1 00:00:02,920 --> 00:00:10,840 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. You're listening to the 2 00:00:10,880 --> 00:00:15,040 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:15,080 --> 00:00:18,079 Speaker 1: Eastern on Apple Card playing Android Auto with the Bloomberg 4 00:00:18,120 --> 00:00:21,440 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,640 --> 00:00:24,040 Speaker 1: or watch us live on YouTube. 6 00:00:25,040 --> 00:00:29,240 Speaker 2: The story again today is Nvidio stock trading up on 7 00:00:29,280 --> 00:00:31,520 Speaker 2: the back of that really good earnings we had earlier 8 00:00:31,560 --> 00:00:33,720 Speaker 2: in the week, and obviously had that big surge yesterday, 9 00:00:34,400 --> 00:00:37,080 Speaker 2: but it's up a few percent here today. I'm looking 10 00:00:37,080 --> 00:00:39,040 Speaker 2: at this stock again, trailing twelve months, up over two 11 00:00:39,080 --> 00:00:41,839 Speaker 2: hundred and forty up sixty percent, just a year to 12 00:00:41,920 --> 00:00:45,360 Speaker 2: date two point zero two trillion dollars. Let's check in 13 00:00:45,360 --> 00:00:47,920 Speaker 2: with man Deep Singh. He's a senior technology analyst for 14 00:00:47,960 --> 00:00:51,720 Speaker 2: Bloomberg Intelligence and he knows all about this kind of stuff. So, 15 00:00:51,800 --> 00:00:55,680 Speaker 2: Man Deep, you know, I think we've broken down the quarter. 16 00:00:55,840 --> 00:00:58,040 Speaker 2: We know that business is good. We had gene Monster 17 00:00:58,120 --> 00:01:00,800 Speaker 2: on in the last hour for a couple segments there. 18 00:01:01,120 --> 00:01:05,000 Speaker 2: He remains uber uber bullish here and he says that 19 00:01:05,080 --> 00:01:09,520 Speaker 2: this AI is just below electricity in terms of how 20 00:01:09,520 --> 00:01:13,720 Speaker 2: it's going to impact our lives and well above the Internet. Man. 21 00:01:13,800 --> 00:01:17,399 Speaker 2: That's bullish. Do you have any sobering thoughts as it 22 00:01:17,400 --> 00:01:20,920 Speaker 2: relates to AI and in video Here I. 23 00:01:21,040 --> 00:01:24,840 Speaker 3: Concur with him. I think this is, you know, something 24 00:01:24,959 --> 00:01:29,319 Speaker 3: transformational multi year. The only thing that as an investor 25 00:01:29,440 --> 00:01:33,200 Speaker 3: you have to be cognizant of is clearly and video 26 00:01:33,319 --> 00:01:38,800 Speaker 3: is compounding, you know, at fifty percent, and because it's 27 00:01:38,800 --> 00:01:41,679 Speaker 3: a multi year trend, they can do that. What is 28 00:01:41,760 --> 00:01:46,040 Speaker 3: the price you pay for getting in this dock? And 29 00:01:46,240 --> 00:01:50,240 Speaker 3: what is a multiple that you know discounts for the 30 00:01:50,280 --> 00:01:54,560 Speaker 3: growth going far out beyond you know three to four quarters, 31 00:01:54,560 --> 00:01:57,960 Speaker 3: which I think they have great visibility on And so 32 00:01:58,560 --> 00:02:01,600 Speaker 3: that's where you know there there is always a price 33 00:02:01,960 --> 00:02:05,960 Speaker 3: for you know, even a high quality stock like in 34 00:02:06,080 --> 00:02:10,320 Speaker 3: VideA where the fundamentals are great, but it's not infinity. 35 00:02:10,480 --> 00:02:14,880 Speaker 3: And so that's the I think part where clearly you 36 00:02:14,919 --> 00:02:17,959 Speaker 3: know they're writing the momentum. It's it's great, I mean, 37 00:02:18,080 --> 00:02:21,960 Speaker 3: they had a blockbuster earning Siattra game, but it's we 38 00:02:22,040 --> 00:02:22,960 Speaker 3: know it's not forever. 39 00:02:23,400 --> 00:02:24,760 Speaker 4: And the price. 