May 3, 2024 • 40 mins
Bloomberg's Ed Ludlow breaks down Apple's earnings including an upbeat forecast and record buyback. Plus, tech jumps and market traders re-up rate cut bets as US jobs data disappoints to the downside, and Coinbase's CFO breaks down the company's first quarter earnings.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
From Marhart.
Speaker 3 (00:09):
We're Innovation, Money and Power Collie in Silicon Valley, NBN.
Speaker 1 (00:14):
This is Bloomberg Technology with Caroline Hide and Ed Louvelove.
Speaker 4 (00:33):
I Meed Lovelo in San Francisco. Caroline Hides off today.
This is Bloomberg Technology coming up. Apple saws amid an
upbeat forecast and record buyback, full coverage throughout the hour,
plus tech jumps and market traders re up their rate
cup bets as US jobs data disappoints to the downside,
and we sit down with the CFO of Coinbase to
break down the company's first quarter results.
Speaker 5 (00:56):
Let's get right to our.
Speaker 4 (00:57):
Top story, and that top story is Apple shares are
actually on track in the moment for their biggest jumps
since November of twenty twenty two, the biggest announced five
back in US company history. Probably has some part to
play in that. But then there's the story, which is simple,
Things weren't as bad for the iPhone in the first
quarter calendar quarters perhaps we thought they might be. And
(01:18):
then there's the question, what on earth is Apple doing
in the realm of generative AI. Let's get right to
Bloomberg's chef correspondent Mark German and Mark long Day for
you yesterday, long night. But I think that sums it
up right, not so bad as we had feared, but
we still have questions about the path forward. What did
executives tell us last night?
Speaker 6 (01:36):
Yeah, and I think you're exactly right.
Speaker 7 (01:37):
As always, things were not as bad as we anticipated,
or not we anticipated. Wall Street anticipated with their estimates,
but things also weren't great, right. They still had about
a five billion dollars decline on overall revenue. They still
had a pretty big decline on the iPhone. The Mac
and services were two bright spots. The iPad came in
lower than anticipated, even though people knew that new models
(02:01):
are coming out next week. And Wearable's home and accessories
that was quite disappointing, coming in at about seven point
nine billion, right, the lowest metric for that category in
several quarters, despite the fact that the vision pro in.
Speaker 6 (02:14):
That segment launched on February second.
Speaker 7 (02:17):
Now looking ahead, the big thing, artificial intelligence. It felt
like every other question on the call was about AI.
In Apple's plans for jen Ai, Tim Cook Luku, my history.
They didn't move an inch on that front. You'll hear
more about that on June tenth, though the Worldwide Developer Conference.
Speaker 4 (02:32):
You've kind of already set out the chronology of what's
going to happen on the afront. We'll get to that
in a second. China is a story in and of itself.
There are some idiosyncratic things about product lines that do
well and those that don't. So I think iPhone was
probably brighter in China than expected. But I think what
stuck out to me is is a concession maybe from
Tim Cook, that China is becoming a more competitive marketplace
(02:55):
for them.
Speaker 7 (02:58):
He certainly mentioned several times that China's the most competitive
market in the world. Now, the most interesting thing that
happened with the China numbers yesterday is that China came
in about a billion better than expected. It was still
about a billion dollar decline, But what Tim Cook said
is the iPhone actually.
Speaker 6 (03:13):
Grew in mainland China.
Speaker 7 (03:15):
Right now, this is super interesting because Counterpoint Intelligence, id
C some other analyst firms came out and said that
the iPhone was really cratering during the quarter in China.
Speaker 6 (03:25):
Now, the discrepancy there.
Speaker 7 (03:26):
Is that some may be talking about unit sales that
might be the analysts, and Tim Cook is probably talking
about revenue. Now, if the asps went up, there is
a chance that unit sales were still down, but revenue
actually was up and they probably grew a little bit
in mainland China. Either way, we still are facing concerns
in China for Apple. Right there is newfound competition from
(03:49):
Huawei Shaomi, there are those government bands. But certainly Tim
Cook and Lukeu Mystry, they actually seemed pretty optimistic about
China when it came to the iPhone. Where Cook seemed
less optimistic was about the company's other products.
Speaker 6 (04:01):
Now, he didn't explain what's.
Speaker 7 (04:03):
Doing so poorly for Apple and China why revenue is
down in China. Clearly it is down, but he didn't
get into it. But he said Apple does have work
to do.
Speaker 6 (04:12):
Now.
Speaker 7 (04:13):
One other thing, Apple could have grown quarter over quarter.
He didn't specify when that growth occurred. They may be
down on an annual basis for the iPhone in China.
Maybe they grew over the last quarter, Maybe they grew
at some period during the quarter.
Speaker 6 (04:26):
So there's a.
Speaker 7 (04:27):
Little more explanation to do from Cook, but obviously they're
not going to give those details.
Speaker 4 (04:32):
Well, in the big area where explanation is needed is
the roadmap for generative AI. You know just what I
would say to our audience. Check out Mark's latest reporting
next week with the let loose the focus is iPad WWDC.
In June, we should find out some more about generative AI.
Bloomberg's Mark German, thank you very much. Let's stick with
Apple joining us as gene monster of deep water asset
(04:52):
management and gene You know, you were pretty clear in
your posts on social media last night how you read
the the earnings. What's the standout story for you? Just
one thing that you learned from Apple last night.
Speaker 8 (05:07):
The one piece I learned is that the core business,
as Mark said, it's not doing great, but it's holding together.
And there was again this fear that the estimates would
be revised downward for the June quarter. They basically maintain them,
and I think that that is testimony to just the
strength of their brand across the product lines, whether it's
be the software and the services or to even iPhone
(05:29):
being down. It's held together. And what I take away
from that is that in the June quarter we're going
to see revenue growth really for the first time in
two years. Over the last two years, Apple's revenue growth
has averaged down zero point three percent. It's going to
be up a couple percent in June, probably four percent
in September, and six percent in December. So that that turnaround,
(05:51):
that reacceleration is the one thing that stepped out to me, Gene.
Speaker 4 (05:56):
I'm showing our audience and you a table, and the
table shows the list of largest announced company share buybacks
in history. And unless you've been living under a rock,
you'll see there's only one name on that list, Gene,
It's Apple. What's the point in a one hundred and
ten billion dollar buyback?
Speaker 8 (06:18):
Now, there's two points. Number one is they're sending a
message to investors that they're going to continue to return
capital despite going into an investment phase related to AI.
They've made that very clear that they think AI is
going to be significant. Cooke said, it's going to impact
most of their products, not just software but hardware. And
so the fact that they're reiterating and increasing this buyback
(06:40):
during that period, that's one piece to it. A second
is there cadence to getting to net cash neutral and
so this of course has been a goal for them
for the.
Speaker 5 (06:49):
Past five years.
Speaker 8 (06:50):
Right now, it's at fifty seven billion dollars, so they
want to bring that down to zero. That means they
have the same amount of cash as they have in debt.
And what I I see that step up from ninety
to one hundred and ten billion in the buyback is
an indication that they want to quicken that pace. The
CFO Luca did mention on the call that they think
that they won't get to net cash neutral anytime soon.
(07:14):
So that shows that just the strength of the overall
business is really powering this buyback. I think investors should
remain confident that ultimately that this business is producing just
an incredible amount of cash, almost ninety billion dollars a
year in free cashual. It's remarkable despite the revenue being
down basically five percent year rear.
Speaker 4 (07:33):
Well, we're speaking with Gene Monster of deep Water Asset Management.
In Gene you do a deep body of research into Apple,
You yourself hold Apple shares. I believe the firm does
not argue with me on this one. There is a
frustration from people around the world. They might not be investors,
they might just be consumers that have an iPhone and
they say, come on, man, this is Apple Coopertino, stop
(07:57):
messing around with buybacks and actually do some on the
innovation side. Give us the generative AI platform on iOS,
so give us a serious hard grade hardware upgrade.
Speaker 5 (08:08):
Do you have any sympathy with that?
Speaker 8 (08:11):
Absolutely? I mean Apple has been painfully silent on the
topic in twenty twenty three. Of course, as Mark mentioned,
about every other question on the call was related to AI.
That is, now they've had a coming out, but they
are late, There's no question about it. And another piece
to just some sympathizing with that view. Another piece to
(08:32):
this is that they got to ask a question about Capex,
basically going back to what happened with Meta and Google
and Microsoft and all their step ups, increasing Capex by
fifty to ninety percent in calendar twenty four. And the
expectation is that if Apple is serious about AI, they're
going to be pushing their Capex at a similar rate.
(08:52):
And Luca kind of sidestepped the question. He just kind
of outlined how they approach Capex in part firsthand by
their own out and they also work with third parties,
but he didn't give any indication that that would be
stepping up meaningfully. And they actually maintain their margin guidance,
and so I think that investors can show some I
(09:13):
think some frustration related to kind of again the pace
we're going to know more in June. I would have
welcomed them to have said they're spending a boatload on Capex,
for example. I don't think they're going to build a
foundation model to the same level that Microsoft, Google and
Meta are doing. And so I think part of that
(09:33):
is some of that frustrations to be understood. One last
piece is that there are on board on this, and
I think that they're going to show some exciting things
in June and beyond related to AI.
Speaker 5 (09:44):
Well, let's scratch a little bit deep.
