April 25, 2024 • 40 mins
Bloomberg's Ed Ludlow breaks down a disappointing earnings report from Meta that weighed on the technology sector. Plus, the CEO of Rubrik joins to discuss the company's initial public offering. And, the CEO of ServiceNow joins to break down the company's earnings results.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
From the Heart where Innovation, money and power. Collie in
Silicon Valley NBN. This is Bloomberg Technology with Caroline Hyde
and Ed Ludlow.
Speaker 3 (00:32):
I met Ludlow in San Francisco. Caroline hides on assignment.
This is Bloomberg Technology coming up. Meta says it will
be the world's leading AI company, But investors don't like
the roadmap to get their team coverage of a massive
drop in Zuckerberg's stock and from earnings to IPOs.
Speaker 4 (00:49):
We speak to the.
Speaker 3 (00:50):
CEO of Service Now on their quarterly numbers, and Rubric's
chief on listing day, and fourteen billion dollars goes to
Micron from the Chips Act to boost America's.
Speaker 4 (01:02):
Memory chip prowess.
Speaker 3 (01:04):
But first, there is only one story that matters right now,
and it is Meta. You see the share reaction. Zuckerberg
outlining billions and billions of dollars are going to go
into building out AI infrastructure. They're in investment mode, expenses
range raised, capex raised. But the focus of the calls
on the product cycle. How many years is it going
(01:25):
to take for this investment in AI at Meta to materialize?
Speaker 4 (01:30):
In sales growth, that's the question.
Speaker 3 (01:31):
The stock on track for its biggest drop since October
twenty twenty two. And given Meta's scale, remember how well
it's performed year to date. It was up more than
forty percent pre earnings. Look at the market cap. Look
at the scale of this company, but also the market
cap lost in this morning session alone. Let's get team coverage,
the reporting from Bloomberg's Kirk Wagner and the analysis from
(01:53):
Bloomberg Intelligence analysts man Deep sink kerk.
Speaker 4 (01:56):
I'm going to start with you.
Speaker 3 (01:58):
Mark Zuckerberg was on this call, but what he tried
to do was say, trust me and bear with me.
I've got a plan for AI to have an impact
on the existing business.
Speaker 4 (02:09):
Explain what we learned. Yeah, that's exactly right.
Speaker 5 (02:12):
He was basically saying, Look, this is going to be
a multi year investment. This is not the kind of
thing that's going to return, you know, to shareholders very quickly.
But be patient, right, he said, smart investors will see
the benefits of this long term plan, right, sort of
suggesting that hey, you know, anyone who's savvy, anyone who
that sees the future like I do, they're going to
(02:32):
be in this stock. Even though it's taken a little
bit of a short term hit, and so you know,
it was a little bit, as you say, combative. It
was one of those things that we don't necessarily always
hear from him, which is sort of you know, pleading investors, Hey,
be patient, hang tight, We're gonna get there eventually. But
you got to weather a little bit of a turbulence
in the meantime.
Speaker 3 (02:50):
Mandy, when you look at the fundamentals of this company,
you and I were discussing before the earnings print, where
do we look to see if there is already avidence
the AI is impacting the top or bottom line. I
looked at the impressions growth. I looked at the pricing
growth of ads, because this is an advertising based business.
Speaker 4 (03:10):
What did you see in those numbers?
Speaker 6 (03:12):
Yeah, I mean the impressions growth continues to be very impressive,
you know, twenty percent, and that's driven by better feed recommendations.
At targeting is better and at pricing. It was much
better in the Europe region. If you part through the numbers,
North America was lighter. Part of that could be explained
from the pullback. You know that everyone is expecting from
(03:35):
Chinese advertisers like Timu and Shane, but they didn't call
that out. So clearly that's a risk, and that's why
that guidance that top line guide was wide when you
look for two Q but look at the end of
the day, when you look at the cost growth, the
cost of revenue growth, that will be in double digits.
So if that mid to high teens revenue doesn't pan
(03:57):
out for some reason, and look, advertising is cyclic, that's
when you will see margin compression. I mean, so for
the story has been cost control and revenue grold. They're accelerating.
Now that story could change because the cost will grow
double DIY did and if the revenue world doesn't match,
that's when there is a risk.
Speaker 3 (04:16):
We're showing you the markets right now. Meta is down
twelve percent, but on a points basis, clearly it's dragging
down the NAS that one hundred s and P five hundred,
the Philadelphia Semiconductor Index or socks. I put that on
there because there was knee jerk reaction in particular in
video last night that fell.
Speaker 4 (04:33):
It is now up three.
Speaker 3 (04:34):
Percent, and I think the logic is Zuckerberg said three
hundred and fifty thousand, h one hundred GPUs will come
online this year as Meta trains its AI model and Kurt.
Speaker 4 (04:44):
The other area of interest.
Speaker 3 (04:46):
Is Zuckerberg's kind of fired up about things that surprised me.
Speaker 4 (04:51):
Glasses.
Speaker 3 (04:52):
He spent a lot of time talking about glasses. But
there are still lots of confusion. Well, okay, wait, is
the metaverse still a strategy?
Speaker 4 (05:01):
Also? The Year of Efficiency? Is that still a thing?
Speaker 3 (05:04):
Just try and clear up the muddy waters for us
on what Zuckerberg's trying to do.
Speaker 5 (05:10):
Yeah, I mean, there's so many things that they're working
on at one time, it's understandable that someone might be
a little bit confused. But he did bring up the
glasses a lot, and what he basically said was these
are progressing much faster than I anticipated. Right, So the glasses,
for those who aren't familiar, this is the idea of
wearing a pair of specs that look like maybe reading
glasses or sunglasses, but that have all kinds of AI
(05:32):
or AR features packed into them. They're working with ray
Band to produce these right now. And I think what
Mark Zuckerberg was saying was that these have gotten so
good so fast that it's encouraged me to continue to
invest in AI, to continue to put money into Reality Labs,
the group that's building this, and so you know, I
think this has always been his long term vision. He
(05:53):
thought that the glasses would sort of be the next
iteration of a phone, you would wear it on your face.
But now he's saying he thinks they're getting their faster
than he anticipated, which is why we're seeing this increase in.
Speaker 4 (06:03):
Spand Okay, gentlemen, bear with me.
Speaker 3 (06:06):
We've actually had a sort of breaking news headline since
we've come on the air, and it relates to TikTok.
Byte Dance has published on its Chinese website a statement
basically saying it has no plan to sell TikTok. BikeE
Dance has no plan to sell TikTok. I think we
need to dig a bit deeper in the coming days
(06:27):
to understand what they specifically.
Speaker 4 (06:28):
Mean by that. Mandeep.
Speaker 3 (06:30):
You've also published research your latest thinking on TikTok just
this morning on the Bloomberg terminal.
Speaker 4 (06:38):
Just explain the basics of it to us, please, Yeah.
Speaker 6 (06:40):
I mean, look at TikTok has a lot of original
content that goes to you know, snap, that goes through Instagram, YouTube,
and so if TikTok has been a lot of those
creators have to go to some other platform. Now, whether
it's going to be YouTube shorts or Instagram reels, we
don't know, but you can see that a lot of
(07:03):
the original content creation happens on TikTok, and that's where
I think you will see Meta being a beneficiary. But
I'm excited to look at, you know, the YouTube numbers
tonight because to me, YouTube should be the fifteen percent
consensus numbers handedly given the kind of you know, viewership
gains that you have already seen, you know, with YouTube,
(07:24):
and so I think that's the one aspect that people
need to think about is the creators aren't going to
wait for nine months to move. They're already gonna start
thinking about what's the alternative platform where they can move
their followers. And I think that's going to determine gains
for snap, YouTube and Meta in the coming months.
Speaker 3 (07:43):
I think it's important we note that on the Earning
School for Meta and analyst asked Mark Zuckerberg for reaction
to TikTok. Susan Lee, the CFO, jumped in and said
that they're monitoring that situation closely, but it was too
early to tell the impact of a TikTok dive or
ban on Meta's business. We're going to dig much deeper
into Meta throughout the hour, but big thanks to the
(08:05):
Bloomberg Kirk Wagner of Bloomberg News and man Deep Singh
of Bloomberg Intelligence coming up on the program.
Speaker 4 (08:11):
Service now is.
Speaker 3 (08:11):
Sales forecast full short of all street expectations, but there
is some positive outlook.
Speaker 4 (08:17):
It's AI related.
Speaker 3 (08:18):
We're going to speak to the CEO, Bill McDermott. There
is a lot happening at once in the markets as well.
