Zuckerberg Pledges ‘Aggressive’ Pricing With Meta’s First Pay-to-Use AI

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1:17Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Some news from Meta. Meta Platforms unveiled a version of its AI model, dubbed MuseSpark 1.1, that includes a new paid tier for developers, marking the first time Meta has charged businesses for access to its models. Let's get the more details from Kurt Wagner, senior reporter covering social media for Bloomberg News, who just sat down with Mark Zuckerberg's Meta CEO and had a wide-ranging interview.

2:03Kurt, thanks so much for joining us here. Talk to us about what you and Mr. Zuckerberg discussed regarding Meta's AI strategy here. Yeah, well, I mean, the motivator behind the interview was this release that you just mentioned, the MuseSpark 1.1. And we spent a good chunk of time talking about where Meta stands in the AI race right now. I think the prior models that the company has released have really been seen as sort of second tier behind the open AIs, the Anthropics and even the Googles of the world. I think Mark Zuckerberg admitted to me in our conversation that they're still trailing Anthropic and OpenAI in a lot of ways.

2:44But he was very proud that this new model benchmarked better than the Google models. And he said this was sort of a milestone for them to, you know, in his words, kind of deliver something that's a higher quality than what Google is doing. And, you know, they are racing to try and develop super intelligence or racing to have the best model on the planet. They have another one coming. It's called Watermelon. I don't know exactly when that's going to be, but he talked openly about how that is going to, in his mind, push the frontier of AI development and progress. So, you know, a big part of the conversation was Mew Spark 1.1 and what that means for the business.

3:19But a big part of it was just where do they stand and does he feel like things are moving in the right direction? And he feels very confident about where they are. Hey, Kurt, looking at Meta's stock, M-E-T-A is the ticker. It's marginally higher now, about four tenths of a percent. But it had been lower this morning on the back of some of that news. Why do you think that is? Obviously, the stock is down this year. But, of course, it was on such a tear in recent years after a lot of those job tranches. and obviously its move into AI and other vehicles there. What do you think is going on as far as how shareholders are viewing this?

3:53Well, the narrative around Meta's AI business for the last six months or so has been that they're spending a ton without a clear path for recovery. Like, where's all this money going to come back into the business? And in the last couple months, they've tried to answer that in several ways. They have a consumer chatbot subscription that they announced. They're going to be selling access to AI agents for businesses. Of course, there's today's news where they're going to be selling their model to developers via this API. And then we had a great story last week on Bloomberg about the fact that they're also exploring a cloud business, taking some of that compute capacity that they've acquired and maybe reselling it or using it in other ways that aren't just for its own products.

4:37And so I really think we've started to see a potential business shape up for them on the AI front in the last two, three months that didn't exist before. And I think you're starting to see the stock slowly, you know, reflect that, that people are saying, OK, they're spending a ton. But now we have a better sense of how they're trying to make money from this that we didn't necessarily know a few months ago. So is there this seems to be this whole AI chase, if you will, by the technology space in general. it's just iteration after iteration after iteration where does mr zuckerberg think meta is in that game here is this something that they can continue to invest in continue to improve in one of the things that i asked him about was why do this right like there's so so many companies there's several companies that are kind of racing for this what you would call frontier ai model this this tip of the iceberg tip of the spear and i'm like why spend all this money when you know, you could essentially license some of this technology from someone else who spends all the money, right?

5:38Maybe make it cheaper. And his answer was, look, if we don't control the technology, we're at a disadvantage because their goal, Meta's goal, is to build personalized assistance for everyone in the world. So they want every single person to be able to open their phone or put on their smart glasses and have that personal AI assistant there. And if, you know, they're relying on open AI's technology or Anthropics technology, they just can't control what the priorities are. Mark Zuckerberg is big on that. He's big on making sure that no other companies have leverage over meta. And so I think for him, he's saying it's worth the spend because we can then, you know, build the model that's going to do exactly what we want.

