Recap 21

Recap #21

1 minutes reading time
19 Apr 2023

This week's dispatch covers Netflix’s price reductions and optionality, JPMorgan’s take on interest rates and the macro situation, Andy Jassy’s letter to shareholders which include topics such as the rise of ads and Amazon’s cost savings, and why TINA doesn't exist anymore according to BlackRock.

Netflix Q1 2023

Price reductions, password sharing, margin discussions, and the opportunities within gaming and advertising.

Paid subs +5%
Net adds +1.75m
Revenue +4%
EBIT -13%
*margin 21% (25)
EPS -18%
FCF $2,117m (802)

-> Reducing price in 116 countries: We talked for the last few quarters about further refining our pricing strategy and monetization. And if you think back to when we did our global launch in 2016, it was pretty much across the board, a bit of a skim approach and not particularly sophisticated in terms of our pricing. Think of this as the next step in our evolution of a bit of a better market fit, product market fit, pricing fit, with the aim of growing our penetration in these markets and also better medium and long-term revenue. So better for our members, better for our business. [...] It's a lot of countries but it represents less than 5% of our revenue. And so it's something that will, over the long term, hopefully, will benefit us. And we can point to an example of success as sort of like what we saw in India. So last year back in December of '21, we dropped prices in India between 20% to 60%. We saw engagement over the past year grow by about 30%, high growth in paid net adds. And also revenue, FX-neutral revenue growth actually accelerated from 19% in the year prior to 24% last year. So we're not saying every market is going to play out like that but that's what it would look like in success. – Spencer Neumann, CFO (01:52)

-> Password sharing; churn and conversions: So this is an important transition for us, and so we're working hard to make sure that we do it well and as thoughtfully as we can. This last of the country rollouts have gone well, and maybe most importantly, were directionally consistent with what we saw in Latin America. Just to remind people what that looks like, it's very much like a price increase, we see an initial cancel reaction. And then we build out of that, both in terms of membership and revenue as borrowers sign up for their own Netflix accounts, and existing members purchase that extra member facility for folks that they want to share it with. So first of all, it was a strong validation to see consistent results in these new countries because there are different market characteristics, different from each other and also different from the original Latin American rollout countries. So to get to a positive outcome, you mentioned Canada, we're now in a positive member and positive revenue position relative to pre-rollout. So that's a really strong confirmation that we've got an approach that we can apply in many different countries with different market characteristics, including our largest revenue countries. [...] So all in, we felt, based on those results, it was better to take a little bit of extra time, incorporate those learnings and make this transition as smooth as possible as we can for members. We think that approach also best serves the long-term business goals as well. So we're going to launch this new improved version broadly, including in the United States, in Q2. – Gregory Peters, Co-CEO (03:28)

-> Broader launch of password sharing and pricing: That launch we're doing in Q2 is a very broad launch. It includes the United States, and many, many other countries. I mean we reserve the right for some countries where we think there's a different approach, but I would say the bulk of our countries. And certainly, when you think about it from a revenue perspective, the vast majority will be rolling out in Q2. You mentioned in terms of pricing, we'll look at that on a market-by-market basis. But obviously, we tested different pricing in these last rollouts that will be tested in Latin America. And that gives you a sense about how we're thinking about what is optimal pricing, especially in more affluent countries, so I'll leave it at that. And then in terms of preference, what we're trying to do is create a structure that really supports choice. So that gives an opportunity for folks to spin off to borrower accounts where they think that's the right solution for them or for use cases, which are legitimate use cases, where somebody wants to basically buy Netflix for a family member or something like that, we want that extra member to be in place, too. We don't really have, I'd say, a strong preference. We're not trying to steer in one perspective other than using pricing to both satisfy those customer choice goals as well as thinking about long-term revenue optimization. – Gregory Peters, Co-CEO (05:42)

-> Reaccelerating revenue growth and increasing margins: We're looking to reaccelerate the revenue growth. That's the path that we're on right now. And as we do that, we want to kind of balance, gradually increasing margins. You see that in our guide where we're looking to tick up margins a bit to the 18% to 20% range full year relative to just under 18% last year but balance that with that big prize ahead of us. Reinvesting to more and more great entertainment for our members and driving that flywheel of more entertainment, more value for members and, ultimately, more and more members over time and then build a really, really big and profitable business. – Spencer Neumann, CFO (07:25)