Microsoft and Google our alphabet the parent at Google report
after the bell. Those are pretty significant declines and the
idea here is that we're worried on the back of
Meta's earnings. We're worried that all of this spend on
AI infrastructure is not bringing some big boom in generative
(08:42):
AI driven sales growth, actual software products that people use
and those companies make money from. It's going to be
such an interesting afternoon. This is Bloomberg Technology Service now
(09:06):
out with first quarter results, but it's the outlook where
the focus is projecting subscription sales will increase about twenty
two two and a half billion dollars in the current
period that was a little bit below what the street
was expecting. But those are street expectations. What about the
big expectations of the company's CEO. Bill McDermott, CEO of
Service Now, joins us. Now a Bill, good morning to you.
(09:29):
Let's cover off the classic earning stuff. You have a
strong quarter and then you give an outlook which, relative
to consensus estimates, was a bit disappointing. What would your
pushback to that market reaction be.
Speaker 7 (09:42):
Well, first, I think you have to look at the
triple play that we just pulled off ed. We had
a beat on the top line, a beat on the
bottom line, and we raised the full year guidance. So
if the high class problem was solving for is we
didn't raise the guidance enough. Everyone can really relax because
(10:05):
over the last five years that I've been here, we
always beat and we have every expectation of doing so again.
Speaker 3 (10:12):
Bill, I actually want to invite you to give the
basics of what Service Now does. I think a big
portion of the audience know the name, they might appreciate,
just an explanation of what it is you're out there
in the world doing. And my summary basically is you're
trying to capture it spend, you know, the budget for
it spend from all kinds of companies.
Speaker 1 (10:36):
Yeah.
Speaker 7 (10:36):
I think the best way to sum it up is
think of Service now as the AI platform for business transformation.
If you look at companies today, they need a platform
on an end to end basis, from it to the
employee experience, the way they run their customer relationships, and
(10:57):
the way they build new products. They need one place
that can do all of that. And what's unique about
ours We built it organically. There's no tech dead in it,
and it's pristine. It's a sheet of glass that lies
above the mess that's been created for the last half century.
And the big movement today is now, what is the
(11:19):
new frontier. The new frontier is Jeni And people say, Jeni,
what does that mean. It means the companies and the
CEOs that are watching this program need to optimize their processes.
Every business workflow in every enterprise will be engineered with Jeni.
(11:40):
We are the first mover and the market leader in
that category in the enterprise. So the future glide path
could not be brighter.
Speaker 3 (11:51):
Build The stock is down almost six percent. I note
that there is some pressure in the market this morning.
Because of metas earned and we'll get to that in
a bit, but let's talk about RPO because I think
that gives some evidence of the backlog. RPO meaning remaining
performance obligations. That's basically SAS speak for backlog. You've got
(12:13):
a backlog. Why should the investor base be more positive
about that backlog?
Speaker 7 (12:19):
Well, they should feel really good that we have nearly
eighteen billion dollars and remaining performance obligations. So that is
business we have in the backlog that has yet to
be fully recognized. So the backlog is there. We're beating
on the revenue. Just think about this. We beat on
(12:40):
the revenue by one hundred basis points, we beat on
the margin by one hundred and fifty basis points. Our
free cash flow is up forty seven percent, and our
gross profit was up eighty three percent. And we're talking
about was the increase in the guide enough and you
just mentioned it ed perfectly. There's eighteen billion in backlog.
So the company is really on a tear. And one
(13:02):
of the reasons it's on a taar is you have
great companies like Microsoft and IBM as an example, that
are transforming their employee experience with a digital first support model,
freeing up all kinds of resources and fueling innovations on
Service now is Genai. Novartis is delivering new drugs and
(13:22):
increasing operational efficiency by streamlining clinical trials, research and financial
management with our Genai and countless other examples. So Jenai
right now is a.
Speaker 4 (13:35):
Small part of the overall total.
Speaker 7 (13:38):
You know, we're a ten billion run recloud company. But
the uptick in future sales and generative AI when companies
re engineer the way they run on our platform, is
that believable because there'll be half a trillion spent on
it in twenty twenty seven alone. So this is a
really big market. We're the leader, and we're teaming up
(14:01):
with the best in the business like in Nvidio, Microsoft,
IBM and others to create a bright future.
Speaker 3 (14:07):
No that again, build The stock is down six percent,
and there are reasons why for that in the short term.
One of them is probably Meta. I know that you're
the CEO of Service Now, but to extrapolate from Meta,
part of the concern last night was all this investment
is going into the underlying infrastructure that supports generative AI.
Speaker 4 (14:29):
But Meta is a case study.
Speaker 3 (14:31):
They're not yet seeing that investment in the infrastructure translate
to top line growth in the form of software. Right,
tangible evidence that they're selling AI as a product as
a platform. In your case, you are only selling it
as a software layer.
Speaker 4 (14:47):
Just just explain that thesis.
Speaker 3 (14:49):
Should we be as concerned that Corporate America has not
yet worked out how to sell ai?
Speaker 7 (14:56):
Absolutely, So let's differentiate. First of all, metas great company.
They had very good results and their guide might have
been a little muted in terms of the return on Genai.
They're running large language models and that's very important for
the future of the world, and they're doing a great job.
(15:16):
We're running small language models, which basically means we run
our platform with the customer's data in mind. So it's
rocket fast, zero latency because we're using the customer's own data.
There is total accuracy and it is very inexpensive, and
(15:41):
that's why customers are buying our Genai now because it's secure,
it's inexpensive to run, and it's one hundred percent accurate
based on the customer's data. So that is what they're
buying right now. We also have an open platform where
we integrate with Meta and we integrate with Google and
Microsoft and all the other market leading companies out there,
(16:04):
should the customer want to reach into large language models,
and we've teamed up with Nvidia where Nvidia probably our
greatest partner in this category is running small language models
for US and large language models with their compute power.
Let me give you an example of it. Let's think
about employees and customers. Think about GENAI deflecting all the
(16:29):
soul crushing work that people don't want to do anymore.
So think of employee and customer deflection where virtual agents
can actually do the work that people used to have
to do. Think about software engineers increasing their productivity or
their speed of innovation by nearly fifty percent by texting
something in natural language and turning that into software codes.
(16:53):
And there's several other examples. But the point is small
language models are selling today when a lot of money
at it, and large language models are also available on
our platform. But our customers are really teaming up with
Microsoft for example on Copilot and service now on our
(17:14):
virtual assist AI platform, and we got it together. Is
better solution for the marketplace, and that's what's selling today.
Speaker 4 (17:23):
Bill, I appreciate the debt for the answer. Bill McDermott,
CEO of Service.
Speaker 3 (17:27):
Now, thank you so much coming out Microsoft back, Rubik
goes public mid arizing demand for data security. We do
speak to the CEO people sing you next. This is
Bloomberg Technology. Rubric, which focuses on data management, recovery from
(17:54):
ransomware attacks, and accelerates cloud mobility, is officially going public.
Speaker 4 (17:59):
And joining us.
Speaker 3 (18:00):
Now is Rubrics CEO people Senior. The shares are indicated
to open at thirty eight dollars a share. You price
this IPO at thirty two. Just tell me what that
means to you today.
Speaker 8 (18:12):
Thank you Ed for this opportunity to speak with you.
It's a very exciting day for Rubric employees, our customers,
our partners, and everybody in our ecosystem around the world. Look,
I will leave this stock price to the experts and
the traders. Ultimately, we are a different kind of cybersecurity company,
and we are helping our customers continue to run their
(18:33):
business even in presence of cyber attacks and breaches, so
that hospitals are open, kids are going to school. When
people swipe credit card, they get money out, irrespective of
whether there's a successful cyber attack or not.
Speaker 3 (18:47):
People, did you really need to go public for the visibility.
Like your business seems to be doing quite well. Do
you think this actually tangibly improves your sales?
Speaker 8 (18:59):
Look, we are working with a number of customers around
the world, having more visibility, having more brand name recognition,
and more importantly, when you are as a public company,
everybody can see your numbers and they understand the resilience
of the business. That's actually good for our customers, that's
actually good for our ecosystem, and it also helps us
be in front of more innovative companies, talk to them
(19:22):
about our story and essentially help them against the ransomware
attack and another cyber attack, to deliver cyber recovery and
cyber resilience.
Speaker 4 (19:32):
People.
Speaker 3 (19:32):
I spent two years asking you if you'd go public.
You finally and eventually are doing it. But I think
there's a feeling that there's a hell of a premium
on this IPO. A lot of people want to see
evidence of revenue and profit that comes from this. But
you resisted the temptation to talk endlessly about AI. You're
saying you don't have a core AI story.
Speaker 8 (19:56):
We do have a core AI story. Rubric has been
building AI for last ten year, In fact, our data
threat Engine is built on AI platform that delivers security
intelligence directly from the data. And more recently, we announced
a product Ruby, which is a generative AI based AI
data defense and recovery that helps cyber defender fight fire
(20:18):
with fire. Because you know attackers are applying AI in
terms of how they are increasing the volume, variability and
velocity of attacks. We are allowing the defenders use AI
in terms of rule Break and Ruby so that they
can deliver cyber resilience and cyber recovery.
Speaker 4 (20:36):
People very quickly.