6:17We don't have to hope that someone else does it for us. And so for him, it's worth throwing all this money at that problem, even if there are going to be several competing models, simply because he wants that control moving forward. Of course, to your point, critics have questioned whether or not the pivot will end up paying off. What did he tell you as to why he thinks it will? Well, he thinks that this is the most exciting technology that has ever showed up in his lifetime. And so he imagines this world, you know, what they did with social media in some ways is a similar strategy. They made it free, right?

6:50Facebook and Instagram and WhatsApp. Those are free tools. Obviously, there's advertising. You do sort of pay, if you will, by giving meta access to your attention and time with your data. But ultimately, he's saying, hey, we're trying to make a tool free, give it to as many people as possible and figure out how to make money from it later. And I think that's sort of what he sees here is he goes, hey, everyone's going to everyone's life will benefit from AI. This is his perspective, of course. And, you know, let's make this as cheap and widely accessible as possible. And we'll kind to figure out some of the business a little bit down the road.

7:20And so for him, I think that's the motivation is he wants his product in as many hands as possible. And so that's why he's willing to sort of undercut on price with a lot of the stuff they've announced. Stay with us. More from Bloomberg Intelligence coming up after this. Over$100 trillion estimated to be transferred to generations in the next 25 years. It's both a risk and opportunity because we see that only about 18-19 % of high net worth investors plan on sticking with their advisor post-transfer. This has to be a tough statistic for some to hear. People who work so hard trying to grow their net assets, they want to protect that life work and they want to make sure that it is able to transfer in a seamless way.

8:15details that make our styles unique. It's the standard Coldwater Creek has honored for over 40 years, derived from a rich Mountain West heritage, and designed for today in styles that are distinctively Coldwater Creek. For a wardrobe you can count on season after season, visit coldwatercreek.com, shop new arrivals, and save 15 % on purchases$75 or more with code IHART. Get the news you need in just 15 minutes. Start your day with Bloomberg Daybreak, the podcast with a global view on the stories that matter. I'm Nathan Hager. And I'm Karen Moscow. Join us each morning for curated stories on current events, politics, business, and foreign relations.

8:53Plus one conversation on the day's biggest developments, all in just 15 minutes. Subscribe to Bloomberg Daybreak for a precise, thoughtful take on the stories that matter. Listen to Bloomberg Daybreak each morning on Apple, Spotify, or anywhere you listen. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. PepsiCo reported some earnings today. The company said consumers pulled back in the second quarter, slowing its efforts to revitalize its North American snack business.

9:32Stock's down 4 % today. It's off almost 5 % year to date. Let's break it down. Some of those results. We can do that with Ken Shea, consumer analyst there at Bloomberg Intelligence. Ken, what did you learn from Pepsi? Yeah, hi, Paul. Well, PepsiCo today pretty much gave a report that was widely expected, quite frankly. I mean, they hit their numbers maybe a little bit above top and bottom line numbers. But what they said was that their game plan that they set out earlier this year to revitalize their businesses from a top line and a margin point of view is still in place, even though they hit a speed bump in the second quarter.

10:13And that speed bump is higher gas prices. No shocker there. People kind of knew it was going to be a tough quarter for them to make really good progress. Their big business is Pepsi Food. That's about a third of their sales, about 40 percent of the profits. It's the big enterprise to have there. It basically was a little short of expectations. You know, consumers pulled back a little bit, as you mentioned, despite the company's innovation efforts. And the company basically has to make up some of this lost ground, they said, in the second half, particularly the fourth quarter, to hit their numbers, which they reiterated.

10:51Hey, Ken, talk to us about shrinkflation, because that's something that PepsiCo got knocked on a few years ago when they were having to boost some of the volumes in some of their chips, because, of course, it produces the world's most popular chips through its subsidiary Frito-Lay. But what are you seeing with that and how does that translate to margins? Yeah. Hi, Jess. Well, yeah, I agree. You know, earlier in the year and actually let me take a step back. Since the pandemic, PepsiCo and many other big consumer companies had, because of supply chain disruptions and cost inflation in general and so on, had been pretty aggressive on the price increase.

