May 16, 2025 • 35 mins
Bloomberg Daybreak Weekend with Tom Busby takes a look at some of the stories we'll be tracking in the coming week.
- In the US – a look ahead to a look ahead to home sales data and earnings from Target.
- In the UK – a look ahead to the Qatar Economic Forum.
- In Asia – a look ahead to earnings from Baidu.
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:10):
This is Bloomberg day Break Weekend, our global look at
the top stories in the coming week from our Daybreak
anchors all around the world. Straight Ahead on the program,
we'll look ahead to some key home sales data in
the US during the heart of the spring home buying rush.
Also the latest earnings from retail giant Target. I'm Tom
Busby in New York.
Speaker 3 (00:28):
I'm Caroline Hedger in London, where we're looking ahead to
be Cutaw Economic Forum.
Speaker 4 (00:32):
I'm Doug Chrisner looking ahead to earnings from Chinese Answer
to Google by DO.
Speaker 1 (00:38):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven three Yeero, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two to nine, Boston, DAB Digital Radio, London,
Sirius XM one twenty one, and around the world on
Bloomberg Radio, dot Com and the Bloomberg Business app.
Speaker 2 (01:02):
Good day to you. I'm Tom Busby. We begin today's
program with reads on existing and new home sales for
the month of April, the obstacles the housing industry is
facing right now, and what this week's earnings from the
nation's big home improvement retailers can tell us about the
housing market. For more on all of that, we're joined
by Drew Reading, Bloomberg Intelligence, US home building analyst. Well, Drew,
(01:26):
thank you so much for being here, and well, why
don't we start with what are you expecting to see
in these April home sales reports coming out this week?
Speaker 5 (01:34):
So, look, the spring selling season has been a dud.
To put it simply. The latest housing data that we
have from Redfincho's pending home sales down about three percent,
which is the lowest on record for this time of year.
You have home sitting on the market longer, and for
sale inventory is rising up about fourteen percent last year.
On the new home side, we just got data on
(01:55):
purchase applications from the builders which show sales down five percent,
and if you look at some of the names that
we cover, orders in one Q we're down about ten percent.
So it's certainly been a challenging market. You know, some
of the builder conbinants data that we look at is
the lowest going back to late twenty twenty two, and
(02:15):
the measure of present sales expectations is near the lowest
since twenty twelve, So the outlook for sales isn't all
that strong right now?
Speaker 6 (02:24):
Wow?
Speaker 2 (02:24):
Is this just a perfect storm of sky high prices,
elevated mortgage rates, and a lot of economic uncertainty.
Speaker 5 (02:32):
I think you hit the nail on the head. It's
really those two things. First, affordability. You know, this piece
isn't new, but it's not improving. You know, we came
into the year thinking that we might get some relief
on rates, and earlier in the year it looked like
mortgage rates did come down a little bit, but now
we're headed back up towards seven percent, and you know,
with home prices continuing to climb, affordability remains near the
worst level on record. And then the second piece is
(02:54):
what you mentioned, it's uncertainty, which is leading to a
lack of urgency among buyers. You know, there's been a
lot of discussion out there about, you know, the soft
data versus the hard data, and when does the weakening
and the soft data translate, if ever, into what we're
seeing into the numbers. And I can tell you that,
at least from a housing perspective, it is having an
impact when you're thinking about big ticket purchases like buying
(03:14):
a home, or you know, in the home improvement space
taking on a large remodeling project. You want to have
confidence in the economy in your job, and we've seen
those numbers start to come down. We've heard from almost
every builder out there that there's just a lack of
urgency as buyers wait to see what happens with prices,
what happens with rates. So for us, it's certainly having
an impact at this point.
Speaker 2 (03:35):
Wow, well the only good news I've seen. And you
tell me how this could change things. The number of
homes that are listed seems to be rising. I mean,
are sellers giving up any hope for lower mortgage rates
right now? Just saying we've got to pull this trigger now.
Speaker 5 (03:49):
Well, I think it could be good or bad, depending
on who you ask. I mean, we think that more
inventory coming to the market could support modestly improve volumes
in the existing home market as a whole. But I
do think that over time that will come with more
moderate price increases in a lot of markets outright price declines,
and we're already seeing that in some markets, predominantly in
(04:12):
the South and the Southwest. When you think about it
from a builder's perspective. You know, one of the key
drivers over the last several years have been a lack
of listings, which have forest fires into the new home market.
Now and some of the biggest markets that the builders
are in Florida and Texas, you have inventory levels which
are back above twenty nineteen. So what we're seeing is
(04:33):
that in order for the builders to compete in these markets,
they're having them more heavily discount So, you know, they're
having to increase these sales incentives. Maybe in some cases
they're lowering base prices, but it's becoming harder and harder
to get each sale for the builders.
Speaker 2 (04:46):
Wow, so they're changing their tactics. Are I know that
there are some things they can do as far as
economic incentives. Are they building smaller homes? Are they putting
in you know, maybe not a Bosch dishwasher, but a whirlpool?
You know what I mean? Are are are they struggling.
Speaker 5 (05:05):
With Yeah, builders have done a handful of things to
try to get that affordability equation back in better check one.
They are building smaller square footage homes. It's we've seen
over the last several years, you're not seeing as highly
amenditized offerings, particularly for builders at the lower end of
the market who are catering to the entry level buyer
who are more looking for shelter in the first place.
(05:28):
So you're seeing less less amenities in those offerings. You're seeing,
you know, higher density options, so maybe more talent home
construction than things of those nature.
Speaker 2 (05:37):
Now, another thing I'm hearing about is possibly the administration's
tough immigration policies. Has that impacted builders in a big
way yet or is that still being flushed out that
they're just don't have the workers availability that they did before.
Speaker 5 (05:52):
Yeah, So, the lack of lyabor supply in the residential
construction industry has been an issue for you know, a
handful of years really since the bottom of the last cycle.
We've seen things start to improve more recently, and that's
because volumes in the industry have come down, so there's
not as much a need. But that being said, you know,
the immigration policies and all that discussion is certainly a
(06:14):
headline risk for the group. To this point, the builders
we talked to haven't really seen an impact from that,
but it's certainly something that we're going to keep our
eye on because to the extent that you know, maybe
housing does start to come back a little bit. If
rates are able to fall, then you have more builders
competing for less supply, which would raise labor costs.
Speaker 2 (06:32):
Got it, got it now?
Speaker 5 (06:34):
Drew.
Speaker 2 (06:34):
This coming week we get first quarter earnings from the
Nation's Too big as do it Yourself, home improvement chains,
Home Depot and Lows. Now, what do you think those
results are going to tell us about the housing market
right now and about what people are doing to their homes.
Speaker 5 (06:50):
Yeah, good question. I think this is going to be
an interesting quarter for home improvement retail. It seemed like
coming out of last quarter the industry was starting to
get a little bit of momentum. We had the first
same store sales growth in about two years, you know,
certainly not going gangbusters, but perhaps indicating that the worst
was behind it. As we gotten through the first few
months of this year, we've had some volatility in the weather,
(07:11):
We've had an increased amount of certainty given the commentary
around economic growth and political developments, and we think that
will probably be reflected in both results and guidance. And
when you think about, you know, how they're being impacted
by housing and what it means is is we're really
seeing it on the big ticket side of the business,
so think of things like kitchen and bathroom models, flooring projects,
(07:32):
and things along those lines. It's the discretionary side of
the business is certainly softer, and part of the reason
for that is because rates are so high and these
are projects that are typically financed, So we're seeing relative
softness on that side of the business. If we look
at some of the more race recent data we have
on traffic, you know, it shows that February was week,
(07:53):
March improved a little bit and it was mixed in April.
