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Nike Sinks After China Sales Plunge, Delaying Turnaround · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am.
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  Speaker 2: One of the big losers in today's sessions so far
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  Speaker 2: is Nike, down nine and a half percent right now.
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  Speaker 2: Quite a bit going on there, so let's bring in
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  Speaker 2: put inm. Goyel, the senior US e commerce and retail
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  Speaker 2: analyst at Bloomberg Intelligence.
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  Speaker 3: Nike is in turnaround mode.
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  Speaker 2: Elliott Hill is no longer a new CEO, He's just
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  Speaker 2: the CEO because he's been there for about a year.
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  Speaker 2: How is his effort to turn this company around shaping up?
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  Speaker 4: I think his efforts to turn the US businesses shaping
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  Speaker 4: up quite nicely. We are seeing momentum rebuild it in
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  Speaker 4: the US. The issue is outside of the United States
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  Speaker 4: and China US to where sales have really plunged, and
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  Speaker 4: we don't think that they can, you know, quickly rebound
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  Speaker 4: those sales anytime soon. It may be a twenty twenty
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  Speaker 4: seven story to see any resurgence in China.
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  Speaker 5: If that, what is the issue in China? Is it
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  Speaker 5: their brand specific? Is it the Chinese consumer? What's going
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  Speaker 5: on there?
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  Speaker 4: I think the biggest issue is brand specific. So unlike
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  Speaker 4: in the US, the Nike brand isn't perceived as a
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  Speaker 4: higher and athletic brand. In fact, it's way too much
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  Speaker 4: an off price and at discount. So the brand needs
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  Speaker 4: to build brand momentum and brand heat. And yes, the
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  Speaker 4: Chinese consumer isn't particularly you know, on its best feet
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  Speaker 4: right now. But if you compare what's happening in China
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  Speaker 4: and you look at Liulle Lemon, Liulle Lemon has had
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  Speaker 4: outstanding results in China, much smaller, but you know, they've
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  Speaker 4: been able to do really well there. So Nike really
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  Speaker 4: just needs to get stuff together when it comes to product,
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  Speaker 4: branding and marketing in that region.
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  Speaker 2: What is the playbook for that? Have they detailed, have
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  Speaker 2: they outlined something that sounds reasonable or is it kind
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  Speaker 2: of still throwing things at the wall.
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  Speaker 4: I think the playbook will be similar to what they
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  Speaker 4: did in the US. The first thing that they've done
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  Speaker 4: so far and we'll see how that works out, is
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  Speaker 4: changed the reporting structure, so now all regions report directly
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  Speaker 4: into Elliott Hill, so I guess he just has more
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  Speaker 4: authority over those regions, seeing things you know firsthand. The
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  Speaker 4: other thing that they're going to try to do is
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  Speaker 4: just clean house there, right. They have to get rid
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  Speaker 4: of the inventory that's just not speaking to the customers
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  Speaker 4: and has been aged for some time. They have to
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  Speaker 4: get out of off price, and they have to stop discounting.
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  Speaker 4: And then once you get a new product to flow in,
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  Speaker 4: you get the right brand message across. It's retail playbook
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  Speaker 4: one oh one. They just need to execute. So execution
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  Speaker 4: is huge here.
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  Speaker 5: Talk to us about the Converse brand within the Nike
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  Speaker 5: household there, so.
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  Speaker 4: The yes, you know, the commerce brand, Yes, it's struggling,
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  Speaker 4: but to me, it's less of a concern than China.
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  Speaker 4: The brand is less than ten percent of their total
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  Speaker 4: revenues from what we see, and while sales are down,
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  Speaker 4: and while it is a brand that we'd like Nike
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  Speaker 4: to see step up, especially when it comes to lifestyle,
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  Speaker 4: other companies have done particularly well there. We'd say the focus.
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  Speaker 4: You know, if I needed them to put focus on
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  Speaker 4: one thing first, it would be China right now, Converse
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  Speaker 4: after that, And that's what we're looking for.
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  Speaker 2: And I know that there's been a lot of discussion
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  Speaker 2: between performance and lifestyle over at Nike. What is the
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  Speaker 2: path forward for Nike? I mean, has it chosen performance
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  Speaker 2: across all of its markets or are some markets better
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  Speaker 2: for performance versus lifestyle.
