously, they did not specify when they're
• 18:51
  Speaker 6: going to start returning to shareholders. They're focusing on the
• 18:56
  Speaker 6: strategy getting the right inventor on the shelf as well
• 19:01
  Speaker 6: as getting profitability up there and getting leveraged down to
• 19:06
  Speaker 6: like less than three times. So once that happens, they
• 19:10
  Speaker 6: might be a little bit more willing to see where
• 19:13
  Speaker 6: that goes. You know. It's it's something that the new
• 19:19
  Speaker 6: CEO is thinking about, but not necessarily a timeline just yet.
• 19:23
  Speaker 6: So yeah, shareholders might not necessarily get a return similar
• 19:26
  Speaker 6: to other package food or other consumer stable companies, but
• 19:31
  Speaker 6: it's you know, it seems that this is more of
• 19:33
  Speaker 6: like an investment opportunity in terms of the strategy that
• 19:37
  Speaker 6: they're going through.
• 19:40
  Speaker 2: Stay with us or from Bloomberg Intelligence coming up after.
• 19:43
  Speaker 1: This, you're listening to the Bloomberg Intelligence podcast. Catch us
• 19:50
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• 19:57
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• 20:01
  Speaker 2: O heay. Just in the last year or two, this
• 20:03
  Speaker 2: AI is crept into a vocabulary. I think before it
• 20:07
  Speaker 2: was just big data, and then before that it was
• 20:09
  Speaker 2: just data. I don't know, but it's just everywhere, and
• 20:12
  Speaker 2: I think it's I'm being told it's also going to
• 20:14
  Speaker 2: be part of our shopping experience as well as we
• 20:16
  Speaker 2: head into the big shopping part of the year. I
• 20:18
  Speaker 2: have no idea that's going to work. Matt Brittin, he does.
• 20:21
  Speaker 2: He's the CEO of market research firm Susie and he
• 20:25
  Speaker 2: is the author of a book entitled Generation AI, Why
• 20:28
  Speaker 2: Generation Alpha and the Age of AI will Change Everything. Okay,
• 20:33
  Speaker 2: that that kind of gets at you, Matt, Thanks so
• 20:35
  Speaker 2: much for joining us here AI Shopping Go. What's going
• 20:41
  Speaker 2: to happen?
• 20:42
  Speaker 7: Well, you know, the Internet looks like it's about to
• 20:45
  Speaker 7: have a new front door. For the last two decades
• 20:48
  Speaker 7: if we wanted to find out anything, whether it's for
• 20:50
  Speaker 7: research or we're booking travel or we want to buy something.
• 20:53
  Speaker 7: You know, the word Google has become a verb in
• 20:56
  Speaker 7: our culture, but that is starting to shift. In fact,
• 20:59
  Speaker 7: Google repoorted nine percent year of your decline in their
• 21:02
  Speaker 7: classic link search in Q three of twenty twenty five,
• 21:05
  Speaker 7: and at the same time, chat GBT saw one point
• 21:08
  Speaker 7: eight billion week week queries as of October twenty twenty
• 21:12
  Speaker 7: five and over forty percent of those quarries are searched
• 21:14
  Speaker 7: like in nature. So consumers are sort of acting with
• 21:18
  Speaker 7: their fingers, so to speak, in terms of the sites
• 21:20
  Speaker 7: that they're going to, and they're going to these large
• 21:23
  Speaker 7: language models. Now, it should be stated that Google also
• 21:25
  Speaker 7: has its own large wagage model called Gemini, which released
• 21:28
  Speaker 7: an incredible version of Gemini three just this week. So
• 21:32
  Speaker 7: I'm not saying that Google itself is in trouble, but
• 21:35
  Speaker 7: the notion of going to a traditional search engine to
• 21:38
  Speaker 7: find things at the beginning of your shopping journey, I
• 21:41
  Speaker 7: don't think we'll ever look the same way again.
• 21:43
  Speaker 4: Yeah, Matt, I know exactly what you mean, because just
• 21:45
  Speaker 4: yesterday I was searching in my chat GBT for more
• 21:48
  Speaker 4: affordable dupes of this really expensive skincare product that I'm
• 21:51
  Speaker 4: in the market force. So yes, exactly what you're talking about.
• 21:55
  Speaker 4: But you know, for mine and Paul's generations, this is
• 21:57
  Speaker 4: something that we're still kind of wrapping our heads around, right.