Speaker 4 (09:46):
I mean, as often is the case with Luke and
Mistrea in particular, it's reading between between the lines. I
think that's probably a little bit kind. This is what
Luca Miifu told Bloomberg's Emily Chang last night. We have
very exciting things to talk about soon. But obviously we
think it's a great opportunity, it's a great new technology.
We think it's got a lot of potential. What does
(10:09):
an Apple generative AI tool or platform look like in
your mind? If indeed reading between those lines, Apple is
working on something to that effect.
Speaker 8 (10:21):
So it's going to think of it as in kind
of two or three phases. The first phase, what we'll
see in the back half of this year is new
operating systems iOS and mac os. It's just going to
simply integrate generative AI into it. Siri may be able
to have a conversation with Siria instead of just a
point answer. You be able to I suspect this year,
be able to ask your phone to book you an
(10:42):
uber to the airport, and then it will just take
care of it. I think they'll allow developers to start
building AI into their apps with some foundation, a small
foundation model that they'll come out with, So I would
say early stage. I think the iPhone this fall they
will talk a lot about having iPhone AI still ken
in it, and so that's kind of the first stage.
Not very exciting, but at least the first step. The
(11:05):
second piece is really exciting, which is related to agent
or personalized or agentic AI. You can use any one
of those phrases, but this is the idea of that
you ask the device to do something for you, and
it has multiple steps to it, and it goes out
and does it itself and this is something that Apple
has a unique opportunity, and especially around privacy, and Cook
(11:26):
mentioned that in his prepared remarks. He talked about privacy
as being a competitive advantage for Apple when it comes
to AI, and I think what he's hinting to is
their belief in agent AI and so how that presents
itself as probably in twenty five twenty twenty five, we'll
start to see this built more into the hardware and
potentially even subscription services that allow you to do more
(11:48):
things based on AI. And it's I think that, to
me is a really exciting product.
Speaker 4 (11:54):
Jane, it's been a while since you've been on the show,
so let me milk out some value for the audience
while we got you. Do you understand what's happening in
the smartphone market in China? Do you understand the trajectory
of where the iPhone's going in relation to the domestic
OEM's largely Android base that appear to be doing quite well.
Speaker 8 (12:16):
It's definitely something we pay a lot of attention to.
And I think that the biggest force there is that
there is a geopolitical element to it, even though this
is not explicitly spoken about with Chinese leadership. I think
that there is a recommendation that any government employee starts
to move to homemade phones, which makes sense from their perspective,
(12:37):
and that's.
Speaker 6 (12:37):
A big pool.
Speaker 8 (12:38):
There's a large population. We're talking about fifty million high
end phone users that work with the government, and that
can have a big impact on Apples on two hundred
and fifty million phones a year. If you get a
little bit of those two push to a competitor, I
think that that has an impact.
Speaker 6 (12:54):
I think that the.
Speaker 8 (12:54):
Good news that's negative just there's no way to look
at it any different. The good news is that the
comps do get easier. And second is the company is
talking about diversifying away from China. They spend a little
bit of time on the call talking about that. But
to answer your question, I think China is still going
to remain really important. As a percentage of revenue. It's
(13:15):
about nineteen percent right now. I suspect that's going to
drift down to thirteen to fifteen percent over the next
few years.
Speaker 4 (13:21):
Gene Monster Dewar's asset Management. Great to catch up.
Speaker 5 (13:24):
It's been to thank you Edgie.
Speaker 9 (13:26):
All right.
Speaker 4 (13:26):
Coming up on the show, we're going to be joined
by Jamaira Herrera from Reach Capital to break down the
latest jobs report and what that means to the technology sector.
It's coming out next be right back. This has been
berg technology. So let's crunch the numbers out of the
(13:53):
April report. They came in softer than expected, with non
farm payrolls advancing one hundred and seventy five thousand last month,
which is the smallest gain in six months. The unemployment
rate also ticked up to three point nine percent and
wage gain slow. That's the kind of data that the
Fed's looking at. Let's break it all down, which Amaira Herrera,
(14:14):
who's a partner at Each Capital, really zeroed in on.
Speaker 5 (14:17):
The future of work, the future of labor.
Speaker 4 (14:21):
When you track the data, what are you looking for
in these job numbers?
Speaker 10 (14:26):
Yeah, thank you so much for having me ed one.
I'm generally looking at the data. I'm looking at one.
What are the sectors that are driving the growth that
we're seeing And we've seen pretty consistently healthcare has been
a big driver of job growth across the US economy.
Speaker 2 (14:44):
In this past month.
Speaker 10 (14:45):
We also saw retail, warehouse and transportation as well continue
to be a big driver in job growth. Some of
the other things we think about and consider as well
are wage increases. So wage increased five point two po
sent in the last month, a little lower than we anticipated.
And we also look at other numbers like what are
(15:07):
the openings that we see the job openings and so
the Jolts report came out on Wednesday and those continue
to be relatively healthy and stable. And so those are
some of the numbers were that we're generally looking at
when we're looking deeply into these labor market reports.
Speaker 4 (15:25):
Right, did you learn anything about the technology sector this morning?
Speaker 10 (15:30):
Yeah, I mean when it came to the technology sector,
it's a little bit of a tale of two cities.
There's a bit of a cognitive dissonance. When you look
at the labor market reports at a high level, you
see unemployment continues to be under four percent, and that's
for the twenty seventh consecutive month. You continue to see
a high demand across some of these key industries. Like
(15:51):
I mentioned, now you look at the technology sector more deeply.
Speaker 2 (15:56):
At the technology sector.
Speaker 10 (15:57):
Job postings for most tech jobs are below twenty five
percent from pre pandemic.
Speaker 2 (16:03):
They're still quite.
Speaker 10 (16:05):
A bit of a lag in the tech sector in
terms of seeing that increased demand, and you see folks
that have been laid off of the past year continue
to struggle to find access to two jobs, particularly if
they're a non technical role. So think operations, finance, human
resources in these large tech companies. And it's a hard
(16:26):
feel to swallow because when we looked at the earning
reports for the past quarter, seen over the last whether
it's Meta, Microsoft, Alphabet, they're actually quite strong, but they're
also showing discipline around maintaining operational efficiencies. And so we
set we haven't yet seen that resurgence in the same
(16:46):
way that we see the strength of labor market across
these other industries.
Speaker 4 (16:50):
As see Jamaara hold that thought earlier today we spoke
to or yesterday rather Savita Supermanian at Bank of America.
Just just listen to her thesis real quick.
Speaker 11 (17:01):
Look, who's going to benefit from all these chips and
this AI and you know automation. It's old economy companies
that get more labor light. And I think that's the
benefit that we could see over the next twelve to.
Speaker 2 (17:13):
Twenty four to a few years.
Speaker 11 (17:16):
I think the areas are you know, industries like ours,
the banks, right, I mean banks are very labor intensive.
Now there is this tool that we can use to
replace people with bots and processes, et cetera.
Speaker 4 (17:30):
So, taking your read of the technology sector and what's
the Vita just said, I think you agree with each
other about the direction of travel right now, about what's
happening in jobs in the technology sector, and then how
technology is impacting basically old school.
Speaker 2 (17:45):
Economy completely and totally.
Speaker 10 (17:49):
I think what's really interesting whenever you have a large
technology shift, oftentimes we're very very good at predicting what
jobs we're going to lose. We're very very bad at
predicting them. More jobs are going to be created, and
so in this short term period, what we're seeing and
what we're going to feel is increase automation around tasks
(18:09):
that right now people are doing, and that will be
a net productivity gain for the economy. But there is
going to be some real labor market team that is
felt bye employees in the short term. But over time,
what we'll see is employees will be able to lean
into really human tasks and there will be new jobs
created in ways that we really can't anticipate right now.
Speaker 4 (18:33):
Right Jamira Herrera, partner at Reached Capital, great to have
you on the program. US prosecutors making their closing remarks
in the Google search trial, where they reiterated their argument
that Google has broken antitrust laws through exclusive, multi billion
(18:56):
dollar deals to maintain a dominant position in the market
online search and related advertising. Let's bring in Bloombergs Mike Shephard.
Mike's the editor that leads the kind of intersection between
technology and politics, which means he's very busy at the
moment that the search trial, the antitrust pursuit by the
DOJ against Google, has played out over a long period
(19:18):
of time. Just explain the basics of the closing statement
and where we are in the process.
Speaker 3 (19:24):
Well, in this closing statement, as you said, the government
repeated its argument that Google has violated anti trust laws
through billions of dollars in payments to companies like Apple
and Samsung and others, that we guarantee a prime position,
prime location on smartphones and other devices for its for
(19:45):
its search platform and tool, and this allowed it to
turn its search business into the most dominant and the
most widely used in the world and helps secure a
nearly three hundred billion dollar annual stream of revenue for
the company and the result of this is that there's
been a stifling of innovation across the tech industry. We
(20:09):
would have seen certain developments like AI hit the market
much sooner if we're not for this to have taken place.
Speaker 5 (20:17):
Hey, Mike, bear with me for one second.
Speaker 4 (20:19):
On a day where tech Stock's a pretty markedly higher
alphabet parent of Google's the one stock that's pretty low
and is a points drag at the index level, very quick.
I don't draw a cause or link between the move
and the news headline. Just explain what happens next in
this process.
Speaker 3 (20:35):
Well, in this case, it now goes to the judge
once both sides have finished their closing arguments, And to
be fair to the company, they are arguing that this
is not a question of anti competitive behavior. Google is saying, hey,
we just make a better product and you shouldn't penalize
us for that. But it will take the judge several
(20:55):
months to deliberate over this, to think about this.