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  Speaker 4: So they're sticking to performance, and I think that's the
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  Speaker 4: right choice because performance is what Nike is about. It
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  Speaker 4: is what drives the sports momentum. What we'd like to
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  Speaker 4: see happen is that performance turns into lifestyle. So a
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  Speaker 4: lot of shoes that are worn for the sport, for
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  Speaker 4: the game have become lifestyle shoes too. So that's the
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  Speaker 4: natural shift that we'd like to see with the new
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  Speaker 4: innovation that Nike is launching.
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  Speaker 5: So we have some experience now nine months, ten months,
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  Speaker 5: eleven months of just teriff discussion.
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  Speaker 6: Woon.
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  Speaker 5: I think you were one of the first analysts we
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  Speaker 5: talked to to say, oh boy, what's this going to
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  Speaker 5: mean for various industries? What does it mean for the
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  Speaker 5: at your business, the ath leisure business, kind of the
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  Speaker 5: Nikes of the world, the Adidas is of the world.
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  Speaker 4: Yeah, so footwear is largely important into the US, and
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  Speaker 4: so are the peril When you think the athletic work space,
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  Speaker 4: notably the footwear. It's predominantly made in Vietnam, and the
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  Speaker 4: current tariff there is twenty percent. It will have an
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  Speaker 4: impact on margins. In fact, Nike's gross margin if you
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  Speaker 4: look at it, even what was recently reported, more than
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  Speaker 4: half of it was due to tariffs and saying with
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  Speaker 4: their guidance, So I think twenty percent exposure. They are
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  Speaker 4: increasing prices selectively. They probably will have more efforts and
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  Speaker 4: play in twenty twenty six, that's calendar twenty twenty six
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  Speaker 4: to mitigate some of this, but it's not going entirely away.
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  Speaker 4: It is a headband to margin.
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  Speaker 7: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 5: All right, a bell Weather for some including myself, for
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  Speaker 5: the US economy is FedEx f d X is the
• 5:37
  Speaker 5: ticker they reported some numbers stock trading a little bit
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  Speaker 5: lower here. They have some issues with some of their aircraft,
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  Speaker 5: but I don't know. I kind of think it's just
• 5:46
  Speaker 5: an awesome company. The stock is up about that's about
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  Speaker 5: flat this year. Hasn't really done anything here, but it's
• 5:51
  Speaker 5: got a market cap of sixty seven billion dollars. I've
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  Speaker 5: always been a big fan of FedEx. The MD eleven
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  Speaker 5: is a great aircraft, but it's an old aircraft and
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  Speaker 5: they have and reliance on that. Leek Clasgow does this
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  Speaker 5: stuff for a living, Senior Transport Logistics and Chipping analys
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  Speaker 5: for Bloomberg Intelligence Lee.
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  Speaker 7: Now, FedEx reported some numbers. What did you learn?
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  Speaker 8: Well, I mean their second quarter they performed pretty well,
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  Speaker 8: and you know, they gave us some color about the
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  Speaker 8: peak season peak season from an average daily volume growth,
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  Speaker 8: they're looking at mid single digits that could increase too
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  Speaker 8: high single digits because there's one extra operating day in
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  Speaker 8: the quarter or during a peak.
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  Speaker 6: Season, I should say.
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  Speaker 8: So, you know, they seem to be executing on their
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  Speaker 8: restructuring plan. The problem is is that in their second
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  Speaker 8: half they're going to be having a lot of headwinds
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  Speaker 8: that they're going to have to deal with. And those
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  Speaker 8: headwinds relate to, you know, higher variable compensation expenses and
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  Speaker 8: a less than truckload market. Which they're the biggest player
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  Speaker 8: in that market that has been pretty depressed over the
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  Speaker 8: last couple of quarters.
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  Speaker 6: And it's can probably continue to be depressed.
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  Speaker 8: And then you have, as you mentioned, the grounding of
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  Speaker 8: their MD eleven fleet following the tragic accident of a
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  Speaker 8: UPS plane.
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  Speaker 6: A couple of weeks ago.
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  Speaker 8: So you know, you add those three things up plus
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  Speaker 8: some other things, it's about a six hundred million headwind
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  Speaker 8: to its earning. So they have to deal with that
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  Speaker 8: in some of the restructuring that they've done. Probably you know,
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  Speaker 8: you're probably not going to see hit the bottom line
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  Speaker 8: at least really directly until they're twenty twenty seven.