40 00:02:25,360 --> 00:02:28,440 Speaker 3: That's why we look at prices, multiples and you know, valuation, 41 00:02:28,600 --> 00:02:31,240 Speaker 3: and I think that's the part that market still is 42 00:02:31,240 --> 00:02:34,120 Speaker 3: figuring out what is the right multiple for stock like 43 00:02:34,160 --> 00:02:34,799 Speaker 3: in Video. 44 00:02:34,960 --> 00:02:37,080 Speaker 5: Mande, let's just come back for a second to what 45 00:02:37,400 --> 00:02:40,320 Speaker 5: in Video's technology actually is. It says here that they 46 00:02:40,360 --> 00:02:44,280 Speaker 5: dominate the market for graphics chips designed for complex computing 47 00:02:44,360 --> 00:02:49,679 Speaker 5: tasks needed to power AI applications. So in plain speak, 48 00:02:49,840 --> 00:02:51,960 Speaker 5: how does somebody like me make use of that? 49 00:02:53,360 --> 00:02:56,280 Speaker 3: Well, so think of you know, all the processing that 50 00:02:56,480 --> 00:02:59,200 Speaker 3: was done in the last thirty thirty five years. It 51 00:02:59,440 --> 00:03:04,120 Speaker 3: was used a CPU central processing unit, and CPU works 52 00:03:04,120 --> 00:03:06,519 Speaker 3: in a certain way in terms of the instructions you 53 00:03:06,639 --> 00:03:09,920 Speaker 3: pass through the processor, the way it does the processing, 54 00:03:10,000 --> 00:03:12,800 Speaker 3: and the way results are split out. That was the 55 00:03:12,840 --> 00:03:15,440 Speaker 3: same even with data centers, even though the CPU and 56 00:03:15,520 --> 00:03:19,239 Speaker 3: data centers is a lot more powerful within media because 57 00:03:19,360 --> 00:03:24,360 Speaker 3: they've focused on graphics and gaming related processing, that's a 58 00:03:24,440 --> 00:03:27,959 Speaker 3: different type of chip altogether. And now they've been able 59 00:03:28,040 --> 00:03:31,760 Speaker 3: to bring that to AI computation, which is all matrix space. 60 00:03:31,880 --> 00:03:35,560 Speaker 3: So we're talking about you know, vectors and matrix multiplication 61 00:03:36,200 --> 00:03:39,720 Speaker 3: and you know, billions of dimensions in terms of the 62 00:03:39,800 --> 00:03:42,520 Speaker 3: data that you're dealing with, and that's a very different 63 00:03:42,560 --> 00:03:46,320 Speaker 3: operation than what CPU is designed to handle. That's why 64 00:03:46,760 --> 00:03:50,000 Speaker 3: they've had such a great headstart because they've been doing 65 00:03:50,040 --> 00:03:52,920 Speaker 3: this for you know, twenty five plus years in terms 66 00:03:52,920 --> 00:03:56,600 Speaker 3: of that gaming processor that is being used for AI, 67 00:03:57,080 --> 00:04:00,200 Speaker 3: and that's why I think others are finding it hard 68 00:04:00,280 --> 00:04:02,240 Speaker 3: to catch up. But at the end of the day, 69 00:04:02,320 --> 00:04:05,360 Speaker 3: it's still a hardware company that makes chips, so it's 70 00:04:05,360 --> 00:04:08,200 Speaker 3: not a recurring revenue and that's something to be mindful 71 00:04:08,240 --> 00:04:11,920 Speaker 3: of that others are trying to build the capabilities that 72 00:04:11,960 --> 00:04:12,280 Speaker 3: they have. 73 00:04:13,600 --> 00:04:15,840 Speaker 2: All right, Mandy, let's switch gears a little bit. We've 74 00:04:16,000 --> 00:04:18,400 Speaker 2: i think beaten that one to death in Nvidia, but 75 00:04:18,440 --> 00:04:20,640 Speaker 2: certainly it's certainly worth talking about. But we've actually had 76 00:04:20,680 --> 00:04:23,160 Speaker 2: another piece of news that really caught my attention. Reddit 77 00:04:24,400 --> 00:04:28,240 Speaker 2: is looking to go public. They foiled their IPO. Can 78 00:04:28,279 --> 00:04:30,280 Speaker 2: you tell us, for those of us that don't use 79 00:04:30,360 --> 00:04:33,719 Speaker 2: Reddit exclusively, tell us kind of what Reddit is, kind 80 00:04:33,720 --> 00:04:36,280 Speaker 2: of what their business model is, and kind of how 81 00:04:36,360 --> 00:04:37,920 Speaker 2: you think this might be received by the market. 