Apple Forecasts Sales Growth Amid Memory Shortage

23:05That's the sixth consecutive quarter of accelerated growth in a row for us in that channel. And you can see a lot of that sort of being catalyzed by voice AI workloads that you see from so many different kinds of startups. And I think what's exciting about that is that these conversations are being enriched by data, which also kind of speaks to our strengths. and in particular these conversations are moving from things that used to be human to human increasingly human to agent agent to human for lots of people the kind of base level story is

23:42Caroline Hyde:messaging demand right going back to Twilio's roots the more exciting story is that Twilio's on this journey where it goes from being that messaging and communications offering to being much more of an infrastructure layer. You know, you hold yourself to really high standards, Cosimo, I know that, we've discussed that, but where do you think you are on the journey towards that kind of much more encompassing platform that you wanted Twilio to be? Yeah, I mean, I would say that we're executing well on it. We've got our big customer conference signal next week, so I don't want to get too far ahead of that and front run it.

24:19But the way that I would characterize it is very similar to the way that you described it. These things tend to start in a channel, like messaging, like voice. Our ambition is that many more of these translate into cross-channel communications in which there's this channel orchestration layer, which means basically that however a customer wants to be reached, whenever they want to be reached, whatever the kind of context with which they want to be reached, they are. And that allows for a highly enriched, deeply personalized interaction, whether, again, that's human to human or agent to human. And I think at a time when the LLMs are unleashing so much power, being able to add context to those conversations is crucial.

25:07And that's something that Twilio is really able to do. Kazuma, you're so B2B, but how much are you starting to see your B2C, like the whole world of vibe coding? I was having to set up Twilio's to be able to connect my WhatsApps with what I'm writing to be able to basically see the way in which I use AI personally. Is everyone suddenly using Twilio in a more consumer-focused way? I think predominantly we're like 99 % B2B, to be honest. I mean, I think for the lay developer, maybe that's kind of the angle of your question, I think it's never been easier to use our console than it is today. we've actually done a ton of behind the scenes work to make that console experience super simple so we've always been a very very attractive brand for developers i think increasingly whether you're a vibe coder whether you're just experimenting whether frankly you're launching an agent for the first time and asking your agent to do the work on your behalf our console's ready for that we're seeing pretty limited volume i would say so far but we definitely think that that's going to take off and we're super excited about it.

26:08This is clearly a very positive story for the stock. We're up$4 billion in terms of market cap today alone. What does that mean for people at the moment, Cosima? Are you hiring in this moment? Yeah, I would say we're doing like some modest hiring. Like by and large, over the last couple of years, our workforce has been relatively flat. I think like a lot of companies, we're seeing tremendous productivity gains as a result of AI. I'll speak for myself, but I think this is true of our workforce. I'm 10 to 15 % more productive today than I was two years ago as a result of using different kinds of AI tools.

26:44We deploy a variety of them with very, very strict security guardrails to our workforce. But I think everybody is seeing a real improvement. Rather than turn that into like a layoff or something of that nature, instead, we're turning it back to how can we accelerate innovation velocity? Twinio CEO, Cosimo Ship Chandler, on the back of big moves on a big earnings report. We appreciate it. Now coming up, Roblox aggressive push for safety features. It's costing them nearly a billion dollars. We're going to discuss that and the outlook with the CEO, Dave Bazzucchi. This is Bluebeg Tech.

27:27Welcome back to Bluebeg Tech. and let's get back to Apple's earnings and break down one of the highlights. Today's big number,$20.5 billion. That's how much Apple made in the China market. Well, look, Apple has struggled in recent years, beating Wall Street projections this time, and then some. They thought it was just going to be$18.9 billion. And we are seeing a significant move in the stock. At one point, hitting a new record high. We're up 4.6%. And this really is just showing that Apple is back to firing on all cylinders. What was amazing, though, They were really clear about the supply chain headaches, about the cost pressures.