Speaker 3 (20:37):
Microsoft remains an important financial and technology partner to you.
How will that relationship work now going forward?
Speaker 8 (20:45):
We have a very strong relationship with Microsoft. In fact,
we were Microsoft Partner of the Year in twenty twenty three,
both both for US and UK. We continue to coinovate together,
continue to help our joint customers get cyber resilience, make
sure that they can withstand cyber attacks and continue to
run their business, because, after all, digital trust starts with
(21:06):
keeping the services up and running when you are attacked,
even if the cyber beach has happened to you.
Speaker 3 (21:13):
Rubric CEO people signor after two years of asking if
you go public, you did thank you. Okay, Welcome back
to Bloomberg Technology, Ed Ludlow here in San Francisco.
Speaker 4 (21:29):
Let's talk about TikTok.
Speaker 3 (21:30):
The clock is ticking for TikTok to avoid its behan
in the US should it be unable to divest. Joining
US now from DC is Bloomberg's Mike Shepard, and Mike
basically leads our coverage of the intersection of politics and tech.
We had that breaking news headline at the top of
the am mic that Bite Dance saying through its Chinese
website that it has no plan to divest or no
(21:56):
plan to sell TikTok. That was the wording or translation.
I don't really feel like I understand what they mean
by that they're digging in.
Speaker 9 (22:05):
Basically, they are digging in, and the statement in a
way is not that much of a surprise. They've made
clear through this process. As the legislation started to take
shape last month, that really started to look real, look
like it was going to happen, that they had no
intention of playing ball, and that in fact, they would
(22:26):
try to fight it with every arrow in their quiver.
They really want to make sure that they are able
to hold on to this valuable asset and resist what
they see as and the Chinese government also sees as
interference in valuable media property.
Speaker 3 (22:43):
So there's a lot that's happening quite quickly. We'd reported
that by Dance was thinking about a solution where it
sold TikTok but without its sacred algorithm, and on the
show yesterday we talked about why that algorithm is so
important for content creators. The President signed this law, signed
(23:03):
this into lawy yesterday, but as far as I'm aware,
the President hasn't actually commented or specifically talked about his
view on TikTok. Just update us on the politics, I
guess of the last twenty four hours.
Speaker 9 (23:16):
This is a great question need because politics has really
surrounded this, not only the geopolitics between the US and China,
but even the domestic politics. And when it surfaced back
in March, President Joe Biden said he would sign it.
He would sign the measure, but he hasn't really expounded
much more on it now. To be clear, the TikTok
(23:37):
bill was attached to a much larger foreign aid package,
which was a far greater priority for the President and
his administration. They wanted to see a to Ukraine get
through above anything else, and in his remarks yesterday, he
really devoted the lion's share of his commentary to that.
At the same time, his spokesperson made clear yesterday after
(23:58):
the President spoke that selling TikTok a full divestiture was
something that they wanted. At the same time, they do
not want to see the apps shut down. They respect
that many US users derive great enjoyment from it, and
also for many it is also a source of business,
and that is something that the administration does not want
to see shut down.
Speaker 3 (24:19):
Bloomberg's Mike Shepherd out of DC really appreciate the coverage
and I think we're going to be talking about this
quite a lot for at least two hundred and seventy days.
Speaker 4 (24:26):
Thank you.
Speaker 3 (24:27):
I'm going to keep a conversation going and get some
kind of the market analysis. Jasmin Enberg is principal analysts
at Insider Intelligence. We're wading through a lot of unknowns.
But where is your head at, Jasmine? You look at
TikTok from the point of view, well, this is a
platform that almost fifty percent of Americans are using.
Speaker 4 (24:46):
What do you think will happen?
Speaker 1 (24:48):
Well, I think the announcement from Bytown today that they
weren't going to sell was to be expected. I mean,
TikTok has already said it's going to wage an intense
legal battle. I think the question for me is what
how weapons now with all of this uncertainty. I mean,
TikTok obviously has a lot of loyal users. Many of
them have already come out in full force to defend
(25:09):
the app, and I expect they'll do so again. I
don't expect many of them to leave, And advertisers aren't
going to leave as long as there's audiences to reach
and content creators of courts, which are a really important
part of the app, aren't going to leave if there
is money to be made. But if there's one thing
that advertisers don't like, it's uncertainty. And if this uncertainty
(25:32):
surrounding the legal battle and what happens to Tiktoks sends
enough of them running for higher ground, that could eventually
lead to creators starting to leave, and users will follow
creators wherever they go, and that could end to or
end up doing in an undoing of TikTok even before
this matter is resolved in courts, or if it binds
(25:53):
the buyer in wittance changes its mind.
Speaker 3 (25:56):
So Jasmine coming into the show today before the head
line crossed about Byte Dance having no plan to sell TikTok,
what was your thesis before that moment on TikTok?
Speaker 1 (26:08):
My thesis in terms of whether it was going to
be sold or not.
Speaker 4 (26:12):
I mean, what I was.
Speaker 1 (26:13):
Thinking about mostly was in terms of the algorithm and
how important a part of that would be in terms
of whatever sale could potentially take place. I mean, the
algorithm is part, a big part of.
Speaker 4 (26:25):
What makes TikTok tick.
Speaker 1 (26:28):
And not having it as part of the sale, but
of course lessen the valuation potentially expand the potential list
of buyers. But it still wouldn't be an easy task
to find a buyer for TikTok, even if by Dance
were willing to sell that app.
Speaker 3 (26:43):
Okay, So last night during Meta's Earning School, an analyst
asked Mark Zuckerberg for basically reaction to the TikTok situation.
Susan Lee, who's the CFO, jumped in and answered the
question and said, you know, we're monitoring it, looking at
it closely, too early.
Speaker 4 (26:59):
To tell what it means our business.
Speaker 3 (27:01):
Do you have a clear winner in any scenario of
who the main beneficiary of a TikTok divest or a
TikTok ban might be in the meat social media landscape.
Speaker 1 (27:11):
Yeah, well, Meta has been pretty silent on this issue,
and for good reason. I mean, there could be ramifications
and in other countries where Meta does business. Meta would
be a clear winner if TikTok were to disappear from
the US, mainly because of Instagram reels. It is one
of the most natural fits for a displaced TikTok users.
It's not exactly the same as TikTok, but I imagine
(27:33):
that a large number of TikTok users would move there
or to YouTube shorts, and it would also be a
winner in terms of AD dollars. Now, Meta is a
massive player in the digital ad landscape. We're expecting it
to bring in about sixty four billion dollars in US
AD revenues this year. TikTok's AD business is smaller by
no means small. It's about ten billion AD dollars to
(27:55):
ten billion dollars in AD revenues, and so of course
some of those dollars. A big chunk of those dollars
would likely go to Meta as well.
Speaker 3 (28:02):
Jasmine will Meta be the world's leading AI company.
Speaker 1 (28:07):
It's a great question, and Meta certainly is in the
AI race to win it. I do think it could
be a dark horse in the race to AI if
you think about the distribution potential alone. It has a
built in audience through Facebook, through Instagram, through What's Up.
I was doing some calculations after it released Meta Ai
into the search bars and Facebook Feed just last week,
(28:30):
and Meta only needs forty three percent of US Facebook
users to use Meta Ai on a monthly basis for
its audience to be as big as chat GPT is
here in the US, and that isn't unthinkable if you
consider how prominently and permanently Meta Ai is displayed across
the apps, and then in terms of monetization, you know
(28:52):
that is going to be a big factor in determining
who wins the AI race, and Meta has a competitive
advantage there. We don't really know how jenai is going
to be monetized, but like pretty much everything Meta does,
it's likely to be an ad play and this would
be connected to its powerful ad ecosystem, and so I
could see it emerging as an unexpected winner, though of
(29:14):
course there is a lot of competition and the crowded
market still to face.
Speaker 3 (29:18):
Meta shares off session lows, but we're still down more
than twelve percent. Jasmin Emberg of Insider Intelligence is always
great to have you on the program.
Speaker 4 (29:25):
Thank you.
Speaker 3 (29:26):
I just broke this story with Bloomberg's Kurt Wagner. We
just published it on the Bloomberg terminal. Elon Musk is
going to be deposed on Monday as part of the
first arbitration hearings in the legal process where former Twitter
employees have basically brought a class action against Elon Musk.
(29:50):
The former Twitter employees say they were cheated out of
severance pay when Musk bought the social media company in
October of twenty twenty two. Law firm Lichten and Listen
Order and will be representing almost two thousand former Twitter
staff in individual arbitrations as well as more than a
dozen class action lawsuits overall in the courts. That story
(30:11):
just out on Bloomberg. I'm sure it will be online
soon as well.
Speaker 4 (30:14):
Stay with us.