Speaker 6 (20:58):
But we are.
Speaker 3 (20:58):
Expecting a ruling before the end of the year, and
this is a significant case, he said. This is the
first in a series of anti trust actions that the
government is bringing against tech companies. Now we know that
the Biden administration has made the whole question of competition
in a focus across a number of industries, but tech
is really drawing the line share of that attention.
Speaker 4 (21:21):
Bloomberg's Mike Shepherd out of DC, thank you, Welcome back
to Bloomberg Technology. Ed Ludlow here in San Francisco. Let's
also talk about Coinbase.
Speaker 5 (21:38):
Now.
Speaker 4 (21:38):
This is interesting because actually in the quarter, Coinbase did
pretty well beat top and bottom line. Stocks down four
point seven percent, high bar often going into these earnings quarters,
and also some questions about the future about cryptocurrency trading,
the retail trader and app based transactions. Delighted to say
that Alicia hass coinbased CF he joins me along with
(22:01):
my good friend Shlai Basseca Bloomberg who's in New York.
Speaker 5 (22:04):
Shnale take it away.
Speaker 12 (22:05):
Thank you Ed, and thank you Alisia for joining and
to speak to what Ed was talking about about this
high bar. Even though you brought in more than a
billion dollars of transaction revenue in the first quarter, a
lot of investors, I think, have a lot of questions
about that fall off in bitcut coin prices in April
after the quarter ended. How do you think about the
more recent drawdown and what it means for you.
Speaker 1 (22:28):
Yeah, so let me just start with I think it's
important to zoom out whenever you're talking about crypto. We
see volatility day to day, we see it week to week,
month to month, but when you look over the last decade,
bitcoin has been the top performing asset against all asset classes,
so we really.
Speaker 2 (22:43):
Focus on long term trends.
Speaker 1 (22:45):
I think it's also important to note when you look
at all past prior bull runs where you see price
appreciation over a period of time, there's been intro ad
week in day, intro month corrections to the price, and
so coinbase always prepares for all environments.
Speaker 2 (22:58):
We're prepared for the vallatility.
Speaker 1 (23:00):
We've navigated this incredibly well over the last ten years
of our history. And it's just another day in crypto.
It doesn't mean that the long term doesn't continue to
be as rosy as.
Speaker 2 (23:11):
It was last week.
Speaker 4 (23:13):
Alicia, good morning, it said in San Francisco. Just another day,
and crypto doesn't carry with Schnali and I because we
have sleepless nights and never ending days of crypto. I
get that the volatility is a driver, right. We understand
that particularly when you consider your customer base, but there
must be a psychological sentimental element of that as well.
(23:35):
So if you take the newsflow of late spot, BITCOINYTF
and the Harving as examples of dominated headlines, do you
see evidence that those headlines drive activity for you guys
on the platform?
Speaker 13 (23:48):
We absolutely see that cryptos volatility and rising crypto prices
drive activity on our platform, and so with the demand
of bitcoin ETFs, it's natural to see then price go up,
natural c elevated activity as scrypto has been very headline
driven over the last decade.
Speaker 1 (24:05):
But what is so exciting to us is that we
now have a material part of our revenue coming from
non trading activity. So we've been seeing growth in our
subscription and services through the downturn of twenty twenty three
through Q one, where it was about thirty six percent.
We generate over five hundred and eleven million dollars of
subscription and services and we're really excited now for this
(24:27):
next wave of crypto.
Speaker 2 (24:28):
Adoption on chain. So we're seeing the.
Speaker 1 (24:31):
Idea that we can now have base as a layer
two do faster and cheaper transactions. Gives the foundation that
we might be able to drive into payments and so yes,
Historically speculative trading very headline driven, but there's so much
more to crypto than speculative trading, and we're excited about
what we can deliver with the diversified revenue on our platform.
Speaker 12 (24:49):
At least, I think a lot of people struggle to
understand and conceptualize how much Base can really translate into
future revenue for coinbase, how big can it really get
and what does it mean for the future economics of Coinbase.
Speaker 2 (25:06):
Thanks for the opportunity to talk about Base.
Speaker 1 (25:08):
So first I want to explain what Base is. Base
is a layer two solution, which means that it's built
as infrastructure on top of ethereum and it enables transactions to.
Speaker 2 (25:17):
Move more quickly faster.
Speaker 1 (25:20):
What we saw is we now have eight times the
developers building on Base quarter over quarter. This is what
we're driving. We're driving a platform for developers to build applications.
When they build applications, they're looking for less friction, lower cost,
faster speeds, and that is the environment that we're trying
to create. We had a really exciting upgrade in the
(25:41):
quarter where we were able to reduce transaction costs by
eighty percent.
Speaker 2 (25:45):
Often getting them lower than a penny.
Speaker 1 (25:47):
What that led to now in the last thirty days
is that we're seeing two x the number of transactions
on Base than we do on Ethereum. Driving developer activity
leads to driving transaction volume.
Speaker 2 (25:58):
Transaction volume leads to revenue.
Speaker 1 (26:00):
So the whole pipeline here of activity is trying to
create that environment for developers.
Speaker 2 (26:05):
Get the transactions leads revenue.
Speaker 1 (26:07):
We broke out a new revenue stream in Q one
called other transaction revenue. Other transaction revenue is the base
sequencer fees and other payment related fees, and so this
really speaks to our ambition to grow these products and platforms,
and the investors will have that transparency now to look
at it as we go forward.
Speaker 4 (26:23):
Sanali, just let me have this one, okay. Alisha is
the CFO of the company, So i'd like to ask
about expenses. Alicia, I'd like to ask you about expenses.
They're creeping up a little bit and you're going to
tell me, well, demand's going up, so but how you
managing expenses. You can see the eye roll from Schnale
that she's less than impressed, but I think it's important
(26:45):
for investors.
Speaker 2 (26:47):
So in Q one, expenses. We're aout five percent.
Speaker 1 (26:50):
That was largely stock based comp that we shared earlier
in the year, But I'm going to focus on the future.
So we are seeing expense growth in Q two. The
vast majority of this is variable spend, as I shared
in our shareholder letter. When we see high volumes, which
we saw sharp tickup and volumes in March, we tend
to then have a lagging effect to our customer support
cost as we staff up those teams to address the
(27:12):
cues that have resulted. So a little bit of that
is spilling into Q two. We also will see higher
infrastructure costs in Q two. The third expense that's going
up is USDC rewards. USDC rewards are tied to activity
on our platform. We doubled the USDC balances on our
platform during the quarter and that is what's driving this
increased spence. All of these can be also ratcheted down
(27:34):
quickly if we see a change in environment. But we're
excited about the growth and extenses. It's not hard sticky expenses.
We learned our lessons hard in twenty twenty one and
twenty two y two when we grew too quickly.
Speaker 2 (27:44):
We will be prudently growing.
Speaker 1 (27:46):
We're looking for good ROI investments, and we really have
a focus on the cost management and financial discipline alsia.
Speaker 12 (27:52):
It's interesting because if you think about the currency market,
it's like King dollar, but when it comes to the
crypto market, it's King Bitcoin and it is still the
vast majority of what you see in trading. But when
it comes to Base and the activity that's being brought
in the world of mean coins, how do you think
about that movement, if it's sustainable, and whether that's going
(28:14):
to be where the bulk of activity lies for a while.
Speaker 1 (28:18):
So there is some mean point activity on Base, but
I would focus you on this is the creative content.
Speaker 2 (28:22):
This is part of the process. We are seeing really exciting.
Speaker 1 (28:25):
New applications being built on Base, like in the areas
of social gaming, and I think this is just part
of the journey to get there. I think again, the
key that I want to focus on is a platform
that enables quick, fast transactions, just like we move from
email to text, text to what app WhatsApp, lower frictions
(28:46):
will be the path of developer growth.
Speaker 2 (28:49):
And when we think about.
Speaker 1 (28:50):
Just the opportunity now to have USDC on Base, it's
enabled global payments nearly instant, nearly.
Speaker 2 (28:57):
Free, or very few cents per transaction.
Speaker 1 (29:00):
That is a new innovation that we're really excited to
see how it is built in growth through our own
product platform, through our wallet platform, through USDC, growth through
sequence reviees, but also then for just other developers and
companies that are looking to then adopt these lower cost rails.
Speaker 4 (29:18):
Oh thanks to Alicia has coinbased CFO and of course
balloon VOTIONALI beast strong way to end the week in.
Speaker 5 (29:23):
The world of crypto.
Speaker 4 (29:25):
Should we look at some other news headlines, It's time
for talking tech and first start. Microsoft is adding security
chiefs to its products group to boost resilience to hacking
after several serious cyber attacks. The software giant said adapt
adding deputy chief information security officers within its product groups,
while declining to identify who those new officials are. Plus
(29:46):
Live Golf CEO and commissioner Greg Norman spoke to Bloomberg
about its possible merger with the PGA and the future
of the sport as streaming competition heats up.
Speaker 5 (29:55):
Listen to this.
Speaker 14 (29:57):
What's the definition of tuning in turning on the TV
and turning on the channel forty four and say, okay,
I'm going to watch the next four and a half hours.