28:00But for now, investors not worrying about the margin hit.

28:04Caroline Hyde:Let's talk about the change topping Apple investors' minds. What to expect from incoming CEO John Ternus. Who knows Mark Gurman joins us for more. Mark led our coverage of the earnings print last night. And in the end, right, it becomes a pretty simple story where they give an outlook for the June quarter. And we know that there is a supply constraint, particularly on Mac. But the moment that John Turnus popped up on the call, could I just ask you, Mark, now that you've had a night to sleep on it, what the takeaway from that was of what Mr. Turnus had to say? Well, he certainly didn't keep me up all night thinking about it.

28:38He didn't really say much. He praised the guy who handpicked him as his successor. He said the right thing for the audience on the call, which was we're going to continue with the financial discipline that we've had the last two decades under Tim Cook. But the real comments related to Ternus actually didn't come from Ternus himself. They came at the very end of the prepared remarks from CFO Kevin Preck, where he said, we're having a CEO transition and we're reevaluating what we do with our cash. And this practice we've had about share buybacks, giving money back to the shareholders, we've given back over a trillion dollars.

29:15Well, we're going to continue that. We're doing another$100 billion buyback that we're announcing today. but the fact that we're talking about it means something is going to change. And what they're doing is they're giving themselves more flexibility now to give less money back to shareholders and hold on to the cash for things like deals, for investments, for infrastructure, for R &D. And that is a really big deal. And this puts John Ternus, in terms of what they're going to be doing with their cash, somewhere in the middle between Steve Jobs and Tim Cook. Tim Cook was all the way on one side giving as much back as possible, trying to get to net cash neutral.

29:50Steve Jobs was on the other end of the spectrum where he didn't want to give anything back to the shareholders because he wanted to hold on to as much as possible for investment. And by the way, he lived through the early years of the company and Apple nearly going into bankruptcy. But Ternus is somewhere in the middle, whereas they're not going to keep it all to themselves. They're still going to give money back, but they want to be more judicious with that money as needed. Some analysts have perhaps read into holding on to cash, not promising as many big buybacks, perhaps, or hinting at that under the new leadership as being also, we've got some price pain to swallow.

30:24We're going to have to take a hit to gross margins if we are going to see the pricing pressure from memory, for example, Mark. Is there that anxiety? Should there be that anxiety? That might be a small component of it, but I would be surprised if Apple's response to pricing changes related to memory ends up being taking money out of their own bank account and eating those margins. I think they're going to offset some of that by raising prices. Typically, in these types of scenarios, Apple likes to do a split, right? They like to eat some of it and like to give some of it to the consumer. So it may be some of that, but we'll see.

31:01I don't think that's going to be entirely clear until the tail end of the year or early next year. Mark Gurman, all over the Apple news. Thank you very much indeed. Now, on another earnings front, Roblox is paying a price for children's safety. The stock plummeted after the company cut its full year bookings forecast, making clear, though, that that new age verification and child safety features that they've embedded, they're creating some friction for user growth. CEO Dave Buzuki joins us now. And you made really bold statements in the investor letter. saying this is worth it. This is worth it long term because it's building a safer global standard of safety.

31:37Talk us through when you will see actually that friction die down. Hey, great to be here and highlighting coming off a great quarter, 43 percent year on year bookings growth, bookings of one point seven billion dollars. More than twice what we've shared with investors is our long term growth trajectory. And yes, we've highlighted our commitment to setting the global standard for healthy, safe, age-appropriate digital engagement. We have rolled out age check all around the world this quarter. We now have over 65 % of U.S. users who we have age checked. But we did highlight in our earnings call there is some short-term friction from communication and other factors.

32:25We believe, though, this is worth it. We are well on our path to 10 % or more of the global gaming market and more of that of US. And we want to bring along all of our under 16 users, as well as the over 16 who are growing very rapidly. How about bringing along the industry, Dave? Because you're a first adopter here of this technology that can help age verify. Do you think others in gaming will have to do this? Do you think others will experience such friction as you come out of it? I want to highlight if you go to our corporate site and read our values, one is take the long view and the other is respect the community.