11:27Unit pricing was up really, really sharply over the last few years. So earlier this year, with the help of an activist, they said, look, we need a better balance between volume and unit pricing. And so what we're going to do is going to roll back pricing a little bit and try to get volumes back in course. You know, and by doing that, not only is it a better balance and easier to manage, quite frankly, but you're helping operating efficiencies. You know, you need to have volumes moving along in a positive way to get that fixed cost absorption kind of equation to work. So what they're doing now basically is they're getting back to a more balanced approach.

12:06At the same time, though, when they set that plan, that was before gas prices shot up. So the challenge they're going to have in the second half is they want to stick to the game plan of being more balanced with volume and pricing. But they're going to be challenged by having an environment where costs are back up again. You see the news today, and gas prices are back up. The company is going to have some cost issues. How they reconcile that, it's a good question. We're going to have to wait and see. Ken, what does Pepsi say about its portfolio of brands? Are they comfortable where they are? Are they looking to add brands?

12:42Are they looking to pair back on some of their brands? How are they fixed? Well, I think PepsiCo is pretty comfortable. I mean, they made some acquisitions in recent years, you know, Skete Chips. They had the Poppy probiotic sodas last year. They spent quite a bit of money on them, too. I think their game plan really is a three-pronged pull, to answer your question. First, they are setting out to have their products be more affordable, and that was the prior question. That is, you know, pull back a little bit on the unit pricing, smaller packaging sizes. Maybe that's for inflation, but also on the list price side as well.

13:15Second, let's be more in tune with where the consumer is going in terms of their diets. And so they're making bigger bets on protein, fiber, what they call enhanced hydration. And they're doing that with a lot of new products featuring all three. And then finally, they're very well known to be in the grocery aisle and the convenience store. And they want to be better known as an ingredient in home preparation. so they want to bring uh doritos into the kitchen somebody's making tacos at home well what about doritos that's certainly going to help they've come out with something called the walking taco you take a bag of doritos and you can make your uh you know um you know ground beef and put in your tomatoes and other cheese and ingredients and you can you have a taco which you can walk around with it's a portable one you know it's kind of gimmicky but it's doing well they're promoting it.

14:11And, you know, it's getting consumers to recognize these brands to be more than just something they pick up at the convenience store and grocery store. So, Ken, are Americans buying back goods in large volumes? To your point, how does that translate when it comes to a lot of these consumer packaged good companies and their ability to raise prices? Well, they're going to be challenged to hold prices, like I said, in the second half. I mean, Pepsico did say, you know, we're seeing cost inflation picking up in the second half and didn't say what they're going to do about it. But I would suspect you're going to see some more price increases in the second half.

14:49Now, having said that, one of the silver linings to the story for a lot of these consumer companies, including PepsiCo, is that they're getting refunds from the tariffs. You've got to remember, back in April, they were deemed to be illegal, and these companies are getting nice refunds. What PepsiCo is doing about it is they're going to apply a lot of these proceeds to help them reduce costs and, you know, it may help them reduce the incentive to take price increases. Stay with us. More from Bloomberg Intelligence coming up after this. You know what quality feels like. You can see it in the way a fabric moves, recognize it in a flawless fit, and appreciate it in the details that make our styles unique.

15:33It's the standard Coldwater Creek has honored for over 40 years, derived from a rich Mountain West heritage, and designed for today in styles that are distinctively Coldwater Creek. For a wardrobe you can count on season after season, visit ColdwaterCreek.com, shop new arrivals, and save 15 % on purchases$75 or more with code IHEART. The Bloomberg Sustainable Business Summit returns to Singapore on July 22nd. Our fifth annual Asia-Pacific Summit will explore how business and finance leaders are shaping the next phase of globalization by strengthening resilience and driving a multi-speed energy transition across Asia's diverse markets.

