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Berkshire, Tyson, Activision, and Apple (Podcast) · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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Speaker 1: my co host Matt Miller.
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Speaker 2: Every business day we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
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Speaker 1: A little bit of an investor meeting over the weekend. Now,
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Speaker 1: who has investor meetings like on a Saturday?
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Speaker 3: The ones that don't want to have them while markets
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Speaker 3: are publicly trading.
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Speaker 1: I think it's brilliant.
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Speaker 3: And if you want to be the center of attention,
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Speaker 3: you know that people are going to pay attention on
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Speaker 3: a Saturday.
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Speaker 1: I think it's great, and some people actually go out
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Speaker 1: the Omaha, Nebraska to attend. One of those people is
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Speaker 1: Matt Palozola. He's a senior insurance analyst for Bloomberg Intelligence.
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Speaker 1: How was Omaha?
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Speaker 4: I was there. It was fine, it was supposed to
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Speaker 4: be warm. It was a little rainy the first day,
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Speaker 4: but I got to stay in downtown Omaha, which had
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Speaker 4: some nice restaurants.
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Speaker 1: No, so let's get disappointed, Paul, So, I mean, do
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Speaker 1: you literally thousands of people go into an arena.
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Speaker 4: Yeah, it's the downtown arena there. They have two days.
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Speaker 4: The first day is essentially a shopping day where all
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Speaker 4: the companies are there, people are buying stuff hand over fist.
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Speaker 4: Did you get to talk to some of the managements
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Speaker 4: of the companies? Which is coal? And then the second
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Speaker 4: day is the actual meeting.
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Speaker 3: I'm sorry, wait at an arena like college orientation?
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Speaker 4: Like, yeah, no, I think it's described. It's the Chi
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Speaker 4: or Chai. Actually don't know the name of the arena
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Speaker 4: in Omaha. And there are sports teams that play there,
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Speaker 4: so it's it's kind of like a smaller version of
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Speaker 4: a sports arena that you might see here.
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Speaker 1: All right, so takeaways here, occidental patrolling, let's start there.
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Speaker 1: What's burshore Hathway saying they're going to do that?
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Speaker 4: So he shot that down. He specifically brought up, we're
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Speaker 4: not going to buy it. We don't want to buy
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Speaker 4: the whole company. We might buy more of the stock,
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Speaker 4: but we're not interested in owning the whole company.
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Speaker 1: And is that anything more than that? Like we feel
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Speaker 1: like we've got enough energy, we've had enough exposure. Why
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Speaker 1: wouldn't they take a control you didn't.
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Speaker 4: Really touch on it. I mean they have a lot
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Speaker 4: of energy, they own a ton of Chevron as well.
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Speaker 4: Those kind of operate in the same space. So and
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Speaker 4: he said, why would we want to do that, I mean,
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Speaker 4: they own the preferreds. Why would they want to lose
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Speaker 4: that yield on those preferreds to own the stock.
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Speaker 1: That's a good point.
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Speaker 3: Well, you are at its core, as I discovered this
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Speaker 3: morning an insurance guy. So give us the give us
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Speaker 3: the highlights from Geico here.
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Speaker 4: So what was interesting is auto insurers have been really
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Speaker 4: taking it on the chin for the pasting year. The
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Speaker 4: first quarter results surprised on the upside because of Geico.
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Speaker 4: So the results were better than I thought they'd be.
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Speaker 5: A G.
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Speaker 4: Jane, who's in charge of the insurance business and vice chairman,
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Speaker 4: pointed out they had favorable reserve development and it was
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Speaker 4: a little bit of seasonality and he kind of talked
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Speaker 4: down the next two years. So it was a kind
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Speaker 4: of earnings beat on that. But the go forward outlook
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Speaker 4: not great.
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Speaker 1: So so like on the auto business, Detroitch making fewer cars,
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Speaker 1: therefore there's fewer insurance policies. Therefore Geico's business growth that
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Speaker 1: is coming down is that kind of the way I
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Speaker 1: think about it.
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Speaker 4: Not necessarily. So what it is is maybe fewer cars
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Speaker 4: being built, prices of those cars going up, those cars
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Speaker 4: becoming more expensive to repair or replace, thus insurance claims
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Speaker 4: going up. Kiko is actually cutting claim cutting policies to
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Speaker 4: combat that. So their policies are going down, but not
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Speaker 4: for the reason that they're being less cars, for the
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Speaker 4: reason that they're just making less money so they want
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Speaker 4: to stop losing.
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Speaker 1: And they still spend a lot on advertising.
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Speaker 4: They certainly do. All of them are cutting across the board,
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Speaker 4: but cutting.
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Speaker 1: From a large starting right, what else, I'm sorry, what
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Speaker 1: else in the insurance business? Like to explain those what else?
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Speaker 1: Berkshire Hathaway has an insurance.
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Speaker 4: Business, so they have a I know, this is your
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Speaker 4: favorite business, reinsurance business, which is insurance for insurance companies.
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Speaker 4: And what was very interesting was there's renewal points at
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Speaker 4: certain points in the year, and one of the big
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Speaker 4: ones is January first, and Berkshire was kind of a
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Speaker 4: non player in that huge player in the space. So
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Speaker 4: there was a question of what are they seeing that
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Speaker 4: we're not seeing, because this is the prices in reinsurance
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Speaker 4: are doing really well. And other reinsurance can be saying
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Speaker 4: this is great. It's a generational market. And Berkshire, known
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Speaker 4: as one of the smartest players, actually didn't participate and
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Speaker 4: we didn't know what happened. A jet actually said at
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Speaker 4: the meeting, you know what, a lot of capacity came
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Speaker 4: on that undercut us in price in January, but in
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Speaker 4: April we saw that capacity come back. So they're jumping
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Speaker 4: back into reinsurance in a big way. Oh my gosh,
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Speaker 4: so who ensures the reinsurance the retro reinsurance. There's another
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Speaker 4: level of it.
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Speaker 3: Actually, wait really yes, oh okay, that was scastic hing
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Speaker 3: every single day. Let's talk a little bit about the
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Speaker 3: cash pile of the Brickshire is sitting on here, so.
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Speaker 4: One hundred and thirty billion ish in cash. What was
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Speaker 4: incredibly interesting is, you know, the takeaway a lot of
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Speaker 4: headlines where Buffett says operating companies going to make less
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Speaker 4: money next year, which he did say, and it was
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Speaker 4: an extraordinary environment in the past couple of years. That
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Speaker 4: demand was through the roof. If people couldn't buy one thing,
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Speaker 4: they bought another, and that is slowing down, it's stopping.
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Speaker 4: But the cash that they're earning or the interest they're
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Speaker 4: earning right, going from fifty million to five billion on
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Speaker 4: their cash and short term securities, which would essentially offset
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Speaker 4: any decline in demand they saw.
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Speaker 1: All right, is succession not the TV show? We're talking
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Speaker 1: about succession?
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Speaker 3: At so excited for just one second there?
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Speaker 1: Yes, exactly, Greg Abel he is the successor. He was
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Speaker 1: named in twenty twenty one. Is that whole succession question
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Speaker 1: kind of off the table?
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Speaker 6: Now?
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Speaker 7: Yeah?
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Speaker 4: I think, I mean, I think Greg Is is clearly
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Speaker 4: the one who's going to do it. They're trying to
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Speaker 4: get him out there a little bit more. He was
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Speaker 4: on the stage for the first half of the meeting.
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Speaker 1: Why I mean, I got Charlie and I got mister
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Speaker 1: Munger there. Why don't I have the guy who's actually
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Speaker 1: running the business.
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Speaker 4: So so he was. Greg and a Jet were in
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Speaker 4: the at the beginning of the meeting for a couple
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Speaker 4: of hours. Greg didn't get a lot of questions. Unfortunately,
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Speaker 4: Ajet actually ended up talking more than Greg, but he
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Speaker 4: talked a lot in another interview. You know, Buffett and
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Speaker 4: Munger will will say that running their business is quote easy.
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Speaker 4: Clearly it's not, but they have a point in that
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Speaker 4: as constructed even just left alone, will generate significant amounts
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Speaker 4: of capital.
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Speaker 1: All right, I'm going to ask you to go little
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Speaker 1: wonky here, because we're coming into the summer, which means
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Speaker 1: we're coming into hurricane season. How does the state of
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Speaker 1: Florida ensure itself against hurricanes?
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Speaker 4: It's barely hanging on by a thread. So what is
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Speaker 4: going on in Florida is if.
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Speaker 1: I go buy a conda down there with like every
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Speaker 1: one of my neighbors who's moving down to Florida, which
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Speaker 1: I'm not doing, by the way, and that'd be the
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Speaker 1: last thing I do. Can I get insurance down there
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Speaker 1: for my little.