-> Optimistic on the long-term advertising opportunity: We're significantly optimistic about the long-term opportunity, for the reasons that you mentioned. But we've always expected and we continue to expect, frankly, this to be a gradual build. It follows a very similar process that we've used in so many other areas where we get in, we learn as we go, we iterate. And we found that having that approach yields basically great long-term outcomes as we sort of grow and learn. So I would say where we're at today, we've got a lot of work to do to continue to develop features that support advertisers. We're rolling out things like measurement and verification, but we've got a bigger, longer road map that we have to go do there. We're improving our go-to-market and sales capabilities in partnership with Microsoft. There's a lot of good work that we have to go do. And some of this is hard work. This is country by country. You've seen us add a programmatic private marketplace that gives advertisers more ways to buy as we grow inventory. And then we're also trying to improve things on the consumer-facing side. So we're adding more features to the ad plan. We're making that experience better for members. And through that sort of process, we expect those iterations, which we're trying to go as fast as we can on them while being judicious and thoughtful about the business, to really add up over a period of time into a significant, highly material and highly lucrative, high-margin business. But there's plenty to do and we're trying to maintain a fast pace but also a thoughtful pace. – Gregory Peters, Co-CEO (08:48)

-> Market opportunity: We've never provided a long-term guide to our margins. But I'd say we're already in a place where we feel great about the business that we have. It's a great business model. The business is at scale with over $30 billion of revenue, healthy profit margins, growing margins, growing free cash flow. So that's sort of a starting point. We're trying to balance, as we reaccelerate revenue, ticking up those margins while also reinvesting back into the business, back into that member base, back into that big prize, where we feel like we're so small today. We've talked on recent earnings calls where we represent, we believe, roughly 5% of that direct consumer spend in the areas of entertainment that we're participating in today, primarily in film, TV and games. And when we think about even just the member population that's available, those 1 billion-plus broadband households, and even today, roughly 450 million, 500 million of those being connected TV households, and we only have 230 million-ish paying members today, so that's why we're so focused on addressing with paid sharing and then just making our business and the value that we bring to the service better each day to bring in more members. – Spencer Neumann, CFO (15:36)

-> The potential for growing margins: If I could add an example of that, of the scale of the business being global, is that every one of our big content wins starts as a local win. And then in success, they roll out and they get regional, then they reach as far, then they get global, and it's a huge success. And there's no marginal cost to all that additional audience when we get it right. By creating those stories that drive growth of the business in local territories, it provides content into the pool that people can fall in love with, and it's just as likely that we can get a gigantic hit from anywhere in the world. And that's really the scale of our operating business. And to go back to what Spence said about the potential to even grow margins beyond where we're at today, it’s very, very high. – Theodore Sarandos, Co-CEO (17:24)

-> Capital allocation: We are happy to be fully investment-grade as of Q1. So that's a nice milestone for the company. There's no change to our capital allocation philosophy. So we are still targeting to maintain minimum cash equivalent to roughly 2 months of revenue. Based on the Q1 numbers, it's about $5.4 billion of minimum cash. We ended the quarter with about $7.8 billion on the balance sheet, so we do have about $2.4 billion of excess cash. That is why we did indicate in the letter that our share repurchases will accelerate over the course of the year. – Spencer Wang, Vice President of Finance & IR (18:29)

-> Gaming; engagement and synergies: We've got 55 games out to date. We've got 40 more in the queue for this year. There's very exciting games. If you want to try a few out, I'd recommend Terra Nil. That's a reverse city builder, sort of a twist on that genre. You've got Mighty Quest launching today. Our first new game from an internal studio, which is OXENFREE II, is coming later this year. So you can sort of see it build into a combination of licensing and now layering in internally-developed games into that. It's following a trajectory that we've seen before, I would say, on these other new content categories that we've added if you think about film, and you heard folks here talk about sort of that film progress or nonfiction or international, where we sort of build into this over a multiyear period. And to reinforce, you mentioned those metrics. The fundamental goal here, obviously, is to give our members a new entertainment modality and more ways to enjoy incredible universes and deepen their fandom. And we do that with an effort to drive the primary metrics we have on the consumer-facing side, which is engagement with the service, which leads to retention, and incredible stories that people are talking about, games that are must-play games, that create buzz off the service and motivate people to sign up. – Gregory Peters, Co-CEO (31:39)