On a relative basis, it looks like home depots maybe
doing a little bit better from a traffic perspective, and
I think we're going to see that in performance at
the same store sales because Loews has that higher exposure
to the DIY customer, which is a little bit weaker
at this point.
Speaker 2 (08:11):
Well a lot to look forward to existing home sales.
That's the biggie for April that's out on Thursday. New
home sales for that same month out on Friday. Our
thanks to Drew Redding, Bloomberg Intelligence US home building analyst.
We move next to earnings and this week we get
first quarter results from the retail giant Target, which has
faced some real struggles lately, and not just because of
(08:31):
US consumers pulling back on their spending. For more on
what to expect, we're joined by Jennifer bartashis Bloomberg Intelligence
Senior Analysts Retail, Staples and packaged Foods. Well, Jen, thank
you for being here. You know, just this past week,
Walmart reported strong earnings for last quarter, but warrened, it'll
have to start raising prices talking about the Trump tariffs
the economic turbulence that they've caused. Are you expecting to
(08:54):
see something pretty similar from Target?
Speaker 7 (08:57):
Yeah? It was interesting when you've we've got a company
as big as Walmart saying that they're not going to
be able to offset the full cost of tariffs. That
really means that for every other retailer out there, they're
in the same boat, or maybe even slightly worse off.
And so we definitely expect Target to be hit a
little bit harder than Walmart, even just because of the
(09:19):
mix of products that Target sells, and we expect to
hear a lot of similar commentary coming out of the
retailer this week.
Speaker 2 (09:28):
Now, some of those problems or some of those challenges
for Walmart, where Walmart makes about half its money from groceries,
Target maybe about a quarter percent. Is that part of
the equation there?
Speaker 7 (09:40):
That is definitely part of the equation because food is
generally for the most part produced and made in the
United States, so it's not subject to tariffs. And a
lot of food that is imported is coming from Mexico
or Canada, which is also currently free from tariffs based
off of the North America. Mexico wedded a Mexico US
(10:01):
trade agreement, and so there's limited exposure to tariffs in
a food business. So the bigger your food business, the
better you offer are in this tariff situation. So for Target,
their food business is a lot smaller, and so it
doesn't give them as much of a cushion as it
does for Walmart.
Speaker 2 (10:20):
And let's talk about the consumer, because I know that's
why a lot of them go to Walmart and also
to Target. But we saw some just this past week
retail sales for April that was the month those Trump
tariffs were announced, and yet they edged a little bit
higher unexpectedly, only one tenth of a percent, but it
was an increase. What is the consumer doing right now?
(10:43):
How are they acting.
Speaker 6 (10:44):
Well.
Speaker 7 (10:45):
What was interesting I think about those numbers is that
there were consumers who cautiously pulled forward some of their
spending because they weren't sure when price hikes related to
tariffs were going to take effect. And so although we
didn't see a run on stores where inventory just disappeared
and things were in shortage, there was some pull forward
(11:07):
and spending where people were planning and they said, you know,
I usually buy this, I'm just going to buy a
little bit extra because I don't know what's going to happen.
So now that we have a little bit more clarity,
people haven't seen prices move too quickly. I think that
the consumer is just staying very cautious. You know, they're
looking for value. Now. Value applies in different ways to
(11:29):
different people. It could be just price, it could be convenience,
it could be quality. So what's really important for retailers
is to figure out how to translate that value message
appropriately even in the with the backdrop of the economic
environment in tariffs.
Speaker 2 (11:46):
Yeah, it's a fine line, a tricky line to pull
this off.
Speaker 7 (11:50):
Oh no, it definitely is a tricky balance, just because
you don't want to risk the loyalty of your consumers,
but at the same time you still have to make
a profit, and so it's going to be interesting to
see which retailers are best able to navigate that situation.
Speaker 2 (12:06):
There will Target's earnings are out this Wednesday, and our
thanks to Jennifer Bartashes Bloomberg Intelligence senior analysts retail staples
and packaged foods. Coming up on Bloomberg Daybreak weekend, world
and business leaders head to the Cutter Economic Forum. I'm
Tom Busby and this is Bloomberg. This is Bloomberg day
(12:35):
Break weekend, our global look ahead at the top stories
for investors in the coming week. I'm Tom Busby in
New York. Up later in our program and look ahead
to earnings from the Chinese tech giant Bad but first.
In the wake of President Trump's visit to the Middle East,
the region will be in the spotlight again this week
as world and business leaders touchdown for the Qatar Economic Forum.
(12:57):
Amidst growing global instability. Could twenty twenty five herald a
new era of dominance for golf nations. For more, Let's
get to London and bring in Bloomberg day Break euro
banker Caroline Hepgar.
Speaker 1 (13:07):
Tom.
Speaker 3 (13:08):
It's the fifth edition of the Cutar Economic Forum, an
event underwritten by the State of Katar and powered by Bloomberg.
This year, the theme is transforming the global economy. It's
an apt topic at a time when the world's trade
and capital flows, economies, investment, and energy industry are all
in flux. There's also the question of geopolitical uncertainty, a
(13:32):
phenomenon the region has battled with in Gaza, Lebanon, Iran,
and elsewhere. But residents and investors are keen to showcase
the Middle East potential as an emerging global player and
investment partner. It's a factor President Donald Trump emphasized during
his recent visit to Saudi Arabia. Despite acknowledging current barriers
(13:54):
to progress.
Speaker 8 (13:55):
The Golf Nations are at the forefront of creating a stable, peaceful,
and prosperous Middle East. And I have to say that
I've seen such progress. It's really incredible. I've also seen
great unity and friendships. I've spent a little time with
you just before this, and I've seen tremendous unity, tremendous friendship.
(14:16):
And the whole world is watching the Middle East, and
many are watching with envy. You have something very special
going on. Incredible opportunities are within reach for this region
if we can simply stop the aggression from a small
group of pretty bad actors.
Speaker 3 (14:33):
That was President Trump speaking during his time in Riad,
Saudi Arabia as part of his Middle East tour. The
praise and the deals that President Trump lavished on Cuta,
saying that the friendship between the US and Cutter has
never been stronger, will surely be on the minds of
participants at the upcoming Cutter Economic Forum. So what should
(14:55):
we expect. I've been speaking to Blueberg's managing editor for
the Middle East and North Africa on and to get
a sense of what the main themes at the forum
are likely to be.
Speaker 6 (15:06):
The overarching theme these officially will be that will shape
the discussions that the Cutar Economic Forum will be the
transforming transformation of the global economy on the road to
twenty thirty. And that's especially relevant to the region to
the Middle East Gulf, where oil producers are at the
(15:27):
forefront of that transformation as they are trying to diversify
their sources of income and their economy more broadly away
from hydrocarbons. And that is an effort led by the
likes of cutter, as well as Saudi Arabia and of
course the United Arab Emirates where Abu Dhabi is the
capital and Dubai is the commercial heartland.
Speaker 3 (15:52):
I talked about the praise, but there are also lots
of questions and there are certainly plenty of tensions. The
backdrop of global trade, disruption of geopolitical instability will that
surely play into the discussions definitely.