82 00:04:39,160 --> 00:04:42,880 Speaker 3: Yeah, so it's an online network. I mean, I would 83 00:04:42,960 --> 00:04:46,039 Speaker 3: lump it with the social media network companies, even though 84 00:04:46,040 --> 00:04:50,280 Speaker 3: it's more community based and interest based. And look, they've 85 00:04:50,320 --> 00:04:54,200 Speaker 3: got seventy three million daily active users. Think of you know, 86 00:04:54,520 --> 00:04:57,480 Speaker 3: all the large angled models. What are they trained on? 87 00:04:57,880 --> 00:05:01,919 Speaker 3: They're trained on user generated content and in reddits case, 88 00:05:02,120 --> 00:05:05,400 Speaker 3: it's all text content. The parallel that I have on 89 00:05:05,440 --> 00:05:08,360 Speaker 3: the video side is YouTube has a lot of user 90 00:05:08,440 --> 00:05:11,719 Speaker 3: generated video content, TikTok has a lot of user generated 91 00:05:11,800 --> 00:05:16,560 Speaker 3: video content. Reddit is your text repository for user generated content, 92 00:05:16,960 --> 00:05:20,679 Speaker 3: and that's what large angreid models are using to train 93 00:05:20,800 --> 00:05:24,080 Speaker 3: these models so that they can generate you know, right 94 00:05:24,160 --> 00:05:27,200 Speaker 3: kind of text because they have so much context from 95 00:05:27,240 --> 00:05:30,440 Speaker 3: these Reddit posts. I mean, we're talking about one billion 96 00:05:30,520 --> 00:05:33,320 Speaker 3: posts you know that Reddit generates in a year. So 97 00:05:33,680 --> 00:05:37,080 Speaker 3: clearly Reddit has the scale. They have created a niche 98 00:05:37,200 --> 00:05:42,120 Speaker 3: within this large social network community where Meta dominates with 99 00:05:42,200 --> 00:05:46,640 Speaker 3: three billion daily active users, but Reddit has seventy three million, 100 00:05:46,720 --> 00:05:49,040 Speaker 3: and these are pretty engaged users. I mean, the business 101 00:05:49,080 --> 00:05:52,680 Speaker 3: model isn't fleshed out because even though it's ads driven, 102 00:05:53,000 --> 00:05:55,599 Speaker 3: we're talking about a billion dollar run rate. And now 103 00:05:55,640 --> 00:06:00,440 Speaker 3: they're opening another line data licensing that all these large 104 00:06:00,440 --> 00:06:02,480 Speaker 3: and A model companies are going to pay for. So 105 00:06:02,600 --> 00:06:05,240 Speaker 3: that's going to be probably a mid to high single 106 00:06:05,320 --> 00:06:08,480 Speaker 3: digit revenue contributors this year. I think that's the part 107 00:06:08,520 --> 00:06:11,000 Speaker 3: that's going to accelerate because you need to retrain these 108 00:06:11,040 --> 00:06:14,760 Speaker 3: models every few months, and Reddit is the best data 109 00:06:14,839 --> 00:06:15,720 Speaker 3: that you can train on. 110 00:06:16,279 --> 00:06:18,760 Speaker 5: So Reddit's really like a forum for a lot of 111 00:06:18,920 --> 00:06:21,799 Speaker 5: communities to gather. You know, they're like these different threads 112 00:06:21,800 --> 00:06:25,320 Speaker 5: on there, and people get like really hyped on different ideas. Obviously, 113 00:06:25,360 --> 00:06:28,720 Speaker 5: the meme stock rally really just originated so much from 114 00:06:28,720 --> 00:06:32,039 Speaker 5: these different Reddit communities. Can you just explain mandeep, like 115 00:06:32,120 --> 00:06:37,960 Speaker 5: where the value is going to come in generating you know, 116 00:06:38,400 --> 00:06:41,680 Speaker 5: investor you know value from some of these different threads. 