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Speaker 4: You can get it. It would be quite expensive. I
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Speaker 4: believe what was happening is it's not just the weather risk,
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Speaker 4: but the litigious environment in Florida was causing claims to
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Speaker 4: be multiples of what they should be. If a claim
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Speaker 4: was ten thousand dollars, you could end up being one
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Speaker 4: hundred thousand with legal costs and all these things. So
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Speaker 4: what happened is our friends, the reinsurers, actually said we're
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Speaker 4: not reinsuring you anymore, and that led to the primary
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Speaker 4: insurance companies losing financial strength ratings and going out of business.
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Speaker 4: So the cost of it went through the roof, and
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Speaker 4: the state actually ensures a lot of that. Berkshire to
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Speaker 4: bring it back to them, actually jumped into Florida in
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Speaker 4: these reinsurance retals. So if there is a hurricane of
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Speaker 4: Florida and you have me back here in a couple
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Speaker 4: of months, Berkshire would actually be pretty exposed.
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Speaker 1: Now why do you think they got back into the
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Speaker 1: Florida market?
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Speaker 4: So g was saying the pricing was probably just too
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Speaker 4: good to resist. And look, they're incredibly smart, so they
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Speaker 4: know the balance of what the capital are putting at
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Speaker 4: risk versus what they can make.
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Speaker 1: So it's not ideal is it to have this state
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Speaker 1: as the insurance backbone of us?
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Speaker 4: It is not at all the insurance industry, I believe
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Speaker 4: it was Evan Greenberg, the CEO of Chubb, said, we
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Speaker 4: don't want the government taking our business, but there's some
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Speaker 4: point where it just it's not economically viable for them.
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Speaker 1: Is there a solution? Is it something on political?
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Speaker 4: So there is, So Florida has been working on it
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Speaker 4: and they have legislation going through. It's a little bit
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Speaker 4: of wait and see, but I think we're cautiously optimistic
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Speaker 4: that they may have helped the problem, maybe not solved,
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Speaker 4: but helped.
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Speaker 1: You think, I mean again, coming into a hurricane season
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Speaker 1: again and our good friends down in Florida seems to
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Speaker 1: get just hammered it. It seems to be getting worse.
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Speaker 1: So I would think if I were a politician, I'd
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Speaker 1: want to get this thing addressed.
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Speaker 4: Yeah, the frequency and severity of hurricanes is definitely getting
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Speaker 4: worse than Florida.
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Speaker 1: All right, we'll see how it plays out and we'll
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Speaker 1: get to it. All right, some good stuff, thank ver
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Speaker 1: Matt Palizoli. He covers all that good stuff for insurance.
8:38
Speaker 1: For Bloomberg Intelligence.
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8:55
Speaker 1: I guess earnings still matter. They certainly matter. For Tyson
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Speaker 1: Foods stock is down th firteen percent today, fifty two
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Speaker 1: week low, kind of wiping out most of the year's
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Speaker 1: gains here. I guess they missed some numbers here. People
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Speaker 1: aren't eating chicken and what's going on here. Jen Bartash
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Speaker 1: is senior Industry analysts for Bloomberg Intelligence. She follows the
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Speaker 1: food industry Jen TSN, Tyson Foods. What happened.
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Speaker 5: Well with Tyson? It's really a combination of things. One,
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Speaker 5: you've got some structural market issues in the protein market
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Speaker 5: for both beef for beef, pork and chicken, and it's
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Speaker 5: hitting Tyson all simultaneously. And then second, you have some
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Speaker 5: execution issues that are Tyson owned in terms of not
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Speaker 5: running plants at full capacity and weak margins across the board.
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Speaker 5: And so when you put all this together, it turned
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Speaker 5: out to be a really weak quarter for the company.
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Speaker 1: All Right, There's so many cool things on the Bloomberg terminal.
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Speaker 1: PGeo is one of it. It kind of breaks down where
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Speaker 1: companies get their revenue from, and for Tyson it is awesome.
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Speaker 1: Beef thirty eight percent of the revenue, chicken thirty three
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Speaker 1: percent of the revenue, prepared foods nineteen percent of the revenue,
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Speaker 1: and pork ten percent of the revenue. So that's a
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Speaker 1: breakdown for you. So let's just focus on you mentioned
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Speaker 1: one's kind of an industry wide you know, protein issues.
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Speaker 1: What's going on there? I'm meaning my proteins.
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Speaker 5: Well, I think everybody's eating their protein. But but when
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Speaker 5: it comes to the actual cycle of growing animals, there's
10:13
Speaker 5: some structural issues that are happening. So if you remember,
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Speaker 5: not that long ago, we were talking about the beef
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Speaker 5: market and we were talking about how herds were just
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Speaker 5: being we're just being obliterated, and it takes a long
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Speaker 5: time to actually rebuild beef herds, and so what we
10:29
Speaker 5: still haven't really hit the bottom of the beef cycle yet,
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Speaker 5: And so what that means is that there are fewer
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Speaker 5: animals and the prices are higher, so it costs more
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Speaker 5: to get them, and prices at retail have been high,
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Speaker 5: so the demand hasn't been as strong. So there's some
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Speaker 5: some awkwardness going on there. And with Typhoning, everything everybody
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Speaker 5: wants to think about is with the chicken market, and
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Speaker 5: Tyson is underperformed in chicken for a long time. They've
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Speaker 5: made some moves, they've you know, announced to their closing
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Speaker 5: a couple of plants, things like that, but that takes
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Speaker 5: time to actually see the benefit from. And so even
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Speaker 5: though they're you know, they're improving their full rates to customers,
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Speaker 5: there's still there's still a lag in terms of execution
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Speaker 5: versus where the market is.
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Speaker 3: So you guess you can't blame those darn vegetarians at all.
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Speaker 3: Talk to us a little bit about the timeline there
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Speaker 3: when you're talking about Tyson rebuilding that kind of hurt.
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Speaker 3: Is that a story of a quarter or years?
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Speaker 5: Well, you know, beefy By, you know, takes takes the
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Speaker 5: longest in terms of the cycle. We're talking probably twenty
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Speaker 5: twenty late twenty twenty four or early twenty twenty five
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Speaker 5: until we see a real change in that market. You know,
11:42
Speaker 5: for pork that's a slightly shorter time span, but we're
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Speaker 5: talking probably twenty twenty four, and for chicken it's a
11:49
Speaker 5: short time span, but there are a lot of moving
11:51
Speaker 5: parts to it. And that's the area where Tyson's business
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Speaker 5: has had the most execution issues. So although the company
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Speaker 5: is expecting proof performance in the second half of this year,
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Speaker 5: realistically we may be looking at twenty twenty four before
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Speaker 5: things really settle down.
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Speaker 1: You know, I watch Yellowstone, I think I fully understand
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Speaker 1: this whole ranching cattle thing. Where does Tyson where do
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Speaker 1: they get their cattle? Like how many ranches are out there?
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Speaker 1: The Dutton ranch on Montana, mean, like how many ranches
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Speaker 1: are there out there? Like supply beef and all that
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Speaker 1: kind of stuff.
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Speaker 5: Well, there are a large number of ranches out there,
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Speaker 5: and Tyson they have long established relationships with individual ranchers
12:31
Speaker 5: in terms of their supply, so that they are sure
12:33
Speaker 5: that they have kind of that, you know, the supply
12:36
Speaker 5: locked in. But it's been tough times. We've had years
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Speaker 5: of drought. You know, we've had higher costs to feed animals.
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Speaker 5: It is not an easy time to be a rancher
12:46
Speaker 5: right now, and so that makes it there's less incentive
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Speaker 5: to increase herd size when you've got a lot of
12:53
Speaker 5: those kind of macroeconomic and you know pressures, and you know,
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Speaker 5: even interest rates are higher, it's you know, it's hard
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Speaker 5: or to invest in your in your ranch as well.
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Speaker 3: I'm really glad you mentioned just the higher pricing and
13:05
Speaker 3: interest rates as well. Talk to us about the pricing
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Speaker 3: the equation. I felt like a lot of food companies
13:09
Speaker 3: and consumer companies broadly, Uh, we're almost rewarded by the
13:14
Speaker 3: stock market when they were able to say we're going
13:16
Speaker 3: to hike up our prices and still see that demand.
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Speaker 3: Just how sticky are those prices?
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Speaker 5: Well, yeah, the prices so far have been sticky. But
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Speaker 5: what we're seeing when we look at transaction level data
13:29
Speaker 5: from uh, you know, from what's what people are actually buying.
