Jitendra Waral is Senior Research Analyst - Internet & Consumer Electronics at Bloomberg Intelligence. Jitendra has more than 15 years of experience covering the global technology sector including internet, consumer electronics, computer hardware, storage and electronics manufacturing. Prior to joining Bloomberg, Jitendra worked in options pricing and software sector research at Deloitte, Gridstone Research and the Stock Holding Corporation of India. Jitendra holds a bachelor’s degree in mechanical engineering from the University of Mumbai and a master of science in financial mathematics from Lehigh University, Pennsylvania.
In this episode Jitendra shared:
The experience of analyzing some of the most fascinating companies where everyone dream to work. The models that used by the analyst to look at these companies.
Lessons from 2008 or another time in history that business owners or entrepreneurs can look at and learn from to try to make current business decisions.
Talking about “The past behavior doesn’t govern the future retail habits”.
How have decision processes in corporations changed or adapted to attempt to combat the rapid changes of what is happening now.
How will the e-commerce look like 3-5 years from now?
New learning from COVID and the impact of change.
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Transcripts:
Disclaimer to the Transcripts:
The transcript was generated using an Artificial Intelligence program and then scanned over; we would like to thank you in advance for understanding that there might be some inaccuracies. While reading, one might also notice that there are times were the sentences are not grammatically correct and due to changes in advertisements, the timestamps do not always align with the show. We are keeping the text as true to the interview as possible and hope that the transcript can be used for a reference in conjunction with the Podcast audio. Thank you and enjoy.
Intro: 0:01
This is Silicon Valley Tech behind the scenes a podcast hosted by Shawn Flynn and Sunil S. Ranka. Here's where we talk to the real heroes to find out how decisions are made, and how they're executed to create the thriving businesses of tomorrow.
Shawn Flynn 1:00
Here at the Silicon Valley Tech podcast, we are excited to finally releasing in this amazing episode that we recorded with Jitendra on May 8, 2020. All right, now let's start the episode.
And now, let's begin today's episode of Silicon Valley Tech with Sunil S. Ranka and myself Shawn Flynn. Enjoy everyone.
Jitendra thank you for taking the time. Today we are at Silicon Valley Tech myself Shawn Flynn and my Co-host and Sunil S. Ranka. I mean, we have been big as viewers for years following you on Bloomberg get a ton of amazing advice from you. But you tell our listeners a little bit about your background, your career, this led you up to this point.
Jitendra Waral 1:32
Thank you, Shawn and Sunil for having me on and everybody's keeping safe out there. Yeah, so I've been really covering the space for big 12 years now and then started right after my engineering back in India did Mechanical Engineering and sort of pivoted to finance in the final year in May and was fascinated by the industry and in the background, I've always been a Tech Nerd, eco whatever have you and Linklaters you know, in the world up on we trucks and we wrap arms and things like back then. So moving to finance, and then that sort of opened my eyes towards the technology world and more sure of that in finance. So I decided to pursue a master's and after that, fortunately got an opportunity with Bloomberg to sort of like contribute and be a part of the research department that they were about sorry. Basically covered hardware and networking storage over there, east coast in the beginning that three years and we wanted to expand our research department, human intelligence, we wanted to plan that to Asia. So moving on covering memory semiconductors office supply chain a few companies in different parts of Asia and Australia for two years on they wanted to expand in the West Coast. So I moved to San Francisco. And now I cover airlines. So I cover all the fun companies in the world Google, Facebook, Amazon, Snapchat, Twitter, Pinterest, the likes those and we you know, you can think about me as somebody who loves technology and loves to analyze business.
Sunil Ranka 3:03
That's fascinating. And I can totally relate this Jitendra I mean, on this same educational background from Mumbai University, and it's pretty fascinating to see the career progression that you have made. With the righteous financial mind, you really get to analyze some of the most fascinating companies can you just tell our listeners Now that everything that is happening in the world are the same model used by the analysts to take a look at the companies are going to be still viable, or there is a fundamental change in the shift.
Jitendra Waral 3:29
It's evolving very, very rapidly. If you sort of like rewind back a month ago, it was changing every week. Essentially, if you look at all the earnings that just happened last week, most of them were better than clear and sort of some of that dynamic, even if the bigger pie and the economic pie shrinking, the slice of the pie started increasing because of that dynamic. So the models have shifted very, very rapidly. And the sequency of shifting was, I would say, weekly a month ago now that we have some clarity, that frequency has gone down to month and hopefully will normalize in a couple of quarters. But it's clear that this dynamic of one's becoming needs is going to reshape a lot of these companies and their strategies.