Speaker 6 (16:08):
So the forces unleashed by the global trade war, if
we can call it that at this point, or maybe
more cautiously, disruptions to the global trade are weighing down
on economies across the world, but the impact is likely
to be more profound in the region than elsewhere, especially
taking into account taking into account the effect on oil
(16:32):
prices as well as sources of geopolitical instability that you
have already mentioned. Trade disruptions amplified by other factor other
factors such as Ope's own decision to bring forward some
of the planned production boosts already is having a great
(16:56):
impact on oil prices and they're pushing them down and
those revenues, the revenues from oil in general makes up
the backbone of common revenues, so that is definitely going
to be a part of the discussion at the Katar
Economic Forum. And obviously we should add to that the
violent conflicts, including the war in Gaza between Israel and Hamas,
(17:20):
which now has been raging for more than a year
and a half, and it's something that forum participants will
definitely discuss as it does affect everything from the capital
flows to a perception of risk, which has obviously a
huge impact on investors' propensity to increase exposure to the region.
Speaker 3 (17:41):
And the conflicts in Gaza, the war in Yemen, you know,
whether the sanctions against Syria may be lifted by the US,
you know, the whole issue of security. But just tell
us about the people who are going to be there,
Who are going to be attending. I mean you've got
speakers from you know, the likes of the TESTA CEO
(18:01):
Elon Musk, to central bankers, even to you know, former
British politician Dominic rab is going to be there. So
who are you going to be thinking about and listening
to the event.
Speaker 6 (18:15):
That's true, a wide range of speakers. The highlight is
definitely Elon Musk with everything he has to say about
his efforts to increase government efficiency in the US to
Tesla and the competition that he is facing from manufacturers
elsewhere in the world, including in China. But besides that,
(18:36):
we will see finance ministers, global investors and venture capitalists
who will be coming together during the Cutar Economic Form
to discuss everything from transformation of the global economy, the
regional economies, trade disputes, energy prices, and of course geopolitics
of the Middle East. And I think that's where Dominic
rabb among a few others such as David Petris, the
(18:59):
former general, former American General, will be coming to the
fort to discuss your politics and conflicts in the region.
Speaker 3 (19:07):
Yeah, David Patres, Yes, indeed. But you mentioned investment opportunities
and the idea of diversifying away from hydrocarbons, obviously a
huge undertaking in the Middle East. Do you think that
GCC countries and others are going to try to hedge
their dependence on the kind of US led global financial order.
(19:29):
Obviously it comes on the back of President Trump's major tour,
his first sort of big overseas tour other than the
visit to the Vatican. Do you think that there's going
to be discussion of that, of that balance of power
and kind of investment relationships.
Speaker 6 (19:49):
This is a very tricky balance for golf oil producers,
and if anything, since Donald Trump's to be the second
to be the president of the US for a second time,
the nature of the relationship between the US and this
region is becoming more transactional, and it's affecting the narrative
(20:15):
that's dominating, that's dominating the discussions and the ties between
the US and the region. So because of the fact
that the US relationship with the region is but becoming
more trans is actional than it used to be, we
are going to see an increasing pressure or increasing tendency
(20:37):
by the US to force the countries in the region
to make a clear choice in terms of their preferred
partners for trade, especially in sensitive areas such as AI,
high technology, defense equipment, and aviation. One of the things
that the US administration has been trying to think the
(21:01):
purchases of such sensitive and high technology coming from the
US for countries in the region is that they should
not be doing trade in such sssive areas with sort
of the other pole in the global financial and economic order,
and that is China. So we are going to see
I think a tendency by the region by members of
(21:24):
the GCC, especially these top three producers of oil and gas,
to prioritize the US as a trading partner, as it
was evident during Trump's trip to the Gulf, as you
mentioned over their relationship with the rest of the world
and possibly China.
Speaker 3 (21:42):
That was Bloomberg's Managing editor for Middle East and North Africa, honor,
and my thanks to him for joining me ahead of
the fifth Cutter Economic Forum underwritten by the State of Cutter,
empowered by Bloomberg. I'm Caroline Hepge here in London where
you can catch us every weekday morning for Bloomberg Daybreak.
Thank you at beginning at six am in London. That's
(22:02):
one am on Wall Street.
Speaker 2 (22:03):
Tom, Thanks Caroline, and coming up on Bloomberg day Break weekend,
we look ahead to earnings from China's answer to Google
by DO. I'm Tom Busby and this is Bloomberg. This
(22:24):
is Bloomberg day Break weekend, our global look ahead of
the top stories for investors in the coming week. I'm
Tom Busby in New York. BYD's early lead in AI
is being eroded by fast moving competitors and its core
search business continues to lose ground to short form video apps.
For more on what's going on, let's get to the
host of the Daybreak Asia podcast, Doug Krisner.
Speaker 4 (22:45):
Tom Beayching sees it as one of its national champions.
This is by Do and the company will report earnings
in the coming week. Now, Bloomberg Intelligence says Bydu's outlook
remains highly challenged. It's AI ventures to remain unprofitable for
the next three years as competitors like ten Cent, by
Dance and Ali Baba narrow the gap. For a closer look,
(23:08):
I'm joined by Bloomberg's Robert Lee. He is senior software
analyst for Bloomberg Intelligence, joining from our studios in Hong Kong. Robert,
thank you so much for making time to chat with me.
Let's begin by remembering where we were when Baydu reported
its fourth quarter numbers. Aiicloud revenue grew twenty six percent
year on year, advertising revenue continued to decline. So to
(23:31):
what extent will the upcoming results kind of mirror what
we had in the prior quarter.
Speaker 9 (23:37):
I think probably is most likely to be a mirror,
as you say, of what we saw before, because taking
a step back, Bydo is often referred to as the
Google of China. It's the dominant search engine. So that's
the cash cow, but relatively low growth business which underpins
their cash generation and helps fund their investments in AI
(23:58):
and on the AI side. As you mentioned, I think
it's well recognized over the last two to three years
that they were seen as a national champion. As you
said in your intro, they had a quite a large
lead on the competition, but progressively we've seen that lead
eroad and why is that ultimately well, a number of reasons,
(24:19):
but by dou is a medium sized company, and you've
got China's tech goliaths, not just ten Cent and Eli Barba,
but the likes of Huawei, Byte Dance, the national telco companies,
the list goes on. These are substantial companies with huge
cash flow and huge balance sheets behind them, a considerable
(24:41):
depth of R and D resource and developers and engineers.
So it's very difficult for a relatively thinly spread company
like Baidu to compete against the vast resources of these
these big tech platforms. So that's one issue, and then
the second issue for them, going back to the search
engine business, No, we all access search don't we it's
(25:02):
a free service, so how do these companies monetize They
do it through advertising. So unfortunately for by Do, their
core search business has come under increasing competitive threat which
has had a negative impact on their advertising revenue. So
that core cash cow business that underpins everything is not
(25:22):
in a calamitous decline, but it's in a slow and
steady decline. And I think those are the two main
reasons why you've seen the stock price under perform and actually,
you know the financial performance of this company remain under
sustained pressure.
Speaker 4 (25:38):
We can talk about the Chinese consumer and BYD's e
commerce business in a moment, but can we focus first
on the AI story. From what I understand, by Do
will no longer charge users for its AI model Ernie,
how well does that chatbot compete with other products in
the Chinese market.
Speaker 9 (25:57):
So it was recognized as about of around eighteen months
ago is probably the leading chatbot, But since then we've
seen a company after company launch a relatively you know,
similar products. So I would say, in fact, if any
if you or your listeners want to understand anything about AI,
(26:18):
go back to basic economics. The market in China is
flooded with supply I'm choosing my wording carefully, and that
is not an exaggeration. You know, in December of last year,
so that's already you know, four or five months out
of date. There were more than five hundred large language
models in China and they're you know, a dozens and
(26:38):
dozens of chatbots, most of which are available for free.