13:32
Speaker 5: What we're seeing is that that that tolerance for the
13:35
Speaker 5: price increases is abating. And so you know, in our perspective,
13:40
Speaker 5: what that really means is that as we get towards
13:42
Speaker 5: the second and a half of the year, there's a
13:44
Speaker 5: real chance that we're going to see an increase in
13:46
Speaker 5: promotions and so you're going to see retailers running more sales. Now,
13:52
Speaker 5: I think everyone's going to try to minimize, you know,
13:55
Speaker 5: the profit impact of those, but the the macro economic
14:00
Speaker 5: environment is really setting these companies up to where they're
14:03
Speaker 5: going to have to be more promotional in nature, and
14:05
Speaker 5: consumers in parder demanding that so that tolerance for price
14:09
Speaker 5: increases is almost gone. Now it's going to be harder
14:13
Speaker 5: and harder for these companies to put more price more
14:16
Speaker 5: price increases through. So it's it's going to be a
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Speaker 5: tricky second half of the year to navigate.
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Speaker 1: So, Jen, the troubles you outlined here for Tyson, are
14:24
Speaker 1: we seeing that with some of their peers like Pilgrim's
14:27
Speaker 1: Pride and some of those others. This is an industry
14:29
Speaker 1: wide type of issue.
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Speaker 5: Well, some of it is industry wide. So some of
14:33
Speaker 5: those structural issues in terms of like animal availability, the
14:38
Speaker 5: cost of feed, those impact everybody relatively equally. You know,
14:42
Speaker 5: when it comes to actual internal challenges in terms of
14:45
Speaker 5: how you're running your plants, are you fully staffed, you know,
14:48
Speaker 5: are you at your maximum capacity? That's where Tyson has
14:52
Speaker 5: has had more challenges than some of their peers.
14:54
Speaker 3: Jen, talk to us a little bit about the You
14:57
Speaker 3: talked about the macroeconomic piece of it. Talk to us
14:59
Speaker 3: about the interest rates specific piece of it. I think
15:02
Speaker 3: you talked about how higher interest rates makes it harder
15:05
Speaker 3: to invest in ranches specifically. Again, walk us to the
15:10
Speaker 3: timeline on it. Is there an extra lag of from
15:13
Speaker 3: one the Federal Reserve hikes interest rates to just how
15:16
Speaker 3: much difficulty some of these kind of ranchers face, or
15:21
Speaker 3: is this something that we kind of look at idiosyncratically.
15:26
Speaker 5: Well, I think that there's there's no there's no easy
15:30
Speaker 5: you know, there's no easy answer to that, to be honest.
15:34
Speaker 5: You know, ranchers, you know, tend to be a conservative
15:37
Speaker 5: bunch by nature, and it's it's not an easy business
15:40
Speaker 5: to be in. And so anytime there in there are
15:43
Speaker 5: factors that impact their ability to grow their business or
15:46
Speaker 5: to invest in their business. That that puts puts them
15:50
Speaker 5: on a more defensive footing, and so there there's definitely
15:54
Speaker 5: a lag. So it will take time once interest rates,
15:57
Speaker 5: if they start to come down a little bit, it
15:59
Speaker 5: will take a little bit of time for confidence to
16:01
Speaker 5: come back that that is the right time to do
16:03
Speaker 5: more investment. And so it's it's it's it's you know,
16:08
Speaker 5: you're talking about people's you know, long term livelihoods, and
16:11
Speaker 5: so it's it's not something that tends to move or
16:14
Speaker 5: pivot very quickly.
16:15
Speaker 1: Jen, you also cover the supermarket side of the supply
16:19
Speaker 1: chain here, the food supply chain. So Entyson, they have
16:21
Speaker 1: higher costs, therefore they raise their prices. Are the supermarkets
16:26
Speaker 1: able to pass along those price increases to consumers?
16:29
Speaker 5: They are passing through selectively, and so you know where
16:34
Speaker 5: they can they do. I think the one advantage that
16:37
Speaker 5: grocers have is because a lot of them offer private
16:40
Speaker 5: label products, they're very in tune with what it costs
16:43
Speaker 5: to manufacture certain products, and so they can have very
16:46
Speaker 5: good negotiations with the packaged food companies and not just
16:50
Speaker 5: accept price increases for the sake of price increases. You know,
16:54
Speaker 5: what what a grocer will do is they will pick
16:56
Speaker 5: certain products where you know, they would have maintained their
17:00
Speaker 5: their value perception in the minds of their customers, and
17:02
Speaker 5: so if prices like hugely, say on a particular product,
17:09
Speaker 5: they may not pass the full price increase through just
17:11
Speaker 5: so that their customers feel like they're still getting a
17:13
Speaker 5: good deal, but they will pass through price on you know,
17:17
Speaker 5: other products. So they kind of focus on key items
17:20
Speaker 5: that drive value perception and manage that what they pass
17:25
Speaker 5: through very carefully on those, and then they take a
17:27
Speaker 5: little bit more they have a little bit more flexibility
17:29
Speaker 5: on the rest of the store in terms of price increases.
17:33
Speaker 3: Jen, very quickly thirty seconds. Do we see buybacks, dividend increases,
17:38
Speaker 3: any of that jazz in Tyson's future.
17:41
Speaker 5: Well, they say that they're going to kind of maintain
17:43
Speaker 5: the same courses they've had in terms of their capital allocation,
17:46
Speaker 5: and so you know, don't don't anticipate any any cuts
17:50
Speaker 5: to that, to that policy, and we'll have to see
17:53
Speaker 5: what their quarter holds.
17:54
Speaker 1: All right, Jen, thank you so much. We appreciate checking
17:57
Speaker 1: in with you. Talking about Tyson Food again. They had
17:59
Speaker 1: some a tough quarter, tough outlook for that business. Jen
18:04
Speaker 1: Bartasha's senior industry antal. She covers all the whole food
18:06
Speaker 1: stuff all the way through to the retail and to
18:08
Speaker 1: the supermarkets. So a great understanding there.
18:10
Speaker 8: You're listening to the tape cans are live program Bloomberg
18:13
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18:17
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18:20
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18:29
Speaker 1: All right, let's talk to professional here about these markets,
18:31
Speaker 1: because time and time you just feel like you're in
18:33
Speaker 1: a market with so many cross currents out there. Ecodata,
18:36
Speaker 1: Federal Reserve movement, here, earnings, we're right finishing up the
18:40
Speaker 1: earning season. We've got a little bit of a bank
18:43
Speaker 1: turmoil here, and we put all that together and it's
18:45
Speaker 1: tough to come up with some big conviction buys. Let's
18:48
Speaker 1: check in what somebody who does this for a living.
18:50
Speaker 1: Efan Debit Chief Investment Officer of Manetta Group. Again, cross
18:55
Speaker 1: currents out there. I'll be interested to get your perspective
18:57
Speaker 1: about how you think this market is behaving and where
19:00
Speaker 1: you think it's going to go going forward.
19:02
Speaker 9: It's extremely difficult to give a sense of direction right
19:06
Speaker 9: now because we're seeing such contrary indicators. We even have
19:09
Speaker 9: to look at today's performance and markets versus Friday's performance
19:13
Speaker 9: when we can see that markets really are moving on.
19:15
Speaker 9: The smallest piece of news, most of which is contradictory,
19:19
Speaker 9: was inflation coming into check. It looks like that at
19:21
Speaker 9: some point last week we heard the said we potentially
19:24
Speaker 9: a pause and that all looks very positive. And now
19:27
Speaker 9: we come back with with commodity prices rising and it
19:29
Speaker 9: looks like it could be persisting and saying quite supple again.
19:33
Speaker 9: This week you mentioned a little bit of turmoil in
19:35
Speaker 9: the banking sector. That is a story that we think
19:38
Speaker 9: has some way to run sometime, and there are potentially
19:40
Speaker 9: a lot of unknowns unknowns when it comes to regional
19:43
Speaker 9: banks and banks in general. So that's creating a lot
19:46
Speaker 9: of uncertainty. And this is may remember May sell a
19:49
Speaker 9: may and go away. I think traditionally there's not a
19:52
Speaker 9: ton of optimism around the time of year, but a
19:54
Speaker 9: lot going on for sure.
19:56
Speaker 3: Even let's talk a little bit about the bond market.
19:57
Speaker 3: Here Apple coming to the market with a five part
20:01
Speaker 3: bond sale known to be timing the market very well,
20:06
Speaker 3: and every time in the last I want to say,
20:08
Speaker 3: pre COVID, going back to twenty nineteen, they've issued five times,
20:12
Speaker 3: including today, and four not including today, have yielded higher
20:17
Speaker 3: yields after that, essentially making them kind of issuing bonds
20:21
Speaker 3: in the troughs that are yields fall it And for
20:24
Speaker 3: lack of a better term, does that mean we should
20:27
Speaker 3: expect higher yields in our near future as we expect
20:30
Speaker 3: the Federal Reserve to end their tightening cycle.