• 22:00
  Speaker 4: But you were talking about Generation Alpha as the generation
• 22:03
  Speaker 4: Dot's basically just very this is innately something that they do,
• 22:08
  Speaker 4: So talk to us about that sort of generational shift.
• 22:11
  Speaker 4: How is that going to change the landscape? Of I
• 22:13
  Speaker 4: guess kind of like consumer activity now that we do
• 22:16
  Speaker 4: have this generation that's just this is just what they do,
• 22:19
  Speaker 4: use AI for everything.
• 22:20
  Speaker 7: Absolutely, So I've spent my career, you know, I started
• 22:23
  Speaker 7: my career in year two thousand and Back then the
• 22:25
  Speaker 7: new consumer was the Millennial generation, which was the first
• 22:28
  Speaker 7: generation to grow up with the Internet and household and
• 22:30
  Speaker 7: then ten to fifteen years later the focus was on
• 22:33
  Speaker 7: Gen Z, which of course is now known as a
• 22:35
  Speaker 7: social media and iPhone generation, meaning that they never knew
• 22:38
  Speaker 7: a world without social media and the iPhone Jen Alpha
• 22:41
  Speaker 7: currently aged zero, the fifteen years old is going to
• 22:44
  Speaker 7: be known as a AI generation. They are never going
• 22:46
  Speaker 7: to know a world without AI, without a technology that
• 22:49
  Speaker 7: you can interact with the same way that you interact
• 22:51
  Speaker 7: with other people. So for them, if you think about it,
• 22:54
  Speaker 7: they never will live with the through a world where
• 22:57
  Speaker 7: you went to Google, right, And one day they may
• 22:59
  Speaker 7: look at traditional search engines the way you and I
• 23:01
  Speaker 7: look at rotary landlines, right, and for them, it's going
• 23:05
  Speaker 7: to be just the facto behavior to go to a
• 23:08
  Speaker 7: chat GIBT to do research. And what's starting to happen
• 23:12
  Speaker 7: is whether it's perplexity or chat GBT. They are all
• 23:15
  Speaker 7: now integrating commerce functionality into their platforms where now you
• 23:19
  Speaker 7: can actually buy on these platforms as well. So are
• 23:23
  Speaker 7: brands ready for this? And I think I know the
• 23:26
  Speaker 7: answer there, Well, they're not, and they're trying to figure
• 23:30
  Speaker 7: it out. And the reality is it's just moving so fast.
• 23:32
  Speaker 7: You know, it's really hard to understand how to behave
• 23:36
  Speaker 7: when you have a new large luggage mail coming out
• 23:38
  Speaker 7: each week. For years, these brands were focused on search
• 23:41
  Speaker 7: engine optimization. How does your brand come up first when
• 23:45
  Speaker 7: someone's searching in your category? Now the big term is GEO,
• 23:48
  Speaker 7: which is essentially optimization for AI. Models and brands right
• 23:51
  Speaker 7: now are clamoring to be the first brand that pops
• 23:54
  Speaker 7: up if someone searches for a luxury handbag under three
• 23:58
  Speaker 7: hundred dollars for a teenage girl. Right every brand wants
• 24:01
  Speaker 7: to be the first brand that Chatt recommends, and right now, frankly,
• 24:04
  Speaker 7: it's kind of a black box and a mystery of
• 24:06
  Speaker 7: how to get there. But it's going to be you know,
• 24:08
  Speaker 7: companies that figure that out are gonna suddenly find themselves
• 24:11
  Speaker 7: in a very fortunate situation. It's going to create new
• 24:14
  Speaker 7: winners and new losers.
• 24:15
  Speaker 2: Very quickly.
• 24:16
  Speaker 4: Yeah, well, Matt just kind of shifting a kron away
• 24:19
  Speaker 4: a little bit from the AI factor here, and just
• 24:22
  Speaker 4: kind of in general kind of some of the emerging
• 24:25
  Speaker 4: trends in shopping at the moment. You mentioned live shopping
• 24:28
  Speaker 4: is something that is becoming more of a thing, certainly
• 24:32
  Speaker 4: for younger generations. That's kind of how they show on
• 24:34
  Speaker 4: they shop on TikTok with creators kind of going live
• 24:38
  Speaker 4: and telling them buy this products.
• 24:40
  Speaker 2: It's kind of like the home Shopping network, but for
• 24:42
  Speaker 2: this a QI exactly new PC exactly.
• 24:45
  Speaker 4: So yeah, tells more about that.