33:08We've continuously innovated on safety since we started in the company and as the technology got good enough to age check, we've leaned into it. This is an addition, of course, to our industry leading text filtering, the fact that we don't allow image sharing on the platform. This has allowed us to do several things. In addition to age checking, we're going to be introducing kids accounts and select accounts. We're able to do this within our same app because we are age checking. Also, because we're age checking, we can now identify the 18 and up players on our platform, and we've introduced some interesting economics for them.

33:50So we do think we're setting the industry standard and we have this commitment to what we call the global standard. Dave, good morning.

33:59Caroline Hyde:You came on the program three weeks ago and I asked you if you would kindly model for us at that moment when you were announcing the new policy and new platform changes with safety in mind, how that would impact user behavior And that's kind of played out in the earnings print, right? Just explain that, the interaction between the policy that you put in place and why it would impact user metrics and behaviors on the platform. Well, I want to highlight we're using AgeCheck and we're asking our users to AgeCheck if they want to use the communication functionality on Roblox. So in Australia, we're over 70 % age checked in the U.S., over 65%.

34:45But that does highlight there could be roughly 35 % of our users in the U.S. who currently are not communicating on our platform. We believe that can contribute to some short-term friction. In addition, as we go long on our 18 and over segment, we've shared that more and more we're using our recommendation algorithms to support long term retention on the platform more than shorter term monetization. These both have contributed to short term friction.

35:20Caroline Hyde:Dave, let's talk about Roblox's future and Roblox reality. This seems like a big play, a big upgrade from Roblox Studio. We talk all the time to Unity. I am very into Unreal Engine, right, and how that impacts my experience in the games that I play. This presents an opportunity for you to do work with some of the big budget developers. Could you just explain the pathway to that? I want to highlight two separate levels of this. We have continued to release over the last quarter and will continue functionality that is very unique to Roblox. Roblox is a game engine, a client, a cloud. And together we're committed to publishing once and having whatever you publish work both super high quality on a gaming PC, but also perform very well on a two gigabyte Android phone.

36:18Those are very different configurations. We want to support both with the same build, as well as when our creators build on Roblox, they go around the world. The future for us is a hybrid architecture. And what we want to do is make it easy for creators to create experiences that are ultimately multiplayer and photorealistic and do it very easily by powering it with AI. So we have combined really a hybrid architecture. We're starting to show it off that combines our multiplayer synchronization with cutting edge real time video world models. We believe this is the ultimate hybrid architecture to democratize photorealistic multiplayer.

37:03I like that about the democratization and making sort of the building of games open to many. But how do you think about the pricing structure? Briefly, Dave. We've said initially Roblox reality will not be free. I mean, real-time video AI modeling in the cloud is expensive. But just like with the rest of the AI world, these prices are going to come down and down. I want to highlight this is complemented really with our vision for creation. And if we look at what's happening in the coding space over the last six months, more and more software engineers are literally having AI run overnight, doing multiple iterations to help build software, gaming is much more complex.

37:51It involves software, 3D assets, NPCs, real-time operations, terrain, geometry. We're really pursuing that same vision, that agentic multiple iteration AI work with Roblox Studio. We started introducing things as innovative as using NPCs to help test software. And we believe we're uniquely poised to help creators build more quickly, higher quality and more diverse experiences.

38:24Caroline Hyde:Dave Bazzucchi, CEO of Roblox. Thank you very much. Now, coming up on the program, sources tell Bloomberg Peter Thiel's Founders Fund has raised$6 billion to back later stage companies less than a year after its last growth stage haul. We'll have the details next. This is Bloomberg Tech.