Speaker 3 (30:15):
We have so much more ahead on the program. This
is Bloomberg Technology. Okay, it's time for talking tech and
(30:35):
first up in the news Abudabi's startup G forty two
is choosing sides. The company, known for a sprawling product
portfolio in AI, is teaming up with American companies like Amazon, OpenAI,
and Microsoft and divesting from its Chinese partners. The move
comes mid worries from US officials of open back doors
from the Chinese government, with some members considering an intelligence
(30:58):
briefing to discuss g latest partnership with Microsoft that is
the Bloomberg Reporting, plus Chinese online tutoring platforms. Xiongbang has
filed confidentially for a US IPO. That's according to sources.
The filing adds to signs that Beijing's looking to boost
funds for its tech industry. The company is said to
be working with advisors on the potential listing that could
(31:18):
take place as early as this year. And semiconductor maker
Skhinix says it expects a full recovery in the memory
chip market, led by AI related demand. The company posting
first quarter results that exceeded expectations, forecasting its fastest pace
of revenue growth since twenty tenesk Heinix says it's entering
a rebound phase and is preparing to expand capacity for
(31:42):
its leading edge chips. Okay Let's stick with chips that
stick with memory. Micron is expected to receive nearly fourteen
billion dollars in US grants and loans to help the
company build new American babs or factories. We're also expecting
Intel results after the bell. There is a lot happening
in real time with the semiconductor industry joining us to
(32:05):
discuss it bloombergsy and King, who leads our coverage of
semis Let's start with Micron. They are the number three
maker of memory chips, the US leader of memory chips.
Almost fourteen billion dollars in grants and loans crucially seems
like a lot of money.
Speaker 4 (32:23):
It's not really, is it.
Speaker 10 (32:25):
Well, I mean for somebody like you or Micron, it
really isn't. For me, it would be a lot of money.
I mean six point one is guaranteed, right, But when
you put that in context of the one hundred and
twenty five billion that they're looking to put into a
factory network that's going to be built over the next
few years, clearly that's not. I mean, it will help
(32:45):
even the cost base between building here versus building in
Asia where they have most of their facilities right now.
Speaker 2 (32:51):
But it's not a free v by any stretch.
Speaker 3 (32:54):
The memory market's really interesting historically commoditized boom and bus
site cause we're talking about principally d ram A nand
or flash memory. The next generation of memory goes into
data centers for AI and Micron is competing against those
big names Samsung, sk Heinix. Why are they wanting to
(33:18):
enshore this basically in America?
Speaker 4 (33:20):
What's their kind of play here?
Speaker 2 (33:22):
Yeah, I mean there are a number of things.
Speaker 10 (33:24):
We had a conference call with the political leadership behind
this bid and they're basically like, look, we can't afford
to have all our eggs in one basket.
Speaker 2 (33:33):
Look what happened during the pandemic.
Speaker 10 (33:34):
We need production of this increasingly important technology in the
United States. And as you just indicated, it isn't just
a commodity or won't be just the commodity that it
has been in the past. So we need this key
technology in this country. Is the argument that is being made.
Speaker 3 (33:51):
We're talking about HBM three or high bandwidth memory, and
we've done a lot on the program. Our audience will
know and we will continue I'm sure to talk about
it in the moment. Intel. It is the next kind
of big chip name to report after the bell. What
are we expecting?
Speaker 10 (34:05):
Yeah, expectations are very low. I mean this is a
Stargglus down thirty percent this year, way below what you know,
the socks index, the key semiconductrient done. We already know
that their operations are struggling. We know that their manufacturing
is poor. The key question that we're going to see
answer today is our PC is getting a little bit better.
(34:26):
Our companies and hyperscal as starting to spend on server chips.
Speaker 2 (34:31):
Again, that's really what people want the answer to.
Speaker 3 (34:34):
It's the same story every quarter, and we wonder if
the story changes when it comes to earnings. We're looking
forward to that one Ian King the Bloomberg Yes, thank you.
Let's talk again about Meta. The stock is back down
thirteen percent. It's off session lows. But there's a lot
(34:57):
of anxiety in technology more broad based on what we
had in metas earnings and basically the commentary on the
AI infrastructure spend that's going to happen. Jeffreys, Brent Till
joins us now on Meta specifically, because I think we
need to have a sort of bigger picture conversation. You
(35:17):
cut your price target to five hundred and forty dollars
I think from five hundred and eighty five. But are
you actually anxious or worried about what you heard last
night from from Zuckerberg?
Speaker 2 (35:28):
Not at all.
Speaker 11 (35:28):
I think this is a gift for investors. You know what,
I think we've learned in AI you need three things.
You need users, you need data, and you need money.
And the list of vendors that are going to survive
is very small, and Meta is going to be one
of them. And so for long term shareholders, this is
a great opportunity. They're going to do twenty five dollars
of earnings power. You can put a low twenty multiple,
(35:52):
you know, to mid twenties, and you're going to get
anywhere between you know, five hundred plus to six hundred
plus in the stock. And so when you look at
just back in the envelope on earnings, it has huge
support with the stock training at sixteen seventeen times right now.
I think in terms of the worry, I don't worry
because I think they're doing the right thing.
Speaker 4 (36:14):
These investments are.
Speaker 11 (36:15):
Not going into the metaverse, they're going into AI. They're
going back into the core platform where there are billions
of users that are trying to have better engagement. It
helps advertisers create campaigns faster. It's going to send more
ad dollars into the platform because it's going to be
so easy to create a pain and find a new user.
For your travel company, for your apparel company, for your
beauty company. They'll be able to find more users in
(36:38):
a more relevant way. So we think it pays off.
So I'm not worried.
Speaker 3 (36:43):
So let's push ahead to Alphabet and Microsoft. And if
I draw a commonality and there is an anxiet anxiety
of what happened with Meta, I guess it's the idea
that for all the billions of dollars in data centers
around the world that are being built, it doesn't yet
translate tangibly to revenue growth. That is selling an AI
product directly. Is that a thesis you share.
Speaker 11 (37:09):
We are in the age of AI hype, we are
not in the revenue cycle yet. At our private Internet
conference last week we had many of the top AI
leaders and everyone said that AI is in infrastructure, right,
It's in in VideA, as you were talking about before
the break, and you're dead right about this. It's in
in Vidia and d Dell. You look at all the
enabling infrastructure. It's there, it hasn't gotten to the application layer.
(37:33):
And for all of our companies in software, it's a
single digital percent of revenue. Ninety five percent of these
AI deployments are proofd for concept, less than five percent
of them are live. I mean, how do you monetize
when you're improved of concept? And so I think what
we're seeing is this building interests. IBM talked about you know,
a billion dollar backlog number last night on their call
(37:54):
that was you know, a few hundred million just a
few quarters ago. Right, the interest is building, but in
terms of the overall impact for the software ecosystem, it's
still not there yet and it will be. Microsoft remains
in the best position because they are the furthest ahead,
They have the most vision, and they have the best
management team of anyone in software with no questions asked.
So they're going to be in a great spot. But
(38:16):
it's even for Microsoft, it's going to take time. And
again we've said this, the AI revenue reality is kicking
in later this year into twenty five, and that's why
investors want to be overweight SEMIS or the SMH is
massively outperforming that's where our clients are and that's why
these stocks are all green today and all my stocks
are red.
Speaker 3 (38:37):
Hey, Brent, I'm not asking you to do my job
for me, but I'm going to speak to Ruth Parat
after the numbers hit this afternoon. What do you think
I should ask her?
Speaker 11 (38:49):
The number one question for Ruth is there's two. One
is when is the new CFO coming on board?
Speaker 4 (38:55):
It's been nine months and you haven't effectively.
Speaker 11 (38:58):
Updated this do if you did simple things with investors,
your stock would go up fifteen percent or your multiple
go up fifteen percent. Google is the least shareholder friendly
company of anyone. Attack and there's just simple blocking attacking
they can do to get the stock. Hire, have an
analyst day, bring people in, talk about what they're doing
in AI, put a financial framework. They're the only company
(39:20):
intact that doesn't guide Meta, Amazon, Microsoft, go through the list,
they all give some color.
Speaker 4 (39:27):
There's no color.
Speaker 11 (39:28):
So with no color and no inside and no handholding,
arc lines are like I want to I want to
be able to do the work, and I can.
Speaker 4 (39:35):
I can do the work on these other.
Speaker 11 (39:37):
Companies, and right now, I think investors are frustrated. They're
frustrated with that, So one you know CFO and two
would be you know. Do you realize how easy it
is to get your sock hire if you follow the
simple playbook.
Speaker 4 (39:50):
Brent Thale, Jeffries. I appreciate the help. Thank you. Wow,
I was not a nonswer. I was expecting I have
to be honest.
Speaker 3 (39:57):
That does it for a pretty packed edition of Bloomberg Technollogy.
It was a big morning in market, but technology stories
were at the heart of it. So recap Listen to
the podcast on Apple, Spotify, iHeart and we're also posting
the pod with so many of you listening to on
the Bloomberg platforms again. Buckle up Earnings is the story
to come from San Francisco.
