Transcripts For BLOOMBERG Best Of Bloomberg Technology 20240

BLOOMBERG Best Of Bloomberg Technology July 14, 2024

After two fairly uneventful president ial debates twitter is out with a new label that flags tweets that break laws. The move might even make President Donald Trump walk a fine line on the social media site. Tesla has set a new record for quarterly vehicle deliveries. On tuesday they handed over 95,000 vehicles to customers in the Second Quarter beating average analyst estimates. This is due to accelerated chinants to europe and and u. S. Consumers are rushing to buy model three sedans. Elon musk told employees that the company was close to setting an alltime record urging them to go all out in the last few days of june. Taylor riggs caught up with an on tuesday. On the model three side you have to separate the lineup. On the model three side this was a blowout quarter that exceeded expectations. I do think you had this up and down quarter where we hit a trough of everyone concerned about demand for the model three. Toward the end of the quarter you saw analyst commentary pick up more. On the model s and model x front they still have a problem. So 95,200 was the total for deliveries, less than 20 , about 17,000 cars were model x or s. Those are the higher margin, higher priced vehicles in the lineup. That is sort of what remains to be seen here is how much this big jump in deliveries was at the expense of profitability. Max, give me your take in san francisco. Craig says good news, but you wonder about profitability. Is this good news for elon musk . Any time you blow estimates out of the water you have to look at it as a win. Coming into the end of this quarter, you had sort of two concerns, one with demand and the other logistics. Could tesla literally get these cars to people in a timely and costeffective manner . On the logistics piece they are performing well despite some acknowledged difficulties. On the demand side, as craig says, the real question is what happens in the long run. You obviously have consumers in the u. S. Are rushing to buy these model threes and take advantage of the tax incentive. That will shrink. You also have people not buying more expensive cars. We dont know how this will shake out. Tesla is still a relatively new brand. It will be interesting to see what happens if and when they refresh these luxury lines. That could be just the thing that causes people who are model three buyers to want to trade up. That tax credit, as it shrinks, how much of a headwind was that this quarter i should say tailwind. Excuse me. Going forward, with that tailwind removed how much do car sales slow . That will be the big question on the Conference Call for earnings in a few weeks, right, because the tax credit will go from 3750 down. What we saw at the end of the 2018, Fourth Quarter was the previous record deliveries and a lot of that and that being consumers going out to buy the model three and s and x before the tax credit was cut in half. People sort of underappreciated how much of that was demand being pulled ahead into the Fourth Quarter of last year. That was part of what fueled a big dropoff in the First Quarter this year. That is the big question for this can they sustain this third quarter, momentum with the model three even the smaller amount of support from the federal government. David, a to bring in morningstar analyst joining me from chicago. We have been having a discussion here where it seems to be like we are in the all clear, model threes coming in better than expected. From your fundamental analysis innherent the demand for meefold the demand and profitability mix of the s and x which are key given their highermargin cars, getting elon to the profitability where he needs to be. For all this controversy around the demand problem i dont believe there is a model three demand problem. The s and x are getting old to consumers. Falla is one thing but it is all about profit and the cash flow. We wont know until we get q2 results how much this shift matters. S and x year over down 21 . What does your analysis say in terms of the past profitability for tesla. When we get there . It for a couple quarters last year. It is not impossible. It is hard to say what is the Tipping Point because they are still growing internationally. You have the china factory coming online and the european factory. You still have new models coming out, and the trick is how do you balance profitable growth . That is hard for any start up and they are a pretty big start up. Is the chinese demand where it needs to be . The demand, we dont really know at this point because they are not set up with that factory that is going up near shanghai. That, they will avoid import tariffs that affect any car built outside of china. We dont really have a true sense of demand for tesla in china because they are so priced out of the market. There is a buzz in china of this brand and aura around elon musk that we see around the world. We dont know how much Untapped Potential there is for china. As david was saying, we also that is not something that is going to come for free. It costs money to build up a plant. They are doing a lot of borrowing with local banks. There is a possibility it will not have a huge drag on earnings of the company. That is going to be more of a 2020 story as we see local production start on the model three. As we look forward of course to the end of 2019 and 2020, what do you see as the biggest left side tail risk downside . Is it elon musks tweets, is is it profitability, what do you see as the biggest left side tail risk event . Probably two things, one is general economic risk which is felt by any company in the business cycle. We are late cycle for the auto sales, for example. For at the same time, it is a new product. The other point would be a bigger, longer term happening of what happened in june when sentiment and fear started to get into the name. This is a name that is always traded more on option value. What is