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  Speaker 2: So the six hundred million dollar charge clearly not impressing investors,
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  Speaker 2: even with the beat in the quarter that ended. Is
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  Speaker 2: this a one time thing or is this something that
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  Speaker 2: could drag out beyond the second half of this year
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  Speaker 2: next year?
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  Speaker 7: Excuse me?
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  Speaker 8: Yeah, So on the MD elevens, I think expectations are,
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  Speaker 8: you know, they should be back in service sometime.
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  Speaker 6: Early next year. I don't really know.
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  Speaker 8: Exactly when that's going to happen, but so you could
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  Speaker 8: view that as a kind of a year term headwindable compensation.
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  Speaker 8: You know that also is against difficult comparisons, so that's
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  Speaker 8: also short term in nature and not something that can continue.
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  Speaker 8: The biggest unknown for me, at least is the less
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  Speaker 8: than truckload demand. The ISM Manufacturing index, which has been
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  Speaker 8: contraction territory for thirty five at the last thirty seven months,
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  Speaker 8: is indicating that less than truckload demand, which is mostly
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  Speaker 8: industrial manufacturing, is going to continue to be weak in
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  Speaker 8: the coming months ahead because that index, the ISM index,
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  Speaker 8: is really a bell weather to an early indicator of
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  Speaker 8: where LTL demand is heading.
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  Speaker 9: Lee.
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  Speaker 5: As you know, I am an expert on trucking. I
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  Speaker 5: know what LTL means and TL means. I was I
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  Speaker 5: had no idea that FedEx was the largest LTL provider.
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  Speaker 5: Do you like them that they're in that business or
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  Speaker 5: would you rather them farm it out to somebody.
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  Speaker 8: Well that's a great question, Paul, because they're planning on
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  Speaker 8: spinning that.
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  Speaker 6: Out in June of next year. Uh yeah, there you go.
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  Speaker 8: You know. They the argument always was that, you know,
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  Speaker 8: maybe they could cross L their lt L and get
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  Speaker 8: more profitable parcel business. That model really might have not
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  Speaker 8: played out as much as as as they hoped, and
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  Speaker 8: so they also hope to get a better valuation because
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  Speaker 8: that lt L business, while it's been pretty depressed, they
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  Speaker 8: it does trade at a higher higher multiples, uh, and
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  Speaker 8: so they're trying to unlock kind of some.
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  Speaker 6: Of the value there.
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  Speaker 8: So you know, it'll be pretty interesting to see how
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  Speaker 8: that company operates as a standalone provider. That industry is
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  Speaker 8: pretty consolidated and has a lot of pricing discipline, and
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  Speaker 8: we just hope that, you know, once FedEx Freight gets
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  Speaker 8: out there and they're on their own, they're not going
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  Speaker 8: to try to use pricing to to you know, gain share.
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  Speaker 6: But we would note they.
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  Speaker 8: Are still the largest player, so it's not like they're
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  Speaker 8: looking to uh to gain a lot of share anyway.
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  Speaker 8: So but you know, it will be an interest thing
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  Speaker 8: to see once that once that gets spun.
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  Speaker 6: Out in June.
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  Speaker 2: You know, I'm looking Paul, excuse me, Lee and looking
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  Speaker 2: at Paul and talking to Lee. In the past six months,
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  Speaker 2: FedEx chairs up about twenty nine percent total return versus
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  Speaker 2: ups up up almost six percent. Can you compare and
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  Speaker 2: contrast their approach to some of the macro challenges that
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  Speaker 2: faces the industry.
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  Speaker 8: Yeah, so they're both in the process of restructuring their
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  Speaker 8: networks to deal with the new realities that you know,
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  Speaker 8: B two C or e commerce is really where the
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  Speaker 8: growth is going to come from. And these networks were
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  Speaker 8: created a long, long time ago with the idea that
• 10:40
  Speaker 8: you know, a carrier would go to a lawyer's office
• 10:44
  Speaker 8: with one hundred envelopes, drop off those envelopes and pick
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  Speaker 8: up fifty envelopes, and that density really can drive profitability
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  Speaker 8: where you know, as you know, if you get like
• 10:54
  Speaker 8: you know, if you order rubber bands from Amazon, that
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  Speaker 8: one package that goes to your doorstep is a lot
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  Speaker 8: more expensive to deliver. So they're just dealing with that
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  Speaker 8: reality and they've been slow to kind of change their networks.