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41:01Caroline Hyde:BCTL's Founders Fund has raised$6 billion of fresh capital to back growth stage startups. That's according to sources. The new fund comes less than a year after it closed its last late stage vehicle. Bloomberg's venture reporter Natasha Mascherinus broke the story and is with us. I think this is Founders Fund's biggest ever haul. So it's not just that it came in quick succession from the last fund being done. They're going big and so is everyone else at the moment. Totally. I mean, I made a joke on X earlier this year that firms were going to have to raise new funds just because of how much they're putting into OpenAI and Anthropic.

41:34Right. And now we're seeing exactly that. I mean, their last growth fund, they closed last year around$4.6 billion. They invested that in less than a year, and now they're back in the market. The last growth fund was only invested in seven companies. We saw its first ever investment in Anthropic, a$1.25 billion check, big investment in OpenAI as well. and then across their other late-stage investments like Cognition and Stripe. Natasha, who's wanting to recommit here? Is it LPs and new monies coming in to Founders Fund? Yeah, no, I mean, it's$4.5 billion from their institutional LPs, so we're talking sovereign wealth funds from across the world, institutions, and then$1.5 billion from Founders Fund employees as well, including Peter Thiel.

42:17And this is something that people really do focus on because it is unique to Founders Fund. A lot of times when venture capitalists raise fund, you might see just the general partners, the top senior management, put in some capital. But this is the largest amount that actually the employees of Founders Fund have put in to the fund itself, too. Putting the money where the mouth is, Bloomberg's Natasha Mascarenas. We thank you so much just all of these scutes when it comes to VC. Now, let's talk more about generative AI right now because it's turned coding from a specialized skill into something anyone can do.

42:47There's a simple prompt. But as AI writes more code, its impact is being felt on hiring for junior software engineers. Just take a look. I actually tried a whole bunch of tools in the beginning, and this was about a year ago, which I think feels kind of like the stone ages of Vibe coding. I was able to make the foundations of the app in maybe a month. And as a totally non-technical person, I was actually able to build a full stack app so there's front-end and back-end capabilities, and I was able to get it out on the app store just entirely myself.

43:20Caroline Hyde:And whilst that's opened up new possibilities, there is a downside. Since 2022, employment for software engineers right out of college has fallen by nearly 20%. Nagel thinks companies are making a big mistake. I think that one of the biggest risks of the whole thing is that people are going to get too focused on the short term and not think about the long term enough. First of all, if you don't hire any new people, who's going to run the company in 10 to 15 years? But second of all, our research and others has shown that these junior people are actually the ones who are able to change their job and get the most out of using these tools.

43:55Chen agrees. I feel very strongly that this is like not replacing engineers. I think the more you use AI to build, the more you understand the space and kind of even know what you can and can't do. It's like, technically, I can make it, but an engineer probably could have made this in a much shorter timeline and probably with much more robust code.

44:19Caroline Hyde:Watch the full Wall Street Week episode later today, 6 p.m. Eastern, 3 p.m. Pacific time. Okay, coming up, we're going to get back to Apple and the week that was in tech earnings. What a week it was. Apple back up towards session highs, up 5%. This is Bloomberg Tech.

44:50Caroline Hyde:NASA Administrator Jared Isaacman says a future space economy cannot be completely taxpayer-driven and cannot be forced into existence. But NASA can work to set off the spark. He laid out his vision on Bloomberg Surveillance this morning. A space economy sure would be great because I don't think we're going to have that sci-fi future we imagine with lots of space stations and orbital outposts and a Mars base if it's entirely paid for by the taxpayers. So I want data centers in space to work. Why not take advantage of a giant fusion reactor that's already out there? I want, you know, I want a three, I want us 3D printing organs.