117 00:06:41,680 --> 00:06:44,240 Speaker 5: I guess, like I'm just having a hard time imagining 118 00:06:44,279 --> 00:06:46,240 Speaker 5: where that value proposition comes from. 119 00:06:47,279 --> 00:06:51,080 Speaker 3: Yeah, so these threads are all user interaction, and that's 120 00:06:51,160 --> 00:06:54,280 Speaker 3: quite powerful. How do you train the machines to behave 121 00:06:54,440 --> 00:06:58,960 Speaker 3: like users? You train it on actual user data and 122 00:06:59,080 --> 00:07:03,880 Speaker 3: this is you know, communities coming together who share similar interests, 123 00:07:04,200 --> 00:07:07,120 Speaker 3: and that's what you use to train the machines. The 124 00:07:07,200 --> 00:07:10,680 Speaker 3: one problem I have found with Reddit's business model is 125 00:07:10,840 --> 00:07:14,480 Speaker 3: advertisers are leary of putting their ads on a platform 126 00:07:14,520 --> 00:07:17,480 Speaker 3: where there is hate or you know, other kind of 127 00:07:17,520 --> 00:07:21,040 Speaker 3: stuff because they are brand conscious. You know, they don't 128 00:07:21,040 --> 00:07:23,880 Speaker 3: want to show their ads next to something that is 129 00:07:24,240 --> 00:07:27,520 Speaker 3: paid or something like that. And that's where they haven't 130 00:07:27,600 --> 00:07:29,960 Speaker 3: had a lot of traction. I mean it sounds to 131 00:07:29,960 --> 00:07:33,080 Speaker 3: be very similar to Twitter. Twitter is a great platform 132 00:07:33,120 --> 00:07:35,880 Speaker 3: for engagement, but they haven't been able to monetize it 133 00:07:36,000 --> 00:07:40,040 Speaker 3: because of all these aspects. So brand safety is huge 134 00:07:40,160 --> 00:07:42,440 Speaker 3: that Reddit needs to solve for if they want to 135 00:07:42,480 --> 00:07:45,040 Speaker 3: scale on the ad side. But as I said before, 136 00:07:45,080 --> 00:07:48,320 Speaker 3: you know, on the data licensing side, this is the 137 00:07:49,320 --> 00:07:53,920 Speaker 3: data set that every foundational, large angrege model company wants 138 00:07:53,960 --> 00:07:57,800 Speaker 3: to train their models on. Because this is all user generated. 139 00:07:57,320 --> 00:08:01,040 Speaker 2: Content, it sounds like, I mean, you know, from an 140 00:08:01,040 --> 00:08:04,880 Speaker 2: advertising perspective, it's you know, it's Meta, it's you know, 141 00:08:05,080 --> 00:08:09,680 Speaker 2: it's Google, it's Amazon now maybe even you know some others. 142 00:08:09,680 --> 00:08:11,600 Speaker 2: But I mean, this is too small to be a 143 00:08:11,600 --> 00:08:13,720 Speaker 2: player in the advertising space. So in order for me 144 00:08:13,760 --> 00:08:16,120 Speaker 2: to buy this IPO, I have to buy off that 145 00:08:16,160 --> 00:08:19,560 Speaker 2: it's also a I guess AI play as well, don't I? 146 00:08:20,800 --> 00:08:23,880 Speaker 3: It absolutely is, and look, ads can be fixed. I mean, 147 00:08:23,960 --> 00:08:27,480 Speaker 3: I compare it to Pinterest. So Pinterest has got twenty 148 00:08:27,520 --> 00:08:30,960 Speaker 3: three million daily active users in the US. Reddit has 149 00:08:30,960 --> 00:08:33,840 Speaker 3: got thirty seven million daily active users in the US, 150 00:08:33,840 --> 00:08:37,439 Speaker 3: so it actually has higher daily active users question and 151 00:08:37,760 --> 00:08:40,760 Speaker 3: Pinterest is four times the size of Reddit in terms 152 00:08:40,840 --> 00:08:43,480 Speaker 3: of revenue run rate, So Pinterest is close to four billion, 153 00:08:43,720 --> 00:08:46,880 Speaker 3: Reddit is a billion. So in terms of runway, clearly, 154 00:08:47,080 --> 00:08:50,800 Speaker 3: you know, Reddit is under monetizing the engagement. But the 155 00:08:50,880 --> 00:08:54,040 Speaker 3: reason for that is advertisers still don't feel like spending 156 00:08:54,080 --> 00:08:57,000 Speaker 3: you know, five ten billion dollars on the platform