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  Speaker 8: And UPS and FedEx are both in that process. You know,
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  Speaker 8: UPS has done things a little earlier, I would say,
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  Speaker 8: and you know whether it is you they spun out
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  Speaker 8: or I should say, sold their less than truckloaw business,
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  Speaker 8: the TFI, a Canadian provider, you know.
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  Speaker 6: A couple of years ago.
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  Speaker 8: They're all looking to try to gain more share of
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  Speaker 8: the small and medium size shippers and get away from
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  Speaker 8: the large shippers like Amazon, which really aren't that profitable.
• 11:39
  Speaker 7: Stay with us. More from Bloomberg Intelligence coming up.
• 11:41
  Speaker 1: After this, you're listening to the Bloomberg Intelligence podcast. Catch
• 11:49
  Speaker 1: us live weekdays at ten am Eastern on Apple, Cocklay
• 11:52
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• 11:55
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• 11:59
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• 12:00
  Speaker 7: Scarlette, I have breaking news. You may want to get
• 12:03
  Speaker 7: the red headline ready for this one.
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  Speaker 3: Okay, tell me today.
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  Speaker 7: I put a deposit down on my first cruise ever.
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  Speaker 3: What called to this?
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  Speaker 7: Well, my partner, my girlfriend, she's we're going, we're.
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  Speaker 5: Doing it in Fallwell, I just told you Viking Cruise. Yeah, basically,
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  Speaker 5: Viking Cruise is your France in the fall.
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  Speaker 3: And how are you feeling about this?
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  Speaker 7: I'm a little nervous.
• 12:23
  Speaker 5: But it's baby steps, she says. It's not like a
• 12:25
  Speaker 5: big carnival cruise. We got like five thousand people on.
• 12:27
  Speaker 5: It's a little riverboat, you know, kind of cruise.
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  Speaker 2: Okay, so in two years we should look for you
• 12:30
  Speaker 2: on a carnival crue could.
• 12:31
  Speaker 7: Be, could be. But that brings us to our next guest.
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  Speaker 7: I mean, Brian Egger.
• 12:35
  Speaker 5: He's writing the research note right now as we speak.
• 12:37
  Speaker 5: Sweeney in the cruise business. Brian Eigger, he's a senior
• 12:39
  Speaker 5: gaming and lodging analysts for Bloomberg Intelligence, Brian, we had
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  Speaker 5: Carnival Cruise Lines reported some numbers today.
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  Speaker 7: What did they have to say?
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  Speaker 10: Yeah, So, I mean the fourth quarter, the fiscal fourth
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  Speaker 10: quarter editor Vember three, was a pretty decent quarter in
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  Speaker 10: truth of yeel growth. And I think more importantly, going
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  Speaker 10: to next year, they are expecting to see about two
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  Speaker 10: percent the yield growth or so with good cost control.
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  Speaker 10: And that's encouraging because there were some concerns that industry
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  Speaker 10: growth of supply, particularly in the Caribbean, not by Carnival
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  Speaker 10: but by its competitors, might dampen your growth going to
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  Speaker 10: next year. So while there's still some uncertainty, I think overall,
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  Speaker 10: the takeaway was fairly encouraging on that front.
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  Speaker 2: How much of their business depends on converting people like
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  Speaker 2: Paul Sweeney from a never cruiser to a maybe cruiser
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  Speaker 2: to a you know, a reliable cruiser, basically increasing their
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  Speaker 2: market share with bringing in new customers.
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  Speaker 10: Yeah, Historically it's been a big factor in North America,
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  Speaker 10: trying to track that first time cruise customer. It's far
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  Speaker 10: less penetrated than other forms of vacationing. That's even more
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  Speaker 10: true if you go into other parts of the world
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  Speaker 10: like Europe and Asia, but it's definitely part of that
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  Speaker 10: that first time customer. On the other hand, you know
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  Speaker 10: much what they do depends on loyalty programs and getting
• 13:57
  Speaker 10: repeat business as well.
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  Speaker 5: So Brian give us that the consumer's kind of wavering
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  Speaker 5: a little bit there. I mean, the ke shaped economy.