The level of product differentiation is low, the switching cost
to the user is low. It's a commoditized sector. So
that's a very very difficult environment for the likes of
by Do or even ten Cent to monetize because you know,
I have Deep Seek downloaded to my mobile. If they
(27:00):
started charging, I would most likely delete it and just
switch to another free service. That's the issue at the moment.
So we need to see a consolidation in the sector.
And also at the end of the day, what are
these chatbots et cetera for or why companies investing billions
and billions in model development. Well, it's ultimately to help
develop the next generation of killer AI apps, but nobody
(27:24):
has real visibility on what they are at the moment. Sure,
if you look in you know, like Adobe in the States,
they've added AI functionality to Photoshop. I mean, that's a
decent enhancement, but it hasn't allowed them to raise their
ASP and I'm not aware that it's driven their substantial
change in their market share. So it's maybe it makes
(27:45):
their product more sticky and gives more value add but
it's not really transformational in any way to their financial outlook.
Speaker 4 (27:53):
What about partnering with a company like Huawei. Is there
any sense for a company like buy Do to adopt
that sort of strategy?
Speaker 9 (28:01):
Yeah, I mean, Huawei's strength is really on the hardware
and semiconductor side. They do have software interests, but that's
a lesser focus for them, So I guess there's something
like that could be a strategic option for them. By
the end of the day, you have to be delivering
a differentiated products that either consumers or enterprise clients are
going to pay for. And as I said, going back
(28:23):
to basic economics, in a market, in a highly fragmented
market that is flooded with supply, with very low switching costs,
with very low barriers to entry, it's very difficult to
charge in that environment. In fact, it's not difficult, it's
almost impossible. That's the challenge. And yet you have to
maintain a very high level of R and D investment
(28:44):
to keep up with a competition, and it's sort of
fear of missing out FOMO, which is driving a lot
of the decision making in the sector at the moment.
So I think, you know, there is good evidence that
AI within certain user cases, you know, obviously can add value.
It's a good efficiency tool, it can help drive activity
in certain settings. Certainly if you look at something like
drug development, yeah, there's great opportunities there. But again I
(29:08):
go back to my central point. The Chinese large language
model sector is commoditized. So we need to see an
industry shakeout, and we need to see the development of
these next generation killer apps that consumers and corporate clients
are willing to pay for. We don't have visibility on
that at the moment.
Speaker 4 (29:25):
And the market is glutted. We get that too, and
we've discussed kind of the AI cloud story as it
relates to buy do. I'm curious about revenue from ads
that the company may offer on its various platforms. What's
happening there, I mean in terms of ad revenue.
Speaker 9 (29:42):
Okay, so the ads revenue they generate is really derived
from their search engine. But as you've seen again this
is where you know double edged sword. As we say
in the UK, there are opportunities in AI and also
a threat and in this case, actually AI is probably
a threat to their traditional search business because if you
have been on Chat, GBT, by Do, whatever it may be,
(30:05):
actually they're really good at doing enhanced search. So again
that poses a major question mark not just to buy Do,
but the likes of Google and others, and allows non
search specialists to enter the market. And there are many
ways in which you can search these days. So again,
if you look at WeChat, which is the main app
provided by ten Cent, you know, a ubiquitous part of
(30:28):
life in China, it's got a great search function on it,
So why do you need to go on to buy
Do's website to search? So there are many ways to
search at a moment, and obviously advertisers are only going
to put their place the ads where the consumer eyeballs
are there more likely to gain a return on that.
So that's the issue. There is a proliferation of search
(30:50):
options at the moment, which is diluting that market and
making it more difficult for traditional search engines like by
Do to monetize. So again this is not calamitous decline
in the business. It's a slow attrition, I think is
the best way to look at it.
Speaker 4 (31:06):
What about consolidation in these marketplaces? Is that even a possibility?
And I'm wondering if by Do were to be acquisitive,
where would they spend money and if it weren't on
the R and D side, Let's say in AI especially,
is there an area of weakness that they could fortify
by acquiring a competitor.
Speaker 9 (31:28):
Again, consolidation has to be the root forward to put
the industry on a firmer foot to monetization and profit. Again,
go back to economic textbooks. As I've mentioned, Would by
Do be a consolidator? I think again, because as a
medium sized company that maybe lacks the financial resources of
(31:50):
Ali Baba and Tencent, that's probably less likely. But far
bit from me to offer advice to bodies management. But
if I was asked, what I would say suggest is
that the business is quite thinly stretched at the moment.
They've got their core search business, as we've talked about,
they've got their chatbot business. They're also pursuing investments in
larger language model development. One thing we haven't talked about
(32:11):
is their investments in the autonomous vehicle space, which I think,
you know, it's got great promise on a longer term view,
but it's a highly competitive space. They're competing against the
you know, the likes of BYD established automotive companies and
other specialist companies like pony Ai, which is a Chinese
company that listed on Nasdak I think at the tail
(32:33):
end of last Yeah. So again, you know, maybe they
have some interesting intellectual property, but do they really have
a strong competitive edge in any of these markets? And
as I've said, ultimately they're a medium sized company, which
I would argue is quite thinly stretched. So I would say,
you know, they're better off focusing more narrowly on segments
(32:54):
where they have again more of an edge and are
more likely to drive you know, meaningful cash flow and
profit that I think that's what they should do.
Speaker 4 (33:02):
Does that include short form video? Is that even a
possibility for this company?
Speaker 9 (33:07):
There have been talks I suppose going into two short videos.
You know, most of us are I would say, even addicted,
certainly our kids are to short videos. The whole Tikton
phenomenon or whatever, which has overtaken the world in recent years.
So again, going back to my point, and advertising dollars. Clearly,
if consumer iables are going on short videos, there's potential
(33:28):
for advertising revenue to be generated. But it's a very
competitive market. So again I'll come back to a more
fundamental question. You know, what would BYD's competitive edge be there?
But I think you know, strategically, they need to do something.
The status quot can't continue because otherwise it's a slow
drip of attrition.
Speaker 4 (33:49):
So that's kind of a bleak outlook. I mean, what's
the worst case scenario here?
Speaker 9 (33:54):
Just keeping things balanced? Here they are you know, they've
got a net cash position, their cash general they still
have a substantial share in the China search market, even
though that is under slow and steady pressure. So by
no means is this you know, a doomsday calamitous outlook
for them. But their core businesses are under slow drip
(34:18):
of you know, the degrading over time, and what they
lack is really a you know, a strong growth opportunity
in growth market that can help drive cash flow and profit.
So they're sort of stuck in this no man's land,
if you like.
Speaker 2 (34:33):
For the moment, we're going.
Speaker 9 (34:34):
To see this slow, ongoing drip and attrition of their
core business whilst they struggle to you know, monetize, let
alone profit from some of these potential growth markets. So
I think we need to see a more radical overhaul
of their business.
Speaker 4 (34:49):
Really, Robert, thank you for joining us. He is Robert Lee,
Senior Software Analyst for Bloomberg Intelligence, and I'm Doug Chrisner.
You can catch us weekdays for the Daybreak Asia podcast.
It's available wherever you get your podcast.