because 157 00:08:57,000 --> 00:09:00,800 Speaker 3: of brand safety issues and all the type of post 158 00:09:00,920 --> 00:09:03,600 Speaker 3: or discussions they have on Reddit. So they need to 159 00:09:03,640 --> 00:09:06,800 Speaker 3: clean up that part. I'm sure the advertisers that you know, 160 00:09:06,960 --> 00:09:11,360 Speaker 3: they're advertising dollars of well spend, offer measurement, etc. But 161 00:09:11,400 --> 00:09:14,640 Speaker 3: this is fixable. I mean, we've seen Beta do so 162 00:09:14,800 --> 00:09:17,320 Speaker 3: much in terms of ad measurement and ad targeting and 163 00:09:17,360 --> 00:09:19,439 Speaker 3: look at what they have done this year. So clearly 164 00:09:19,480 --> 00:09:22,199 Speaker 3: there is a long runway for Reddit, and the data 165 00:09:22,240 --> 00:09:25,000 Speaker 3: licensing part has a lot of upside because of all 166 00:09:25,040 --> 00:09:26,520 Speaker 3: the generatord ai interests. 167 00:09:26,600 --> 00:09:28,319 Speaker 2: All right, Mandy, thanks so much for joining us. A 168 00:09:28,440 --> 00:09:31,679 Speaker 2: man deep seeing he's a senior technology analyst Bloomberg Intelligence 169 00:09:31,920 --> 00:09:35,560 Speaker 2: joining us via zoom there. So again, Reddit, it's interesting, 170 00:09:35,600 --> 00:09:37,640 Speaker 2: it's it's an ipo. We like to see more of 171 00:09:37,640 --> 00:09:39,679 Speaker 2: those hitting the market. It's a good signed for the market, 172 00:09:39,760 --> 00:09:43,040 Speaker 2: so the IPO buyers will be happy, and it's another 173 00:09:43,120 --> 00:09:46,280 Speaker 2: kind of social media play. But as Mandeep was saying, 174 00:09:46,280 --> 00:09:47,960 Speaker 2: it's got this AI angle to it as well. 175 00:09:48,200 --> 00:09:51,199 Speaker 5: I feel like every time we have a topic here 176 00:09:51,240 --> 00:09:53,280 Speaker 5: on the radio where we're talking about AI, I have 177 00:09:53,360 --> 00:09:55,760 Speaker 5: to ask, like, how is this like somebody like me 178 00:09:56,360 --> 00:09:58,440 Speaker 5: going to use these tools? Because, like, you know, we 179 00:09:58,480 --> 00:10:01,400 Speaker 5: talk about the impact, and sometimes it's hard to imagine 180 00:10:01,400 --> 00:10:03,480 Speaker 5: something that's really going to impact your life more than 181 00:10:03,559 --> 00:10:06,320 Speaker 5: the Internet or a cell phone, and like, is this 182 00:10:06,400 --> 00:10:08,280 Speaker 5: really accessible to the mass market? 183 00:10:08,800 --> 00:10:11,079 Speaker 2: Exactly so, But I mean you'd listen to every company 184 00:10:11,080 --> 00:10:13,000 Speaker 2: in s and P five hundred saying AI is can 185 00:10:13,040 --> 00:10:14,400 Speaker 2: to impact our business. You're going to go up to 186 00:10:14,440 --> 00:10:16,720 Speaker 2: a drive through and it's going to be a different experience, 187 00:10:16,720 --> 00:10:19,160 Speaker 2: of better experience thanks to the technology. And so we'll see, 188 00:10:19,200 --> 00:10:21,200 Speaker 2: you know, but that's clearly what we're a lot of 189 00:10:21,240 --> 00:10:22,800 Speaker 2: the bulls are banking on. 190 00:10:24,400 --> 00:10:28,319 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 191 00:10:28,400 --> 00:10:31,880 Speaker 1: weekdays at ten am Eastern on applecard Play and Android 192 00:10:31,920 --> 00:10:34,720 Speaker 1: Auto with the Bloomberg Business app. You can also listen 193 00:10:34,840 --> 00:10:37,920 Speaker 1: live on Amazon Alexa from our flagship New York station 194 00:10:38,280 --> 00:10:42,000 Speaker 1: just Say Alexa playing Bloomberg eleven thirty. 195 00:10:42,320 --> 00:10:43,840 Speaker 2: You know, I don't know what to do with this market, Moley, 196 00:10:43,880 --> 00:10:46,160 Speaker 2: Maybe I just is it just all in Nvidia all the. 197 00:10:46,120 --> 00:10:48,839 Speaker 6: Time, all teams like all Ta AI or nothing. 