• 14:07
  Speaker 5: How does a cruise industry deal with that? Because I
• 14:10
  Speaker 5: know there's different tiers of cruising out there. How do
• 14:13
  Speaker 5: you see that in the cruise business?
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  Speaker 6: I mean, if you go.
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  Speaker 10: Back historically, the cruise industry is moderate recyclical who probably
• 14:22
  Speaker 10: yield to be more resilient than for example, business travel
• 14:25
  Speaker 10: oriented hotel room rates. So you know, there was some
• 14:30
  Speaker 10: obviously some vulnerability. But that being said, the leisure consumer,
• 14:34
  Speaker 10: the leisure consumer of travel, has been really resilient. It
• 14:37
  Speaker 10: held up extremely well throughout this period of economic uncertainty. Historically,
• 14:43
  Speaker 10: passenger growth has kept up with supply. I mean, the
• 14:45
  Speaker 10: goodness for Carnival, they've only looking at about one percent
• 14:48
  Speaker 10: supply growth in twenty twenty six. There's certainly more coming
• 14:51
  Speaker 10: from their competitors, but you know that's ply out for
• 14:55
  Speaker 10: them specifically, is a healthy backdrop even if we do
• 14:58
  Speaker 10: see a step back and consumer spend.
• 15:01
  Speaker 2: Speaking of their competitors, I'm just looking at a comparison chart
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  Speaker 2: of all the big cruise operators, and Paul's Viking is
• 15:07
  Speaker 2: up about sixty four percent so far this year, Carnival
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  Speaker 2: up about twenty three percent, Norwegian Cruise Line down eleven percent,
• 15:14
  Speaker 2: and roll Career being up thirty percent.
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  Speaker 3: How are their strategies different?
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  Speaker 2: I mean, for those who don't cruise, it might seem
• 15:20
  Speaker 2: like they're all one and the same.
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  Speaker 10: Yeah, I think there are different ways you could interpret
• 15:25
  Speaker 10: those disparities in stock price performance. But I think the
• 15:27
  Speaker 10: way I think about it is Viking is certainly very
• 15:30
  Speaker 10: focused on the luxury kind of niche cruz segment.
• 15:33
  Speaker 3: Paul fancy.
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  Speaker 10: Good good for Paul, and I think generally speaking that
• 15:40
  Speaker 10: part of the business is held up well. You know,
• 15:42
  Speaker 10: Carnival probably is maybe gained some note because it's done
• 15:48
  Speaker 10: a good job at achieving its return on investment capital goals,
• 15:52
  Speaker 10: done so sooner to get to that twelve percent range
• 15:54
  Speaker 10: than they expected, and because they've got so little supply growth,
• 15:58
  Speaker 10: that does provide a little bit more conservativism. But you know,
• 16:01
  Speaker 10: there are certainly some differences across the brands.
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  Speaker 5: All right, Brian, how are my friends on the strip
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  Speaker 5: in Vegas doing these days?
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  Speaker 10: Yeah, I mean Vegas is finishing up the year with
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  Speaker 10: modest growth, but it's been a tough It was a
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  Speaker 10: tough summer period in Las Vegas, particularly kind of the
• 16:20
  Speaker 10: mid market segment. Much like I said about cruising, the
• 16:24
  Speaker 10: high end business, high end hotel business, what oriented demand
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  Speaker 10: is held up better, but the mid market, midweek demand
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  Speaker 10: during kind of shoulder periods, and the mid market has
• 16:38
  Speaker 10: experienced some disruption, probably because of construction, probably because of
• 16:42
  Speaker 10: difficult comparisons, probably because we are saying that luxury into
• 16:45
  Speaker 10: the market holding up a bit better.
• 16:48
  Speaker 2: So is everyone then going to double down on chasing
• 16:51
  Speaker 2: after the luxury customer.
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  Speaker 10: It really depends on what part of the business companies
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  Speaker 10: are in. On balance win, which is more high end
• 17:01
  Speaker 10: has performed better in terms of its rep part, let's say,
• 17:04
  Speaker 10: in Las Vegas, than some of its rivals. But you
• 17:07
  Speaker 10: know those are these Obviously these trends shift. But I
• 17:11
  Speaker 10: think that's been notable across the leisure travel sector is
• 17:15
  Speaker 10: the relative out performance of luxury high end with perhaps
• 17:19
  Speaker 10: a little bit more challenging comparisons and difficult conditions for
• 17:24
  Speaker 10: kind of the the mass market or those dependent on
• 17:29
  Speaker 10: other sources of business.