That's tuning in, right, But to an eighteen year old
or twenty five year old tuning in maybe twelve seconds
on the phone. Okay, let me see this. Then I'm
gonna go back and do that, and then I'll come
back over here to another fourteen seconds on this boy,
(30:18):
That to me is tuning in. That's, to me is
a market that's enormously wealthy, right, an enormously influential in
the direction where were you going? So look, we are
talking to corporations. I'm not going to give you the
names of those corporations, of course, but we just did
a great partnership with Google.
Speaker 4 (30:38):
And here's a story I broke yesterday afternoon. Rivian's receiving
incentives eight hundred and twenty seven million dollars to expand
in Illinois. Meanwhile, the company's also tapped the former COO
and deputy CEO Evolvo Cars to be it COO. Is
it prepares to roll out that lower cost model, which
is geared for the mass market. BRT all right, coming
(30:58):
up on the show, we're going to be joined by boys.
Jason Chapman's talk about the global outlook for the video
games landscape.
Speaker 5 (31:04):
Stay tuned. That's coming up next. This is Bloomberg Technology.
Speaker 4 (31:22):
After a year of speculation, it's finally here. JP Morgan's
index GPT tool In a nutshell, Index GPT is a
new range of thematic investment baskets created with the help
of open AI's GPT form model. The tool generates a
list of keywords associated with the theme, which are then
fed into a separate natural language processing model that scans
(31:43):
news articles to identify companies involved in specific spaces. All right,
it's been a hard week for the video games industry.
AMD told us on Tuesday demand for chips powering games,
consoles and computers is down a lot, And on Wednesday,
Bloomberg reported video game publisher Take two plans to shut
down subsidiaries in London and Seattle amid mass layoffs, joining Sony,
(32:07):
EA and Microsoft in cutting back. In more positive news, Twitch,
Amazon's live streaming platform four Gamers is going to launch
a competitor to TikTok.
Speaker 5 (32:17):
Here to discuss all of that.
Speaker 4 (32:19):
In today's VC Spotlight is Convoy managing partner Jason Chapman.
Speaker 5 (32:23):
It's hard to know where to start.
Speaker 4 (32:25):
But I guess the broad theme is that for those
big principally publicly traded names, it's tough out there in
the video games industry right now.
Speaker 5 (32:33):
Your reaction to the week.
Speaker 15 (32:36):
Yeah, thanks for having me ed. It's definitely been a
big week obviously. Also this is on the back of
the ban of TikTok, which eighty percent of the House
just voted in favor of the force to vestiture and
something just a macro theme to note that is a
big theme that we're paying attention to today. Is clearly
byte dances being forced today as TikTok. TikTok is you
(32:58):
know in day dances at based in China. China is
one of six foreign adversaries listed by the United States,
and a lot of people are now questioning, including a
lot of the companies you just listed, will this force
divestiture continue to occur? And I'll tell you here at Convoy.
You know, we've taken a long principle that we do
not partner with capital based in foreign adversarial nations, and
(33:22):
we expect that many others will continue to ponder if
this is the right move for the industry.
Speaker 4 (33:27):
Jason, There's going to be a large portion of the
bloembog technology audience that say, hold on a minute, why
is a bench capital firm that invests in and focus
on video games worried about TikTok.
Speaker 5 (33:40):
It's a great question.
Speaker 15 (33:41):
So TikTok as an entity is one of the most
used social platforms in the world. After social platforms, you
start to look at where else do people spend their
time in digital formats and digital worlds, and naturally go
to games and so about the basically, it's a battle
for eyeballs. And we'll also view this as the precursor
(34:03):
of what is to potentially come to the games industry.
So this force divestiture of TikTok could then lead to
force divestitures in the games industry.
Speaker 5 (34:13):
So you extrapolate that out. I get the thesis.
Speaker 4 (34:15):
Now, So let's look at the case study of what
Twitch is doing. I thought that was really interesting. You know,
if it's the battle for eyeballs, otherwise they are principally
a live streaming platform where you can view and participate
in others.
Speaker 5 (34:28):
Playing video games.
Speaker 4 (34:30):
So now they're thinking of doing a TikTok competitor, what
advantage might they have in pursuing that business model?
Speaker 15 (34:38):
Yeah, it's definitely interesting to see Amazon try to move
heavily into consumer Twitch is obviously i'd say the beacon
in the North Star for them successfully entering into a
consumer first product, which is Twitch. And obviously Amazon is
one of the rumored groups that could potentially buy TikTok
outright itself. There's really kind of three groups that have
been considered there. It's private equity shorteach and sort of
(35:01):
i'd say dark horse picks here for me would be
e commerce platforms, but you know, them announcing that they
would like to actually go launch their own competitor directly.
I think it's either a precursor to test the waters
in the next year. Do we want to actually consider
bringing this in house ourselves, or is this something that
we want to just actually launch directly competitively and can
grow in house.
Speaker 4 (35:22):
As you said, Jason, a rumor that Amazon's waiting in
the wings to buy TikTok. I don't think that Bloomberg's
reported them as a candidate, But I'll look into it
and I'll let you know. I want to go back
to get keeping your toes ed. I know, I know,
I'm just being me. More layoffs, more studio shutdowns. What
(35:43):
comes next, you know, maybe consolidation. You know, as I
said before, I believe we're right sizing in an industry.
You know, we got very bloated as an industry when
money was free in twenty twenty one. In the early
part of twenty twenty two, we hired tons of individuals,
which was fantastic.
Speaker 15 (36:02):
We grew a lot. Gaming continues to grow. It grows
about one hundred and one hundred and fifty million people
a year. We're expecting actually a strong twenty twenty four
and very strong twenty twenty five. And I believe what
you're seeing is right sizing, which is across not just gaming,
but also entertainment and tech more largely.
Speaker 4 (36:20):
I've been playing a lot of Ghost of Tushima recently
on PlayStation. Awesome storytelling. Not clear where the next big
innovation is in gaming, just really quickly, Jason, you know
what is the next big innovation?
Speaker 15 (36:33):
I think a lot of the next big innovations you're
going to see is around the creation process of games
as well as the distribution of games, and so creation
is getting faster. We're able to produce a ton more
content a lot more quickly, thankfully, largely and due to
new new development tools that are often fueled empowered by
artificial intelligence. So we're very excited about this trend. And
(36:54):
then secondly, the way games are distributed is a mess.
How do you find games today? The vast audio gamers
find that either in Facebook ads or they find it
with word of mouth, and with the sheer amount of
content that's coming our way. We think this needs to
be rethought and we're really excited to back entrepreneurs pursuing
these problems.
Speaker 4 (37:12):
We almost went in an entire seven minutes without talking
about artificial intelligence until your answer. Thanks Convoy Managing Jason Chapman.
I know, I know you can't no, I mean, you've
done the research there, but we got to go. Thank
you so much, Jason Chapman. Let's go back to Apple again.
(37:36):
Shares up six point seven percent, on track for their
biggest jump since November of twenty twenty two. A mixed picture, honestly,
like a really tough quarter in the quarter gone, but
things improving and in China, iPhone surprised everyone.
Speaker 5 (37:50):
Let's get to man.
Speaker 4 (37:51):
Deep sing of Bloomberg intelligency leads our in house research.
The thesis you guys had or your response and react.
Was that the broads ecosystem of Apple products offset specific
product line weakness.
Speaker 5 (38:04):
Just go into the specifics.
Speaker 9 (38:06):
Yeah, I mean, look at the resilience of the services line, right.
The fact that it grew almost made peints shows that
you know, they can pull the levers when it comes
to pricing and just you know how they bundle things out.
And that's why even though the iPhone revenue was down
ten percent, they were able to show fourteen percent services growth.
(38:30):
So I think everyone gets it that Apple controls a
distribution and if you have to roll out AI, they
will have a piece of the transactions that take place
in the ecosystem. And that's why businesses are resilient.
Speaker 4 (38:46):
So Tim Cooks got us all excited. Big event next week,
another one in June. We think more products will be revealed.
What's it going to take to keep the stock going
higher and engage and people believing that something big really
is coming.
Speaker 9 (38:59):
Mandy, I mean with Apple, you need a large addressable
market to move the needle. Look, they saw that with
Vision Pro and obviously they're not pursuing the car anymore.
So you need a large addressable market to move a
company of Apple size and in this case, I think
AI inferencing is that large market. It's just they need
(39:21):
to show how are they kind of catering to AI
infrincing they don't have their own LLLM. I think they
will have to partner with someone. Most likely it has
to be Google given the arrangement, but it just needs
to be articulated a lot more clear for the market
to understand.
Speaker 4 (39:37):
Mandy supercif quick, which piece of hardware will be the
home of the AI inferencing.
Speaker 9 (39:44):
So Apple controls the chip, and look, I think you
can't have inferencing done through the cloud. I mean you
can't have Nvidia GPUs everywhere because your data centers are
physically located somewhere. So having inferencing in Apple's chip, albeit
it's a small is what it needs to do in princing,
and I think they can do that.
Speaker 4 (40:05):
Man deep Seeing, who leads our tech coverage over at
Bloomberg Intelligence. Great to catch up with you, Happy Friday.
That does it for this edition of Bloomberg Technology. What
a week it's been dominated by earning this big news
flow Recap Friday the story of Apple on the podcast.
So many of you checking out the podcast on Apple Spotify, iHeart,
and of course we post it to all the Bloomberg platforms,
(40:26):
whether you're on your way to work, if you're on
your way home, you're just taking a break in the
middle of the day for all things technology.
