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Tech investors ‘want visibility’ into economy, Goldman Sachs managing director says

Goldman Sachs’ Eric Sheridan sits down with Yahoo Finance's Brian Sozzi to discuss the outlook for markets, plus where Peloton is in its turnaround plan.

Video Transcript


AKIKO FUJITA: Consumer inflation coming in hotter than expected for the month of August, slamming stocks and pushing Treasury yields higher. So what does this all mean for those rate-sensitive growth stocks? Let's get out to Yahoo Finance's Brian Sozzi who's standing by with a special guest. Brian.

BRIAN SOZZI: Thanks so much, Akiko. I'm here with Goldman Sachs Managing Director Eric Sheridan. Eric, that CPI print, like Akiko mentioned, has hammered tech stocks again here in the early going. Why is this happening? And when does it end?

ERIC SHERIDAN: Well, I think at the end of the day, what tech investors want is visibility into a calm, economic environment. Tech, by its very nature, is a risk premium, risk on category of investing.

And when people are uncertain about what's the rate of inflation, what's happening in the macroeconomic environment, what is the Fed gonna do, all things not really part of my purview of covering individual stocks, but it trickles into the conversation. It creates uncertainty. And as a result of it, risk comes off and names sell off in the group. So you really need a stable macro environment where people feel comfortable putting more risk back on in their portfolio.

BRIAN SOZZI: You've been working the room for almost two days now here at this Goldman Sachs conference. What are you hearing from executives? Does it-- is it cautionary to the point where these selloffs are justified?

ERIC SHERIDAN: Well, the interesting thing is-- you know, we're super excited about this conference. We put together our Communicopia and technology conferences. We have over 200 companies here across the whole global TMT landscape. And ironically, what we're hearing is consumer demand is fine.

So there's sort of this dynamic of, what is the Fed gonna do? Which is away from fundamental investing and how it impacts the economy three, six, nine months down the road. But listening to companies yesterday, you would not get the sense that the US consumer is acting like we're already in a recession by a long shot.

BRIAN SOZZI: You cover 48 companies. 48, right? That's a huge coverage list. Who has impressed you so far with-- among those companies that are presented?

ERIC SHERIDAN: I think Dara Khosrowshahi yesterday from Uber. It was standing room only in the ballroom. I think Dara told a compelling story of managing to good growth, 20%-plus type growth he thinks he can generate in gross bookings over the next three to five years while also achieving a path to profitability for the company.

Really, the resurgence in the stock over the last four months has been two straight earnings reports where they've improved profitability. They struck a very positive tone on striking a balance of good growth, improved profitability, and that really resonates with investors looking for potential turnaround stories as you go out of '22 into 2023.

BRIAN SOZZI: Well, if Uber is pitching that story, what does that mean for Lyft? Should an investor-- do they have to own both Uber and Lyft here?

ERIC SHERIDAN: We like both because I do like the category. I think we're going back to work. We're starting to travel again. There's over 2,000 people here at the Palace--

BRIAN SOZZI: Yeah, I didn't walk here.


BRIAN SOZZI: I didn't walk here.

ERIC SHERIDAN: --this week. So we're getting back out there. Society is normalizing. And this is a good two-player market, 70%-75% market share for Uber, 25% to 30% market share for Lyft. I think they can basically function well in that kind of duopoly structure.

But Uber, I think, gives you a little bit more. That's why we like it a little bit more from a risk-reward standpoint because you get exposure to delivery, you get exposure to freight, you get a lot of equity invest-- investments on their balance sheet. You know, I always say, you know, there's a lot of shots on goal with something like Uber where there's a lot of ways to potentially earn outsized returns with that stock. So preference for Uber over Lyft but we actually like both as reopening dynamics.

BRIAN SOZZI: Let's dive into Peloton, another company on your coverage list. Stock is down double-digit percentage. Part of that it reflects the market selloff today.

But look, now you have the founder John-- cofounder John Foley out of the company. You spent some time with new CEO Barry McCarthy. What are you hearing from him? And what gets that stock to recover?

ERIC SHERIDAN: Yeah, I think the company is in transition. And I think what you saw in that press release yesterday was some of the original founding members of the company moving out of the organization. And Barry is now starting to put his imprint on the organization.

And many of us on Wall Street have known Barry for a very long time-- CFO Netflix, CFO Spotify, now CEO of Peloton. And I think what he asked for yesterday was time. They're trying to work through their inventory. This was a product that sold itself during the pandemic when we were all stuck at home.

And now, they're trying to find their footing in a postpandemic normalized-demand environment. They announced a partnership with Amazon a few weeks back to sell the bike on Amazon. So I think they're trying to find the right go-to-market strategy. They're trying to find a demand normalization level to invest against with marketing dollars. And they're trying to get to free cash flow positive and break even.

I think that's gonna take at least the next couple of quarters. I've noticed a lot of investor incoming to me wanting to focus more on the stock because people are looking for those kind of turnaround stories into 2023. We're still neutral rated on the stock. But it was a fascinating conversation about how you're basically trying to turn a pandemic winner and execute against a turnaround strategy moving into next year.

BRIAN SOZZI: Real quick, price target?

ERIC SHERIDAN: Our price target is $18 on Peloton. And it's been very volatile as a stock--


ERIC SHERIDAN: --between high single digits and into the mid-$20s.

BRIAN SOZZI: Indeed it has. All right, let's leave it there. Goldman Sachs Managing Director Eric Sheridan, get back to the conference. We'll talk to you soon.

ERIC SHERIDAN: Thanks for having me. Appreciate it.