198 00:10:48,679 --> 00:10:52,240 Speaker 2: Al Tech exactly AI or nothing. But let's talk about 199 00:10:52,240 --> 00:10:55,000 Speaker 2: this market a more broad sense. Lauren Gilbert can help 200 00:10:55,080 --> 00:10:57,319 Speaker 2: us do that. She's a seat of wealth Wise Financial, 201 00:10:57,679 --> 00:11:00,439 Speaker 2: joining us via zoom from I believe Houston, Texas on 202 00:11:00,559 --> 00:11:03,320 Speaker 2: behalf of Houston, Texas. I'll call out WTI cud oil 203 00:11:03,400 --> 00:11:05,480 Speaker 2: is off about two percent today, seventy seven dollars. I 204 00:11:05,520 --> 00:11:07,160 Speaker 2: think that people in Houston care about that stuff. 205 00:11:07,200 --> 00:11:08,800 Speaker 6: I think they do a little bit. 206 00:11:08,880 --> 00:11:11,240 Speaker 2: Lauren, thanks much for joining us here. What do you 207 00:11:11,320 --> 00:11:14,479 Speaker 2: make of what we've experienced over the past few days, 208 00:11:14,679 --> 00:11:17,160 Speaker 2: in a few weeks as it relates to AI and 209 00:11:17,200 --> 00:11:19,120 Speaker 2: in Vidia and what it means for the tech space 210 00:11:19,160 --> 00:11:21,680 Speaker 2: and the market overall. I haven't seen anything like this 211 00:11:21,720 --> 00:11:22,480 Speaker 2: in a long time. 212 00:11:23,440 --> 00:11:26,800 Speaker 7: Right, Well, we are in the age of AI, which 213 00:11:26,840 --> 00:11:29,679 Speaker 7: is similar to the age of the Internet when it 214 00:11:29,720 --> 00:11:33,360 Speaker 7: came to be. Although this is going to transform really 215 00:11:33,480 --> 00:11:37,200 Speaker 7: every sector in every business, and so it is a 216 00:11:37,280 --> 00:11:40,520 Speaker 7: huge story. It is the catalyst of the market and 217 00:11:40,679 --> 00:11:42,800 Speaker 7: will continue to be in The good news from Nvidia 218 00:11:42,960 --> 00:11:47,679 Speaker 7: yesterday really was that it spread across the semiconductor space 219 00:11:48,840 --> 00:11:52,360 Speaker 7: as all of these different companies are looking to get 220 00:11:52,400 --> 00:11:55,280 Speaker 7: some market share. And so while we still don't know 221 00:11:55,280 --> 00:11:57,760 Speaker 7: who the winner is right now, certainly in Vidia has been, 222 00:11:58,640 --> 00:12:02,000 Speaker 7: but we like the whole space, so semiconductors and also 223 00:12:02,080 --> 00:12:04,400 Speaker 7: what it's going to do to other sectors as well, 224 00:12:04,440 --> 00:12:06,000 Speaker 7: So that is the catalyst. 225 00:12:06,160 --> 00:12:08,240 Speaker 6: How are you feeling right now about earnings in general? 226 00:12:08,320 --> 00:12:11,040 Speaker 5: Loreen, And I mean, obviously there's a lot of positives 227 00:12:11,040 --> 00:12:13,320 Speaker 5: to take from these AI stocks, but what about elsewhere? 228 00:12:14,520 --> 00:12:18,040 Speaker 7: Yeah, So with over eighty percent of the SMP having reported, 229 00:12:18,080 --> 00:12:21,360 Speaker 7: we're having a good earning season. We've clearly come out 230 00:12:21,400 --> 00:12:24,880 Speaker 7: of an earnings recession with year over year growth over 231 00:12:25,080 --> 00:12:29,880 Speaker 7: five percent. So we're in pretty good space there with earnings, 232 00:12:29,960 --> 00:12:34,080 Speaker 7: and we do see opportunities in other areas of the market. 