-> Q1 2023 summary: We're really pleased with the quarter. 2023 is off to a good start. Netflix is the leading streaming service in terms of engagement, revenue and profits. And streaming is the future of entertainment at home. So on engagement, just yesterday, Nielsen released data that in Q1 of '23, Netflix was the most watched of any broadcaster or streamer in the U.S. by a pretty nice margin. We have plenty of room to grow. Even with that tremendous amount of watching, we're about 10% of total TV time in our most established markets like the U.S. and the U.K. On revenue and profit, we're growing, not as fast as we believe we can, not as fast as we'd want to, but we are growing and we are profitable. And we have a clear path to reaccelerate growth in both revenue and profit, and we're executing on it. You'll see a broader rollout of paid sharing in Q2 and we're going to continue to grow that ad business. And we are aiming to continue to grow free cash flow. As we said this year, we're going to generate about $3.5 billion in free cash and on increased margins. [...] So the variety and quality of our much-watch movies, our must-watch TV shows, our must-play games, we're going to keep working to improve discovery, to have buzzier and more creative marketing because, when we deliver for our members, we deliver as a business. And we keep doing that by doing it just a bit better and a bit faster than our competition every month, every quarter and every year. – Theodore Sarandos, Co-CEO (41:26)

JPMorgan Chase & Co Q1 2023

Trends related to the banking crisis such as inflows and deposit outflows, consumer health, 2023 outlook, and the risk for higher interest rates.

Revenue +25%
Net income +52%
*margin 33% (27)
EPS +56%
ROE 18% (13)
ROTCE 23% (16)

-> Significant inflows due to the banking crisis: Before reviewing our results for the quarter, let’s talk about the recent bank failures. Jamie has addressed a number of the important themes in his shareholder letter and the recent televised interview. So, I will go straight to the specific impacts on the Firm. As you would expect, we saw significant new account opening activity and meaningful deposit and money market fund inflows, most significantly in the Commercial Bank, Business Banking and AWM. - Jeremy Barnum, CFO (00:23)

-> Modest deposit outflows expected: Regarding the deposit inflows, at the Firm-wide level, average deposits were down 3% quarter-on-quarter, while end-of-period deposits were up 2% quarter-on-quarter, implying an intra-quarter reversal of the recent outflow trend as a consequence of the March events. We estimate that we have retained approximately $50 billion of these deposit inflows at quarter end. It’s important to note that while the sequential period-end deposit increase is higher than we would have otherwise expected, our current full year NII outlook, which I will address at the end, still assumes modest deposit outflows from here. We expect these outflows to be driven by the same factors as last quarter as well as the expectation that we will not retain all of this quarter’s inflows. - Jeremy Barnum, CFO (00:23)

-> Consumer health still showing resilience: Touching quickly on the health of U.S. consumers and small businesses based on our data. Both continue to show resilience and remain on the path to normalization as expected, but we continue to monitor their activity closely. Spend remains solid, and we have not observed any notable pullback throughout the quarter. - Jeremy Barnum, CFO (03:41)

-> Challenging times ahead: In terms of the outlook, the dynamics remain the same. Our pipeline is relatively robust, but conversion is sensitive to market conditions and the economic outlook. We expect the second quarter and the rest of the year to remain challenging. - Jeremy Barnum, CFO (07:03)

-> Increased guidance for 2023: We now expect 2023 NII and NII ex-markets to be approximately $81 billion. This increase in guidance is primarily driven by lower rate paid assumptions across both consumer and wholesale in light of the expectation of Fed cuts later in the year as well as slightly higher card revolving balances. Note that in line with my comments at the outset, recent deposit balance increases are not a meaningful contributor to the upward revision in the NII outlook, given that we expect a meaningful portion of the recent inflows to reverse later in the year. I would point out that this outlook still embeds significant reprice lags. We think a more sustainable NII ex-markets run rate in the medium term is well below this quarter’s $84 billion as well as below the $80 billion that is implied for the rest of the year by our full year guidance. - Jeremy Barnum, CFO (12:03)