Speaker 5 (40:32):
Buckle up.
Speaker 4 (40:33):
There's a lot more to come next week as well.
From San Francisco, This is Bloomberg Technology.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
From Marhart.
Speaker 3 (00:09):
We're Innovation, Money and Power Collie in Silicon Valley, NBN.
Speaker 1 (00:14):
This is Bloomberg Technology with Caroline Hide and Ed Louvelove.
Speaker 4 (00:33):
I Meed Lovelo in San Francisco. Caroline Hides off today.
This is Bloomberg Technology coming up. Apple saws amid an
upbeat forecast and record buyback, full coverage throughout the hour,
plus tech jumps and market traders re up their rate
cup bets as US jobs data disappoints to the downside,
and we sit down with the CFO of Coinbase to
break down the company's first quarter results.
Speaker 5 (00:56):
Let's get right to our.
Speaker 4 (00:57):
Top story, and that top story is Apple shares are
actually on track in the moment for their biggest jumps
since November of twenty twenty two, the biggest announced five
back in US company history. Probably has some part to
play in that. But then there's the story, which is simple,
Things weren't as bad for the iPhone in the first
quarter calendar quarters perhaps we thought they might be. And
(01:18):
then there's the question, what on earth is Apple doing
in the realm of generative AI. Let's get right to
Bloomberg's chef correspondent Mark German and Mark long Day for
you yesterday, long night. But I think that sums it
up right, not so bad as we had feared, but
we still have questions about the path forward. What did
executives tell us last night?
Speaker 6 (01:36):
Yeah, and I think you're exactly right.
Speaker 7 (01:37):
As always, things were not as bad as we anticipated,
or not we anticipated. Wall Street anticipated with their estimates,
but things also weren't great, right. They still had about
a five billion dollars decline on overall revenue. They still
had a pretty big decline on the iPhone. The Mac
and services were two bright spots. The iPad came in
lower than anticipated, even though people knew that new models
(02:01):
are coming out next week. And Wearable's home and accessories
that was quite disappointing, coming in at about seven point
nine billion, right, the lowest metric for that category in
several quarters, despite the fact that the vision pro in.
Speaker 6 (02:14):
That segment launched on February second.
Speaker 7 (02:17):
Now looking ahead, the big thing, artificial intelligence. It felt
like every other question on the call was about AI.
In Apple's plans for jen Ai, Tim Cook Luku, my history.
They didn't move an inch on that front. You'll hear
more about that on June tenth, though the Worldwide Developer Conference.
Speaker 4 (02:32):
You've kind of already set out the chronology of what's
going to happen on the afront. We'll get to that
in a second. China is a story in and of itself.
There are some idiosyncratic things about product lines that do
well and those that don't. So I think iPhone was
probably brighter in China than expected. But I think what
stuck out to me is is a concession maybe from
Tim Cook, that China is becoming a more competitive marketplace
(02:55):
for them.
Speaker 7 (02:58):
He certainly mentioned several times that China's the most competitive
market in the world. Now, the most interesting thing that
happened with the China numbers yesterday is that China came
in about a billion better than expected. It was still
about a billion dollar decline, But what Tim Cook said
is the iPhone actually.
Speaker 6 (03:13):
Grew in mainland China.
Speaker 7 (03:15):
Right now, this is super interesting because Counterpoint Intelligence, id
C some other analyst firms came out and said that
the iPhone was really cratering during the quarter in China.
Speaker 6 (03:25):
Now, the discrepancy there.
Speaker 7 (03:26):
Is that some may be talking about unit sales that
might be the analysts, and Tim Cook is probably talking
about revenue. Now, if the asps went up, there is
a chance that unit sales were still down, but revenue
actually was up and they probably grew a little bit
in mainland China. Either way, we still are facing concerns
in China for Apple. Right there is newfound competition from
(03:49):
Huawei Shaomi, there are those government bands. But certainly Tim
Cook and Lukeu Mystry, they actually seemed pretty optimistic about
China when it came to the iPhone. Where Cook seemed
less optimistic was about the company's other products.
Speaker 6 (04:01):
Now, he didn't explain what's.
Speaker 7 (04:03):
Doing so poorly for Apple and China why revenue is
down in China. Clearly it is down, but he didn't
get into it. But he said Apple does have work
to do.
Speaker 6 (04:12):
Now.
Speaker 7 (04:13):
One other thing, Apple could have grown quarter over quarter.
He didn't specify when that growth occurred. They may be
down on an annual basis for the iPhone in China.
Maybe they grew over the last quarter, Maybe they grew
at some period during the quarter.
Speaker 6 (04:26):
So there's a.
Speaker 7 (04:27):
Little more explanation to do from Cook, but obviously they're
not going to give those details.
Speaker 4 (04:32):
Well, in the big area where explanation is needed is
the roadmap for generative AI. You know just what I
would say to our audience. Check out Mark's latest reporting
next week with the let loose the focus is iPad WWDC.
In June, we should find out some more about generative AI.
Bloomberg's Mark German, thank you very much. Let's stick with
Apple joining us as gene monster of deep water asset
(04:52):
management and gene You know, you were pretty clear in
your posts on social media last night how you read
the the earnings. What's the standout story for you? Just
one thing that you learned from Apple last night.
Speaker 8 (05:07):
The one piece I learned is that the core business,
as Mark said, it's not doing great, but it's holding together.
And there was again this fear that the estimates would
be revised downward for the June quarter. They basically maintain them,
and I think that that is testimony to just the
strength of their brand across the product lines, whether it's
be the software and the services or to even iPhone
(05:29):
being down. It's held together. And what I take away
from that is that in the June quarter we're going
to see revenue growth really for the first time in
two years. Over the last two years, Apple's revenue growth
has averaged down zero point three percent. It's going to
be up a couple percent in June, probably four percent
in September, and six percent in December. So that that turnaround,
(05:51):
that reacceleration is the one thing that stepped out to me, Gene.
Speaker 4 (05:56):
I'm showing our audience and you a table, and the
table shows the list of largest announced company share buybacks
in history. And unless you've been living under a rock,
you'll see there's only one name on that list, Gene,
It's Apple. What's the point in a one hundred and
ten billion dollar buyback?
Speaker 8 (06:18):
Now, there's two points. Number one is they're sending a
message to investors that they're going to continue to return
capital despite going into an investment phase related to AI.
They've made that very clear that they think AI is
going to be significant. Cooke said, it's going to impact
most of their products, not just software but hardware. And
so the fact that they're reiterating and increasing this buyback
(06:40):
during that period, that's one piece to it. A second
is there cadence to getting to net cash neutral and
so this of course has been a goal for them
for the.
Speaker 5 (06:49):
Past five years.
Speaker 8 (06:50):
Right now, it's at fifty seven billion dollars, so they
want to bring that down to zero. That means they
have the same amount of cash as they have in debt.
And what I I see that step up from ninety
to one hundred and ten billion in the buyback is
an indication that they want to quicken that pace. The
CFO Luca did mention on the call that they think
that they won't get to net cash neutral anytime soon.
(07:14):
So that shows that just the strength of the overall
business is really powering this buyback. I think investors should
remain confident that ultimately that this business is producing just
an incredible amount of cash, almost ninety billion dollars a
year in free cashual. It's remarkable despite the revenue being
down basically five percent year rear.
Speaker 4 (07:33):
Well, we're speaking with Gene Monster of deep Water Asset Management.
In Gene you do a deep body of research into Apple,
You yourself hold Apple shares. I believe the firm does
not argue with me on this one. There is a
frustration from people around the world. They might not be investors,
they might just be consumers that have an iPhone and
they say, come on, man, this is Apple Coopertino, stop
(07:57):
messing around with buybacks and actually do some on the
innovation side. Give us the generative AI platform on iOS,
so give us a serious hard grade hardware upgrade.
Speaker 5 (08:08):
Do you have any sympathy with that?
Speaker 8 (08:11):
Absolutely? I mean Apple has been painfully silent on the
topic in twenty twenty three. Of course, as Mark mentioned,
about every other question on the call was related to AI.
That is, now they've had a coming out, but they
are late, There's no question about it. And another piece
to just some sympathizing with that view. Another piece to
(08:32):
this is that they got to ask a question about Capex,
basically going back to what happened with Meta and Google
and Microsoft and all their step ups, increasing Capex by
fifty to ninety percent in calendar twenty four. And the
expectation is that if Apple is serious about AI, they're
going to be pushing their Capex at a similar rate.
(08:52):
And Luca kind of sidestepped the question. He just kind
of outlined how they approach Capex in part firsthand by
their own out and they also work with third parties,
but he didn't give any indication that that would be
stepping up meaningfully. And they actually maintain their margin guidance,
and so I think that investors can show some I
(09:13):
think some frustration related to kind of again the pace
we're going to know more in June. I would have
welcomed them to have said they're spending a boatload on Capex,
for example. I don't think they're going to build a
foundation model to the same level that Microsoft, Google and
Meta are doing. And so I think part of that
(09:33):
is some of that frustrations to be understood. One last
piece is that there are on board on this, and
I think that they're going to show some exciting things
in June and beyond related to AI.
Speaker 5 (09:44):
Well, let's scratch a little bit deep.
Speaker 4 (09:46):
I mean, as often is the case with Luke and
Mistrea in particular, it's reading between between the lines. I
think that's probably a little bit kind. This is what
Luca Miifu told Bloomberg's Emily Chang last night. We have
very exciting things to talk about soon. But obviously we
think it's a great opportunity, it's a great new technology.