233 00:12:34,160 --> 00:12:37,840 Speaker 7: Communications services is one that we like quite a bit 234 00:12:38,520 --> 00:12:41,880 Speaker 7: as well as healthcare is another sector that we like. 235 00:12:42,080 --> 00:12:44,600 Speaker 7: Just with inflation continuing to come down, and so the 236 00:12:44,679 --> 00:12:48,160 Speaker 7: story is that the backdrop is there with inflation coming down, 237 00:12:48,440 --> 00:12:51,360 Speaker 7: with the FED that's going to make a move sometime 238 00:12:51,400 --> 00:12:53,320 Speaker 7: this year. We're still holding on to the idea of 239 00:12:53,400 --> 00:12:56,400 Speaker 7: May maybe the first rate cut, even though probability has 240 00:12:56,440 --> 00:12:58,480 Speaker 7: come down to twenty one percent now for a May 241 00:12:58,559 --> 00:13:00,400 Speaker 7: rate cut, we still think, you know, it's sooner than 242 00:13:00,480 --> 00:13:02,840 Speaker 7: later with a rate cut, which is going to help 243 00:13:02,880 --> 00:13:07,320 Speaker 7: the many items, especially even housing and home builders for 244 00:13:07,400 --> 00:13:10,120 Speaker 7: the second half of the year. So we do see 245 00:13:10,120 --> 00:13:12,560 Speaker 7: a lot of optimism in areas of the market. 246 00:13:13,000 --> 00:13:15,720 Speaker 2: Laurie and I to see that you like preferred stock, 247 00:13:15,760 --> 00:13:18,440 Speaker 2: and we don't talk about preferred stock preferred stock market 248 00:13:18,720 --> 00:13:22,040 Speaker 2: opportunities with preferred stock. Why in some markets it's a 249 00:13:22,080 --> 00:13:26,360 Speaker 2: real advantageous vehicle. How do you think about preferred stock. 250 00:13:27,280 --> 00:13:29,120 Speaker 7: Yeah, the way that we're thinking about right now is 251 00:13:29,160 --> 00:13:33,040 Speaker 7: the yield is good and it helps us mitigate duration 252 00:13:33,640 --> 00:13:36,720 Speaker 7: risk on fixed income, and so it's a nice play 253 00:13:36,920 --> 00:13:39,800 Speaker 7: between the stock and the bond and looking at preferred 254 00:13:39,800 --> 00:13:43,080 Speaker 7: stock as a way to capture some yield and mitigate 255 00:13:43,120 --> 00:13:43,560 Speaker 7: some risk. 256 00:13:44,160 --> 00:13:46,360 Speaker 5: Well, how are you thinking about the broader fixed income 257 00:13:46,400 --> 00:13:48,320 Speaker 5: space right now? You know you just said that your 258 00:13:48,640 --> 00:13:52,040 Speaker 5: that is sooner rather than later for a FED rate cut, 259 00:13:52,080 --> 00:13:54,679 Speaker 5: which seems like is not what a lot of FED 260 00:13:54,720 --> 00:13:57,000 Speaker 5: officials are saying these days. 261 00:13:57,360 --> 00:14:00,760 Speaker 7: Right, And there's always what is being said and what 262 00:14:00,800 --> 00:14:05,080 Speaker 7: will ultimately be done. But you know, so having some 263 00:14:05,200 --> 00:14:09,400 Speaker 7: duration is good, but not extending too far. We're you know, 264 00:14:09,920 --> 00:14:12,120 Speaker 7: just right pretty close to the benchmark as far as 265 00:14:12,200 --> 00:14:15,360 Speaker 7: duration is concerned. On fixed income, we do like fixed income, 266 00:14:15,400 --> 00:14:18,720 Speaker 7: and we do think that fixed income is going to 267 00:14:18,800 --> 00:14:22,360 Speaker 7: be a good part of a portfolio this year as 268 00:14:22,400 --> 00:14:26,480 Speaker 7: we don't see necessarily a straight line in the equity markets, 269 00:14:26,600 --> 00:14:29,600 Speaker 7: and so having some fixed income there will be good 270 00:14:29,600 --> 00:14:33,080 Speaker 7: to moderate risk on the equity side. We're also looking 271 00:14:33,080 --> 00:14:35,920 Speaker 7: at the earning zeald on stocks right now is not 272 00:14:36,200 --> 00:14:39,400 Speaker 7: that attractive, you know, compared to ten year treasury, so 273 00:14:39,760 --> 00:14:43,040 Speaker 7: you know, looking at that idea. So once again, blended 274 00:14:43,080 --> 00:14:45,680 Speaker 7: portfolio we think is going to be a good story 275 00:14:45,760 --> 00:14:49,080 Speaker 7: this year. And of course, just depending on somebody's risk tolerance, 276 