Sunil Ranka 4:13
So this is pretty interesting when we talk about one word Sydney, can you just throw in some more lights, any practical examples? What you've seen in the industry.
Jitendra Waral 4:21
E-commerce, for example, if you just sort of look at the online world, in general. We have about 4 billion people online out of which a good 75% of them are using Google or Facebook or one of these platforms every single month, and you saw a rapid spike in engagement across the board and within ecommerce, suddenly, we're going very slowly, like your food and groceries and surprising to others, the penetration rate of people buying those kind of products online, healthcare products, supplies and things like that suddenly spiked up. Amazon's capacity shot up by 60% in groceries within a month, they ended up hiring hundred and 75,000 people to make this pivot packing by the palletizing the current Tyson essentials. So if you look at the world before COVID, you know, we have about $11.7 trillion off retail market that Amazon could potentially target and this is excluding China, autos, restaurants, you know, some things that targeted yet learn points out of the $7.7 trillion before the COVID the penetration rate was moving at about 1% every single year. So we have about 12% of this total spending this physical spending that's happening in the world being online. If we look at what has happened over the last few months that that 1% became 2%. And what that did was it actually added an incremental hundred billion dollars to the industry this year itself on top of what sort of the trend was under so what we are seeing here is the pie is shrinking. You are seeing national economic numbers and that's actually causing the pie to shrink but the slice of the pie which is still at 14% even after this was a big jump even after this amazing story that we have played in planning ecommerce and online for such a long time that slice is getting support from someone new habits. And if you look beyond ecommerce if you look why Facebook suddenly surprised so much? And that's an interesting one. Because going into the quarter for Facebook, the expectation was a double digit decline in April and potentially second quarter, but they came out with no decline. There was zero percent growth in April. So that wasn't a big surprise. And why that happened. Well, that happened because the legacy businesses were slowly from an advertising perspective. But this new demand that came from Pac downloads, people watching more content from home, ecommerce based advertising, e-fitness, online learning, all these other apps became needs very quickly. And they provided some support in terms of like the drag that the legacy businesses were facing. So that's the dynamic we are in, some of these habits will probably return to normal. And some of these habits will stick then that scale that ratio is I believe, is what's going to redefine that sector and when we look at it.
Sunil Ranka 7:12
Wow, this is fascinating because in the midst of the pandemic, we all worried that world is going to collapse. But after less than to some of the data which are very close to this is pretty encouraging. So people keep comparing the situation with what happened in 2008. So what are the lessons learned? Or what would be some other things which business owners or entrepreneurs can look into and learn from that to try to avoid some decisions which could have been digging based on the data?
Jitendra Waral 7:39
It's a great question Sunil. I don't think it's really comparable to 2008. I don't think it's really comparable to any time history. That least the recent past the recent recessions that we have seen, because this is everybody's lockdowns, the world is on lockdown and the reset in many ways, so I don't think it's directly comparable. And I also don't think that the surge demand that we see across the board in the internet space, it's not completely invisible, that how much of that will be sustainable. So the volatility will continue for this year. But I guess if you have to look at it from a technology perspective, there was something happening recruit all the macro economic uncertainty in 2008, which was under the hood, there were a few products that were growing that sort of define or redefine this space for the next decade. And that product was the iPhone and smartphones in general. In fact, in 2009, when stocks were tanking, the iPhone sales doubled. And if you sort of map the trajectory of the world after 2009, e-commerce advertising, Airbnb, Uber, whatever services we're talking about happened because of proliferation of that product. So I guess one way to look at it as you know when we are amiss an uncertain time like we are right now, our vision gets a little crowded in terms of thinking long term and beyond it. So looking at underlying trends could really help sort of identify, you know, what other opportunities you can align yourself with, on the other side of the pandemic, at the same time, on the flip side of the equation, some of the companies also got disrupted, right, like at the time it was Blackberry, it was Yahoo, eBay. So there was a wave of new demand being created new industries being created. But at the same time there were there was also real disruption that was happening for legacy based. But I feel like one parallel if you could draw is looking at this drastic change in digital transformation that's happening in industry right now under the hood might sort of payed the way for the next decade to see accelerated growth in some of the other businesses if we look beyond the wallet quality we expect this year.
Sunil Ranka 9:50
So you said 2008 and you draw parallel to iPhone sales doubled. Now you said there is an opportunity to look under the hood with the whole digital transformation. What is that next iPhone like product? What do you envision or what is iPhone like service? What do you envision will pick up?