20:34
Speaker 9: Well, so many bonds have been the after class I say,
20:37
Speaker 9: of the year, and because certainly they behaved so badly
20:39
Speaker 9: last year, we're seeing a lot of people look again
20:42
Speaker 9: at bombs. And that's part of the reason we're seeing
20:44
Speaker 9: this money flow out of bank deposits, because bombs themselves
20:46
Speaker 9: are paying so much. When it comes to looking again
20:49
Speaker 9: at bonds, we can look certainly, we don't have to
20:52
Speaker 9: take as much risk as in the past to get
20:54
Speaker 9: a very decent, healthy yield four five percent for potentially
20:57
Speaker 9: very low risk. So it doesn't surprise me that they're
21:00
Speaker 9: would be strong demand for an Apple issue. It's certainly
21:03
Speaker 9: seen as been the bluest of the blue ships in
21:05
Speaker 9: terms of issuing and issuing debt, and certainly the equity
21:09
Speaker 9: is so well supported that the debt has got to
21:11
Speaker 9: be rock solid there. So in terms of what we
21:13
Speaker 9: can expect from I don't see that rate's going that
21:15
Speaker 9: much higher, actually, because I think the overwhelming view of
21:18
Speaker 9: the market seems to be that we're in for a
21:20
Speaker 9: pause or a pivot. It doesn't look like that today,
21:23
Speaker 9: but that was certainly the mood that was coursing through
21:25
Speaker 9: for the last few weeks.
21:27
Speaker 1: And to that end, I guess the Federal Reserve will
21:29
Speaker 1: be paying attention obviously Wednesday to the CPI data. I
21:32
Speaker 1: guess CPI X Food and Energy looking to be up
21:35
Speaker 1: five point five percent. That's smidged down from the prior
21:38
Speaker 1: mounth of five point six percent. I mean, when you
21:40
Speaker 1: see numbers like that, it feels like higher for longer.
21:45
Speaker 1: But Boy, as you mentioned, if in the market, the
21:48
Speaker 1: future's market is really pressing in rate cuts later this year,
21:53
Speaker 1: how do you guys think about that?
21:55
Speaker 9: Yeah, despite the Fed, it's been desperately to my telegraph
21:58
Speaker 9: its actions. I'm really regained US and confidence. Just like
22:01
Speaker 9: other central banks around the world, they've been doing a
22:03
Speaker 9: decent job I think at clawing back some assurance markets
22:06
Speaker 9: still are prone to second guessing them over and over,
22:09
Speaker 9: and we're certainly seeing that. So as far as the
22:12
Speaker 9: inflation numbers, we do think that a lot of what's
22:14
Speaker 9: feeding into that core inflation number is going to be
22:18
Speaker 9: lagging indicators, say things like employment and the cost of labor.
22:21
Speaker 9: Because that lags, we essentially don't necessarily expect it to persist.
22:27
Speaker 9: But previous to this week, we did see commodities coming
22:29
Speaker 9: down that was going to be again feeding into lower
22:32
Speaker 9: inflation overall, and there are still those deflationary sources out there.
22:36
Speaker 9: We speak every second day about AI and what that
22:38
Speaker 9: means for employment. If that is in fact that a
22:40
Speaker 9: long term trend, and of course it is at this point,
22:42
Speaker 9: we couldn't deny that will would that be deflationary. So
22:45
Speaker 9: I think investors are trying to really parse this inflation
22:48
Speaker 9: data and see what is in fact transitory, because some
22:51
Speaker 9: of it is, and what's slightly to stick. So a
22:54
Speaker 9: very mixed picture. But I'd say a pause is what
22:56
Speaker 9: we're looking at at the moment, not a pivot and
22:59
Speaker 9: I don't agree with that We're going to see more rate.
23:01
Speaker 3: Hikes Ethan, what about the debt ceiling? Do we need
23:05
Speaker 3: to worry about this kind of ticking time clock that
23:10
Speaker 3: we have going June first? I believe Janet Yellen warning
23:13
Speaker 3: about hitting that upper limit. How much of this is
23:17
Speaker 3: just kind of a boy crying wolf.
23:20
Speaker 9: Very good point. I mean, we are though, if we've
23:22
Speaker 9: learned anything from COVID and beyond, we are very adept
23:25
Speaker 9: at kicking the can down the road. In every single
23:28
Speaker 9: instance there's been pressure and the debt ceiling up to now,
23:31
Speaker 9: we will kick it down the road again. Will there
23:33
Speaker 9: be political posturing and jostling and saber rattling as we
23:36
Speaker 9: get to that point. Absolutely, But just as the inflation
23:39
Speaker 9: data has been moving around, the tax receipt data has
23:42
Speaker 9: been quite unclear. At the moment. We hear capital gains
23:45
Speaker 9: redown last year, but then again we're hearing about the
23:47
Speaker 9: employment picture being solid and income tax being solid, So
23:50
Speaker 9: for that picture, we really don't know what the picture
23:52
Speaker 9: looks like. There probably was a little bit of crying
23:55
Speaker 9: wolves just to get people to think about this seriously.
23:57
Speaker 9: But again, if we think about how this has impacted
24:00
Speaker 9: markets in the past. Just like most other political developments,
24:03
Speaker 9: they tend to be pretty short lived. So I think
24:05
Speaker 9: there could be just more the sucking out of some
24:08
Speaker 9: of that confidence out of the stock market as this
24:11
Speaker 9: deadline nears. But I don't see it as being transformational
24:14
Speaker 9: in terms of sentiments.
24:16
Speaker 3: The only one better Paul than me at procrastinating is
24:19
Speaker 3: the US government apparently even let's talk again about the
24:23
Speaker 3: trade here in our last thirty seconds or so, let's
24:26
Speaker 3: say it's June first, in this last iteration that we've had,
24:29
Speaker 3: I think twenty eleven, when the US did have that
24:33
Speaker 3: credit rating downgrade, the immediate reaction was by American the
24:38
Speaker 3: biggest paradox. Do we see that happen again?
24:41
Speaker 9: It's full of paradoxes. Just as we've seen a little
24:43
Speaker 9: bit of strengthen the dollar in recent days compared to
24:46
Speaker 9: other currencies, we've also seen it come down from its
24:49
Speaker 9: twenty year peak that it was at last year, and
24:52
Speaker 9: so there's that move into the dollar, that discussion around dedollarization,
24:55
Speaker 9: that betting against the US economy versus not betting against
24:59
Speaker 9: the US economy because it is essentially so tech driven.
25:02
Speaker 9: There is there's been we've heard arguments on both sides there.
25:06
Speaker 9: So I'd say, to what will happen with the death seating,
25:08
Speaker 9: I think there is definitely a tendency towards needing to
25:12
Speaker 9: take some of the strength out of the dollar. It's
25:14
Speaker 9: been too long for too it's been too high for
25:16
Speaker 9: too long, and as other economies around the world are
25:18
Speaker 9: actually perhaps being underestimated, in particular Europe, we are going
25:22
Speaker 9: to see some strength return there. So I'd say I
25:24
Speaker 9: wouldn't say there'll be a mad rush into the US
25:27
Speaker 9: even if this death seating is resolved.
25:29
Speaker 1: All right, Ethan, thank you so much for joining us.
25:30
Speaker 1: Ethan Deviitchief, investment officer for Monet a Group. We appreciate
25:34
Speaker 1: getting some of her time.
25:37
Speaker 8: You're listening to the Team kenzro Line program Bloomberg Markets
25:41
Speaker 8: weekdays at ten am Eastern on Bloomberg dot Com, the
25:44
Speaker 8: iHeartRadio app and the Bloomberg Business App, or listening on
25:47
Speaker 8: demand wherever you get your podcast.
25:52
Speaker 1: Microsoft Activision sixty nine billion dollars. It got your tention
25:56
Speaker 1: and that thing hit the tape, but some UK regulators
25:58
Speaker 1: are saying that they're not to approve it. I mean,
26:01
Speaker 1: so a lot of uncertainty there, even Warren Buffett weighed
26:03
Speaker 1: in on over the weekend saying he opposes the UK
26:06
Speaker 1: blocking this deal. So let's get some of the experts
26:08
Speaker 1: back in the room to kind of talk about where
26:10
Speaker 1: we are with this deal. What does it mean for Microsoft,
26:12
Speaker 1: what does it mean for Activision? Jenrie, she's a senior
26:14
Speaker 1: analyst covering antitrust litigation with Bloomberg Intelligence. She's got that
26:18
Speaker 1: part of the game covered and on a rag run
26:20
Speaker 1: a senior technology channels with BI he covers Microsoft. He's
26:23
Speaker 1: done that for ages for Bloomberg Intelligence. He joins us
26:26
Speaker 1: on the phone. Jen is in our studio here in
26:29
Speaker 1: New York. So Jen, start with you here. Warren Buffett
26:33
Speaker 1: ways in over the weekend. That kind of is interesting. Here,
26:36
Speaker 1: just summarize for us why the UK regulators are blocking
26:40
Speaker 1: Microsoft's pending act pending acquisition for Activision.