Speaker 2 (35:03):
Tom, thank you, Doug. And that does it for this
edition of Bloomberg day Break Weekend. Join us again Monday
morning at five am Wall Street Time for the latest
on markets overseas and the news you need to start
your day. I'm Tom Busby. Stay with us. Top stories
and global business headlines are coming up right now.
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:10):
This is Bloomberg day Break Weekend, our global look at
the top stories in the coming week from our Daybreak
anchors all around the world. Straight Ahead on the program,
we'll look ahead to some key home sales data in
the US during the heart of the spring home buying rush.
Also the latest earnings from retail giant Target. I'm Tom
Busby in New York.
Speaker 3 (00:28):
I'm Caroline Hedger in London, where we're looking ahead to
be Cutaw Economic Forum.
Speaker 4 (00:32):
I'm Doug Chrisner looking ahead to earnings from Chinese Answer
to Google by DO.
Speaker 1 (00:38):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven three Yeero, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two to nine, Boston, DAB Digital Radio, London,
Sirius XM one twenty one, and around the world on
Bloomberg Radio, dot Com and the Bloomberg Business app.
Speaker 2 (01:02):
Good day to you. I'm Tom Busby. We begin today's
program with reads on existing and new home sales for
the month of April, the obstacles the housing industry is
facing right now, and what this week's earnings from the
nation's big home improvement retailers can tell us about the
housing market. For more on all of that, we're joined
by Drew Reading, Bloomberg Intelligence, US home building analyst. Well, Drew,
(01:26):
thank you so much for being here, and well, why
don't we start with what are you expecting to see
in these April home sales reports coming out this week?
Speaker 5 (01:34):
So, look, the spring selling season has been a dud.
To put it simply. The latest housing data that we
have from Redfincho's pending home sales down about three percent,
which is the lowest on record for this time of year.
You have home sitting on the market longer, and for
sale inventory is rising up about fourteen percent last year.
On the new home side, we just got data on
(01:55):
purchase applications from the builders which show sales down five percent,
and if you look at some of the names that
we cover, orders in one Q we're down about ten percent.
So it's certainly been a challenging market. You know, some
of the builder conbinants data that we look at is
the lowest going back to late twenty twenty two, and
(02:15):
the measure of present sales expectations is near the lowest
since twenty twelve, So the outlook for sales isn't all
that strong right now?
Speaker 6 (02:24):
Wow?
Speaker 2 (02:24):
Is this just a perfect storm of sky high prices,
elevated mortgage rates, and a lot of economic uncertainty.
Speaker 5 (02:32):
I think you hit the nail on the head. It's
really those two things. First, affordability. You know, this piece
isn't new, but it's not improving. You know, we came
into the year thinking that we might get some relief
on rates, and earlier in the year it looked like
mortgage rates did come down a little bit, but now
we're headed back up towards seven percent, and you know,
with home prices continuing to climb, affordability remains near the
worst level on record. And then the second piece is
(02:54):
what you mentioned, it's uncertainty, which is leading to a
lack of urgency among buyers. You know, there's been a
lot of discussion out there about, you know, the soft
data versus the hard data, and when does the weakening
and the soft data translate, if ever, into what we're
seeing into the numbers. And I can tell you that,
at least from a housing perspective, it is having an
impact when you're thinking about big ticket purchases like buying
(03:14):
a home, or you know, in the home improvement space
taking on a large remodeling project. You want to have
confidence in the economy in your job, and we've seen
those numbers start to come down. We've heard from almost
every builder out there that there's just a lack of
urgency as buyers wait to see what happens with prices,
what happens with rates. So for us, it's certainly having
an impact at this point.
Speaker 2 (03:35):
Wow, well the only good news I've seen. And you
tell me how this could change things. The number of
homes that are listed seems to be rising. I mean,
are sellers giving up any hope for lower mortgage rates
right now? Just saying we've got to pull this trigger now.
Speaker 5 (03:49):
Well, I think it could be good or bad, depending
on who you ask. I mean, we think that more
inventory coming to the market could support modestly improve volumes
in the existing home market as a whole. But I
do think that over time that will come with more
moderate price increases in a lot of markets outright price declines,
and we're already seeing that in some markets, predominantly in
(04:12):
the South and the Southwest. When you think about it
from a builder's perspective. You know, one of the key
drivers over the last several years have been a lack
of listings, which have forest fires into the new home market.
Now and some of the biggest markets that the builders
are in Florida and Texas, you have inventory levels which
are back above twenty nineteen. So what we're seeing is
(04:33):
that in order for the builders to compete in these markets,
they're having them more heavily discount So, you know, they're
having to increase these sales incentives. Maybe in some cases
they're lowering base prices, but it's becoming harder and harder
to get each sale for the builders.
Speaker 2 (04:46):
Wow, so they're changing their tactics. Are I know that
there are some things they can do as far as
economic incentives. Are they building smaller homes? Are they putting
in you know, maybe not a Bosch dishwasher, but a whirlpool?
You know what I mean? Are are are they struggling.
Speaker 5 (05:05):
With Yeah, builders have done a handful of things to
try to get that affordability equation back in better check one.
They are building smaller square footage homes. It's we've seen
over the last several years, you're not seeing as highly
amenditized offerings, particularly for builders at the lower end of
the market who are catering to the entry level buyer
who are more looking for shelter in the first place.
(05:28):
So you're seeing less less amenities in those offerings. You're seeing,
you know, higher density options, so maybe more talent home
construction than things of those nature.
Speaker 2 (05:37):
Now, another thing I'm hearing about is possibly the administration's
tough immigration policies. Has that impacted builders in a big
way yet or is that still being flushed out that
they're just don't have the workers availability that they did before.
Speaker 5 (05:52):
Yeah, So, the lack of lyabor supply in the residential
construction industry has been an issue for you know, a
handful of years really since the bottom of the last cycle.
We've seen things start to improve more recently, and that's
because volumes in the industry have come down, so there's
not as much a need. But that being said, you know,
the immigration policies and all that discussion is certainly a
(06:14):
headline risk for the group. To this point, the builders
we talked to haven't really seen an impact from that,
but it's certainly something that we're going to keep our
eye on because to the extent that you know, maybe
housing does start to come back a little bit. If
rates are able to fall, then you have more builders
competing for less supply, which would raise labor costs.
Speaker 2 (06:32):
Got it, got it now?
Speaker 5 (06:34):
Drew.
Speaker 2 (06:34):
This coming week we get first quarter earnings from the
Nation's Too big as do it Yourself, home improvement chains,
Home Depot and Lows. Now, what do you think those
results are going to tell us about the housing market
right now and about what people are doing to their homes.
Speaker 5 (06:50):
Yeah, good question. I think this is going to be
an interesting quarter for home improvement retail. It seemed like
coming out of last quarter the industry was starting to
get a little bit of momentum. We had the first
same store sales growth in about two years, you know,
certainly not going gangbusters, but perhaps indicating that the worst
was behind it. As we gotten through the first few
months of this year, we've had some volatility in the weather,
(07:11):
We've had an increased amount of certainty given the commentary
around economic growth and political developments, and we think that
will probably be reflected in both results and guidance. And
when you think about, you know, how they're being impacted
by housing and what it means is is we're really
seeing it on the big ticket side of the business,
so think of things like kitchen and bathroom models, flooring projects,
(07:32):
and things along those lines. It's the discretionary side of
the business is certainly softer, and part of the reason
for that is because rates are so high and these
are projects that are typically financed, So we're seeing relative
softness on that side of the business. If we look
at some of the more race recent data we have
on traffic, you know, it shows that February was week,
(07:53):
March improved a little bit and it was mixed in April.