Jitendra Waral 10:07
I think this really well, earnings, and he said that you're seeing two years’ worth of digital transformation happening in two months. So before COVID and this is more towards the services side than the product side. Like before COVID you know, you need convincing or the digitization or on the boards, or spend more money or work from home tools or child transitions and you know, cybersecurity all those things. And now
Suddenly, you don't have to convince anymore. Now it's become a requirement, a massive change in education is happening. E-learning was growing at a healthy pace, but we were expecting that to go mainstream probably a couple of years down the line now it’s a need. Now, you need it, you have to have it. So that forceful change happening both on the buyer and the seller, right? Even in the e commerce world. If you look at it, the sellers will force to sell online. So when Shopify everybody was worried about Shopify in the beginning, because you know, they're exposed to a lot of small and medium businesses, but if you look at the results suddenly you're seeing them actually get more from small and medium sector from the sellers that have never sold online or want to sell more online are forced to sell more online. Now. If you align this terms with what some of the companies are saying. And this really is dependent on the duration of the lockdown and how much macro-economic impact is going to be in the second half. But if you look at what some of the companies are saying they're indicating you could work from home for the rest of the year, essentially. So that's why I think like some of these habits are going to stay and it's going to cause an acceleration in aspects like cloud computing, adoption. Ecommerce, obviously, we talked about that 14% penetration number payments, live video, you're seeing a rapid increase in live video consumption. 800 million people on Facebook using live video services in a very short period of time, augmented reality in efitness, online learning. So I feel like you've aligned some of these habits and see the sports adoption and married with the timeline. The timeline is to the end of the year. And you know, it was interesting, I was looking at how much time it really takes to form new habits. And there were very numbers out there right some say 21 days some say two months, three months, whatever. But if you look at the most pessimistic expectation, if you made it still less than the time that we are stuck in this uncertainty. Beside, some of these habits will stay and it will create a new demand because of this accelerated adoption of technology.
Sunil Ranka 12:36
So today that this is very fascinating, some of the things what she was telling us being in the heart of the Silicon Valley we are experiencing on a daily basis. One of the things that I remember you think is the past behavior doesn't go in the future retail habits. And you just talked about a behavioral change takes either 21 days theory or 8 days theory or is going to be new now. Can you throw in some more lights?
Jitendra Waral 13:00
Sure. I'll give you a few examples over here. One is ribbon, the ecommerce segment if you look at adoption rate of different types of products, groceries was a challenge because especially perishable goods a big challenge because, you know, people wanted to sort of consume those products in a store and they had to pick and choose what they want to buy. And now with all the sort of lockdowns forcing you to rely more on online, atleast people are getting to experiment these things. Now some of them would actually stay on even if some of them stay, that's still a big chunk. Because this is a $900 billion market that only has 4 to 5% penetration rate. That means only 4 to 5% of that 900 billion market is being sold online. So you're going to see like sort of a step change happening in that category furniture, you're seeing something similar happening over there as well. So healthcare, medicine. So there have been some instances where, you know, the pace of growth was linear, gradual, predictable, strong, but still away from mainstream adoption, now suddenly opened that door. The second example is a cloud thing that you talked about. Now, within cloud. If you look at the market, you know, it's about $230 billion market a give or take globally against that IP spending is 2 trillion. So again, we’re talking about the world, which is still not completely digitized, far, far, far away from it. And this force adoption is basically giving people opportunity to experience a new product categories. And I think online education is a great example. Google has a 100 million students and schools participating with Dr. G Suite products and education in a very short period of time. Now, they're not going to make much money out of that this year, really, but it's just exposing your audiences to these new technologies that were in a way sitting dormant for a long time. And suddenly they woke up. What are you going to end up seeing is this year is going to be a learning year for a lot of technology companies learning you're on the behavior that's happening, and then figure out the monetization after that, and that's why these companies are going to look a lot different really, on the other side of the pandemic.
Sunil Ranka 15:16
Great insight. No, just as we are in the midst of decision making, how these a CEO of the company are the decision maker in the company and how does this process have changed between the past covid era v/s post covid era.