We think it's got a lot of potential. What does
(10:09):
an Apple generative AI tool or platform look like in
your mind? If indeed reading between those lines, Apple is
working on something to that effect.
Speaker 8 (10:21):
So it's going to think of it as in kind
of two or three phases. The first phase, what we'll
see in the back half of this year is new
operating systems iOS and mac os. It's just going to
simply integrate generative AI into it. Siri may be able
to have a conversation with Siria instead of just a
point answer. You be able to I suspect this year,
be able to ask your phone to book you an
(10:42):
uber to the airport, and then it will just take
care of it. I think they'll allow developers to start
building AI into their apps with some foundation, a small
foundation model that they'll come out with, So I would
say early stage. I think the iPhone this fall they
will talk a lot about having iPhone AI still ken
in it, and so that's kind of the first stage.
Not very exciting, but at least the first step. The
(11:05):
second piece is really exciting, which is related to agent
or personalized or agentic AI. You can use any one
of those phrases, but this is the idea of that
you ask the device to do something for you, and
it has multiple steps to it, and it goes out
and does it itself and this is something that Apple
has a unique opportunity, and especially around privacy, and Cook
(11:26):
mentioned that in his prepared remarks. He talked about privacy
as being a competitive advantage for Apple when it comes
to AI, and I think what he's hinting to is
their belief in agent AI and so how that presents
itself as probably in twenty five twenty twenty five, we'll
start to see this built more into the hardware and
potentially even subscription services that allow you to do more
(11:48):
things based on AI. And it's I think that, to
me is a really exciting product.
Speaker 4 (11:54):
Jane, it's been a while since you've been on the show,
so let me milk out some value for the audience
while we got you. Do you understand what's happening in
the smartphone market in China? Do you understand the trajectory
of where the iPhone's going in relation to the domestic
OEM's largely Android base that appear to be doing quite well.
Speaker 8 (12:16):
It's definitely something we pay a lot of attention to.
And I think that the biggest force there is that
there is a geopolitical element to it, even though this
is not explicitly spoken about with Chinese leadership. I think
that there is a recommendation that any government employee starts
to move to homemade phones, which makes sense from their perspective,
(12:37):
and that's.
Speaker 6 (12:37):
A big pool.
Speaker 8 (12:38):
There's a large population. We're talking about fifty million high
end phone users that work with the government, and that
can have a big impact on Apples on two hundred
and fifty million phones a year. If you get a
little bit of those two push to a competitor, I
think that that has an impact.
Speaker 6 (12:54):
I think that the.
Speaker 8 (12:54):
Good news that's negative just there's no way to look
at it any different. The good news is that the
comps do get easier. And second is the company is
talking about diversifying away from China. They spend a little
bit of time on the call talking about that. But
to answer your question, I think China is still going
to remain really important. As a percentage of revenue. It's
(13:15):
about nineteen percent right now. I suspect that's going to
drift down to thirteen to fifteen percent over the next
few years.
Speaker 4 (13:21):
Gene Monster Dewar's asset Management. Great to catch up.
Speaker 5 (13:24):
It's been to thank you Edgie.
Speaker 9 (13:26):
All right.
Speaker 4 (13:26):
Coming up on the show, we're going to be joined
by Jamaira Herrera from Reach Capital to break down the
latest jobs report and what that means to the technology sector.
It's coming out next be right back. This has been
berg technology. So let's crunch the numbers out of the
(13:53):
April report. They came in softer than expected, with non
farm payrolls advancing one hundred and seventy five thousand last month,
which is the smallest gain in six months. The unemployment
rate also ticked up to three point nine percent and
wage gain slow. That's the kind of data that the
Fed's looking at. Let's break it all down, which Amaira Herrera,
(14:14):
who's a partner at Each Capital, really zeroed in on.
Speaker 5 (14:17):
The future of work, the future of labor.
Speaker 4 (14:21):
When you track the data, what are you looking for
in these job numbers?
Speaker 10 (14:26):
Yeah, thank you so much for having me ed one.
I'm generally looking at the data. I'm looking at one.
What are the sectors that are driving the growth that
we're seeing And we've seen pretty consistently healthcare has been
a big driver of job growth across the US economy.
Speaker 2 (14:44):
In this past month.
Speaker 10 (14:45):
We also saw retail, warehouse and transportation as well continue
to be a big driver in job growth. Some of
the other things we think about and consider as well
are wage increases. So wage increased five point two po
sent in the last month, a little lower than we anticipated.
And we also look at other numbers like what are
(15:07):
the openings that we see the job openings and so
the Jolts report came out on Wednesday and those continue
to be relatively healthy and stable. And so those are
some of the numbers were that we're generally looking at
when we're looking deeply into these labor market reports.
Speaker 4 (15:25):
Right, did you learn anything about the technology sector this morning?
Speaker 10 (15:30):
Yeah, I mean when it came to the technology sector,
it's a little bit of a tale of two cities.
There's a bit of a cognitive dissonance. When you look
at the labor market reports at a high level, you
see unemployment continues to be under four percent, and that's
for the twenty seventh consecutive month. You continue to see
a high demand across some of these key industries. Like
(15:51):
I mentioned, now you look at the technology sector more deeply.
Speaker 2 (15:56):
At the technology sector.
Speaker 10 (15:57):
Job postings for most tech jobs are below twenty five
percent from pre pandemic.
Speaker 2 (16:03):
They're still quite.
Speaker 10 (16:05):
A bit of a lag in the tech sector in
terms of seeing that increased demand, and you see folks
that have been laid off of the past year continue
to struggle to find access to two jobs, particularly if
they're a non technical role. So think operations, finance, human
resources in these large tech companies. And it's a hard
(16:26):
feel to swallow because when we looked at the earning
reports for the past quarter, seen over the last whether
it's Meta, Microsoft, Alphabet, they're actually quite strong, but they're
also showing discipline around maintaining operational efficiencies. And so we
set we haven't yet seen that resurgence in the same
(16:46):
way that we see the strength of labor market across
these other industries.
Speaker 4 (16:50):
As see Jamaara hold that thought earlier today we spoke
to or yesterday rather Savita Supermanian at Bank of America.
Just just listen to her thesis real quick.
Speaker 11 (17:01):
Look, who's going to benefit from all these chips and
this AI and you know automation. It's old economy companies
that get more labor light. And I think that's the
benefit that we could see over the next twelve to.
Speaker 2 (17:13):
Twenty four to a few years.
Speaker 11 (17:16):
I think the areas are you know, industries like ours,
the banks, right, I mean banks are very labor intensive.
Now there is this tool that we can use to
replace people with bots and processes, et cetera.
Speaker 4 (17:30):
So, taking your read of the technology sector and what's
the Vita just said, I think you agree with each
other about the direction of travel right now, about what's
happening in jobs in the technology sector, and then how
technology is impacting basically old school.
Speaker 2 (17:45):
Economy completely and totally.
Speaker 10 (17:49):
I think what's really interesting whenever you have a large
technology shift, oftentimes we're very very good at predicting what
jobs we're going to lose. We're very very bad at
predicting them. More jobs are going to be created, and
so in this short term period, what we're seeing and
what we're going to feel is increase automation around tasks
(18:09):
that right now people are doing, and that will be
a net productivity gain for the economy. But there is
going to be some real labor market team that is
felt bye employees in the short term. But over time,
what we'll see is employees will be able to lean
into really human tasks and there will be new jobs
created in ways that we really can't anticipate right now.
Speaker 4 (18:33):
Right Jamira Herrera, partner at Reached Capital, great to have
you on the program. US prosecutors making their closing remarks
in the Google search trial, where they reiterated their argument
that Google has broken antitrust laws through exclusive, multi billion
(18:56):
dollar deals to maintain a dominant position in the market
online search and related advertising. Let's bring in Bloombergs Mike Shephard.
Mike's the editor that leads the kind of intersection between
technology and politics, which means he's very busy at the
moment that the search trial, the antitrust pursuit by the
DOJ against Google, has played out over a long period
(19:18):
of time. Just explain the basics of the closing statement
and where we are in the process.
Speaker 3 (19:24):
Well, in this closing statement, as you said, the government
repeated its argument that Google has violated anti trust laws
through billions of dollars in payments to companies like Apple
and Samsung and others, that we guarantee a prime position,
prime location on smartphones and other devices for its for
(19:45):
its search platform and tool, and this allowed it to
turn its search business into the most dominant and the
most widely used in the world and helps secure a
nearly three hundred billion dollar annual stream of revenue for
the company and the result of this is that there's
been a stifling of innovation across the tech industry. We
(20:09):
would have seen certain developments like AI hit the market
much sooner if we're not for this to have taken place.
Speaker 5 (20:17):
Hey, Mike, bear with me for one second.
Speaker 4 (20:19):
On a day where tech Stock's a pretty markedly higher
alphabet parent of Google's the one stock that's pretty low
and is a points drag at the index level, very quick.
I don't draw a cause or link between the move
and the news headline. Just explain what happens next in
this process.
Speaker 3 (20:35):
Well, in this case, it now goes to the judge
once both sides have finished their closing arguments, And to
be fair to the company, they are arguing that this
is not a question of anti competitive behavior. Google is saying, hey,
we just make a better product and you shouldn't penalize
us for that. But it will take the judge several
(20:55):
months to deliberate over this, to think about this.