On a relative basis, it looks like home depots maybe
doing a little bit better from a traffic perspective, and
I think we're going to see that in performance at
the same store sales because Loews has that higher exposure
to the DIY customer, which is a little bit weaker
at this point.
Speaker 2 (08:11):
Well a lot to look forward to existing home sales.
That's the biggie for April that's out on Thursday. New
home sales for that same month out on Friday. Our
thanks to Drew Redding, Bloomberg Intelligence US home building analyst.
We move next to earnings and this week we get
first quarter results from the retail giant Target, which has
faced some real struggles lately, and not just because of
(08:31):
US consumers pulling back on their spending. For more on
what to expect, we're joined by Jennifer bartashis Bloomberg Intelligence
Senior Analysts Retail, Staples and packaged Foods. Well, Jen, thank
you for being here. You know, just this past week,
Walmart reported strong earnings for last quarter, but warrened, it'll
have to start raising prices talking about the Trump tariffs
the economic turbulence that they've caused. Are you expecting to
(08:54):
see something pretty similar from Target?
Speaker 7 (08:57):
Yeah? It was interesting when you've we've got a company
as big as Walmart saying that they're not going to
be able to offset the full cost of tariffs. That
really means that for every other retailer out there, they're
in the same boat, or maybe even slightly worse off.
And so we definitely expect Target to be hit a
little bit harder than Walmart, even just because of the
(09:19):
mix of products that Target sells, and we expect to
hear a lot of similar commentary coming out of the
retailer this week.
Speaker 2 (09:28):
Now, some of those problems or some of those challenges
for Walmart, where Walmart makes about half its money from groceries,
Target maybe about a quarter percent. Is that part of
the equation there?
Speaker 7 (09:40):
That is definitely part of the equation because food is
generally for the most part produced and made in the
United States, so it's not subject to tariffs. And a
lot of food that is imported is coming from Mexico
or Canada, which is also currently free from tariffs based
off of the North America. Mexico wedded a Mexico US
(10:01):
trade agreement, and so there's limited exposure to tariffs in
a food business. So the bigger your food business, the
better you offer are in this tariff situation. So for Target,
their food business is a lot smaller, and so it
doesn't give them as much of a cushion as it
does for Walmart.
Speaker 2 (10:20):
And let's talk about the consumer, because I know that's
why a lot of them go to Walmart and also
to Target. But we saw some just this past week
retail sales for April that was the month those Trump
tariffs were announced, and yet they edged a little bit
higher unexpectedly, only one tenth of a percent, but it
was an increase. What is the consumer doing right now?
(10:43):
How are they acting.
Speaker 6 (10:44):
Well.
Speaker 7 (10:45):
What was interesting I think about those numbers is that
there were consumers who cautiously pulled forward some of their
spending because they weren't sure when price hikes related to
tariffs were going to take effect. And so although we
didn't see a run on stores where inventory just disappeared
and things were in shortage, there was some pull forward
(11:07):
and spending where people were planning and they said, you know,
I usually buy this, I'm just going to buy a
little bit extra because I don't know what's going to happen.
So now that we have a little bit more clarity,
people haven't seen prices move too quickly. I think that
the consumer is just staying very cautious. You know, they're
looking for value. Now. Value applies in different ways to
(11:29):
different people. It could be just price, it could be convenience,
it could be quality. So what's really important for retailers
is to figure out how to translate that value message
appropriately even in the with the backdrop of the economic
environment in tariffs.
Speaker 2 (11:46):
Yeah, it's a fine line, a tricky line to pull
this off.
Speaker 7 (11:50):
Oh no, it definitely is a tricky balance, just because
you don't want to risk the loyalty of your consumers,
but at the same time you still have to make
a profit, and so it's going to be interesting to
see which retailers are best able to navigate that situation.
Speaker 2 (12:06):
There will Target's earnings are out this Wednesday, and our
thanks to Jennifer Bartashes Bloomberg Intelligence senior analysts retail staples
and packaged foods. Coming up on Bloomberg Daybreak weekend, world
and business leaders head to the Cutter Economic Forum. I'm
Tom Busby and this is Bloomberg. This is Bloomberg day
(12:35):
Break weekend, our global look ahead at the top stories
for investors in the coming week. I'm Tom Busby in
New York. Up later in our program and look ahead
to earnings from the Chinese tech giant Bad but first.
In the wake of President Trump's visit to the Middle East,
the region will be in the spotlight again this week
as world and business leaders touchdown for the Qatar Economic Forum.
(12:57):
Amidst growing global instability. Could twenty twenty five herald a
new era of dominance for golf nations. For more, Let's
get to London and bring in Bloomberg day Break euro
banker Caroline Hepgar.
Speaker 1 (13:07):
Tom.
Speaker 3 (13:08):
It's the fifth edition of the Cutar Economic Forum, an
event underwritten by the State of Katar and powered by Bloomberg.
This year, the theme is transforming the global economy. It's
an apt topic at a time when the world's trade
and capital flows, economies, investment, and energy industry are all
in flux. There's also the question of geopolitical uncertainty, a
(13:32):
phenomenon the region has battled with in Gaza, Lebanon, Iran,
and elsewhere. But residents and investors are keen to showcase
the Middle East potential as an emerging global player and
investment partner. It's a factor President Donald Trump emphasized during
his recent visit to Saudi Arabia. Despite acknowledging current barriers
(13:54):
to progress.
Speaker 8 (13:55):
The Golf Nations are at the forefront of creating a stable, peaceful,
and prosperous Middle East. And I have to say that
I've seen such progress. It's really incredible. I've also seen
great unity and friendships. I've spent a little time with
you just before this, and I've seen tremendous unity, tremendous friendship.
(14:16):
And the whole world is watching the Middle East, and
many are watching with envy. You have something very special
going on. Incredible opportunities are within reach for this region
if we can simply stop the aggression from a small
group of pretty bad actors.
Speaker 3 (14:33):
That was President Trump speaking during his time in Riad,
Saudi Arabia as part of his Middle East tour. The
praise and the deals that President Trump lavished on Cuta,
saying that the friendship between the US and Cutter has
never been stronger, will surely be on the minds of
participants at the upcoming Cutter Economic Forum. So what should
(14:55):
we expect. I've been speaking to Blueberg's managing editor for
the Middle East and North Africa on and to get
a sense of what the main themes at the forum
are likely to be.
Speaker 6 (15:06):
The overarching theme these officially will be that will shape
the discussions that the Cutar Economic Forum will be the
transforming transformation of the global economy on the road to
twenty thirty. And that's especially relevant to the region to
the Middle East Gulf, where oil producers are at the
(15:27):
forefront of that transformation as they are trying to diversify
their sources of income and their economy more broadly away
from hydrocarbons. And that is an effort led by the
likes of cutter, as well as Saudi Arabia and of
course the United Arab Emirates where Abu Dhabi is the
capital and Dubai is the commercial heartland.
Speaker 3 (15:52):
I talked about the praise, but there are also lots
of questions and there are certainly plenty of tensions. The
backdrop of global trade, disruption of geopolitical instability will that
surely play into the discussions definitely.