Jitendra Waral 15:32
Drastically! it's like turning in one start shift very quickly in a different direction. And the best example is and there are several across the board and large tech but you know Amazon hiring 1,75,000 more people to serve this increased demand in about a month stop doing that they are deep prioritizing all their essential items, which was basically majority of their revenues and shifted completely towards essentials and that shift is a very big one. And to do that in the sort of the timeframe that we're talking about a couple of weeks they have to essentially throw the playbook out of work a business plan was for the year and henceforth same thing with Google with their cloud services with the G Suite adoption. Same thing with Facebook Like you know, changing adoption rate on services, like WhatsApp and live streaming video scale those businesses very quickly. So everybody was essentially, you know, making sure how do we scale what we have right now to serve the need of the time within a few weeks. And I don't think any one of them have gone through such an exercise before in the history of their existence. So I think the decision making really tested or is currently testing the ability to scale something that they taught or plan years to take in weeks. And I think that decision making process that goes back to the point that I made earlier this year is going to be a volatile because of that dynamic of you know, as you move into these new directions, revenues, profits would have a seesaw effect as you figure out what works, what doesn't work, but at the same time, they are walking out of the pandemic, there are two things that will happen. These companies will have high user base with new habits on one hand and an infrastructure which is tested to scale against that background. On the other hand, so when you marry the two, now you're setting it up for a brighter, much, much bigger landscape for these companies. So the destination is bright, but the journey is going to be difficult.
Sunil Ranka 17:33
So Jitendra, if I am a company who is on the receiving side, which means I'm a small business, or I'm a mid-business, and I'm very used to the culture of I have known the culture of Azure in terms of cloud computing, Google, Facebook, if you have an advice that how do I look at some of these services? What is available today? And what would be key for me? And what are the general transport you are seeing the company to adopt.
Jitendra Waral 17:59
So there are a lot of companies within certain segments that are going to a lot of thing like travel, automotive, and they're trying to again, figure out how do we prioritize or be prepared for recovery. And in that sense, like I feel scalability, often new solutions becomes very important. Because either you're in the process of scaling a new demand right now, or you're in this holding period of getting ready to scale new demand couple of months, hopefully down the road or becomes couple of quarters. So scalability becomes sort of the number one priority for choosing services that you want. And you have to also marry the scalability with possibility about remote working being out of the process for a longer period of time. So I think what companies will look at are the smaller companies that you're talking about, they will look at the comprehensiveness of suites they are getting from different companies, whether it be Microsoft where you know, you would get cloud solutions, you would also get teams and or Google where you'll get hangout needs. You'll also get the cloud services or AWS. So I think it's going to be a function of scalability and the tools that you're going to need to either monitor the demand that you are facing right now or prepare for the demand that we will, in hopefully couple of quarters if not months.
Sunil Ranka 19:21
Interesting. So what you're saying is that companies are going to more look towards the productivity gains tools, and people are going to look more from the efficiency related tools. And then that's how they will move more towards a cloud offering. Is that understanding? Correct? So we are in normal times, and from your experience analyzing companies, what does a company decide to start focus on more profitability, and less on sales and growth? So what would be the right approach profitability or sales growth?
Jitendra Waral 19:51
That's a great question. And I don't think profitability is the focus for any of the internet companies really, because even if they are not really making money from most of this engagement, you know, might be WhatsApp or Facebook at the moment or with Google's G Suite. You know, the free hangouts meet or the free Google stadia gaming, they're pitching or any of those things. I think they are making sure that the needs of the time is served. First, and that will pay the way for faster future growth later on down the line. So I think it's profitability is not a priority and frankly cannot be I mean, you saw Amazon's results, they came out with a blowout number on the ecommerce top line side. But when it came to the profit, I mean, there was a big there and a big Miss for the second quarter because you know, logistics is becoming more and more complex. There's so there's so much demand coming from the top line, the ability to serve as restricted by you know, the safety precautions they have to take, they have to make sure that while they are scaling this network to deliver more products, we are taking, you know, a lot of steps to clean the logistics facilities and add additional steps to minimize the impact as much as possible. So I feel like if you look at the dynamic right now, there's no reason why any company should focus on profits. So that's the near term, the longer term view is and Jeff Bezos has said this multiple times. Overnight successes at Amazon pick me to 10 years. And you sort of like look at history of Amazon overnight successes, maybe AWS, or Alexa or even prime, they were started years and years before they became popular, like in 2015. And then suddenly, the world started paying attention at AWS. But they had launched it a long, long time ago. And it's not that every one of their long bets succeed and like them, many that they don't, but this companies are going to sort of follow the similar ethos, if you may off of investing in the long term, aligning themselves with your habits. So that's why, you know, when I keep saying that these companies will look different coming out of the pandemic, that's what's going to drive the investment decision. So I mean, in a nutshell, it's not going to be a lot of traffic.
Sunil Ranka 22:07
I just loved it when you coded Jeff Bezos, this reminded me from the movie Founders that we had an overnight sensation 23 years in making so it absolutely does make sense. You've been working a lot with the internet companies and the head of Governor what I call it not bleeding edge, but the bleeding edge. And we all keep hearing automation and AI is going to define the world and a lot of jobs are going to get automated with this COVID-19. What are some of those jobs which got accelerated more or need for automation?