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  Speaker 2: And we know that these gaming companies, these casino companies
• 17:33
  Speaker 2: rely a lot more on China than they do on
• 17:35
  Speaker 2: the strip. Overall, how's Macau looking for them?
• 17:38
  Speaker 10: So, I mean mcaw has been recovering, you know, the
• 17:41
  Speaker 10: particularly the what we call kind of the mass business
• 17:44
  Speaker 10: in Macau that has some mantle ory effect on Lallas
• 17:48
  Speaker 10: Vegas as well, although you know, low luck levels and
• 17:53
  Speaker 10: back right in Vegas have been a bit bit soft
• 17:56
  Speaker 10: in some periods this year. But you know that business
• 17:58
  Speaker 10: is certainly coming back in Macow. It's coming back a
• 18:02
  Speaker 10: lot after obviously the pandemic. It's a different type of business.
• 18:07
  Speaker 7: Stay with us. More from Bloomberg Intelligence coming up after this.
• 18:14
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 18:18
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• 18:25
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• 18:29
  Speaker 5: A news story that's got a lot of people's attention,
• 18:31
  Speaker 5: like my kids are paying attention. TikTok is being bought
• 18:34
  Speaker 5: by a group of buyers led by Oracle Corporation, with
• 18:36
  Speaker 5: the company and byte Dance signing binding agreements to create
• 18:40
  Speaker 5: a US joint venture. I don't care, but a lot
• 18:44
  Speaker 5: of people do. Man Deeve Sing, senior tech analysts for
• 18:46
  Speaker 5: Bloomberg Intelligence, joins us Mandy talk to us about.
• 18:49
  Speaker 7: This structure here.
• 18:49
  Speaker 5: I know that the government was either to bite Dance,
• 18:52
  Speaker 5: which the Chinese company either sell this sing or shut
• 18:55
  Speaker 5: it down. Does this is satisfying kind of the requirement here?
• 19:01
  Speaker 9: I think so. And look, the main point of contention
• 19:03
  Speaker 9: was the algorithm, so clearly you know there is a
• 19:07
  Speaker 9: decoupling of that versus the app. And you know, in
• 19:11
  Speaker 9: terms of the ownership, Oracle was the most likely sort
• 19:16
  Speaker 9: of candidate when it comes to leading this joint venture,
• 19:21
  Speaker 9: and that turned out to be the case. So from
• 19:24
  Speaker 9: that perspective, I do think this should be palatable to
• 19:28
  Speaker 9: both the US and the Chinese government.
• 19:32
  Speaker 2: Although we don't know if the Chinese regulators will definitely
• 19:35
  Speaker 2: prove it right. They have yet to say whether they'll
• 19:37
  Speaker 2: be this transaction.
• 19:39
  Speaker 9: I mean, we've seen that many times a lut can
• 19:42
  Speaker 9: go wrong, but in this case, at least, you know,
• 19:47
  Speaker 9: the joint venture that was formed here had the blessing
• 19:50
  Speaker 9: of the US government. So it sounds like, you know,
• 19:55
  Speaker 9: this was the intended proposal, and that's how it turned
• 19:59
  Speaker 9: out to be in terms of by dance, you know,
• 20:02
  Speaker 9: agreeing to sell the app to this joint venture.
• 20:06
  Speaker 5: What I like about this is it includes silver Like
• 20:08
  Speaker 5: and from my money, the baseball my career, the smartest
• 20:12
  Speaker 5: technology pe money out there by far is Silverlake.
• 20:14
  Speaker 7: Some really smart folks there, So if they're involved, it's
• 20:17
  Speaker 7: got to be a good deal. That's how I look
• 20:18
  Speaker 7: at it.
• 20:19
  Speaker 5: Mandy talk to us about like what the competitors are
• 20:22
  Speaker 5: thinking here. Is TikTok still as formidable going forward? Do
• 20:27
  Speaker 5: you think as it has been?