Speaker 6 (16:08):
So the forces unleashed by the global trade war, if
we can call it that at this point, or maybe
more cautiously, disruptions to the global trade are weighing down
on economies across the world, but the impact is likely
to be more profound in the region than elsewhere, especially
taking into account taking into account the effect on oil
(16:32):
prices as well as sources of geopolitical instability that you
have already mentioned. Trade disruptions amplified by other factor other
factors such as Ope's own decision to bring forward some
of the planned production boosts already is having a great
(16:56):
impact on oil prices and they're pushing them down and
those revenues, the revenues from oil in general makes up
the backbone of common revenues, so that is definitely going
to be a part of the discussion at the Katar
Economic Forum. And obviously we should add to that the
violent conflicts, including the war in Gaza between Israel and Hamas,
(17:20):
which now has been raging for more than a year
and a half, and it's something that forum participants will
definitely discuss as it does affect everything from the capital
flows to a perception of risk, which has obviously a
huge impact on investors' propensity to increase exposure to the region.
Speaker 3 (17:41):
And the conflicts in Gaza, the war in Yemen, you know,
whether the sanctions against Syria may be lifted by the US,
you know, the whole issue of security. But just tell
us about the people who are going to be there,
Who are going to be attending. I mean you've got
speakers from you know, the likes of the TESTA CEO
(18:01):
Elon Musk, to central bankers, even to you know, former
British politician Dominic rab is going to be there. So
who are you going to be thinking about and listening
to the event.
Speaker 6 (18:15):
That's true, a wide range of speakers. The highlight is
definitely Elon Musk with everything he has to say about
his efforts to increase government efficiency in the US to
Tesla and the competition that he is facing from manufacturers
elsewhere in the world, including in China. But besides that,
(18:36):
we will see finance ministers, global investors and venture capitalists
who will be coming together during the Cutar Economic Form
to discuss everything from transformation of the global economy, the
regional economies, trade disputes, energy prices, and of course geopolitics
of the Middle East. And I think that's where Dominic
rabb among a few others such as David Petris, the
(18:59):
former general, former American General, will be coming to the
fort to discuss your politics and conflicts in the region.
Speaker 3 (19:07):
Yeah, David Patres, Yes, indeed. But you mentioned investment opportunities
and the idea of diversifying away from hydrocarbons, obviously a
huge undertaking in the Middle East. Do you think that
GCC countries and others are going to try to hedge
their dependence on the kind of US led global financial order.
(19:29):
Obviously it comes on the back of President Trump's major tour,
his first sort of big overseas tour other than the
visit to the Vatican. Do you think that there's going
to be discussion of that, of that balance of power
and kind of investment relationships.
Speaker 6 (19:49):
This is a very tricky balance for golf oil producers,
and if anything, since Donald Trump's to be the second
to be the president of the US for a second time,
the nature of the relationship between the US and this
region is becoming more transactional, and it's affecting the narrative
(20:15):
that's dominating, that's dominating the discussions and the ties between
the US and the region. So because of the fact
that the US relationship with the region is but becoming
more trans is actional than it used to be, we
are going to see an increasing pressure or increasing tendency
(20:37):
by the US to force the countries in the region
to make a clear choice in terms of their preferred
partners for trade, especially in sensitive areas such as AI,
high technology, defense equipment, and aviation. One of the things
that the US administration has been trying to think the
(21:01):
purchases of such sensitive and high technology coming from the
US for countries in the region is that they should
not be doing trade in such sssive areas with sort
of the other pole in the global financial and economic order,
and that is China. So we are going to see
I think a tendency by the region by members of
(21:24):
the GCC, especially these top three producers of oil and gas,
to prioritize the US as a trading partner, as it
was evident during Trump's trip to the Gulf, as you
mentioned over their relationship with the rest of the world
and possibly China.
Speaker 3 (21:42):
That was Bloomberg's Managing editor for Middle East and North Africa, honor,
and my thanks to him for joining me ahead of
the fifth Cutter Economic Forum underwritten by the State of Cutter,
empowered by Bloomberg. I'm Caroline Hepge here in London where
you can catch us every weekday morning for Bloomberg Daybreak.
Thank you at beginning at six am in London. That's
(22:02):
one am on Wall Street.
Speaker 2 (22:03):
Tom, Thanks Caroline, and coming up on Bloomberg day Break weekend,
we look ahead to earnings from China's answer to Google
by DO. I'm Tom Busby and this is Bloomberg. This
(22:24):
is Bloomberg day Break weekend, our global look ahead of
the top stories for investors in the coming week. I'm
Tom Busby in New York. BYD's early lead in AI
is being eroded by fast moving competitors and its core
search business continues to lose ground to short form video apps.
For more on what's going on, let's get to the
host of the Daybreak Asia podcast, Doug Krisner.
Speaker 4 (22:45):
Tom Beayching sees it as one of its national champions.
This is by Do and the company will report earnings
in the coming week. Now, Bloomberg Intelligence says Bydu's outlook
remains highly challenged. It's AI ventures to remain unprofitable for
the next three years as competitors like ten Cent, by
Dance and Ali Baba narrow the gap. For a closer look,
(23:08):
I'm joined by Bloomberg's Robert Lee. He is senior software
analyst for Bloomberg Intelligence, joining from our studios in Hong Kong. Robert,
thank you so much for making time to chat with me.
Let's begin by remembering where we were when Baydu reported
its fourth quarter numbers. Aiicloud revenue grew twenty six percent
year on year, advertising revenue continued to decline. So to
(23:31):
what extent will the upcoming results kind of mirror what
we had in the prior quarter.
Speaker 9 (23:37):
I think probably is most likely to be a mirror,
as you say, of what we saw before, because taking
a step back, Bydo is often referred to as the
Google of China. It's the dominant search engine. So that's
the cash cow, but relatively low growth business which underpins
their cash generation and helps fund their investments in AI
(23:58):
and on the AI side. As you mentioned, I think
it's well recognized over the last two to three years
that they were seen as a national champion. As you
said in your intro, they had a quite a large
lead on the competition, but progressively we've seen that lead
eroad and why is that ultimately well, a number of reasons,
(24:19):
but by dou is a medium sized company, and you've
got China's tech goliaths, not just ten Cent and Eli Barba,
but the likes of Huawei, Byte Dance, the national telco companies,
the list goes on. These are substantial companies with huge
cash flow and huge balance sheets behind them, a considerable
(24:41):
depth of R and D resource and developers and engineers.
So it's very difficult for a relatively thinly spread company
like Baidu to compete against the vast resources of these
these big tech platforms. So that's one issue, and then
the second issue for them, going back to the search
engine business, No, we all access search don't we it's
(25:02):
a free service, so how do these companies monetize They
do it through advertising. So unfortunately for by Do, their
core search business has come under increasing competitive threat which
has had a negative impact on their advertising revenue. So
that core cash cow business that underpins everything is not
(25:22):
in a calamitous decline, but it's in a slow and
steady decline. And I think those are the two main
reasons why you've seen the stock price under perform and actually,
you know the financial performance of this company remain under
sustained pressure.
Speaker 4 (25:38):
We can talk about the Chinese consumer and BYD's e
commerce business in a moment, but can we focus first
on the AI story. From what I understand, by Do
will no longer charge users for its AI model Ernie,
how well does that chatbot compete with other products in
the Chinese market.
Speaker 9 (25:57):
So it was recognized as about of around eighteen months
ago is probably the leading chatbot, But since then we've
seen a company after company launch a relatively you know,
similar products. So I would say, in fact, if any
if you or your listeners want to understand anything about AI,
(26:18):
go back to basic economics. The market in China is
flooded with supply I'm choosing my wording carefully, and that
is not an exaggeration. You know, in December of last year,
so that's already you know, four or five months out
of date. There were more than five hundred large language
models in China and they're you know, a dozens and
(26:38):
dozens of chatbots, most of which are available for free.