Speaker 6 (20:58):
But we are.
Speaker 3 (20:58):
Expecting a ruling before the end of the year, and
this is a significant case, he said. This is the
first in a series of anti trust actions that the
government is bringing against tech companies. Now we know that
the Biden administration has made the whole question of competition
in a focus across a number of industries, but tech
is really drawing the line share of that attention.
Speaker 4 (21:21):
Bloomberg's Mike Shepherd out of DC, thank you, Welcome back
to Bloomberg Technology. Ed Ludlow here in San Francisco. Let's
also talk about Coinbase.
Speaker 5 (21:38):
Now.
Speaker 4 (21:38):
This is interesting because actually in the quarter, Coinbase did
pretty well beat top and bottom line. Stocks down four
point seven percent, high bar often going into these earnings quarters,
and also some questions about the future about cryptocurrency trading,
the retail trader and app based transactions. Delighted to say
that Alicia hass coinbased CF he joins me along with
(22:01):
my good friend Shlai Basseca Bloomberg who's in New York.
Speaker 5 (22:04):
Shnale take it away.
Speaker 12 (22:05):
Thank you Ed, and thank you Alisia for joining and
to speak to what Ed was talking about about this
high bar. Even though you brought in more than a
billion dollars of transaction revenue in the first quarter, a
lot of investors, I think, have a lot of questions
about that fall off in bitcut coin prices in April
after the quarter ended. How do you think about the
more recent drawdown and what it means for you.
Speaker 1 (22:28):
Yeah, so let me just start with I think it's
important to zoom out whenever you're talking about crypto. We
see volatility day to day, we see it week to week,
month to month, but when you look over the last decade,
bitcoin has been the top performing asset against all asset classes,
so we really.
Speaker 2 (22:43):
Focus on long term trends.
Speaker 1 (22:45):
I think it's also important to note when you look
at all past prior bull runs where you see price
appreciation over a period of time, there's been intro ad
week in day, intro month corrections to the price, and
so coinbase always prepares for all environments.
Speaker 2 (22:58):
We're prepared for the vallatility.
Speaker 1 (23:00):
We've navigated this incredibly well over the last ten years
of our history. And it's just another day in crypto.
It doesn't mean that the long term doesn't continue to
be as rosy as.
Speaker 2 (23:11):
It was last week.
Speaker 4 (23:13):
Alicia, good morning, it said in San Francisco. Just another day,
and crypto doesn't carry with Schnali and I because we
have sleepless nights and never ending days of crypto. I
get that the volatility is a driver, right. We understand
that particularly when you consider your customer base, but there
must be a psychological sentimental element of that as well.
(23:35):
So if you take the newsflow of late spot, BITCOINYTF
and the Harving as examples of dominated headlines, do you
see evidence that those headlines drive activity for you guys
on the platform?
Speaker 13 (23:48):
We absolutely see that cryptos volatility and rising crypto prices
drive activity on our platform, and so with the demand
of bitcoin ETFs, it's natural to see then price go up,
natural c elevated activity as scrypto has been very headline
driven over the last decade.
Speaker 1 (24:05):
But what is so exciting to us is that we
now have a material part of our revenue coming from
non trading activity. So we've been seeing growth in our
subscription and services through the downturn of twenty twenty three
through Q one, where it was about thirty six percent.
We generate over five hundred and eleven million dollars of
subscription and services and we're really excited now for this
(24:27):
next wave of crypto.
Speaker 2 (24:28):
Adoption on chain. So we're seeing the.
Speaker 1 (24:31):
Idea that we can now have base as a layer
two do faster and cheaper transactions. Gives the foundation that
we might be able to drive into payments and so yes,
Historically speculative trading very headline driven, but there's so much
more to crypto than speculative trading, and we're excited about
what we can deliver with the diversified revenue on our platform.
Speaker 12 (24:49):
At least, I think a lot of people struggle to
understand and conceptualize how much Base can really translate into
future revenue for coinbase, how big can it really get
and what does it mean for the future economics of Coinbase.
Speaker 2 (25:06):
Thanks for the opportunity to talk about Base.
Speaker 1 (25:08):
So first I want to explain what Base is. Base
is a layer two solution, which means that it's built
as infrastructure on top of ethereum and it enables transactions to.
Speaker 2 (25:17):
Move more quickly faster.
Speaker 1 (25:20):
What we saw is we now have eight times the
developers building on Base quarter over quarter. This is what
we're driving. We're driving a platform for developers to build applications.
When they build applications, they're looking for less friction, lower cost,
faster speeds, and that is the environment that we're trying
to create. We had a really exciting upgrade in the
(25:41):
quarter where we were able to reduce transaction costs by
eighty percent.
Speaker 2 (25:45):
Often getting them lower than a penny.
Speaker 1 (25:47):
What that led to now in the last thirty days
is that we're seeing two x the number of transactions
on Base than we do on Ethereum. Driving developer activity
leads to driving transaction volume.
Speaker 2 (25:58):
Transaction volume leads to revenue.
Speaker 1 (26:00):
So the whole pipeline here of activity is trying to
create that environment for developers.
Speaker 2 (26:05):
Get the transactions leads revenue.
Speaker 1 (26:07):
We broke out a new revenue stream in Q one
called other transaction revenue. Other transaction revenue is the base
sequencer fees and other payment related fees, and so this
really speaks to our ambition to grow these products and platforms,
and the investors will have that transparency now to look
at it as we go forward.
Speaker 4 (26:23):
Sanali, just let me have this one, okay. Alisha is
the CFO of the company, So i'd like to ask
about expenses. Alicia, I'd like to ask you about expenses.
They're creeping up a little bit and you're going to
tell me, well, demand's going up, so but how you
managing expenses. You can see the eye roll from Schnale
that she's less than impressed, but I think it's important
(26:45):
for investors.
Speaker 2 (26:47):
So in Q one, expenses. We're aout five percent.
Speaker 1 (26:50):
That was largely stock based comp that we shared earlier
in the year, But I'm going to focus on the future.
So we are seeing expense growth in Q two. The
vast majority of this is variable spend, as I shared
in our shareholder letter. When we see high volumes, which
we saw sharp tickup and volumes in March, we tend
to then have a lagging effect to our customer support
cost as we staff up those teams to address the
(27:12):
cues that have resulted. So a little bit of that
is spilling into Q two. We also will see higher
infrastructure costs in Q two. The third expense that's going
up is USDC rewards. USDC rewards are tied to activity
on our platform. We doubled the USDC balances on our
platform during the quarter and that is what's driving this
increased spence. All of these can be also ratcheted down
(27:34):
quickly if we see a change in environment. But we're
excited about the growth and extenses. It's not hard sticky expenses.
We learned our lessons hard in twenty twenty one and
twenty two y two when we grew too quickly.
Speaker 2 (27:44):
We will be prudently growing.
Speaker 1 (27:46):
We're looking for good ROI investments, and we really have
a focus on the cost management and financial discipline alsia.
Speaker 12 (27:52):
It's interesting because if you think about the currency market,
it's like King dollar, but when it comes to the
crypto market, it's King Bitcoin and it is still the
vast majority of what you see in trading. But when
it comes to Base and the activity that's being brought
in the world of mean coins, how do you think
about that movement, if it's sustainable, and whether that's going
(28:14):
to be where the bulk of activity lies for a while.
Speaker 1 (28:18):
So there is some mean point activity on Base, but
I would focus you on this is the creative content.
Speaker 2 (28:22):
This is part of the process. We are seeing really exciting.
Speaker 1 (28:25):
New applications being built on Base, like in the areas
of social gaming, and I think this is just part
of the journey to get there. I think again, the
key that I want to focus on is a platform
that enables quick, fast transactions, just like we move from
email to text, text to what app WhatsApp, lower frictions
(28:46):
will be the path of developer growth.
Speaker 2 (28:49):
And when we think about.
Speaker 1 (28:50):
Just the opportunity now to have USDC on Base, it's
enabled global payments nearly instant, nearly.
Speaker 2 (28:57):
Free, or very few cents per transaction.
Speaker 1 (29:00):
That is a new innovation that we're really excited to
see how it is built in growth through our own
product platform, through our wallet platform, through USDC, growth through
sequence reviees, but also then for just other developers and
companies that are looking to then adopt these lower cost rails.
Speaker 4 (29:18):
Oh thanks to Alicia has coinbased CFO and of course
balloon VOTIONALI beast strong way to end the week in.
Speaker 5 (29:23):
The world of crypto.
Speaker 4 (29:25):
Should we look at some other news headlines, It's time
for talking tech and first start. Microsoft is adding security
chiefs to its products group to boost resilience to hacking
after several serious cyber attacks. The software giant said adapt
adding deputy chief information security officers within its product groups,
while declining to identify who those new officials are. Plus
(29:46):
Live Golf CEO and commissioner Greg Norman spoke to Bloomberg
about its possible merger with the PGA and the future
of the sport as streaming competition heats up.
Speaker 5 (29:55):
Listen to this.
Speaker 14 (29:57):
What's the definition of tuning in turning on the TV
and turning on the channel forty four and say, okay,
I'm going to watch the next four and a half hours.
That's tuning in, right, But to an eighteen year old
or twenty five year old tuning in maybe twelve seconds
on the phone. Okay, let me see this. Then I'm
gonna go back and do that, and then I'll come
back over here to another fourteen seconds on this boy,
(30:18):
That to me is tuning in. That's, to me is
a market that's enormously wealthy, right, an enormously influential in
the direction where were you going? So look, we are
talking to corporations. I'm not going to give you the
names of those corporations, of course, but we just did
a great partnership with Google.