Jitendra Waral 22:37
That's a great question, Sunil we don't know the answer yet. We just have a couple of weeks of data in there. So we'll just take some clues from what we have seen so far. So one thing is for sure that look, increased adoption of digital transformation, or digital consummation sort of hitting a fast-forward button when you're not on data, you're going to deal with an average enterprise is going to deal with if it is going exponentially. It's going to explode even more to a level where you can't keep up with it. And I feel like instead of being a focus on replacing of jobs at least in a near term if the focus is going to be more about how do we handle scaling on this fast forward button that the world has just hit on this transformation, so I feel like it's less suffering, jobs impact in near term. And more. How do we use machine learning to really scale into some of these businesses come in and be payments, or maybe ecommerce or streaming or cloud gaming or augmented reality or whatever have you. But when you're scaling so rapidly scaling with people is going to be slow and hard. And the amount of data you're going to deal with is going to demand force adoption of machine learning and AI. So you will see as an impact on this and an accelerated adoption of AI, again, that won't becoming a need, because it would be a need of scaling.
Sunil Ranka 23:60
I just love it when you say wont becoming a need, and it would be scaling. Now taking a little bit of diversion from the conversation based on the recent change, even though we are only in ninth week of pandemic. What will ecommerce look like three to five years from now?
Jitendra Waral 24:16
That's a great question. Again, we're going to some of the cues that we have so far, so not all of these habits will stick, some of them will. But essentially, what you're going to end up seeing is, businesses that were slowing adoption of e commerce never got to experiment, really what the impact on their revenues and growth could look like. And now the beginning casinos. Far of these businesses will actually accelerate their adoption. So what we see happening essentially is, you know, ecommerce market today is roughly $1.5 trillion. And this is excluding China. And if you look at the growth that was happening before covid, it was, you know, double digits 12 to 13%, against that very high base, so that growth will accelerate in 2020. And what we call ecommerce would be five years from now, pre COVID is probably going to be a couple of years in advance. In fact, in 2018, we had sort of analyze Amazon's business from e commerce perspective looking at global GDP and should up doing a top down analysis, and we have projected that Amazon will sell more than $1 trillion worth of gross sales products by 2025. What we are seeing happening, at least in the last couple of weeks and months, that adoption rate is much, much faster in a very short bit of time. So they might do it sooner because of that. So I feel like the world of e commerce is going to look bigger than what people thought in three to five years, but also will give players in the market. You know, we're seeing Google pivot to ecommerce aggressively, we're seeing Facebook, you know, rebooting Libra, there's an e commerce bent to that they just invested $5.7 billion in India's Reliance jIo, with WhatsApp being integrated into the sort of e commerce strategy or their Jio Mark connecting small businesses enabling payments enabling online purchases and hence for an Instagram shopping is also another area where Facebook is investing aggressively. So I'm sure you will see bigger market, but also you will see new players. In fact, I firmly believe that like Facebook's future, if you look at Facebook's business today, it's 98% advertising. And if you look at the growth expectations for the next five years, it's more or less bent
towards that, that it will be an ad heavy company. But I feel that because of COVID, and because of ongoing regulation, regulatory pressure on user generated content in general, which is not going away, it's going to force them to diversify their business. So the future of Facebook is not advertising. The future of Facebook is probably ecommerce payments, augmented reality, potentially cloud solutions, cloud gaming, and those are the things that you know, you will see investments go up in and those are the things that will redefine some of these companies. So you will see the market being bigger, but also there'll be new players that you did not anticipate will play a bigger role in that market.
Sunil Ranka 27:11
Thank you so much Jitendra, it was really insightful and it's been a pleasure talking to you. We really appreciate your time and we are looking forward for this relationship. What we'll do is, once again, thank you so much for everything.
Jitendra Waral 27:23
Thank you so much for having me on.
Shawn Flynn 27:07
Jitendra one last question for you. If anyone wants to find out more information about you, or what you're working on, what's the best way to go about doing that?
Jitendra Waral 27:34
Yes. So BI on Bloomberg terminal is basically where we publish all our research on. So if you have a terminal, not just me, we have more than 300 research professionals globally, publishing content on industry trends and companies. So if you have the terminal and BI go to the function and outside that if you want to connect with me happy to do so I'm in.
Jitendra Waral 29:31
BI intelligence has Bloomberg in house research department we have more than 300 research professionals globally. And we look at companies and industry trends but also have this unique viewpoint from having credit analysts, the litigation analyst Goldman analysts to sort of helps us get a holistic view of you know, the trends that are emerging in the marketplace.
Outro: 29:54
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