Speaker 4 (40:18):
This is Bloomberg Technology
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
From the Heart where Innovation, money and power. Collie in
Silicon Valley NBN. This is Bloomberg Technology with Caroline Hyde
and Ed Ludlow.
Speaker 3 (00:32):
I met Ludlow in San Francisco. Caroline hides on assignment.
This is Bloomberg Technology coming up. Meta says it will
be the world's leading AI company, But investors don't like
the roadmap to get their team coverage of a massive
drop in Zuckerberg's stock and from earnings to IPOs.
Speaker 4 (00:49):
We speak to the.
Speaker 3 (00:50):
CEO of Service Now on their quarterly numbers, and Rubric's
chief on listing day, and fourteen billion dollars goes to
Micron from the Chips Act to boost America's.
Speaker 4 (01:02):
Memory chip prowess.
Speaker 3 (01:04):
But first, there is only one story that matters right now,
and it is Meta. You see the share reaction. Zuckerberg
outlining billions and billions of dollars are going to go
into building out AI infrastructure. They're in investment mode, expenses
range raised, capex raised. But the focus of the calls
on the product cycle. How many years is it going
(01:25):
to take for this investment in AI at Meta to materialize?
Speaker 4 (01:30):
In sales growth, that's the question.
Speaker 3 (01:31):
The stock on track for its biggest drop since October
twenty twenty two. And given Meta's scale, remember how well
it's performed year to date. It was up more than
forty percent pre earnings. Look at the market cap. Look
at the scale of this company, but also the market
cap lost in this morning session alone. Let's get team coverage,
the reporting from Bloomberg's Kirk Wagner and the analysis from
(01:53):
Bloomberg Intelligence analysts man Deep sink kerk.
Speaker 4 (01:56):
I'm going to start with you.
Speaker 3 (01:58):
Mark Zuckerberg was on this call, but what he tried
to do was say, trust me and bear with me.
I've got a plan for AI to have an impact
on the existing business.
Speaker 4 (02:09):
Explain what we learned. Yeah, that's exactly right.
Speaker 5 (02:12):
He was basically saying, Look, this is going to be
a multi year investment. This is not the kind of
thing that's going to return, you know, to shareholders very quickly.
But be patient, right, he said, smart investors will see
the benefits of this long term plan, right, sort of
suggesting that hey, you know, anyone who's savvy, anyone who
that sees the future like I do, they're going to
(02:32):
be in this stock. Even though it's taken a little
bit of a short term hit, and so you know,
it was a little bit, as you say, combative. It
was one of those things that we don't necessarily always
hear from him, which is sort of you know, pleading investors, Hey,
be patient, hang tight, We're gonna get there eventually. But
you got to weather a little bit of a turbulence
in the meantime.
Speaker 3 (02:50):
Mandy, when you look at the fundamentals of this company,
you and I were discussing before the earnings print, where
do we look to see if there is already avidence
the AI is impacting the top or bottom line. I
looked at the impressions growth. I looked at the pricing
growth of ads, because this is an advertising based business.
Speaker 4 (03:10):
What did you see in those numbers?
Speaker 6 (03:12):
Yeah, I mean the impressions growth continues to be very impressive,
you know, twenty percent, and that's driven by better feed recommendations.
At targeting is better and at pricing. It was much
better in the Europe region. If you part through the numbers,
North America was lighter. Part of that could be explained
from the pullback. You know that everyone is expecting from
(03:35):
Chinese advertisers like Timu and Shane, but they didn't call
that out. So clearly that's a risk, and that's why
that guidance that top line guide was wide when you
look for two Q but look at the end of
the day, when you look at the cost growth, the
cost of revenue growth, that will be in double digits.
So if that mid to high teens revenue doesn't pan
(03:57):
out for some reason, and look, advertising is cyclic, that's
when you will see margin compression. I mean, so for
the story has been cost control and revenue grold. They're accelerating.
Now that story could change because the cost will grow
double DIY did and if the revenue world doesn't match,
that's when there is a risk.
Speaker 3 (04:16):
We're showing you the markets right now. Meta is down
twelve percent, but on a points basis, clearly it's dragging
down the NAS that one hundred s and P five hundred,
the Philadelphia Semiconductor Index or socks. I put that on
there because there was knee jerk reaction in particular in
video last night that fell.
Speaker 4 (04:33):
It is now up three.
Speaker 3 (04:34):
Percent, and I think the logic is Zuckerberg said three
hundred and fifty thousand, h one hundred GPUs will come
online this year as Meta trains its AI model and Kurt.
Speaker 4 (04:44):
The other area of interest.
Speaker 3 (04:46):
Is Zuckerberg's kind of fired up about things that surprised me.
Speaker 4 (04:51):
Glasses.
Speaker 3 (04:52):
He spent a lot of time talking about glasses. But
there are still lots of confusion. Well, okay, wait, is
the metaverse still a strategy?
Speaker 4 (05:01):
Also? The Year of Efficiency? Is that still a thing?
Speaker 3 (05:04):
Just try and clear up the muddy waters for us
on what Zuckerberg's trying to do.
Speaker 5 (05:10):
Yeah, I mean, there's so many things that they're working
on at one time, it's understandable that someone might be
a little bit confused. But he did bring up the
glasses a lot, and what he basically said was these
are progressing much faster than I anticipated. Right, So the glasses,
for those who aren't familiar, this is the idea of
wearing a pair of specs that look like maybe reading
glasses or sunglasses, but that have all kinds of AI
(05:32):
or AR features packed into them. They're working with ray
Band to produce these right now. And I think what
Mark Zuckerberg was saying was that these have gotten so
good so fast that it's encouraged me to continue to
invest in AI, to continue to put money into Reality Labs,
the group that's building this, and so you know, I
think this has always been his long term vision. He
(05:53):
thought that the glasses would sort of be the next
iteration of a phone, you would wear it on your face.
But now he's saying he thinks they're getting their faster
than he anticipated, which is why we're seeing this increase in.
Speaker 4 (06:03):
Spand Okay, gentlemen, bear with me.
Speaker 3 (06:06):
We've actually had a sort of breaking news headline since
we've come on the air, and it relates to TikTok.
Byte Dance has published on its Chinese website a statement
basically saying it has no plan to sell TikTok. BikeE
Dance has no plan to sell TikTok. I think we
need to dig a bit deeper in the coming days
(06:27):
to understand what they specifically.
Speaker 4 (06:28):
Mean by that. Mandeep.
Speaker 3 (06:30):
You've also published research your latest thinking on TikTok just
this morning on the Bloomberg terminal.
Speaker 4 (06:38):
Just explain the basics of it to us, please, Yeah.
Speaker 6 (06:40):
I mean, look at TikTok has a lot of original
content that goes to you know, snap, that goes through Instagram, YouTube,
and so if TikTok has been a lot of those
creators have to go to some other platform. Now, whether
it's going to be YouTube shorts or Instagram reels, we
don't know, but you can see that a lot of
(07:03):
the original content creation happens on TikTok, and that's where
I think you will see Meta being a beneficiary. But
I'm excited to look at, you know, the YouTube numbers
tonight because to me, YouTube should be the fifteen percent
consensus numbers handedly given the kind of you know, viewership
gains that you have already seen, you know, with YouTube,
(07:24):
and so I think that's the one aspect that people
need to think about is the creators aren't going to
wait for nine months to move. They're already gonna start
thinking about what's the alternative platform where they can move
their followers. And I think that's going to determine gains
for snap, YouTube and Meta in the coming months.
Speaker 3 (07:43):
I think it's important we note that on the Earning
School for Meta and analyst asked Mark Zuckerberg for reaction
to TikTok. Susan Lee, the CFO, jumped in and said
that they're monitoring that situation closely, but it was too
early to tell the impact of a TikTok dive or
ban on Meta's business. We're going to dig much deeper
into Meta throughout the hour, but big thanks to the
(08:05):
Bloomberg Kirk Wagner of Bloomberg News and man Deep Singh
of Bloomberg Intelligence coming up on the program.
Speaker 4 (08:11):
Service now is.
Speaker 3 (08:11):
Sales forecast full short of all street expectations, but there
is some positive outlook.
Speaker 4 (08:17):
It's AI related.
Speaker 3 (08:18):
We're going to speak to the CEO, Bill McDermott. There
is a lot happening at once in the markets as well.
Microsoft and Google our alphabet the parent at Google report
after the bell. Those are pretty significant declines and the
idea here is that we're worried on the back of
Meta's earnings. We're worried that all of this spend on
AI infrastructure is not bringing some big boom in generative
(08:42):
AI driven sales growth, actual software products that people use
and those companies make money from. It's going to be
such an interesting afternoon. This is Bloomberg Technology Service now
(09:06):
out with first quarter results, but it's the outlook where
the focus is projecting subscription sales will increase about twenty
two two and a half billion dollars in the current
period that was a little bit below what the street
was expecting. But those are street expectations. What about the
big expectations of the company's CEO. Bill McDermott, CEO of
Service Now, joins us. Now a Bill, good morning to you.