16:11Join us for solutions-driven discussions and networking opportunities. Thank you to our summit advisor, Bangkok Bank. Learn more at BloombergLive.com slash SBS dash Singapore. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's get back to Levi Strauss. They reported some earnings here. Mary Ross Gilbert, she's a senior analyst covering all the retail stuff from for Bloomberg Intelligence, joins us. Mary, talk to us about Levi's.

16:50What did they disclose on the earnings release? So yesterday they had great numbers, right? Their organic growth was up 6%. That was about 200 basis points better than what analysts were looking for. They were looking for 4%. And their guidance, they raised their guidance. And it's really due to the first half performance. So their guidance now for organic growth is 5.5 % to 6%. It was previously 4.5 % to 5.5%. They are seeing strength across women's. Women's was up 11 % in the quarter. Beyond Yoga, which is their small brand but growing fast, was up 16%. Asia up 12%. And Europe, DTC up 7%. Wholesale is the biggest part of the business.

17:39And so you have to really look at the first half because you will have fluctuations in the quarter based on shipping. That was up 9 % in the first half. So with all the strength that they're seeing, raising guidance, they're still upside to their guidance because it's really based on the first half performance. So what they're guiding into the second half is really conservative, and that's their objective. They really want to beat. But what this says is that the brand is relevant around the globe across income groups. So for example, they have the Levi's signature brand label, which is in Walmart, and that was up in the first half of high single digits, right around 8 % to 9%.

18:24And they're seeing that being high single digits to low double digits in the second half. So again, no weakness anywhere with the consumer, even having at the low end. And then at the high end, their blue tab premium denim doing very, very well. But also non-denim, their non-denim bottoms, which really allows them to increase their addressable market, was also up strong in the quarter. So they're really gaining traction, and there's just more to go. Well, looking at its stock, LEVI, the ticker, up about 2 % today. And even on a year-to-date basis, that stock is up about 20%. If you pull it back the last five years, down about 10%.

19:10So obviously trailing broader benchmarks in that span of time. what do you think moving forward is the biggest thing that obviously shareholders want to hear from them as far as improving when it comes to the outlook for that kind of growth in their margins? Yeah, so it's a good question. I mean, first of all, when you look at the margin expansion that they're looking for for the full year, they did raise estimates a tad bit, but it was actually below what consensus is looking for on the margin side. So that could sort of explain there was a little bit of volatility after their earnings. Other than that, once again, if you look at the margin expansion they're experiencing in Europe, they have a global enterprise resource program that they're expanding throughout the globe.

19:56They're going to complete that in 2027. So in Europe, where they sort of started it, it's complete. And we saw their operating margin expand 400 basis points. That was partly due to lower distribution center costs too. So I think that you're really going to see margin expansion grow. And again, potentially faster than the top line. So I think there's really a lot of traction here because women's is still a smaller part of the business versus men's. So that's why you're seeing double digit growth there, but also across categories and tops and wovens and outerwear. And then with the campaigns that they have going, with the World Cup and the logo that they had to cover up at Levi's Stadium in San Francisco, that gave them a great opportunity from a media campaign that actually drew over a billion of impressions.

20:56So all of that is really resonating with consumers. And I really see upside. And I think that could really shift the performance and the shares over time. Stay with us. More from Bloomberg Intelligence coming up after this. You know what quality feels like. You can see it in the way a fabric moves, recognize it in a flawless fit, and appreciate it in the details that make our styles unique. It's the standard Coldwater Creek has honored for over 40 years, derived from a rich Mountain West heritage and designed for today in styles that are distinctively Coldwater Creek. For a wardrobe you can count on season after season, visit ColdwaterCreek.com, shop new arrivals and save 15 % on purchases$75 or more with code IHART.