Speaker 4 (30:38):
And here's a story I broke yesterday afternoon. Rivian's receiving
incentives eight hundred and twenty seven million dollars to expand
in Illinois. Meanwhile, the company's also tapped the former COO
and deputy CEO Evolvo Cars to be it COO. Is
it prepares to roll out that lower cost model, which
is geared for the mass market. BRT all right, coming
(30:58):
up on the show, we're going to be joined by boys.
Jason Chapman's talk about the global outlook for the video
games landscape.
Speaker 5 (31:04):
Stay tuned. That's coming up next. This is Bloomberg Technology.
Speaker 4 (31:22):
After a year of speculation, it's finally here. JP Morgan's
index GPT tool In a nutshell, Index GPT is a
new range of thematic investment baskets created with the help
of open AI's GPT form model. The tool generates a
list of keywords associated with the theme, which are then
fed into a separate natural language processing model that scans
(31:43):
news articles to identify companies involved in specific spaces. All right,
it's been a hard week for the video games industry.
AMD told us on Tuesday demand for chips powering games,
consoles and computers is down a lot, And on Wednesday,
Bloomberg reported video game publisher Take two plans to shut
down subsidiaries in London and Seattle amid mass layoffs, joining Sony,
(32:07):
EA and Microsoft in cutting back. In more positive news, Twitch,
Amazon's live streaming platform four Gamers is going to launch
a competitor to TikTok.
Speaker 5 (32:17):
Here to discuss all of that.
Speaker 4 (32:19):
In today's VC Spotlight is Convoy managing partner Jason Chapman.
Speaker 5 (32:23):
It's hard to know where to start.
Speaker 4 (32:25):
But I guess the broad theme is that for those
big principally publicly traded names, it's tough out there in
the video games industry right now.
Speaker 5 (32:33):
Your reaction to the week.
Speaker 15 (32:36):
Yeah, thanks for having me ed. It's definitely been a
big week obviously. Also this is on the back of
the ban of TikTok, which eighty percent of the House
just voted in favor of the force to vestiture and
something just a macro theme to note that is a
big theme that we're paying attention to today. Is clearly
byte dances being forced today as TikTok. TikTok is you
(32:58):
know in day dances at based in China. China is
one of six foreign adversaries listed by the United States,
and a lot of people are now questioning, including a
lot of the companies you just listed, will this force
divestiture continue to occur? And I'll tell you here at Convoy.
You know, we've taken a long principle that we do
not partner with capital based in foreign adversarial nations, and
(33:22):
we expect that many others will continue to ponder if
this is the right move for the industry.
Speaker 4 (33:27):
Jason, There's going to be a large portion of the
bloembog technology audience that say, hold on a minute, why
is a bench capital firm that invests in and focus
on video games worried about TikTok.
Speaker 5 (33:40):
It's a great question.
Speaker 15 (33:41):
So TikTok as an entity is one of the most
used social platforms in the world. After social platforms, you
start to look at where else do people spend their
time in digital formats and digital worlds, and naturally go
to games and so about the basically, it's a battle
for eyeballs. And we'll also view this as the precursor
(34:03):
of what is to potentially come to the games industry.
So this force divestiture of TikTok could then lead to
force divestitures in the games industry.
Speaker 5 (34:13):
So you extrapolate that out. I get the thesis.
Speaker 4 (34:15):
Now, So let's look at the case study of what
Twitch is doing. I thought that was really interesting. You know,
if it's the battle for eyeballs, otherwise they are principally
a live streaming platform where you can view and participate
in others.
Speaker 5 (34:28):
Playing video games.
Speaker 4 (34:30):
So now they're thinking of doing a TikTok competitor, what
advantage might they have in pursuing that business model?
Speaker 15 (34:38):
Yeah, it's definitely interesting to see Amazon try to move
heavily into consumer Twitch is obviously i'd say the beacon
in the North Star for them successfully entering into a
consumer first product, which is Twitch. And obviously Amazon is
one of the rumored groups that could potentially buy TikTok
outright itself. There's really kind of three groups that have
been considered there. It's private equity shorteach and sort of
(35:01):
i'd say dark horse picks here for me would be
e commerce platforms, but you know, them announcing that they
would like to actually go launch their own competitor directly.
I think it's either a precursor to test the waters
in the next year. Do we want to actually consider
bringing this in house ourselves, or is this something that
we want to just actually launch directly competitively and can
grow in house.
Speaker 4 (35:22):
As you said, Jason, a rumor that Amazon's waiting in
the wings to buy TikTok. I don't think that Bloomberg's
reported them as a candidate, But I'll look into it
and I'll let you know. I want to go back
to get keeping your toes ed. I know, I know,
I'm just being me. More layoffs, more studio shutdowns. What
(35:43):
comes next, you know, maybe consolidation. You know, as I
said before, I believe we're right sizing in an industry.
You know, we got very bloated as an industry when
money was free in twenty twenty one. In the early
part of twenty twenty two, we hired tons of individuals,
which was fantastic.
Speaker 15 (36:02):
We grew a lot. Gaming continues to grow. It grows
about one hundred and one hundred and fifty million people
a year. We're expecting actually a strong twenty twenty four
and very strong twenty twenty five. And I believe what
you're seeing is right sizing, which is across not just gaming,
but also entertainment and tech more largely.
Speaker 4 (36:20):
I've been playing a lot of Ghost of Tushima recently
on PlayStation. Awesome storytelling. Not clear where the next big
innovation is in gaming, just really quickly, Jason, you know
what is the next big innovation?
Speaker 15 (36:33):
I think a lot of the next big innovations you're
going to see is around the creation process of games
as well as the distribution of games, and so creation
is getting faster. We're able to produce a ton more
content a lot more quickly, thankfully, largely and due to
new new development tools that are often fueled empowered by
artificial intelligence. So we're very excited about this trend. And
(36:54):
then secondly, the way games are distributed is a mess.
How do you find games today? The vast audio gamers
find that either in Facebook ads or they find it
with word of mouth, and with the sheer amount of
content that's coming our way. We think this needs to
be rethought and we're really excited to back entrepreneurs pursuing
these problems.
Speaker 4 (37:12):
We almost went in an entire seven minutes without talking
about artificial intelligence until your answer. Thanks Convoy Managing Jason Chapman.
I know, I know you can't no, I mean, you've
done the research there, but we got to go. Thank
you so much, Jason Chapman. Let's go back to Apple again.
(37:36):
Shares up six point seven percent, on track for their
biggest jump since November of twenty twenty two. A mixed picture, honestly,
like a really tough quarter in the quarter gone, but
things improving and in China, iPhone surprised everyone.
Speaker 5 (37:50):
Let's get to man.
Speaker 4 (37:51):
Deep sing of Bloomberg intelligency leads our in house research.
The thesis you guys had or your response and react.
Was that the broads ecosystem of Apple products offset specific
product line weakness.
Speaker 5 (38:04):
Just go into the specifics.
Speaker 9 (38:06):
Yeah, I mean, look at the resilience of the services line, right.
The fact that it grew almost made peints shows that
you know, they can pull the levers when it comes
to pricing and just you know how they bundle things out.
And that's why even though the iPhone revenue was down
ten percent, they were able to show fourteen percent services growth.
(38:30):
So I think everyone gets it that Apple controls a
distribution and if you have to roll out AI, they
will have a piece of the transactions that take place
in the ecosystem. And that's why businesses are resilient.
Speaker 4 (38:46):
So Tim Cooks got us all excited. Big event next week,
another one in June. We think more products will be revealed.
What's it going to take to keep the stock going
higher and engage and people believing that something big really
is coming.
Speaker 9 (38:59):
Mandy, I mean with Apple, you need a large addressable
market to move the needle. Look, they saw that with
Vision Pro and obviously they're not pursuing the car anymore.
So you need a large addressable market to move a
company of Apple size and in this case, I think
AI inferencing is that large market. It's just they need
(39:21):
to show how are they kind of catering to AI
infrincing they don't have their own LLLM. I think they
will have to partner with someone. Most likely it has
to be Google given the arrangement, but it just needs
to be articulated a lot more clear for the market
to understand.
Speaker 4 (39:37):
Mandy supercif quick, which piece of hardware will be the
home of the AI inferencing.
Speaker 9 (39:44):
So Apple controls the chip, and look, I think you
can't have inferencing done through the cloud. I mean you
can't have Nvidia GPUs everywhere because your data centers are
physically located somewhere. So having inferencing in Apple's chip, albeit
it's a small is what it needs to do in princing,
and I think they can do that.
Speaker 4 (40:05):
Man deep Seeing, who leads our tech coverage over at
Bloomberg Intelligence. Great to catch up with you, Happy Friday.
That does it for this edition of Bloomberg Technology. What
a week it's been dominated by earning this big news
flow Recap Friday the story of Apple on the podcast.
So many of you checking out the podcast on Apple Spotify, iHeart,
and of course we post it to all the Bloomberg platforms,
(40:26):
whether you're on your way to work, if you're on
your way home, you're just taking a break in the
middle of the day for all things technology.
Speaker 5 (40:32):
Buckle up.
Speaker 4 (40:33):
There's a lot more to come next week as well.
From San Francisco, This is Bloomberg Technology.
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