26:44
Speaker 10: So what the UK is worried about is what they
26:46
Speaker 10: think is going to be the next big thing in gaming,
26:48
Speaker 10: not not what's going on today where most people would
26:50
Speaker 10: play a first shooter game like Activision's Call of Duty
26:53
Speaker 10: on a console or on a PC, but down the road,
26:56
Speaker 10: when they believe gamers will be playing through the cloud
26:58
Speaker 10: and possibly through sub scription services. So they think Microsoft
27:02
Speaker 10: already has a pretty big hole in the cloud market.
27:05
Speaker 10: And with this content, I think they think of Call
27:07
Speaker 10: of Duty sort of must have content for gamers person
27:10
Speaker 10: shooter gamers, they will be able to sort of corner
27:13
Speaker 10: this up and coming cloud market. They'll be able to
27:15
Speaker 10: somehow damage their rivals, take market share and dominate that area.
27:20
Speaker 10: And what they're trying to do is protect that, protect
27:23
Speaker 10: what they think is going to be the future of gaming.
27:25
Speaker 11: So anra come in here. How much does Microsoft need
27:29
Speaker 11: this deal?
27:30
Speaker 5: No?
27:31
Speaker 12: I don't think they will do fine without the deal. Also,
27:34
Speaker 12: and you know, I'm no expert in cloud gaming, but
27:37
Speaker 12: you know, people who know a lot more than me
27:39
Speaker 12: in this area, including Matt Miller, has told me that
27:43
Speaker 12: it's you know, so far away latency issue and stuff.
27:47
Speaker 12: And I think, you know, Jen and I have talked
27:49
Speaker 12: about it, and she's taught me that, you know, it's
27:51
Speaker 12: not so much what's here, but what could happen three
27:54
Speaker 12: to five years from now. And I think that's really
27:56
Speaker 12: the reason why regulate it is that kind of worded here.
28:00
Speaker 1: But Microsoft shareholders they like this deal, don't They don't
28:03
Speaker 1: They want Microsoft to get into some more content businesses.
28:06
Speaker 12: Yeah, I mean they should, you know when I think
28:09
Speaker 12: I was surprised once that they took over. One of
28:11
Speaker 12: the first acquisitions was Minecraft, and I said, well, what
28:13
Speaker 12: the hell was Minecraft? I They had no clue about it,
28:15
Speaker 12: and I don't. I'm sorry, I don't know anything about gaming.
28:20
Speaker 12: And you know, they have a console business and they
28:22
Speaker 12: are fighting neck to neck with Sony always about it,
28:24
Speaker 12: and you know, it's it's expanding their studios, expanding the games,
28:29
Speaker 12: the ecosystem, and this is just another way of it.
28:32
Speaker 12: So yeah, I mean from a shareholder point of view,
28:34
Speaker 12: it's fine if they have it, it's good. If they
28:37
Speaker 12: don't have it, it's not their business is going to
28:39
Speaker 12: die anytime soon. You know, it's just not as strong
28:43
Speaker 12: as it would have been.
28:45
Speaker 11: So then what's next for Microsoft.
28:46
Speaker 7: They're going to appeal.
28:47
Speaker 10: Yeah, well they've talked about appealing, but you know, there
28:49
Speaker 10: are a couple things that could stand in the way.
28:51
Speaker 10: So they do have a mid July end date to
28:53
Speaker 10: the agreement, and at that point in time, unless they
28:55
Speaker 10: extend it, Activision could walk away and collect a three
28:58
Speaker 10: billion dollars fig. Now, they extend that, and it looks
29:01
Speaker 10: like they're pretty serious about going through this appeal. I've
29:03
Speaker 10: seen some news about hiring great lawyers in the UK
29:06
Speaker 10: and they've talked about it a lot, and they seem
29:08
Speaker 10: to want to do this. It is a very high standard,
29:10
Speaker 10: so you know, it's a long shot. It doesn't mean
29:13
Speaker 10: they couldn't win, but it is a long shot. I
29:15
Speaker 10: dug up some statistics for this and I did see
29:18
Speaker 10: that in the last ten years or so, the UK's
29:20
Speaker 10: one about seventy percent of these merger appeals. So you know,
29:23
Speaker 10: just looking at that, you're looking at thirty percent.
29:25
Speaker 1: Well, Jen, why doesn't Microsoft just carve out the UK?
29:28
Speaker 1: I mean and the fifth and I mean, who cares?
29:31
Speaker 10: Well, here's the thing. You know, the UK is a
29:32
Speaker 10: big economy and also it's a big gaming economy. This
29:36
Speaker 10: is what I understand. I was a little bit surprised,
29:38
Speaker 10: but I guess the Brits love gaming, so you know,
29:41
Speaker 10: that's a lot of revenue. And what they're going to
29:43
Speaker 10: have to do is they're going to have to do
29:44
Speaker 10: the economics of that and see is it worth it
29:47
Speaker 10: for them to go ahead and close this worldwide? And
29:49
Speaker 10: then withdraw out of the UK?
29:51
Speaker 11: Does the US follow what the UK does?
29:54
Speaker 10: How likely is that well, the US has actually already sued.
29:56
Speaker 10: But there's a really big difference because Microsoft here in
29:59
Speaker 10: the US, I believe would winning court. I think they
30:01
Speaker 10: have a really good shot. This is a vertical deal.
30:04
Speaker 10: It's very speculative as to whether there's going to be
30:07
Speaker 10: this big cloud gaming in the future and whether this
30:09
Speaker 10: deal would actually harm that area. You know, whether call
30:12
Speaker 10: of duty is so important that everybody has to have
30:14
Speaker 10: it in order to have a successful game subscription business,
30:18
Speaker 10: so they have a better chance. Here in the UK
30:20
Speaker 10: it's different. The standard's much higher. So what the court
30:24
Speaker 10: has to decide that the decision is completely and totally irrational,
30:27
Speaker 10: and that's worse than just bad judgment or not a
30:29
Speaker 10: good decision.
30:30
Speaker 1: It has to be really bad an rac How what's
30:33
Speaker 1: what's Microsoft saying in terms of their willingness to and
30:37
Speaker 1: how far they will take this? How hard are they
30:39
Speaker 1: going to fight for this deal?
30:40
Speaker 12: Do you think I think they'll fight now whatever options
30:43
Speaker 12: they have they have, I think given all the concessions
30:45
Speaker 12: they could from their side, I don't think there's going
30:47
Speaker 12: to be any more from here. But you know, from
30:50
Speaker 12: my side, if it doesn't go through, I'll be happy
30:52
Speaker 12: with some more buybacks.
30:55
Speaker 1: So this is just signal we've got a democratic administration
30:59
Speaker 1: in the there's a new sheriff in town, and we're
31:01
Speaker 1: just gonna take a tougher stance on M and A
31:04
Speaker 1: in general. Is that reflective of that or is that
31:06
Speaker 1: or is this more specific to this deal?
31:08
Speaker 10: Oh no, I think it's absolutely about taking a more
31:11
Speaker 10: aggressive stance, particularly in big tech, particularly when it's a
31:15
Speaker 10: big incumbent that's buying a smaller company. And I think
31:19
Speaker 10: also it's regrets regrets for past deals that the FTC
31:23
Speaker 10: and the DJ allowed through like Google Dobble.
31:25
Speaker 1: I would say, well Live Nation for sure.
31:27
Speaker 10: You know, even Comcast NBCU from way back, there are
31:30
Speaker 10: some regrets about that one, absolutely because they're allegations that
31:33
Speaker 10: they violated their consent order. You have Facebook with Instagram
31:38
Speaker 10: and WhatsApp, so you know, I think that the agencies
31:41
Speaker 10: think we were asleep at the wheel too long, especially
31:43
Speaker 10: when it comes to big tech, and so we have
31:45
Speaker 10: to be really careful. And technology moves fast, so we
31:48
Speaker 10: need to be thinking about those future markets instead of
31:50
Speaker 10: just looking at the market as it stands today.
31:52
Speaker 11: An rag is there an acquisition then that if this
31:55
Speaker 11: doesn't go through that you would rather Microsoft be focusing
31:58
Speaker 11: on or are to your point, are you just dividends focused?
32:02
Speaker 1: Buy back?
32:03
Speaker 7: Right?
32:04
Speaker 1: He's a tech guy. I like, I'm a dividend guy,
32:07
Speaker 1: but I don't know it's strictly a buyback, sool.
32:10
Speaker 12: I apologize the way I think about it. As far
32:13
Speaker 12: as big tech is concerned, they can't even buy pizza now.
32:17
Speaker 8: I mean.
32:19
Speaker 1: I would agree, all right, So you know.
32:22
Speaker 12: I think they the only thing left is buybacks then.
32:24
Speaker 5: All right?
32:24
Speaker 1: So I mean so if I'm a Microsoft, I'm looking
32:27
Speaker 1: at the P and L. I'm looking at the business model.