45:25Caroline Hyde:I want us making cancer curing drugs in microgravity. I want all that to come to fruition. We can't force it into existence at NASA, but we can do all we can to ignite it. A lot to discuss, but let's get back to our main story of the day. It's Apple. Shares, as you can see, up 5%. They're basically at a record high. Gene Munster, managing partner at Deepwater Asset Management, joins us. And Gene, before this, you were worried that perhaps stock's not getting enough credit. Are we getting enough credit yet? We're inching there, up 5%. I would have guessed, based on these results, we'd probably be up closer to 10%.

45:59And Caroline, I think what's at the core of this is a concern that we're kind of at the peak here that this is the super cycle over the past three quarters, just to put this into perspective about this disconnect, which I believe between what's going on at Apple, what the stock is doing versus the fundamentals. I think there's this piece, an important piece around the concern that we are at the peak. As I mentioned, over the past three quarters, iPhone's grown at 20%. The previous three years to that, it was up one and a half percent. So you see that super cycle, of course, investors are always looking forward for next year.

46:36The iPhone growth is now expected to be 6%. So you see that big drop down. And that's what investors are wrestling with. If they truly believed what we saw in the March quarter, in the June guidance, that there was any form of sustainability to that, this stock would be at more than 10%. So I think this idea of understanding what's beyond the super cycle is at the substance of understanding what's in front of the stock. What about beyond the June quarter and Tim Cook, who's handing over the reins after the June quarter, saying, look, we believe memory costs will drive an increasing impact on our business.

47:12Is that also what's holding back the stock? Well, I think the memory piece, they're showing that they're doing an incredible job of navigating that. So the guidance that they gave did anticipate some depression in margins, very small amount 30 basis points effectively the street had been expecting about 120 basis points compression because of these component environments so yes they are seeing an effect and and that could be part of kind of what's going on here but I think in aggregate investors are probably feeling better today about how they're managing this environment than they did a couple days ago.

47:51And so there's also this dynamic, kind of a unique dynamic. Again, I think this is about understanding growth for next year. But in fairness to the conversation today, there is a dynamic around capital, returning capital to investors. And they added some new language about putting the business priorities first. Now, they, of course, always do that. But the fact that they had added that language to their conversation about capital return really sparked some questions on the call, like, are they thinking about doing some sort of upsizing in terms of their investment pace, which is very much behind, of course, not just on the CapEx, but on everyday R &D compared to the other tech companies.

48:34And so that was another small dynamic. But again, I think this comes back to a very basic question is, what's the true growth rate of Apple?

48:44Caroline Hyde:gene i love following you on the socials because in real time you're just giving your honest thought i think you're in the camp of people that that made a big deal of john turnus being on the call and though he didn't say much you you got some vision out of it right you you see the direction of travel for apple under turnus yeah you can i think uh like you said you didn't say a ton and you have to put everything that they say in the context of what they've always said in the past and kind of decode it. In the case of what Turnus said, he did lead with talking about them, having financial discipline, continuing that, which basically means that they're not going to go and start to spend a ton of money unexpectedly.

49:24So I think this idea that they're going to join some sort of hyperscaler CapEx race, that's just simply off the table. The other piece, he jokingly said, I'm not going to talk about new products, but if we think about what we're doing, this is the most excited I've been because of what is going on at this time. Now, the most exciting that I've ever been, they say that that's standard operating language. But at this time, this time is referencing, of course, the AI chapter. And I think that, you know, he knows what's at stake here and they've got a lot to do to change investors and consumers alike in terms of their competence.

50:02Caroline Hyde:Classic Apple maximalist language. Gene Munster, managing partner at Dewar Asset Management. Thank you very much. Breaking news on the Bloomberg Terminal. President Trump says he will increase tariffs on EU autos to 25%. See shares of Stellantis dropping pretty quickly. This is in a true social post where he says, it is understood that if those companies were to build cars in the United States, there would be no tariffs. So of course, this is impacting cars built in the EU, shipped into the United States. It's a developing story, Cara. It is. And just think how well many analysts say Apple has navigated such tariffs, for example.

50:37We tied up a story on Apple on so much more that does it for this edition of Bloomberg Tech.

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