(09:29):
Let's cover off the classic earning stuff. You have a
strong quarter and then you give an outlook which, relative
to consensus estimates, was a bit disappointing. What would your
pushback to that market reaction be.
Speaker 7 (09:42):
Well, first, I think you have to look at the
triple play that we just pulled off ed. We had
a beat on the top line, a beat on the
bottom line, and we raised the full year guidance. So
if the high class problem was solving for is we
didn't raise the guidance enough. Everyone can really relax because
(10:05):
over the last five years that I've been here, we
always beat and we have every expectation of doing so again.
Speaker 3 (10:12):
Bill, I actually want to invite you to give the
basics of what Service Now does. I think a big
portion of the audience know the name, they might appreciate,
just an explanation of what it is you're out there
in the world doing. And my summary basically is you're
trying to capture it spend, you know, the budget for
it spend from all kinds of companies.
Speaker 1 (10:36):
Yeah.
Speaker 7 (10:36):
I think the best way to sum it up is
think of Service now as the AI platform for business transformation.
If you look at companies today, they need a platform
on an end to end basis, from it to the
employee experience, the way they run their customer relationships, and
(10:57):
the way they build new products. They need one place
that can do all of that. And what's unique about
ours We built it organically. There's no tech dead in it,
and it's pristine. It's a sheet of glass that lies
above the mess that's been created for the last half century.
And the big movement today is now, what is the
(11:19):
new frontier. The new frontier is Jeni And people say, Jeni,
what does that mean. It means the companies and the
CEOs that are watching this program need to optimize their processes.
Every business workflow in every enterprise will be engineered with Jeni.
(11:40):
We are the first mover and the market leader in
that category in the enterprise. So the future glide path
could not be brighter.
Speaker 3 (11:51):
Build The stock is down almost six percent. I note
that there is some pressure in the market this morning.
Because of metas earned and we'll get to that in
a bit, but let's talk about RPO because I think
that gives some evidence of the backlog. RPO meaning remaining
performance obligations. That's basically SAS speak for backlog. You've got
(12:13):
a backlog. Why should the investor base be more positive
about that backlog?
Speaker 7 (12:19):
Well, they should feel really good that we have nearly
eighteen billion dollars and remaining performance obligations. So that is
business we have in the backlog that has yet to
be fully recognized. So the backlog is there. We're beating
on the revenue. Just think about this. We beat on
(12:40):
the revenue by one hundred basis points, we beat on
the margin by one hundred and fifty basis points. Our
free cash flow is up forty seven percent, and our
gross profit was up eighty three percent. And we're talking
about was the increase in the guide enough and you
just mentioned it ed perfectly. There's eighteen billion in backlog.
So the company is really on a tear. And one
(13:02):
of the reasons it's on a taar is you have
great companies like Microsoft and IBM as an example, that
are transforming their employee experience with a digital first support model,
freeing up all kinds of resources and fueling innovations on
Service now is Genai. Novartis is delivering new drugs and
(13:22):
increasing operational efficiency by streamlining clinical trials, research and financial
management with our Genai and countless other examples. So Jenai
right now is a.
Speaker 4 (13:35):
Small part of the overall total.
Speaker 7 (13:38):
You know, we're a ten billion run recloud company. But
the uptick in future sales and generative AI when companies
re engineer the way they run on our platform, is
that believable because there'll be half a trillion spent on
it in twenty twenty seven alone. So this is a
really big market. We're the leader, and we're teaming up
(14:01):
with the best in the business like in Nvidio, Microsoft,
IBM and others to create a bright future.
Speaker 3 (14:07):
No that again, build The stock is down six percent,
and there are reasons why for that in the short term.
One of them is probably Meta. I know that you're
the CEO of Service Now, but to extrapolate from Meta,
part of the concern last night was all this investment
is going into the underlying infrastructure that supports generative AI.
Speaker 4 (14:29):
But Meta is a case study.
Speaker 3 (14:31):
They're not yet seeing that investment in the infrastructure translate
to top line growth in the form of software. Right,
tangible evidence that they're selling AI as a product as
a platform. In your case, you are only selling it
as a software layer.
Speaker 4 (14:47):
Just just explain that thesis.
Speaker 3 (14:49):
Should we be as concerned that Corporate America has not
yet worked out how to sell ai?
Speaker 7 (14:56):
Absolutely, So let's differentiate. First of all, metas great company.
They had very good results and their guide might have
been a little muted in terms of the return on Genai.
They're running large language models and that's very important for
the future of the world, and they're doing a great job.
(15:16):
We're running small language models, which basically means we run
our platform with the customer's data in mind. So it's
rocket fast, zero latency because we're using the customer's own data.
There is total accuracy and it is very inexpensive, and
(15:41):
that's why customers are buying our Genai now because it's secure,
it's inexpensive to run, and it's one hundred percent accurate
based on the customer's data. So that is what they're
buying right now. We also have an open platform where
we integrate with Meta and we integrate with Google and
Microsoft and all the other market leading companies out there,
(16:04):
should the customer want to reach into large language models,
and we've teamed up with Nvidia where Nvidia probably our
greatest partner in this category is running small language models
for US and large language models with their compute power.
Let me give you an example of it. Let's think
about employees and customers. Think about GENAI deflecting all the
(16:29):
soul crushing work that people don't want to do anymore.
So think of employee and customer deflection where virtual agents
can actually do the work that people used to have
to do. Think about software engineers increasing their productivity or
their speed of innovation by nearly fifty percent by texting
something in natural language and turning that into software codes.
(16:53):
And there's several other examples. But the point is small
language models are selling today when a lot of money
at it, and large language models are also available on
our platform. But our customers are really teaming up with
Microsoft for example on Copilot and service now on our
(17:14):
virtual assist AI platform, and we got it together. Is
better solution for the marketplace, and that's what's selling today.
Speaker 4 (17:23):
Bill, I appreciate the debt for the answer. Bill McDermott,
CEO of Service.
Speaker 3 (17:27):
Now, thank you so much coming out Microsoft back, Rubik
goes public mid arizing demand for data security. We do
speak to the CEO people sing you next. This is
Bloomberg Technology. Rubric, which focuses on data management, recovery from
(17:54):
ransomware attacks, and accelerates cloud mobility, is officially going public.
Speaker 4 (17:59):
And joining us.
Speaker 3 (18:00):
Now is Rubrics CEO people Senior. The shares are indicated
to open at thirty eight dollars a share. You price
this IPO at thirty two. Just tell me what that
means to you today.
Speaker 8 (18:12):
Thank you Ed for this opportunity to speak with you.
It's a very exciting day for Rubric employees, our customers,
our partners, and everybody in our ecosystem around the world. Look,
I will leave this stock price to the experts and
the traders. Ultimately, we are a different kind of cybersecurity company,
and we are helping our customers continue to run their
(18:33):
business even in presence of cyber attacks and breaches, so
that hospitals are open, kids are going to school. When
people swipe credit card, they get money out, irrespective of
whether there's a successful cyber attack or not.
Speaker 3 (18:47):
People, did you really need to go public for the visibility.
Like your business seems to be doing quite well. Do
you think this actually tangibly improves your sales?
Speaker 8 (18:59):
Look, we are working with a number of customers around
the world, having more visibility, having more brand name recognition,
and more importantly, when you are as a public company,
everybody can see your numbers and they understand the resilience
of the business. That's actually good for our customers, that's
actually good for our ecosystem, and it also helps us
be in front of more innovative companies, talk to them
(19:22):
about our story and essentially help them against the ransomware
attack and another cyber attack, to deliver cyber recovery and
cyber resilience.
Speaker 4 (19:32):
People.
Speaker 3 (19:32):
I spent two years asking you if you'd go public.
You finally and eventually are doing it. But I think
there's a feeling that there's a hell of a premium
on this IPO. A lot of people want to see
evidence of revenue and profit that comes from this. But
you resisted the temptation to talk endlessly about AI. You're
saying you don't have a core AI story.
Speaker 8 (19:56):
We do have a core AI story. Rubric has been
building AI for last ten year, In fact, our data
threat Engine is built on AI platform that delivers security
intelligence directly from the data. And more recently, we announced
a product Ruby, which is a generative AI based AI
data defense and recovery that helps cyber defender fight fire
(20:18):
with fire. Because you know attackers are applying AI in
terms of how they are increasing the volume, variability and
velocity of attacks. We are allowing the defenders use AI
in terms of rule Break and Ruby so that they
can deliver cyber resilience and cyber recovery.
Speaker 4 (20:36):
People very quickly.
Speaker 3 (20:37):
Microsoft remains an important financial and technology partner to you.
How will that relationship work now going forward?