32:30
Speaker 1: That's it. Now, It's only a question of what do
32:32
Speaker 1: I do with the cash?
32:33
Speaker 12: Exactly?
32:34
Speaker 6: All right?
32:35
Speaker 1: All right enough for you then, I mean, so Jen,
32:39
Speaker 1: let's go back to you here. I mean, it's interesting
32:42
Speaker 1: here if is there a sentiment out there that big
32:46
Speaker 1: deals in general are facing a much higher hurdle just
32:49
Speaker 1: in general, even if it's not tech. I mean, if
32:51
Speaker 1: one consumer product company wants to buy another, it's a
32:54
Speaker 1: different world than it was maybe three or four years ago.
32:56
Speaker 10: Paul, Absolutely, And it's not just a sentiment. I mean
32:59
Speaker 10: the statistics show it. In the last I think, well,
33:01
Speaker 10: for sure, this quarter and possibly even in the last year.
33:05
Speaker 10: Until this weekend, the DJ had not settled a deal
33:08
Speaker 10: with a consent order, so they just settled a lockcase.
33:11
Speaker 10: The company asked to Abloyd that was in the middle
33:13
Speaker 10: of trial, and they settled with some divestitures. And I
33:16
Speaker 10: think it's because they could tell from what the judge
33:18
Speaker 10: was saying, things weren't going very well for the DOJ
33:20
Speaker 10: in trial. But it used to be that about four
33:23
Speaker 10: percent of the deals that got filed would get these
33:25
Speaker 10: in depth investigations and most of them would close with settlements.
33:28
Speaker 10: Now hardly any of them closed with settlements. So from
33:31
Speaker 10: the actions of the agencies, we're seeing that it's really
33:35
Speaker 10: any big company, any big deal.
33:37
Speaker 11: What does like my mom need to know about this, Like,
33:40
Speaker 11: if these deals are less likely to go through, is
33:42
Speaker 11: that good for the consumer in the end because it
33:44
Speaker 11: means more competition?
33:45
Speaker 10: You know, Well, first, is your mom a merger arbitrages
33:48
Speaker 10: because she was going to have some serious concerns?
33:51
Speaker 8: You know.
33:52
Speaker 10: It depends on the deal, you know, And I think
33:54
Speaker 10: it depends on your perspective. I think there are a
33:55
Speaker 10: lot of people looking right now at Kroger Albertson's and thinking, oh,
33:58
Speaker 10: I don't want that deal to close. You know, I
34:00
Speaker 10: have a Kroger branded supermarket and announ person supermarket that
34:03
Speaker 10: I go to. I don't want that to be owned
34:05
Speaker 10: by one company. And that's a very consumer facing area. Pharmaceuticals.
34:10
Speaker 10: I think people who you know, getting older, they need
34:13
Speaker 10: to have prescription drugs. They're not going to want to
34:16
Speaker 10: see these big pharma deals. And actually, you haven't seen
34:18
Speaker 10: a big farma deal in a while. You know that's
34:20
Speaker 10: going to be a tough deal to close right now.
34:23
Speaker 10: So I really think it depends on your perspective. I'm
34:25
Speaker 10: guessing your mom probably wouldn't care very much of Microsoft
34:27
Speaker 10: blod Activision.
34:28
Speaker 11: I have a feeling no one in the Mills family
34:30
Speaker 11: is not as.
34:32
Speaker 1: Team honrog Ronnie. He covers all the tech stuff along
34:36
Speaker 1: with his team at Bloomberg Intelligence and generally follows all
34:40
Speaker 1: the anti trust stuff, which is just critical when you
34:43
Speaker 1: get a big deal, and then you get a big
34:45
Speaker 1: deal that runs into some regulatory issues. We immediately turned
34:48
Speaker 1: to Jen and say, what's up, what's going on and
34:51
Speaker 1: how's this going to play out? And she's got great
34:53
Speaker 1: experience and we appreciate it.
34:54
Speaker 8: Getting it here, you're listening to the tape cancer Live
34:57
Speaker 8: program Bloomberg Markets week days ten am Eastern on Bloomberg Radio,
35:02
Speaker 8: the tune in app, Bloomberg dot Com, and the Bloomberg
35:05
Speaker 8: Business App. You can also listen live on Amazon Alexa
35:08
Speaker 8: from our flagship New York station. Just say Alexa play
35:11
Speaker 8: Bloomberg eleven.
35:12
Speaker 1: Thirty Today, time for our c suite conversation. Let's go
35:17
Speaker 1: a little tech uh, and we'll do that with Amitt Wallya.
35:21
Speaker 1: He's the CEO of Informatica. Informatica is a public traded company.
35:25
Speaker 1: I n FA is a ticker to put into your
35:27
Speaker 1: Bloomberg Professional Service. You see that stock, it's got a
35:30
Speaker 1: market cap at about four point two billion dollars, up
35:33
Speaker 1: about four tens a one percent today, stocks off about
35:35
Speaker 1: ten percent year to date. Thanks so much for joining us.
35:39
Speaker 1: For our listeners, Let's just take a couple of take
35:41
Speaker 1: thirty seconds to just give me an overview of what
35:43
Speaker 1: you guys do at Informatica.
35:46
Speaker 7: Well, thanks for hosting me, Paul and Madison. Great to
35:48
Speaker 7: be here.
35:49
Speaker 13: Well, I'm actually talking to you from Vegas maybe us
35:52
Speaker 13: doing our annual user conference Informatical World. Where's we are
35:57
Speaker 13: doing our user conference here?
35:58
Speaker 7: Annual user conference in Las Vegas.
36:00
Speaker 13: So speaking well, Informatica is the leader in what we
36:03
Speaker 13: call data management. You know, it's the only platform out there,
36:07
Speaker 13: and we help customers bring data from any source at
36:09
Speaker 13: high quality, make sure you can make the most out
36:12
Speaker 13: of it. Do analytics, make business decisions and govern it
36:16
Speaker 13: for all kinds of regulatory compliance, and provision that data
36:19
Speaker 13: for any user across the enterprise. That's what we do
36:22
Speaker 13: across pretty much all large enterprise globally.
36:26
Speaker 11: So in your description, I'm stealing a Paul joke, but
36:29
Speaker 11: you've got cloud in the title. I know you've got
36:31
Speaker 11: some AI stuff going on. You've got all the good
36:33
Speaker 11: buzzwords that markets are liking these days. How's the business doing,
36:38
Speaker 11: especially following some of the market reaction to your earnings report.
36:42
Speaker 13: Well, we had a great Q one, so to give
36:44
Speaker 13: you some context, we guide it this year. Cloud is
36:47
Speaker 13: a big number for us, and we guided this year
36:49
Speaker 13: to a thirty five percent growth for our cloud RR
36:51
Speaker 13: and we actually grew forty one percent in Q one,
36:54
Speaker 13: so we're off to.
36:55
Speaker 7: A great start. In fact, we crossed a big milestone
36:58
Speaker 7: for subscription.
36:59
Speaker 13: RR, which is what Cloud is a part of, and
37:01
Speaker 13: that grow twenty percent at a billion dollar round rate.
37:04
Speaker 13: In fact, you've guided to a half a billion of
37:06
Speaker 13: cloud r R in Q two, so we're feeling great.
37:08
Speaker 13: In fact, another good test of that is the usage
37:11
Speaker 13: of a cloud platform I DMC and that usage grew
37:14
Speaker 13: sixty nine.
37:15
Speaker 7: Percent year a year.
37:17
Speaker 13: So we feel good about cloud data and II the
37:19
Speaker 13: trifactor and we see it in the middle of it.
37:22
Speaker 1: So, you know, big data another term that's that's certainly
37:26
Speaker 1: in the news. I mean that kind of feels like
37:28
Speaker 1: your company is is benefit beneficiary of just kind of
37:32
Speaker 1: big data? Is we put more and more stuff in
37:34
Speaker 1: the cloud, more and more data in the cloud. How
37:36
Speaker 1: did your business kind of evolve, transform, manage its way
37:40
Speaker 1: through the pandemic when there's such a you know, increased
37:43
Speaker 1: increased importance of data.
37:46
Speaker 7: That's a great question.
37:47
Speaker 13: I mean, you know digital transformation, which is what's been
37:50
Speaker 13: happening for the last many years.
37:51
Speaker 7: It's all about cloud and data.
37:53
Speaker 13: And to the point you made, it's not only about
37:55
Speaker 13: growth of data, it's also about fragmentation of data.
37:58
Speaker 7: So that was a tail ring to us, and our.