• 24:48
  Speaker 7: So this year, for the first time ever, the average
• 24:50
  Speaker 7: age of a first time mom in the US is
• 24:53
  Speaker 7: gen Z, which means the average age of a mom
• 24:56
  Speaker 7: who's head of their household and buying the Tide to
• 24:59
  Speaker 7: t Urgent and you know, Gillette shaving cream for the home.
• 25:03
  Speaker 7: Grew up looking at their phone, and when they are
• 25:05
  Speaker 7: looking at their phone, they are not looking at content
• 25:08
  Speaker 7: from traditional media networks, but instead content from creators and influencers,
• 25:12
  Speaker 7: people who have built large followings on these platforms through
• 25:15
  Speaker 7: really compelling social media content. For years, these creators were
• 25:19
  Speaker 7: kind of limited to earning money through awareness and impressions.
• 25:22
  Speaker 7: But now they are moving further down the funnel and
• 25:25
  Speaker 7: they are engaging in what you definitely talked about is
• 25:28
  Speaker 7: live shopping, whether it's on TikTok or an emerging platform
• 25:30
  Speaker 7: called whatnot, where they can actually use their audience, use
• 25:34
  Speaker 7: their credibility and authenticity in the space to actually sell products.
• 25:37
  Speaker 7: In some instances, it's products that they actually have an
• 25:39
  Speaker 7: equity stake in or they build on their own, and
• 25:41
  Speaker 7: other instances they're simply an agent earning commission on products
• 25:45
  Speaker 7: that they sell. But I would expect to see more
• 25:47
  Speaker 7: and more of this overtime.
• 25:49
  Speaker 2: Who is or what is the alpha buyer?
• 25:53
  Speaker 7: Well, the alpha buyer is jen Alpha, and the alpha
• 25:56
  Speaker 7: buyer is really skipping the funnel entirely. You know, they
• 25:59
  Speaker 7: are essentially going down social video. They're focusing on creators trusts,
• 26:03
  Speaker 7: they want instant checkout. You know, they have very low
• 26:06
  Speaker 7: tolerance for any friction in the buying process. So it's
• 26:10
  Speaker 7: a completely new set of expectations that businesses really need
• 26:12
  Speaker 7: to build around.
• 26:14
  Speaker 4: Yeah, and you know, I guess when you say that,
• 26:17
  Speaker 4: they're kind of skipping the funnel exactly right. So this
• 26:19
  Speaker 4: could potentially transform how people shop, Like we may not
• 26:22
  Speaker 4: need website setting where people can just go on TikTok
• 26:26
  Speaker 4: or whichever social media like, yeah, are you seeing companies?
• 26:30
  Speaker 2: Think about it?
• 26:30
  Speaker 7: Think about what's been in the last ten years. It's
• 26:32
  Speaker 7: like you hear about something on TV, or maybe you
• 26:36
  Speaker 7: saw an ad on Facebook or Instagram, and then maybe
• 26:38
  Speaker 7: you go on Google and do more research and you
• 26:40
  Speaker 7: go to Amazon and purchase it. Right, So you're going
• 26:42
  Speaker 7: to a variety of different places or a variety of
• 26:44
  Speaker 7: different media channels. But now you can do your research
• 26:48
  Speaker 7: and you can interact, and you can over time purchase
• 26:51
  Speaker 7: on maybe just one platform, right, And that's going to
• 26:54
  Speaker 7: change the entire funnel, and it's going to create you know,
• 26:57
  Speaker 7: the risk there is that you're going to have few
• 26:59
  Speaker 7: arm your companies control more and more of the market,
• 27:02
  Speaker 7: which we've obviously seen with the mag seven over time.
• 27:05
  Speaker 2: You know, obviously open Ai is a new entrant in
• 27:07
  Speaker 2: the space.
• 27:08
  Speaker 7: You have other entrants like Claude which is a large
• 27:12
  Speaker 7: language mouth, Bromanthropic and of course Perplexity if I mentioned
• 27:15
  Speaker 7: so there are some new players, but it's looking more
• 27:17
  Speaker 7: and more like big tech is going to play a
• 27:19
  Speaker 7: huge role in the shift.
• 27:20
  Speaker 2: What does Amazon do you know.
• 27:22
  Speaker 7: I think that's one of the questions I have because
• 27:24
  Speaker 7: if you can buy over chat, gptware has context, what's
• 27:27
  Speaker 7: going to happen with Amazon.
• 27:30
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• 27:38
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