Speaker 8 (20:45):
We have a very strong relationship with Microsoft. In fact,
we were Microsoft Partner of the Year in twenty twenty three,
both both for US and UK. We continue to coinovate together,
continue to help our joint customers get cyber resilience, make
sure that they can withstand cyber attacks and continue to
run their business, because, after all, digital trust starts with
(21:06):
keeping the services up and running when you are attacked,
even if the cyber beach has happened to you.
Speaker 3 (21:13):
Rubric CEO people signor after two years of asking if
you go public, you did thank you. Okay, Welcome back
to Bloomberg Technology, Ed Ludlow here in San Francisco.
Speaker 4 (21:29):
Let's talk about TikTok.
Speaker 3 (21:30):
The clock is ticking for TikTok to avoid its behan
in the US should it be unable to divest. Joining
US now from DC is Bloomberg's Mike Shepard, and Mike
basically leads our coverage of the intersection of politics and tech.
We had that breaking news headline at the top of
the am mic that Bite Dance saying through its Chinese
website that it has no plan to divest or no
(21:56):
plan to sell TikTok. That was the wording or translation.
I don't really feel like I understand what they mean
by that they're digging in.
Speaker 9 (22:05):
Basically, they are digging in, and the statement in a
way is not that much of a surprise. They've made
clear through this process. As the legislation started to take
shape last month, that really started to look real, look
like it was going to happen, that they had no
intention of playing ball, and that in fact, they would
(22:26):
try to fight it with every arrow in their quiver.
They really want to make sure that they are able
to hold on to this valuable asset and resist what
they see as and the Chinese government also sees as
interference in valuable media property.
Speaker 3 (22:43):
So there's a lot that's happening quite quickly. We'd reported
that by Dance was thinking about a solution where it
sold TikTok but without its sacred algorithm, and on the
show yesterday we talked about why that algorithm is so
important for content creators. The President signed this law, signed
(23:03):
this into lawy yesterday, but as far as I'm aware,
the President hasn't actually commented or specifically talked about his
view on TikTok. Just update us on the politics, I
guess of the last twenty four hours.
Speaker 9 (23:16):
This is a great question need because politics has really
surrounded this, not only the geopolitics between the US and China,
but even the domestic politics. And when it surfaced back
in March, President Joe Biden said he would sign it.
He would sign the measure, but he hasn't really expounded
much more on it now. To be clear, the TikTok
(23:37):
bill was attached to a much larger foreign aid package,
which was a far greater priority for the President and
his administration. They wanted to see a to Ukraine get
through above anything else, and in his remarks yesterday, he
really devoted the lion's share of his commentary to that.
At the same time, his spokesperson made clear yesterday after
(23:58):
the President spoke that selling TikTok a full divestiture was
something that they wanted. At the same time, they do
not want to see the apps shut down. They respect
that many US users derive great enjoyment from it, and
also for many it is also a source of business,
and that is something that the administration does not want
to see shut down.
Speaker 3 (24:19):
Bloomberg's Mike Shepherd out of DC really appreciate the coverage
and I think we're going to be talking about this
quite a lot for at least two hundred and seventy days.
Speaker 4 (24:26):
Thank you.
Speaker 3 (24:27):
I'm going to keep a conversation going and get some
kind of the market analysis. Jasmin Enberg is principal analysts
at Insider Intelligence. We're wading through a lot of unknowns.
But where is your head at, Jasmine? You look at
TikTok from the point of view, well, this is a
platform that almost fifty percent of Americans are using.
Speaker 4 (24:46):
What do you think will happen?
Speaker 1 (24:48):
Well, I think the announcement from Bytown today that they
weren't going to sell was to be expected. I mean,
TikTok has already said it's going to wage an intense
legal battle. I think the question for me is what
how weapons now with all of this uncertainty. I mean,
TikTok obviously has a lot of loyal users. Many of
them have already come out in full force to defend
(25:09):
the app, and I expect they'll do so again. I
don't expect many of them to leave, And advertisers aren't
going to leave as long as there's audiences to reach
and content creators of courts, which are a really important
part of the app, aren't going to leave if there
is money to be made. But if there's one thing
that advertisers don't like, it's uncertainty. And if this uncertainty
(25:32):
surrounding the legal battle and what happens to Tiktoks sends
enough of them running for higher ground, that could eventually
lead to creators starting to leave, and users will follow
creators wherever they go, and that could end to or
end up doing in an undoing of TikTok even before
this matter is resolved in courts, or if it binds
(25:53):
the buyer in wittance changes its mind.
Speaker 3 (25:56):
So Jasmine coming into the show today before the head
line crossed about Byte Dance having no plan to sell TikTok,
what was your thesis before that moment on TikTok?
Speaker 1 (26:08):
My thesis in terms of whether it was going to
be sold or not.
Speaker 4 (26:12):
I mean, what I was.
Speaker 1 (26:13):
Thinking about mostly was in terms of the algorithm and
how important a part of that would be in terms
of whatever sale could potentially take place. I mean, the
algorithm is part, a big part of.
Speaker 4 (26:25):
What makes TikTok tick.
Speaker 1 (26:28):
And not having it as part of the sale, but
of course lessen the valuation potentially expand the potential list
of buyers. But it still wouldn't be an easy task
to find a buyer for TikTok, even if by Dance
were willing to sell that app.
Speaker 3 (26:43):
Okay, So last night during Meta's Earning School, an analyst
asked Mark Zuckerberg for basically reaction to the TikTok situation.
Susan Lee, who's the CFO, jumped in and answered the
question and said, you know, we're monitoring it, looking at
it closely, too early.
Speaker 4 (26:59):
To tell what it means our business.
Speaker 3 (27:01):
Do you have a clear winner in any scenario of
who the main beneficiary of a TikTok divest or a
TikTok ban might be in the meat social media landscape.
Speaker 1 (27:11):
Yeah, well, Meta has been pretty silent on this issue,
and for good reason. I mean, there could be ramifications
and in other countries where Meta does business. Meta would
be a clear winner if TikTok were to disappear from
the US, mainly because of Instagram reels. It is one
of the most natural fits for a displaced TikTok users.
It's not exactly the same as TikTok, but I imagine
(27:33):
that a large number of TikTok users would move there
or to YouTube shorts, and it would also be a
winner in terms of AD dollars. Now, Meta is a
massive player in the digital ad landscape. We're expecting it
to bring in about sixty four billion dollars in US
AD revenues this year. TikTok's AD business is smaller by
no means small. It's about ten billion AD dollars to
(27:55):
ten billion dollars in AD revenues, and so of course
some of those dollars. A big chunk of those dollars
would likely go to Meta as well.
Speaker 3 (28:02):
Jasmine will Meta be the world's leading AI company.
Speaker 1 (28:07):
It's a great question, and Meta certainly is in the
AI race to win it. I do think it could
be a dark horse in the race to AI if
you think about the distribution potential alone. It has a
built in audience through Facebook, through Instagram, through What's Up.
I was doing some calculations after it released Meta Ai
into the search bars and Facebook Feed just last week,
(28:30):
and Meta only needs forty three percent of US Facebook
users to use Meta Ai on a monthly basis for
its audience to be as big as chat GPT is
here in the US, and that isn't unthinkable if you
consider how prominently and permanently Meta Ai is displayed across
the apps, and then in terms of monetization, you know
(28:52):
that is going to be a big factor in determining
who wins the AI race, and Meta has a competitive
advantage there. We don't really know how jenai is going
to be monetized, but like pretty much everything Meta does,
it's likely to be an ad play and this would
be connected to its powerful ad ecosystem, and so I
could see it emerging as an unexpected winner, though of
(29:14):
course there is a lot of competition and the crowded
market still to face.
Speaker 3 (29:18):
Meta shares off session lows, but we're still down more
than twelve percent. Jasmin Emberg of Insider Intelligence is always
great to have you on the program.
Speaker 4 (29:25):
Thank you.
Speaker 3 (29:26):
I just broke this story with Bloomberg's Kurt Wagner. We
just published it on the Bloomberg terminal. Elon Musk is
going to be deposed on Monday as part of the
first arbitration hearings in the legal process where former Twitter
employees have basically brought a class action against Elon Musk.
(29:50):
The former Twitter employees say they were cheated out of
severance pay when Musk bought the social media company in
October of twenty twenty two. Law firm Lichten and Listen
Order and will be representing almost two thousand former Twitter
staff in individual arbitrations as well as more than a
dozen class action lawsuits overall in the courts. That story
(30:11):
just out on Bloomberg. I'm sure it will be online
soon as well.
Speaker 4 (30:14):
Stay with us.