38:01
Speaker 13: Transformation was that, you know, we pivoted more aggressively towards
38:05
Speaker 13: the cloud, In fact, walking into this year, we only
38:07
Speaker 13: sell cloud and our platform, as I sheard with you,
38:09
Speaker 13: blued sixty nine percent year over year. So that has
38:11
Speaker 13: been a tailment because the more the data, the more
38:14
Speaker 13: the fragmentation, the more the complexity. That's where data management
38:18
Speaker 13: becomes very handy. And given our scale, we'll be helping
38:20
Speaker 13: that to customers like Kroger, Unilever, American Airlines, you know,
38:25
Speaker 13: Banco to Brazil Cell comp you name those, those end
38:28
Speaker 13: up being.
38:28
Speaker 11: Our customers within your customer base. Are you seeing any
38:32
Speaker 11: potential recession signs just yet or are you still seeing
38:35
Speaker 11: some strength?
38:37
Speaker 13: Billion dollar question right I would say I'm not seeing
38:41
Speaker 13: a recession sign for sure. I think what we when
38:43
Speaker 13: you walked into this year the macro, what we saw
38:48
Speaker 13: in Q four, we saw definitely enterprises as stretched, we
38:51
Speaker 13: are being thoughtful deal siles as are obviously elongated. We
38:55
Speaker 13: saw the same in Q one. In fact, we guide
38:57
Speaker 13: it based on that macro. We assume that will stay
39:00
Speaker 13: for the year, and as I said, we guide it
39:03
Speaker 13: for like our thirty five percent cloud at our growth number,
39:05
Speaker 13: qan ended up being better than that. Right now, I'm
39:08
Speaker 13: at in fmat cover I user conference actually it's the
39:11
Speaker 13: highest ever attended conference so far, we've exceeded twenty nineteen numbers.
39:15
Speaker 13: So I'd say the conversations around digital transformation are high.
39:18
Speaker 13: AI powered digital transformation very high. We do see a
39:21
Speaker 13: macro that stretched, but no verse or no better than
39:25
Speaker 13: three months ago.
39:27
Speaker 1: Met talk to us about cloud native AI powered platform.
39:30
Speaker 1: I think the kids call it Claire. What does that
39:32
Speaker 1: mean for you? What's that business for you?
39:35
Speaker 7: Yeah?
39:35
Speaker 13: For us, you know, we built out one cloud native platform.
39:38
Speaker 13: All of our services are on one platform, so that's
39:41
Speaker 13: one thing.
39:42
Speaker 7: But the big thing there is that we natively integrated Claire,
39:45
Speaker 7: which is our AI engine.
39:46
Speaker 13: And the beauty of Claire is that we what we
39:49
Speaker 13: all see in the world of consumers. We took all
39:52
Speaker 13: of those machine learning algorithms and curated it for enterprises.
39:55
Speaker 13: As an example, you do photo tagging on Facebook, we
39:57
Speaker 13: do that. Apply that for data taging, you do recommendations
40:01
Speaker 13: on Amazon, you apply that for when people want recommendations
40:03
Speaker 13: and data sets. NLP becomes data quality. So that's what
40:07
Speaker 13: we've been doing. And in fact, to kind of give
40:10
Speaker 13: you some sneak preview of tomorrow when we do keynotes
40:12
Speaker 13: main stage, we're going to showcase clear in the context
40:15
Speaker 13: of generative AI and how we're expanding it. There huge
40:18
Speaker 13: amount of intelligence and productivity improved for enterprises and we
40:21
Speaker 13: see tremendous interest over there.
40:23
Speaker 11: Talk to me about that interest. Then, what specific tools
40:27
Speaker 11: regarding generative AI, both on the intelligence and automation side,
40:31
Speaker 11: have you found to be most helpful for your customers.
40:35
Speaker 13: Well, one is everybody wants more productivity and automation, so
40:39
Speaker 13: our tools end up being infrastructure tools.
40:41
Speaker 7: So for example, you know, bringing.
40:43
Speaker 13: Data together from many places, we're automating that. You know,
40:46
Speaker 13: claier can infer what kind of data should go where
40:49
Speaker 13: it can bring it to you and you can see
40:51
Speaker 13: and if you have to do nothing, it just does it.
40:53
Speaker 13: If you want to give it some intelligence towards the
40:56
Speaker 13: last minile, you can do that call it you.
40:58
Speaker 7: Data. You know we talk about.
40:59
Speaker 13: AI EI is as good as the quality of data
41:02
Speaker 13: you put in that model. So data quality is becoming
41:05
Speaker 13: even more important. Governance of data, you know, in the
41:08
Speaker 13: world of AI, ethics compliance become even more important.
41:11
Speaker 7: So governance is seeing a big tailwin. So we're seeing
41:14
Speaker 7: all of those.
41:14
Speaker 13: Natural things bringing data from many places, quality and obserablity
41:19
Speaker 13: of data governance of data. See tremendous amount of tailmind
41:23
Speaker 13: and interest from our customers.
41:24
Speaker 1: Ahmed got about thirty seconds left. I see your stocks
41:26
Speaker 1: down about twenty seven percent over the trailing twelve months.
41:29
Speaker 1: Is the market getting something wrong or how do you
41:32
Speaker 1: view that?
41:33
Speaker 7: Well?
41:33
Speaker 13: I think we went through a big transformation going from
41:37
Speaker 13: on premise to cloud. I do believe that as we
41:39
Speaker 13: go through this year and we have a great start,
41:41
Speaker 13: I think they'll understand that.
41:42
Speaker 7: I believe obviously we are supremely undervalued.
41:45
Speaker 13: Our job is to go execute, get our customers to
41:48
Speaker 13: get value from our platform, and you know, the rest
41:50
Speaker 13: of the things take care of itself.
41:52
Speaker 7: There's a pretty fluid macro out there.
41:54
Speaker 13: Our job is focus on the customer, keep innovaiting and
41:58
Speaker 13: focus on the long term and things take care of itself.
42:00
Speaker 8: Well, is it?
42:00
Speaker 1: Equity analyst myself? I like one of my management teams
42:03
Speaker 1: say that I got nine buys out there, five holes
42:05
Speaker 1: and zero cells as per the A n R function
42:08
Speaker 1: on the Bloomberg terminal for Informatica. So the street seems
42:11
Speaker 1: to be behind this company, this management team. I'm at
42:13
Speaker 1: wallya CEO of Informatica, joining us here, giving us the
42:16
Speaker 1: latest on another segment of the tech space that is
42:20
Speaker 1: influenced greatly by the cloud and the transformation for a
42:24
Speaker 1: lot of these tech businesses. In this case, you know,
42:26
Speaker 1: kind of big data into the world of the cloud.
42:28
Speaker 1: So it's good a couple minutes with mister Wallya.
42:31
Speaker 8: You're listening to the tape cans are live program Bloomberg
42:34
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
42:38
Speaker 8: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
42:41
Speaker 8: You can also listen live on Amazon Alexa from our
42:44
Speaker 8: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
42:50
Speaker 1: You're a company. Let's say you're a company and you
42:53
Speaker 1: look at your balance sheet and you got about one
42:55
Speaker 1: hundred and sixty six billion dollars of cash, you got
42:57
Speaker 1: some one hundred billion dollars or so of debts. You're
43:00
Speaker 1: net cash positive. You're in a business that will somehow
43:03
Speaker 1: throw off one hundred billion dollars a free cash flow
43:05
Speaker 1: every year. So what do you do? You go issue debt?
43:10
Speaker 1: Go figure. They didn't teach that to me in business school.
43:13
Speaker 1: But that Rob Shiftman, he knows all this stuff. Rob
43:15
Speaker 1: Shiftman he's a tech credit analyso Bloomberg Intelligence he joints
43:18
Speaker 1: is here. So Rob, is this just a case of me,
43:22
Speaker 1: as a banker being really good at my job saying, Hey,
43:25
Speaker 1: you raise it when you can, you don't raise it
43:26
Speaker 1: when you need it. Let's go ahead and throw some
43:28
Speaker 1: bonds out there. There's demand. Is it as simple as that?
43:31
Speaker 5: Not?
43:31
Speaker 6: Really? I mean, I think it's more about.
43:33
Speaker 1: That was my pitch that for many years.
43:35
Speaker 6: Last week it sounded good. I think it's more about
43:39
Speaker 6: simple math. I mean, there's a weighted average cost to capital,
43:43
Speaker 6: and when you've got nearly three trillion dollars of equity,
43:47
Speaker 6: even if you have one hundred billion dollars of debt,
43:50
Speaker 6: you're weighted out of average cost of debt for Apple
43:53
Speaker 6: is effectively zero. So it's really a cost effective method
43:57
Speaker 6: of spending your money. And I think, you know, we
44:00
Speaker 6: got a lot of people asking us today, with rates
44:02
Speaker 6: so much higher, why today, and why not just wait? Well,
44:08
Speaker 6: when you have ten odd billion dollars of debt maturing
44:12
Speaker 6: every single year and you don't know where rates are
44:14
Speaker 6: going to be in three minutes, let alone three months
44:18
Speaker 6: or three years, I think that's when it does come
44:21
Speaker 6: to your theory is that you take the money down
44:24
Speaker 6: now because it really doesn't cost you anything. The bigger
44:28
Speaker 6: question is why aren't they just using their cash for
44:30
Speaker 6: something else? Why do they have to borrow more? And
44:34
Speaker 6: it really boils down to their target. They want to
44:37
Speaker 6: be net cash neutral. So what does that mean. It's
44:40
Speaker 6: the same amount of cash as they have debt, and
44:43
Speaker 6: there's some fifty seven billion dollars away from that right now.