it going to look like in 2025 and 2030. Ifis a brilliant guy, but all of a sudden, they start to freak out and say look at the debt. It could get paid off, but if all the sudden the street looks at the more downside reasons to fear tesla rather than be optimistic the stock will get pounded pretty hard. Caroline half of the year is already in the bag and we have seen 22 Tech Companies hit the public market. Will this continue . We discussed. This is bloomberg. Caroline 2019 has been a big year for tech ipos but there has been a shadow hanging over newly traded companies. There is a significant shadow hanging over these newly traded companies. Google and amazon have a significant hold on many Tech Companies that have hit the market. On monday we spoke with our guests about this. Lyft spent 90 million on google ads in a single year. Those people went to an Apple App Store and downloaded the lyft app and google maps was powering it. Something else that they had to pay google for. Amazonthis was hosted on servers using Amazon Web Services. On top of that google owns 5 of lyft. Its obvious that google and amazon are very deep within this economy. When you look into the filings, you see how concretely they are the infrastructure behind how these companies work. In some ways it is a blessing and in some ways it is a curse. You focus on amazon and google, and from the blessings side, do you see this as a good element that these companies have so much riding on whether it be financially but for future Revenue Streams . There is good and bad. The benefits of Cloud Computing is that it allows Startup Companies that want to go public eventually or are going public to avoid infrastructure crossed. Your i. T. U can treat needs as variable costs rather than big fixed costs. You dont need to build up a large i. T. Department to scale up a business. That is the magic behind Amazon Web Services and microsoft azure and google cloud. In many ways what they are offering is a benefit, but there is no doubt that in order to scale up on the internet you are going to pay one of those three cloud providers. And if you are a consumer and if you need to get consumers to use your service or your application you will be spending money with google, facebook, that is how you get Brand Awareness on the internet. I dont know if they are toll keepers, thats probably too strong, but they are clearly the biggest channels out there. Hopefully companies that are successful are Companies Like uber that are successful longterm that can avoid having to only get traffic through those paid channels. Caroline 17 of these recent 22 ipos mention google or amazon in their statement. Is this something regulators are looking at . Are they worried if they clamp down to hard and push for breakups like Elizabeth Warren is talking about, that this could impact downstream . You could say look how powerful these companies are we surely need to break them up. On the other hand you could also say they are not interested in disrupting the Smaller Companies because they are their customers and they want them to keep growing. Google wants lyft to keep using its services and paying for them. You can look at it from both direction. I am sure you will see arguments from both say. I just want to say i dont think by breaking up these companies you would disrupt the web in a deep way. You can still buy google maps from google maps limited and Cloud Services from google Cloud Services limited. We will see how this plays out. I am sure this will be a topic of conversation when it comes to antitrust. Caroline before we go to the antitrust equation lets talk about the fact that you cover lyft and pinterest. When you saw this competitive exposure and general exposure in terms of a supply side need from amazon and google, did you see that as much of a risk factor . Would you like them to invest in their own independent service . No. I did not see it as a risk factor. I hadnt thought about it that way. If they are going to have a Cloud Services provider it is going to be one of three names. Aws, azure, or google cloud and the chances are it would be aws. Thats usually the lead cloud provider. They have almost 50 of the market share. If they did not do that, then the p l that they would go public with if they had not done that would look different and you would have a lot more capex spending. It frankly would be a less attractive business model. It would also raise the question of why are you trying to verbally integrate and build up that infrastructure and manage those data centers and server stacks when there are three companies doing a phenomenal job of allowing you to outsource it . I will twist the question back at you. It is a great question. I had not thought about before but i do not see that as a competitive i dont think that is a dependence risk and there is the option of switching. We have seen companies snapchat went public and migrated from googled amazon. Google to amazon. As long as you can migrate, i dont think there is a risk. Caroline what about the regulatory viewpoint we are seeing from capitol hill on amazon and google . Is there a risk of them being so intertwined with the rest of the tech ecosystem . Possibly. On Regulatory Risk is something that has become a major investor issue across technology. We just posted a call earlier today with an antitrust expert to talk about the risk of these platforms. Particularly google, but also amazon and facebook. I think the chances of these forced to divest assets is extremely unlikely. I think government regulators would be very low the two unwind that. I think it would be hard to do that. Looking at fines or changes that are modest at the margins. One quick comment, on the president ial democratic debates. Big tech did not come up at all. Except for the one time it did was some concerns over whether amazon is paying its fair share of taxes. The issue of google or facebook, that didnt come up, and that is probably the best political barometer. If it