-> Recalibrate the system to make regional banks stronger, not weaker: Look, we’re hoping that everyone just takes a deep breath and looks at what happened, and the breadth and depth of regulations already in place. Obviously, when something happens like this, you should adjust, think about it. So I think down the road, there may be some limitations on held to maturity, maybe more TLAC for certain type size banks and more scrutiny and history exposure, stuff like that. But it doesn’t have to be a revamp of the whole system. It’s just recalibrating things the right way. I think it should be done knowing what you want the outcome to be. The outcome you should want is very strong community and regional banks. And certain actions are taking, which are drastic, it could actually make them weaker. So, that’s all it is. We do expect higher capital from Basel IV effectively. And obviously, there’s going to be an FDIC assessment. That will be what it is. - Jamie Dimon, Chairman and CEO (16:18)

-> Uncertainties moving in the same direction: So let me just summarize the drivers of the change in the outlook. So the primary driver really is lower deposit rate paid expectations across both consumer and wholesale which, as you mentioned, is driven by a couple of factors. So the change in the rate environment with cuts coming sooner in the outlook, all else equal, does take some pressure off the reprice. And as you said, we’re getting a lot of positive feedback from field on our product offerings. The short-term CD, in particular, is really getting a lot of positive feedback from our folks in the branches. It’s been very attractive to yield-seeking customers. So, that’s kind of working well. And then on the asset side, we are seeing a little bit higher card revolve, which is helping. And I’ll just remind you that at a conference in February, I suggested that we were already starting to feel like some of the uncertainties we mentioned when giving the guidance had started all moving in the same direction. And that was one of the things that contributed to the upward revision, like all the uncertainty kind of went through the same way. - Jeremy Barnum, CFO (18:18)

-> No credit crunch on the horizon: I wouldn’t use the word credit crunch, if I were you. Obviously, there’s going to be a little bit of tightening. And most of that will be around certain real estate things. You’ve heard it from real estate investors already. So I just look at that as a kind of a thumb on the scale. It just makes the finance conditions will be a little bit tighter, increases the odds of a recession. That’s what that is. It’s not like a credit crunch. - Jamie Dimon, Chairman and CEO (22:08)

-> Be prepared for higher rates: So, there is a risk of higher rates for longer. And don’t just think of just the Fed funds rate because I think you should -- for our planning, I’d be thinking more about, it could be 6 and don’t -- and then think about the 5- and 10-year rate, which could be 5. And I think if those things happen, I’m not saying they’re going to happen. I just think people should prepare for them. They saw what just happened when rates went up beyond people’s expectations. You had the guilt problem in London. You had some of the banks here. People need to be prepared for the potential of higher rates for longer. If and when that happens, it will address problems in the economy for those who are too exposed to floating rates or those who are too exposed to refi risk. - Jamie Dimon, Chairman and CEO (33:45)

Amazon 2022 letter to shareholders

Why Amazon wants employees back in the office, cost reduction initiatives for fulfillment, opportunities and challenges for AWS, the rise of ads, and Generative AI investments.

-> Focusing on long-term free cash flow and ROIC: Over the last several months, we took a deep look across the company, business by business, invention by invention, and asked ourselves whether we had conviction about each initiative’s long-term potential to drive enough revenue, operating income, free cash flow, and return on invested capital. In some cases, it led to us shuttering certain businesses. For instance, we stopped pursuing physical store concepts like our Bookstores and 4 Star stores, closed our Amazon Fabric and Amazon Care efforts, and moved on from some newer devices where we didn’t see a path to meaningful returns. In other cases, we looked at some programs that weren’t producing the returns we’d hoped (e.g. free shipping for all online grocery orders over $35) and amended them. We also reprioritized where to spend our resources, which ultimately led to the hard decision to eliminate 27,000 corporate roles. There are a number of other changes that we’ve made over the last several months to streamline our overall costs, and like most leadership teams, we’ll continue to evaluate what we’re seeing in our business and proceed adaptively.