44:47
Speaker 6: If you borrow money, So you borrow ten billion dollars today,
44:51
Speaker 6: their net cash position doesn't change at all. It stays
44:55
Speaker 6: exactly what it.
44:56
Speaker 1: Is because they get all the free cash coming in.
44:58
Speaker 6: No, well you borrow ten billion, yep, so it's ten
45:00
Speaker 6: billion a debt ten billion of cash.
45:02
Speaker 1: That's nice. They need a balance sheet.
45:05
Speaker 6: They need to start spending money. And you've asked in
45:09
Speaker 6: the past, like why don't some of these companies just
45:11
Speaker 6: raise their dividend, Why don't they create a dividend? Well,
45:14
Speaker 6: Apple just raised their dividend four percent.
45:18
Speaker 1: I could raise my I mean please, So they're just
45:23
Speaker 1: trying to placate me. Now, Tim Cook knows I'm looking
45:25
Speaker 1: for them.
45:26
Speaker 6: They're spending let's say in and around fifteen billion dollars
45:29
Speaker 6: a year in their dividend, but they've got one hundred
45:31
Speaker 6: billion dollars of free cash well every year. I think
45:35
Speaker 6: you know, years ago when we first started talking about Apple,
45:37
Speaker 6: I said, for all the drinkers out there, it's like
45:39
Speaker 6: you go to a restaurant, you order a bottle of wine,
45:41
Speaker 6: you drink half your glass of wine, and a waiter
45:45
Speaker 6: walks over and refills your glass. And that's sort of
45:47
Speaker 6: what what Apple's balance sheet looks like. As soon as
45:50
Speaker 6: they start spending the money, it gets reloaded and there's
45:53
Speaker 6: nothing out there that they can really buy. So what
45:56
Speaker 6: do they need to do. They need to meaningfully increase
46:00
Speaker 6: shareholder returns, and I think they're going to be doing that.
46:04
Speaker 6: They added ninety billion to the buyback authorization that gives
46:07
Speaker 6: them about one hundred and ten billion of stock they
46:09
Speaker 6: can buy back over the next year.
46:11
Speaker 1: They did the same ninety billion last year.
46:13
Speaker 6: I mean, well, they still had twenty billions sitting there. Okay.
46:17
Speaker 6: What it does is it sets them up that over time,
46:20
Speaker 6: as they continue to use money for dividends and buybacks,
46:24
Speaker 6: they're always going to be sitting on a mountain of cash.
46:27
Speaker 6: If your net cash neutral, and they end up would
46:29
Speaker 6: say one hundred and twenty five billion dollars a debt.
46:31
Speaker 6: You know what that means. The mean you're going to
46:33
Speaker 6: have one hundred twenty five billion dollars of cash on
46:34
Speaker 6: the books at all times. And don't forget like you know,
46:38
Speaker 6: Apple's services business is exploding right now, it's still a
46:43
Speaker 6: tiny percentage of their top line. The vast majority of
46:48
Speaker 6: what this company is selling is hardware. And when you're
46:51
Speaker 6: a hardware business, over the long term, you better have
46:54
Speaker 6: a lot of capital and reserve. In this case, you
46:57
Speaker 6: need to have tons of extra capitally one hundred billion
47:00
Speaker 6: plus of cash sitting there all times. So why borrow now?
47:04
Speaker 6: Because it doesn't cost that much, It actually improves your
47:08
Speaker 6: cost of capital, It gives them tons of flexibility, and
47:14
Speaker 6: it just doesn't It doesn't take away from their long
47:17
Speaker 6: term goals, which is they can do whatever they want,
47:20
Speaker 6: whenever they want, where they're capital and if they find
47:22
Speaker 6: a business they want to buy, they can buy it.
47:24
Speaker 6: If they find a business they want to invest in,
47:26
Speaker 6: they can invest in it. And it looks like the
47:28
Speaker 6: bomb market's always going to be there, because it seems
47:30
Speaker 6: like this company is only one more notch away from
47:33
Speaker 6: being triple A across the board.
47:35
Speaker 11: Is that the same thinking behind why Apple is working
47:38
Speaker 11: with Goldman on the Hygield savings account or do you
47:40
Speaker 11: think that's a different goal for them, No, like become
47:44
Speaker 11: the bank for everyone as well for everyone.
47:47
Speaker 6: So I think you need to you need to diversify
47:51
Speaker 6: your revenue stream over time, and they've done a really
47:54
Speaker 6: good job of that. I mean, you know, a few
47:56
Speaker 6: years ago people laughed at their watch, you know, and
48:00
Speaker 6: you know now they're selling billions worth and I think
48:02
Speaker 6: there's a lot of different things that they can sell,
48:05
Speaker 6: these sort of add ons when it comes to Apple
48:07
Speaker 6: Pay or payment processing or savings account, it's just it's
48:12
Speaker 6: a way to expand their ecosystem and get their products
48:17
Speaker 6: at a little stickier It doesn't really move the needle
48:21
Speaker 6: at all.
48:21
Speaker 8: Though.
48:21
Speaker 6: The way they move their needle is they come up
48:24
Speaker 6: with a really cool new iPhone fifteen and they sell
48:29
Speaker 6: three to four hundred million of those.
48:31
Speaker 1: Rob e colover all of Tech for Bloomberg Intelligence Credit.
48:35
Speaker 1: What's the best thing you're looking at right now, what's
48:37
Speaker 1: the best opportunity, what's the best that you're most excited
48:40
Speaker 1: about out there in tech?
48:41
Speaker 6: Honestly, I think it's really the sector. I mean, people
48:44
Speaker 6: nowadays are looking for safe havens, and I've actually always
48:48
Speaker 6: thought tech is the safe haven. It's not the it's
48:51
Speaker 6: not banks, it's not treasuries. It's buying cash rich, cash
48:58
Speaker 6: flow generating businesses that have long term competitive advantages where
49:05
Speaker 6: there's huge barriers to entry, and whether that's Microsoft or
49:10
Speaker 6: Apple or Alphabet or even names like a Qualcomm or
49:15
Speaker 6: a Broadcom. I think across the spectrum of investment grade tech,
49:20
Speaker 6: there's lots of opportunities not to earn incremental spread, but
49:25
Speaker 6: to park your money when you don't have something better
49:30
Speaker 6: to invest in. I'm wildly bullish still on the tech space,
49:34
Speaker 6: and it doesn't mean excess returns this year are going
49:36
Speaker 6: to be enormous. It just means that the risk of
49:38
Speaker 6: underperforming versus other asset classes I think is really very low.
49:45
Speaker 6: We had a webinar I think I mentioned this with
49:47
Speaker 6: you last week, paulse We had a webinar with S
49:49
Speaker 6: and P and they went through all their low triple
49:50
Speaker 6: B global tech names and they said, not one of
49:53
Speaker 6: them is at risk of being downgraded. So when we've
49:56
Speaker 6: got high quality banks that know if they're going to
50:00
Speaker 6: be out of business tomorrow. You know, buy a name
50:04
Speaker 6: in a ten year part of a treasury curve for
50:07
Speaker 6: a spread of one hundred basis points and getting you know,
50:11
Speaker 6: four and a half percent on your money. Man, I
50:13
Speaker 6: think it's a great trade when you don't have to
50:15
Speaker 6: worry about that cash disappearing. So it's not one particular name,
50:18
Speaker 6: it's really the sector. And I think that volatility and
50:21
Speaker 6: equities has skewed what people's thoughts are about the defensiveness
50:25
Speaker 6: of the credit space. But I think across the board,
50:29
Speaker 6: I think you want to have a barbell strategy from
50:33
Speaker 6: triple a's down to triple b's, all across the curve.
50:36
Speaker 1: All right, Rob, thank you so much. We appreciate it
50:37
Speaker 1: as always. Rob Shiftman technology credit analysts of Bloomberg Intelligence.
50:41
Speaker 1: Before that he was doing that at Credit Swiss.
50:46
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
50:50
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
50:53
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
50:57
Speaker 2: at Matt Miller nineteen seventy three.
51:00
Speaker 1: An I fall Sweeney, I'm on Twitter at Ptsweeney. Before
51:02
Speaker 1: the podcast, you can always catch us worldwide at Bloomberg Radio,