• 20:30
  Speaker 9: Not really? I mean, if you look at the rund
• 20:32
  Speaker 9: rate of Instagram reels, they have surpassed fifty billion dollars
• 20:37
  Speaker 9: in run rate. That would have been unimaginable given the
• 20:41
  Speaker 9: kind of lead TikTok had over Instagram, and Instagram reels
• 20:46
  Speaker 9: came from behind, and now they have a fifty billion
• 20:49
  Speaker 9: dollar rundrate. Same thing with YouTube shorts. They have an
• 20:53
  Speaker 9: engagement share that's almost surpassed TikTok at this point of time. So,
• 21:00
  Speaker 9: you know, the last couple of years, TikTok seems to
• 21:04
  Speaker 9: have lost them when it comes to the pace at
• 21:08
  Speaker 9: which they were adding users and the engagement growth, et cetera.
• 21:11
  Speaker 9: And if I had to ballpark, you know, the US
• 21:15
  Speaker 9: revenue of TikTok would not be you know, over twelve
• 21:19
  Speaker 9: to fifteen billion dollars. So Reels being fifty billion dollars
• 21:23
  Speaker 9: just goes to show what kind of a missed opportunity
• 21:25
  Speaker 9: that was for TikTok.
• 21:27
  Speaker 3: Interesting.
• 21:27
  Speaker 2: So what does this mean for Meta, which owns Instagram
• 21:31
  Speaker 2: and Reels and of course is now firmly in the
• 21:34
  Speaker 2: lead and is no longer playing catchup to TikTok.
• 21:38
  Speaker 9: I mean a lot of this, you know, revenue ramp
• 21:41
  Speaker 9: up for Reels was driven by the fact that you know,
• 21:46
  Speaker 9: Facebook or Meta had a better AD stack and they
• 21:50
  Speaker 9: kept you know, improving that with more personalization. Now with
• 21:54
  Speaker 9: applying generative AI on top of that, that has helped
• 21:58
  Speaker 9: them with ad pricing. So these are incremental things where
• 22:03
  Speaker 9: TikTok you know, couldn't even keep its algorithm. So the
• 22:07
  Speaker 9: fact that you know, they have to redo the algorithm,
• 22:10
  Speaker 9: redo the ad part, the personalization part, is likely the
• 22:15
  Speaker 9: reason why their AD revenue hasn't ramped up and it's
• 22:20
  Speaker 9: going to take them a while. Even if you know
• 22:22
  Speaker 9: this joint venture would start putting money into the company
• 22:26
  Speaker 9: to you know, improve its algorithm and personalization. I don't
• 22:30
  Speaker 9: think it's going to happen that quickly in terms of
• 22:34
  Speaker 9: where they were, you know, two three years back.
• 22:36
  Speaker 5: Should we expect this new joint venture to maybe go
• 22:40
  Speaker 5: public at some point.
• 22:43
  Speaker 9: Still early days, I would say, given the algorithm changes
• 22:48
  Speaker 9: a big one. I mean, you have to even though
• 22:50
  Speaker 9: you know users are used to coming to the app,
• 22:53
  Speaker 9: you have the traffic, but we know in the world
• 22:56
  Speaker 9: of AI, it's about personalization, It's about that recommendation system,
• 23:01
  Speaker 9: and you know, rewriting the algorithm. I do think it's
• 23:05
  Speaker 9: going to take a while, and it comes down to,
• 23:07
  Speaker 9: you know, what kind of talent they can attract into
• 23:10
  Speaker 9: this new entity. So a lot has to go right
• 23:13
  Speaker 9: before you know, we can look at this joint venture
• 23:18
  Speaker 9: going public anytime soon.
• 23:20
  Speaker 3: That would be really interesting.
• 23:21
  Speaker 5: I'm still going to go make the pitch if I'm
• 23:23
  Speaker 5: our bank ground, be right on the doorstep today, no doubt.
• 23:26
  Speaker 5: I want to be the first guy there and saying
• 23:28
  Speaker 5: let's take this in public.
• 23:29
  Speaker 7: Here's what you need to do.
• 23:30
  Speaker 3: And you think they're ready. This is something that they
• 23:33
  Speaker 3: want to do.
• 23:34
  Speaker 7: I don't know. I would think so. I mean I
• 23:36
  Speaker 7: can bring a lot of money.
• 23:37
  Speaker 9: The administration ORCO would focus a lot more on their
• 23:40
  Speaker 9: cloud business right now in the ramp up there they
• 23:43
  Speaker 9: I don't think they have the time to focus on
• 23:45
  Speaker 9: reviving TikTok.
• 23:48
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