Speaker 3 (30:15):
We have so much more ahead on the program. This
is Bloomberg Technology. Okay, it's time for talking tech and
(30:35):
first up in the news Abudabi's startup G forty two
is choosing sides. The company, known for a sprawling product
portfolio in AI, is teaming up with American companies like Amazon, OpenAI,
and Microsoft and divesting from its Chinese partners. The move
comes mid worries from US officials of open back doors
from the Chinese government, with some members considering an intelligence
(30:58):
briefing to discuss g latest partnership with Microsoft that is
the Bloomberg Reporting, plus Chinese online tutoring platforms. Xiongbang has
filed confidentially for a US IPO. That's according to sources.
The filing adds to signs that Beijing's looking to boost
funds for its tech industry. The company is said to
be working with advisors on the potential listing that could
(31:18):
take place as early as this year. And semiconductor maker
Skhinix says it expects a full recovery in the memory
chip market, led by AI related demand. The company posting
first quarter results that exceeded expectations, forecasting its fastest pace
of revenue growth since twenty tenesk Heinix says it's entering
a rebound phase and is preparing to expand capacity for
(31:42):
its leading edge chips. Okay Let's stick with chips that
stick with memory. Micron is expected to receive nearly fourteen
billion dollars in US grants and loans to help the
company build new American babs or factories. We're also expecting
Intel results after the bell. There is a lot happening
in real time with the semiconductor industry joining us to
(32:05):
discuss it bloombergsy and King, who leads our coverage of
semis Let's start with Micron. They are the number three
maker of memory chips, the US leader of memory chips.
Almost fourteen billion dollars in grants and loans crucially seems
like a lot of money.
Speaker 4 (32:23):
It's not really, is it.
Speaker 10 (32:25):
Well, I mean for somebody like you or Micron, it
really isn't. For me, it would be a lot of money.
I mean six point one is guaranteed, right, But when
you put that in context of the one hundred and
twenty five billion that they're looking to put into a
factory network that's going to be built over the next
few years, clearly that's not. I mean, it will help
(32:45):
even the cost base between building here versus building in
Asia where they have most of their facilities right now.
Speaker 2 (32:51):
But it's not a free v by any stretch.
Speaker 3 (32:54):
The memory market's really interesting historically commoditized boom and bus
site cause we're talking about principally d ram A nand
or flash memory. The next generation of memory goes into
data centers for AI and Micron is competing against those
big names Samsung, sk Heinix. Why are they wanting to
(33:18):
enshore this basically in America?
Speaker 4 (33:20):
What's their kind of play here?
Speaker 2 (33:22):
Yeah, I mean there are a number of things.
Speaker 10 (33:24):
We had a conference call with the political leadership behind
this bid and they're basically like, look, we can't afford
to have all our eggs in one basket.
Speaker 2 (33:33):
Look what happened during the pandemic.
Speaker 10 (33:34):
We need production of this increasingly important technology in the
United States. And as you just indicated, it isn't just
a commodity or won't be just the commodity that it
has been in the past. So we need this key
technology in this country. Is the argument that is being made.
Speaker 3 (33:51):
We're talking about HBM three or high bandwidth memory, and
we've done a lot on the program. Our audience will
know and we will continue I'm sure to talk about
it in the moment. Intel. It is the next kind
of big chip name to report after the bell. What
are we expecting?
Speaker 10 (34:05):
Yeah, expectations are very low. I mean this is a
Stargglus down thirty percent this year, way below what you know,
the socks index, the key semiconductrient done. We already know
that their operations are struggling. We know that their manufacturing
is poor. The key question that we're going to see
answer today is our PC is getting a little bit better.
(34:26):
Our companies and hyperscal as starting to spend on server chips.
Speaker 2 (34:31):
Again, that's really what people want the answer to.
Speaker 3 (34:34):
It's the same story every quarter, and we wonder if
the story changes when it comes to earnings. We're looking
forward to that one Ian King the Bloomberg Yes, thank you.
Let's talk again about Meta. The stock is back down
thirteen percent. It's off session lows. But there's a lot
(34:57):
of anxiety in technology more broad based on what we
had in metas earnings and basically the commentary on the
AI infrastructure spend that's going to happen. Jeffreys, Brent Till
joins us now on Meta specifically, because I think we
need to have a sort of bigger picture conversation. You
(35:17):
cut your price target to five hundred and forty dollars
I think from five hundred and eighty five. But are
you actually anxious or worried about what you heard last
night from from Zuckerberg?
Speaker 2 (35:28):
Not at all.
Speaker 11 (35:28):
I think this is a gift for investors. You know what,
I think we've learned in AI you need three things.
You need users, you need data, and you need money.
And the list of vendors that are going to survive
is very small, and Meta is going to be one
of them. And so for long term shareholders, this is
a great opportunity. They're going to do twenty five dollars
of earnings power. You can put a low twenty multiple,
(35:52):
you know, to mid twenties, and you're going to get
anywhere between you know, five hundred plus to six hundred
plus in the stock. And so when you look at
just back in the envelope on earnings, it has huge
support with the stock training at sixteen seventeen times right now.
I think in terms of the worry, I don't worry
because I think they're doing the right thing.
Speaker 4 (36:14):
These investments are.
Speaker 11 (36:15):
Not going into the metaverse, they're going into AI. They're
going back into the core platform where there are billions
of users that are trying to have better engagement. It
helps advertisers create campaigns faster. It's going to send more
ad dollars into the platform because it's going to be
so easy to create a pain and find a new user.
For your travel company, for your apparel company, for your
beauty company. They'll be able to find more users in
(36:38):
a more relevant way. So we think it pays off.
So I'm not worried.
Speaker 3 (36:43):
So let's push ahead to Alphabet and Microsoft. And if
I draw a commonality and there is an anxiet anxiety
of what happened with Meta, I guess it's the idea
that for all the billions of dollars in data centers
around the world that are being built, it doesn't yet
translate tangibly to revenue growth. That is selling an AI
product directly. Is that a thesis you share.
Speaker 11 (37:09):
We are in the age of AI hype, we are
not in the revenue cycle yet. At our private Internet
conference last week we had many of the top AI
leaders and everyone said that AI is in infrastructure, right,
It's in in VideA, as you were talking about before
the break, and you're dead right about this. It's in
in Vidia and d Dell. You look at all the
enabling infrastructure. It's there, it hasn't gotten to the application layer.
(37:33):
And for all of our companies in software, it's a
single digital percent of revenue. Ninety five percent of these
AI deployments are proofd for concept, less than five percent
of them are live. I mean, how do you monetize
when you're improved of concept? And so I think what
we're seeing is this building interests. IBM talked about you know,
a billion dollar backlog number last night on their call
(37:54):
that was you know, a few hundred million just a
few quarters ago. Right, the interest is building, but in
terms of the overall impact for the software ecosystem, it's
still not there yet and it will be. Microsoft remains
in the best position because they are the furthest ahead,
They have the most vision, and they have the best
management team of anyone in software with no questions asked.
So they're going to be in a great spot. But
(38:16):
it's even for Microsoft, it's going to take time. And
again we've said this, the AI revenue reality is kicking
in later this year into twenty five, and that's why
investors want to be overweight SEMIS or the SMH is
massively outperforming that's where our clients are and that's why
these stocks are all green today and all my stocks
are red.
Speaker 3 (38:37):
Hey, Brent, I'm not asking you to do my job
for me, but I'm going to speak to Ruth Parat
after the numbers hit this afternoon. What do you think
I should ask her?
Speaker 11 (38:49):
The number one question for Ruth is there's two. One
is when is the new CFO coming on board?
Speaker 4 (38:55):
It's been nine months and you haven't effectively.
Speaker 11 (38:58):
Updated this do if you did simple things with investors,
your stock would go up fifteen percent or your multiple
go up fifteen percent. Google is the least shareholder friendly
company of anyone. Attack and there's just simple blocking attacking
they can do to get the stock. Hire, have an
analyst day, bring people in, talk about what they're doing
in AI, put a financial framework. They're the only company
(39:20):
intact that doesn't guide Meta, Amazon, Microsoft, go through the list,
they all give some color.
Speaker 4 (39:27):
There's no color.
Speaker 11 (39:28):
So with no color and no inside and no handholding,
arc lines are like I want to I want to
be able to do the work, and I can.
Speaker 4 (39:35):
I can do the work on these other.
Speaker 11 (39:37):
Companies, and right now, I think investors are frustrated. They're
frustrated with that, So one you know CFO and two
would be you know. Do you realize how easy it
is to get your sock hire if you follow the
simple playbook.
Speaker 4 (39:50):
Brent Thale, Jeffries. I appreciate the help. Thank you. Wow,
I was not a nonswer. I was expecting I have
to be honest.
Speaker 3 (39:57):
That does it for a pretty packed edition of Bloomberg Technollogy.
It was a big morning in market, but technology stories
were at the heart of it. So recap Listen to
the podcast on Apple, Spotify, iHeart and we're also posting
the pod with so many of you listening to on
the Bloomberg platforms again. Buckle up Earnings is the story
to come from San Francisco.
Speaker 4 (40:18):
This is Bloomberg Technology
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