-> Collaboration and inventing is more effective in-person: We also looked hard at how we were working together as a team and asked our corporate employees to come back to the office at least three days a week, beginning in May. During the pandemic, our employees rallied to get work done from home and did everything possible to keep up with the unexpected circumstances that presented themselves. It was impressive and I’m proud of the way our collective team came together to overcome unprecedented challenges for our customers, communities, and business. But, we don’t think it’s the best long-term approach. We’ve become convinced that collaborating and inventing is easier and more effective when we’re working together and learning from one another in person. The energy and riffing on one another’s ideas happen more freely, and many of the best Amazon inventions have had their breakthrough moments from people staying behind after a meeting and working through ideas on a whiteboard, or continuing the conversation on the walk back from a meeting, or just popping by a teammate’s office later that day with another thought. Invention is often messy. It wanders and meanders and marinates. Serendipitous interactions help it, and there are more of those in-person than virtually. It’s also significantly easier to learn, model, practice, and strengthen our culture when we’re in the office together most of the time and surrounded by our colleagues. Innovation and our unique culture have been incredibly important in our first 29 years as a company, and I expect it will be comparably so in the next 29.

-> Increasing efficiency and driving down costs for fulfillment: A critical challenge we’ve continued to tackle is the rising cost to serve in our Stores fulfillment network (i.e. the cost to get a product from Amazon to a customer)—and we’ve made several changes that we believe will meaningfully improve our fulfillment costs and speed of delivery. During the early part of the pandemic, with many physical stores shut down, our consumer business grew at an extraordinary clip, with annual revenue increasing from $245B in 2019 to $434B in 2022. This meant that we had to double the fulfillment center footprint that we’d built over the prior 25 years and substantially accelerate building a last-mile transportation network that’s now the size of UPS (along with a new sortation center network to assist with efficiency and speed when items needed to traverse long distances)—all in the span of about two years. This was no easy feat, and hundreds of thousands of Amazonians worked very hard to make this happen. However, not surprisingly, with that rate and scale of change, there was a lot of optimization needed to yield the intended productivity. Over the last several months, we’ve scrutinized every process path in our fulfillment centers and transportation network and redesigned scores of processes and mechanisms, resulting in steady productivity gains and cost reductions over the last few quarters. There’s more work to do, but we’re pleased with our trajectory and the meaningful upside in front of us.

-> Opportunities and challenges for AWS: AWS has an $85B annualized revenue run rate, is still early in its adoption curve, but at a juncture where it’s critical to stay focused on what matters most to customers over the long-haul. Despite growing 29% year-over-year (“YoY”) in 2022 on a $62B revenue base, AWS faces short-term headwinds right now as companies are being more cautious in spending given the challenging, current macroeconomic conditions. While some companies might obsess over how they could extract as much money from customers as possible in these tight times, it’s neither what customers want nor best for customers in the long term, so we’re taking a different tack. One of the many advantages of AWS and cloud computing is that when your business grows, you can seamlessly scale up; and conversely, if your business contracts, you can choose to give us back that capacity and cease paying for it. This elasticity is unique to the cloud, and doesn’t exist when you’ve already made expensive capital investments in your own on-premises datacenters, servers, and networking gear. In AWS, like all our businesses, we’re not trying to optimize for any one quarter or year. We’re trying to build customer relationships (and a business) that outlast all of us; and as a result, our AWS sales and support teams are spending much of their time helping customers optimize their AWS spend so they can better weather this uncertain economy. [...] Customers have appreciated this customer-focused, long-term approach, and we think it’ll bode well for both customers and AWS.

-> The enormous advertising opportunity: Similarly high potential, Amazon’s Advertising business is uniquely effective for brands, which is part of why it continues to grow at a brisk clip. Akin to physical retailers’ advertising businesses selling shelf space, end-caps, and placement in their circulars, our sponsored products and brands offerings have been an integral part of the Amazon shopping experience for more than a decade. However, unlike physical retailers, Amazon can tailor these sponsored products to be relevant to what customers are searching for given what we know about shopping behaviors and our very deep investment in machine learning algorithms. This leads to advertising that’s more useful for customers; and as a result, performs better for brands. This is part of why our Advertising revenue has continued to grow rapidly (23% YoY in Q4 2022, 25% YoY overall for 2022 on a $31B revenue base), even as most large advertising-focused businesses’ growth have slowed over the last several quarters.