doesnt come up in a president ial debate it probably does not matter. Caroline bloomberg paschi school of a potential deal with broadcom. Analysts are divided over strategy ahead. We will hear from one next. This is bloomberg. Caroline at t is considering to sell its Regional Sports networks. Bloomberg learned the networks could fetch up to 4 billion that sale would include rights and the pittsburgh penguins. Another bloomberg scoop broadcom , is in talks to buy the Cyber Security firm symantec. This would mean a further expansion into further business. We spoke with an analyst on wednesday for the details. I think symantec passes the smell test for broadcom. Broadcom has 52 operating margin so for them to consider an acquisition it has to be immensely profitable. There are not a lot of companies that can reach or have the potential to reach 60 plus the threshold or hurdle rate for them to look at acquisition. The last deal they did is actually performing extremely well. When you look at symantec, it has shades that are similar to ca in terms of the businesses. One already at a 50 operating margin and was tweaking could get to 60 . The other that they could just drop in to the platform and strip it of cost, mostly marketing and sales cost to drive operating margins. On that angle it would be immensely profitable and an extension of what they have with ca. Caroline we have been waiting for years to work out what they were going after after the qualcomm deal fell away. What makes symantec more vulnerable to being bought out . There has been a lot of drama at symantec. As we have been following their , ceo was ousted, there is an accounting investigation and they got a few board seats. It is a vulnerable time for a takeover. Caroline we were just talking about the tmobile and sprint deal and the regulatory issues. Will there be regulatory issues with this deal . Considering in the past they were not able to get through the qualcomm deal. Before broadcom went after qualcomm they had a singapore headquarters. They have moved totally to the u. S. To try to alleviate that issue. Cybersecurity is a National Security concern and semantic works for the u. S. Government. The review is definitely something investors will be watching to see how it goes. There could be an eu review. No slamdunk for any large deal where is where there is this security element. Putting regulatory concerns to one side, you have spelled out why you think this might be a perfect fit. Interestingly, other analysts and investors are questioning the management strategic direction. Do you think it is the right direction to be going, more focused on cybersecurity . Weve seen other players do it, but how does this fit with broadening outside of the chip space . I think broadcom is focused singularly on capital returns to shareholders driving Free Cash Flow and profitability. Understand this was a company that was at the cusp of a 50 operating margin in a region no other company had been able to approach in the Semi Conductor land. With this deal they were able to , push the envelope closer to quarter, nowst running about 52 . Really for them to be able to expand and build on that they need something outside of hardware and Semi Conductors. Typically Software Companies have extremely high Gross Margins and tend to spend a lot of money acquiring new clients. The strategy with ca is a dig deep and allyoucaneat. You dig deeper into existing clients and dont worry about getting new clients. There was roughly about 1 billion spent on acquisition of new clients per year. That cost went away. With symantec it would be easy to go back to clients with a bigger portfolio and drive profitability. That is why i think it is a perfect fit. Caroline interesting. We have seen symantec closing about 14 higher. What sort of premium do you envisage . This is a company under some duress, could there be something more, could it go higher . It is possible that other people could come in. I am not an expert on Investment Banking aspects of the deal, but we think a premium from current prices would still work as well as broadcom possibility to take it and generate returns given the success they have had with software in the past. Interestingly, both these companies have this history, the board of semantic has private equity representatives from bain and silver lake. They will have to be involved somehow. There major they are nature shareholders. Broadcom was built up through private equity roots. Originally they worked with silver lake and other firms so private equity is heavy here but we dont know the structure of the deal and how they will participate. Caroline coming up, Twitter Announces a rule that might cause problems for President Trump himself. With this set a standard for other media . Be sure to follow our breaking news network tictoc on twitter. This is bloomberg. Caroline welcome back to the best of bloomberg technology. They new label on twitter will flag the u. S. President routinely posts comments that might get a lesserknown person suspended. Now twitter will hide rule breaking content behind a warning label that will say the tweet has been left out because of legitimate public interest. Users 20 the click past the label to see the post. Chang caught up with kurt there wasnt that moment where everyone was like, there is this fake news going viral, and this is what facebook and twitter want. They want to have an uneventful debate. They had teams in place ready to pounce in case there was that moment, but as far as i can tell there did not seem to be. Emily maybe they were doing their job . Kurt i guess that is the idea. Emily lets talk about this tweet flag. It doesnt just apply to politicians. It applies to anyone with 100,000 followers or more. David it is just politicians. It is even more specific to donald trump. If you remember, this two years ago, he tweeted at kim jongun and said, rocket man, you will not be around much longer, or s

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