The level of product differentiation is low, the switching cost
to the user is low. It's a commoditized sector. So
that's a very very difficult environment for the likes of
by Do or even ten Cent to monetize because you know,
I have Deep Seek downloaded to my mobile. If they
(27:00):
started charging, I would most likely delete it and just
switch to another free service. That's the issue at the moment.
So we need to see a consolidation in the sector.
And also at the end of the day, what are
these chatbots et cetera for or why companies investing billions
and billions in model development. Well, it's ultimately to help
develop the next generation of killer AI apps, but nobody
(27:24):
has real visibility on what they are at the moment. Sure,
if you look in you know, like Adobe in the States,
they've added AI functionality to Photoshop. I mean, that's a
decent enhancement, but it hasn't allowed them to raise their
ASP and I'm not aware that it's driven their substantial
change in their market share. So it's maybe it makes
(27:45):
their product more sticky and gives more value add but
it's not really transformational in any way to their financial outlook.
Speaker 4 (27:53):
What about partnering with a company like Huawei. Is there
any sense for a company like buy Do to adopt
that sort of strategy?
Speaker 9 (28:01):
Yeah, I mean, Huawei's strength is really on the hardware
and semiconductor side. They do have software interests, but that's
a lesser focus for them, So I guess there's something
like that could be a strategic option for them. By
the end of the day, you have to be delivering
a differentiated products that either consumers or enterprise clients are
going to pay for. And as I said, going back
(28:23):
to basic economics, in a market, in a highly fragmented
market that is flooded with supply, with very low switching costs,
with very low barriers to entry, it's very difficult to
charge in that environment. In fact, it's not difficult, it's
almost impossible. That's the challenge. And yet you have to
maintain a very high level of R and D investment
(28:44):
to keep up with a competition, and it's sort of
fear of missing out FOMO, which is driving a lot
of the decision making in the sector at the moment.
So I think, you know, there is good evidence that
AI within certain user cases, you know, obviously can add value.
It's a good efficiency tool, it can help drive activity
in certain settings. Certainly if you look at something like
drug development, yeah, there's great opportunities there. But again I
(29:08):
go back to my central point. The Chinese large language
model sector is commoditized. So we need to see an
industry shakeout, and we need to see the development of
these next generation killer apps that consumers and corporate clients
are willing to pay for. We don't have visibility on
that at the moment.
Speaker 4 (29:25):
And the market is glutted. We get that too, and
we've discussed kind of the AI cloud story as it
relates to buy do. I'm curious about revenue from ads
that the company may offer on its various platforms. What's
happening there, I mean in terms of ad revenue.
Speaker 9 (29:42):
Okay, so the ads revenue they generate is really derived
from their search engine. But as you've seen again this
is where you know double edged sword. As we say
in the UK, there are opportunities in AI and also
a threat and in this case, actually AI is probably
a threat to their traditional search business because if you
have been on Chat, GBT, by Do, whatever it may be,
(30:05):
actually they're really good at doing enhanced search. So again
that poses a major question mark not just to buy Do,
but the likes of Google and others, and allows non
search specialists to enter the market. And there are many
ways in which you can search these days. So again,
if you look at WeChat, which is the main app
provided by ten Cent, you know, a ubiquitous part of
(30:28):
life in China, it's got a great search function on it,
So why do you need to go on to buy
Do's website to search? So there are many ways to
search at a moment, and obviously advertisers are only going
to put their place the ads where the consumer eyeballs
are there more likely to gain a return on that.
So that's the issue. There is a proliferation of search
(30:50):
options at the moment, which is diluting that market and
making it more difficult for traditional search engines like by
Do to monetize. So again this is not calamitous decline
in the business. It's a slow attrition, I think is
the best way to look at it.
Speaker 4 (31:06):
What about consolidation in these marketplaces? Is that even a possibility?
And I'm wondering if by Do were to be acquisitive,
where would they spend money and if it weren't on
the R and D side, Let's say in AI especially,
is there an area of weakness that they could fortify
by acquiring a competitor.
Speaker 9 (31:28):
Again, consolidation has to be the root forward to put
the industry on a firmer foot to monetization and profit. Again,
go back to economic textbooks. As I've mentioned, Would by
Do be a consolidator? I think again, because as a
medium sized company that maybe lacks the financial resources of
(31:50):
Ali Baba and Tencent, that's probably less likely. But far
bit from me to offer advice to bodies management. But
if I was asked, what I would say suggest is
that the business is quite thinly stretched at the moment.
They've got their core search business, as we've talked about,
they've got their chatbot business. They're also pursuing investments in
larger language model development. One thing we haven't talked about
(32:11):
is their investments in the autonomous vehicle space, which I think,
you know, it's got great promise on a longer term view,
but it's a highly competitive space. They're competing against the
you know, the likes of BYD established automotive companies and
other specialist companies like pony Ai, which is a Chinese
company that listed on Nasdak I think at the tail
(32:33):
end of last Yeah. So again, you know, maybe they
have some interesting intellectual property, but do they really have
a strong competitive edge in any of these markets? And
as I've said, ultimately they're a medium sized company, which
I would argue is quite thinly stretched. So I would say,
you know, they're better off focusing more narrowly on segments
(32:54):
where they have again more of an edge and are
more likely to drive you know, meaningful cash flow and
profit that I think that's what they should do.
Speaker 4 (33:02):
Does that include short form video? Is that even a
possibility for this company?
Speaker 9 (33:07):
There have been talks I suppose going into two short videos.
You know, most of us are I would say, even addicted,
certainly our kids are to short videos. The whole Tikton
phenomenon or whatever, which has overtaken the world in recent years.
So again, going back to my point, and advertising dollars. Clearly,
if consumer iables are going on short videos, there's potential
(33:28):
for advertising revenue to be generated. But it's a very
competitive market. So again I'll come back to a more
fundamental question. You know, what would BYD's competitive edge be there?
But I think you know, strategically, they need to do something.
The status quot can't continue because otherwise it's a slow
drip of attrition.
Speaker 4 (33:49):
So that's kind of a bleak outlook. I mean, what's
the worst case scenario here?
Speaker 9 (33:54):
Just keeping things balanced? Here they are you know, they've
got a net cash position, their cash general they still
have a substantial share in the China search market, even
though that is under slow and steady pressure. So by
no means is this you know, a doomsday calamitous outlook
for them. But their core businesses are under slow drip
(34:18):
of you know, the degrading over time, and what they
lack is really a you know, a strong growth opportunity
in growth market that can help drive cash flow and profit.
So they're sort of stuck in this no man's land,
if you like.
Speaker 2 (34:33):
For the moment, we're going.
Speaker 9 (34:34):
To see this slow, ongoing drip and attrition of their
core business whilst they struggle to you know, monetize, let
alone profit from some of these potential growth markets. So
I think we need to see a more radical overhaul
of their business.
Speaker 4 (34:49):
Really, Robert, thank you for joining us. He is Robert Lee,
Senior Software Analyst for Bloomberg Intelligence, and I'm Doug Chrisner.
You can catch us weekdays for the Daybreak Asia podcast.
It's available wherever you get your podcast.
Speaker 2 (35:03):
Tom, thank you, Doug. And that does it for this
edition of Bloomberg day Break Weekend. Join us again Monday
morning at five am Wall Street Time for the latest
on markets overseas and the news you need to start
your day. I'm Tom Busby. Stay with us. Top stories
and global business headlines are coming up right now.
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