-> Synergies and optionality: We strive to be the best place for advertisers to build their brands. We have near and long-term opportunities that will help us achieve that mission. We’re continuing to make large investments in machine learning to keep honing our advertising selection algorithms. For the past couple of years, we’ve invested in building comprehensive, flexible, and durable planning and measurement solutions, giving marketers greater insight into advertising effectiveness. An example is Amazon Marketing Cloud (“AMC”). AMC is a “clean room” (i.e. secure digital environment) in which advertisers can run custom audience and campaign analytics across a range of first and third-party inputs, in a privacy-safe manner, to generate advertising and business insights to inform their broader marketing and sales strategies. The Advertising and AWS teams have collaborated to enable companies to store their data in AWS, operate securely in AMC with Amazon and other third-party data sources, perform analytics in AWS, and have the option to activate advertising on Amazon or third-party publishers through the Amazon Demand-Side Platform. Customers really like this concerted capability. We also see future opportunity to thoughtfully integrate advertising into our video, live sports, audio, and grocery products. We’ll continue to work hard to help brands uniquely engage with the right audience, and grow this part of our business.

-> Framework for looking at new investment opportunities: While it’s tempting in turbulent times only to focus on your existing large businesses, to build a sustainable, long-lasting, growing company that helps customers across a large number of dimensions, you can’t stop inventing and working on long-term customer experiences that can meaningfully impact customers and your company. When we look at new investment opportunities, we ask ourselves a few questions:

  • If we were successful, could it be big and have a reasonable return on invested capital?

  • Is the opportunity being well-served today?

  • Do we have a differentiated approach?

  • And, do we have competence in that area? And if not, can we acquire it quickly?

If we like the answers to those questions, then we’ll invest. This process has led to some expansions that seem straightforward, and others that some folks might not have initially guessed. The earliest example is when we chose to expand from just selling Books, to adding categories like Music, Video, Electronics, and Toys. Back then (1998-1999), it wasn’t universally applauded, but in retrospect, it seems fairly obvious.

-> Amazon invests heavily in Generative AI: One final investment area that I’ll mention, that’s core to setting Amazon up to invent in every area of our business for many decades to come, and where we’re investing heavily is Large Language Models (“LLMs”) and Generative AI. Machine learning has been a technology with high promise for several decades, but it’s only been the last five to ten years that it’s started to be used more pervasively by companies. This shift was driven by several factors, including access to higher volumes of compute capacity at lower prices than was ever available. Amazon has been using machine learning extensively for 25 years, employing it in everything from personalized ecommerce recommendations, to fulfillment center pick paths, to drones for Prime Air, to Alexa, to the many machine learning services AWS offers (where AWS has the broadest machine learning functionality and customer base of any cloud provider). More recently, a newer form of machine learning, called Generative AI, has burst onto the scene and promises to significantly accelerate machine learning adoption. Generative AI is based on very Large Language Models (trained on up to hundreds of billions of parameters, and growing), across expansive datasets, and has radically general and broad recall and learning capabilities. We have been working on our own LLMs for a while now, believe it will transform and improve virtually every customer experience, and will continue to invest substantially in these models across all of our consumer, seller, brand, and creator experiences. Additionally, as we’ve done for years in AWS, we’re democratizing this technology so companies of all sizes can leverage Generative AI. [...] I could write an entire letter on LLMs and Generative AI as I think they will be that transformative, but I’ll leave that for a future letter. Let’s just say that LLMs and Generative AI are going to be a big deal for customers, our shareholders, and Amazon.

BlackRock Inc Q1 2023

What drives BlackRock’s growth, the structural shift in the marketplace, why TINA is over, and more.