21:46A new chapter in global growth is being written and much of it is happening in Africa. Africans need to invest. There are deals to be done and business to be won. I'm Jennifer Zabasaja. Every week on the Next Africa podcast, we track capital flows and political shifts shaping the continent's future. The digitalization of Africa is going to power its growth. Reading the world of something like HIV is possible. Population growth is so enormous in Africa. Listen to Next Africa on Apple, Spotify, or wherever you get your podcasts. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m.

22:22Eastern on Apple CarPlay and Android Auto. with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Interesting story on the Bloomberg Terminal today. We're good friends at Starbucks. Starbucks is developing in-house tools with the help of artificial intelligence that could replace some software applications and now buys from companies such as Microsoft and international business machines. Let's get some details here. Daniella Surturi joins us here, a restaurant reporter for Bloomberg News based in Chicago. Danielle, talk to us about Starbucks and kind of what they're trying to do from a software and AI perspective.

23:00Sure. So really what they're doing is instead of reflexively buying out, you know, going out and buying software, now what they're trying to do is look at, OK, does it make sense for us to actually build some of these applications in-house? You know, they customize a lot of this software anyway. Just imagine what it takes to really, you know, personalize your order at Starbucks. Well, for example, the POS, the point of sale system, has to be able to reflect that so baristas can actually ring up your order. And so they're like, OK, we're going to customize the software anyway. Does it make sense to build it?

23:32And we're in an age which, you know, with artificial intelligence, it's just that conversation just gets a little easier because AI can help. I wanted to point out, too, because software stocks are actually lower on the back of this announcement. So if you're looking at IBM, that's down about 2%. The ticker symbol is IBM, of course. And then ServiceNow is flat, but marginally lower. And then Salesforce down about 2%. CRM is the ticker on that. So why the dynamic there? Obviously, is it more just because of the competitive landscape? So this move by Starbucks feeds into this broader conversation in the technology space about whether with AI, customers or maybe startups can just, you know, build tools that can replace some of the software that is now sold by some companies like IBM and Microsoft.

24:23So basically, I think with Starbucks, what we're looking at is at a case study of this actually happening inside a company. So it's really fueling sort of this ongoing conversation in this space, if that makes sense. Yeah, this is what the market's been concerned about. And we've seen the sell-off in some of these software names and software as a service names because people are saying, boy, some of these things can be kind of done with AI and maybe cheaper. And that's kind of what we're seeing in the story. So, I mean, in your story, Daniela, we see that Starbucks is spending – they spend about$400 million a year on software alone.

24:55Are they thinking they can materially reduce that? They can. And I mean, their chief technology officer has outright said, as we reported, that there are opportunities to cut spending in software. This one part of Starbucks technology organization called Enterprise Technology is looking to cut their spending by about$10 million by the end of this fiscal year, which for Starbucks ends in September. So they're definitely basically, OK, taking a step back and saying, all right, first of all, let's review every contract and service, make sure that we have the best price there. And are there places in which it actually makes sense for us to build our own product with the help of artificial intelligence?

25:36So it's definitely something that they're taking a second look at. Obviously, this is also part of something broader that Starbucks is doing, which is they are going through a turnaround and they are looking to cut costs. So this review is also part of that. And then we have AI helping make that a little bit easier. Of course, as you know, the turnaround with Starbucks, this has been ongoing for the last few years now. what kind of timetable have they laid out to shareholders? In terms of the turnaround itself? So they did issue for the first time some, you know, financial goals for 2027, 2028.

26:12You know, if we recall when Brian Nichol came in as CEO in 2024, he actually pulled guidance basically to just like totally reset. And we actually have seen that the plan that he has implemented, generally speaking, has started to yield results. Their sales growth has picked back up, And he has really focused on things like customer service, on just having products that people really want to buy. And they've also started to remodel stores. So basically, the tech is sort of the backdrop to all of this, right? Like a lot of the tools they use are just things that are behind the scenes to help them manage the business.