Revenue -10%
EBIT -17%
*margin 34% (38)
EPS -18%
Average AUM -8%

-> What drives BlackRock’s growth: I'm excited to be presenting for the first time as CFO. As many of you know, most of my first 17 years at BlackRock were spent in client-facing roles. And I can tell you firsthand, BlackRock was built for clients. Financial cracks and economic damage from this rapid rate hiking cycle burst into view over the last few weeks, 20 years of easy money is definitely behind us. The world is adjusting to higher rates and tightening credit conditions. [...] Market dislocations present significant opportunities for BlackRock and most importantly, for our clients. Asset management firms connect investors to capital markets, and we see these recent dislocations driving more economic activity and growth to markets. We've spent 35 years creating more access, creating more connections among long-term investors, capital markets and the real economy. We've unlocked new markets through iShares and personalized SMAs. We pioneered unconstrained bond strategies, and we put Aladdin on the desktops of thousands of investors and advisers, leading the industry, leading our clients on this journey with world-class investment capabilities, market insights, advice and technology, that's the center of BlackRock's growth strategy. We're a partner. We have a long-term perspective. We have the ability to move quickly in times of stress. We're a whole portfolio adviser, providing end-to-end technology and investment portfolio servicing. Clients use BlackRock as a scale enabler. They use our platform as a service. They use it to streamline and support the growth and commercial nimbleness of their own business. Our unique platform combination of ETFs, advisory, outsourcing technology alongside active and private markets capabilities, that's what's driving BlackRock's differentiated organic growth. – Martin Small, CFO & Global Head of Corporate Strategy (01:28)

-> Capturing over ⅓ of long term industry flows: BlackRock is a source of both stability and optimism for our clients. We are helping them navigate volatility and embed resiliency in their portfolios while also providing insights on the long-term investment opportunities to be had in today's markets. In 2022, BlackRock generated $307 billion in net new assets and captured over 1/3 of long-term industry flows. Strong momentum continued into 2023, and we once again led the industry with $110 billion of net inflows in the first quarter. – Larry Fink, Chairman & CEO (14:25)

-> Current crisis will ultimately fuel another round of growth in the capital markets: Recent market volatility and stress in the regional banking sector are the consequences of prolonged periods of aggressive fiscal and monetary policy coming to an end. These policies contribute to a sharp rise in inflation with the Federal Reserve responding with the fastest pace of rate hikes [...] since the 1980s. The cost of these hikes is now materializing, including through shocks to regional banks. Fears of impairment and held-to-maturity portfolios and bank balance sheets and a crisis of confidence in regional banks set off a wave of shutdowns, seizures and regulatory interventions that we haven't seen at this scale in a long time. As these historic events were unfolding, we marked the 35th anniversary of the founding of BlackRock. Throughout our history, moments of dislocation and disruption have been inflection points for BlackRock. This is where opportunity arises for both BlackRock and for our clients. From times like this, we have always emerged stronger, more differentiated in the industry and much more deeply connected to each and every client. We founded BlackRock based on our belief in the long-term growth of the capital markets and the importance of being invested in them. BlackRock has grown as the role of the capital markets has grown over the past 35 years. I believe the current crisis of confidence in the regional banking sector will ultimately fuel another round of growth in the capital markets. BlackRock will be an important player, and there are going to be more opportunities for clients as people, companies and countries increasingly turn to markets to finance their retirement, their businesses and the entire economies. – Larry Fink, Chairman & CEO (16:25)

-> A structural shift in the marketplace: It is an incredibly dynamic time for the cash and liquidity markets. This has historically been a stable value, low or no expected return asset class where people do lots of operational things. But we've obviously entered into this period that started with kind of rates and inflation and has been supercharged essentially by banking sector tremors. And as you correctly flagged, we've seen an extraordinary amount of inflow into money market funds. And clients, I think, pay very close attention to where they keep their operating cash and where they keep cash where they can earn a yield premium over deposits. And in every single cycle, deposits obviously tend to lag where money market rates are and deposit betas are just lower. So I think there is absolutely a structural shift in the marketplace that's driven by 2 things. One, just rates inflation, but also just clients paying a lot more attention about where they're going to keep their cash balances for the purpose of what they do. – Martin Small, CFO & Global Head of Corporate Strategy

-> No more TINA: So you know that we're coming off of the highest inflation in 40 years. The fastest increase in rates in 40 years. The tail end of a pandemic, the war in Europe, a lot of geopolitical tensions. And last year, the S&P down 19%. And of course, we're in the midst of Fed tightening. And the result of all of this is yields are back. And for the first time in years, investors can actually earn very attractive yields without taking much duration or credit risk. And this is a pretty remarkable shift. This is really a once in a generation opportunity in fixed income and clients have been over the last many years because of low rates, underweighted in fixed income. So at BlackRock, we are very well positioned with our $3.3 trillion fixed income and cash platform. – Rob Kapito, President (39:19)