00:14:49,120 --> 00:14:52,880 Speaker 7: where will that blend be. But not being all equity 277 00:14:52,960 --> 00:14:55,160 Speaker 7: or not all fixed income, but having a blend, we 278 00:14:55,160 --> 00:14:58,600 Speaker 7: think it's going to be provide some some decent returns 279 00:14:58,600 --> 00:14:59,000 Speaker 7: this year. 280 00:14:59,360 --> 00:15:02,760 Speaker 2: Hitherin you hear from your clients about their interest in 281 00:15:03,120 --> 00:15:07,240 Speaker 2: I guess alternatives, whether it's private equity, private credit, maybe 282 00:15:07,480 --> 00:15:10,200 Speaker 2: hedge funds. What's the interest level there and kind of 283 00:15:10,280 --> 00:15:11,120 Speaker 2: how do you steer them? 284 00:15:12,360 --> 00:15:17,280 Speaker 7: Yeah, we like alternative investments. We hold alternative investment in 285 00:15:17,320 --> 00:15:20,240 Speaker 7: the spaces you know, you've mentioned a number of them, 286 00:15:21,040 --> 00:15:24,400 Speaker 7: and there's liquid alternatives and there's non liquid alternatives, and 287 00:15:24,440 --> 00:15:28,160 Speaker 7: that's really the conversation to have with investors is you know, 288 00:15:28,240 --> 00:15:31,800 Speaker 7: how much liquidity do you need? And certainly what the 289 00:15:31,840 --> 00:15:35,760 Speaker 7: public markets offer us is liquidity, and that's important. And 290 00:15:35,800 --> 00:15:39,800 Speaker 7: then there are ways to drive more alpha, more excess 291 00:15:39,840 --> 00:15:44,000 Speaker 7: returns versus what might be expected, and that those are 292 00:15:44,040 --> 00:15:47,240 Speaker 7: some of those non liquid alternatives. So I think a 293 00:15:47,240 --> 00:15:50,400 Speaker 7: combination of both is important, and once again looking at 294 00:15:50,400 --> 00:15:53,280 Speaker 7: investors to see what kind of liquidity they actually need. 295 00:15:53,840 --> 00:15:55,520 Speaker 6: So it sounds like tech's a good place to be 296 00:15:55,640 --> 00:15:56,120 Speaker 6: right now. 297 00:15:56,480 --> 00:16:01,040 Speaker 5: You've mentioned you also like some communications stocks. Where else 298 00:16:01,080 --> 00:16:02,760 Speaker 5: are you looking in terms of the industry breakdown? 299 00:16:04,240 --> 00:16:08,240 Speaker 7: Like I was mentioning in healthcare, we like biotech as well, 300 00:16:08,320 --> 00:16:12,120 Speaker 7: just because that is an area that as inflation wanes, 301 00:16:12,600 --> 00:16:15,880 Speaker 7: tends to be positive for that area of the market. 302 00:16:16,000 --> 00:16:20,600 Speaker 7: Those also tend to be oftentimes smaller companies, and while 303 00:16:20,600 --> 00:16:23,360 Speaker 7: we're still seeing a dominance of the large cap space, 304 00:16:23,640 --> 00:16:26,120 Speaker 7: we think there will be a reversal to that trend 305 00:16:26,120 --> 00:16:29,400 Speaker 7: this year and we'll see benefits from smaller cap companies 306 00:16:29,480 --> 00:16:32,200 Speaker 7: as rates start to come down. So that's another area 307 00:16:32,200 --> 00:16:32,680 Speaker 7: that we like. 308 00:16:32,920 --> 00:16:34,640 Speaker 2: All Right, Lurene, thank you so much for joining us. 309 00:16:34,680 --> 00:16:36,200 Speaker 2: Really appreciate getting a few minutes of your time with 310 00:16:36,280 --> 00:16:39,920 Speaker 2: Loreen Gilbert, CEO of wealth Wise Financial, joining us via 311 00:16:39,960 --> 00:16:41,280 Speaker 2: zoom from Houston, Texas. 312 00:16:43,240 --> 00:16:47,120 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 313 00:16:47,200 --> 00:16:49,920 Speaker 1: weekdays at ten am Eastern on Apple car Playing and 314 00:16:50,040 --> 00:16:52,920 Speaker 1: Broud Auto with the Bloomberg Business app. Listen on demand 315 00:16:52,960 --> 00:16:57,280 Speaker 1: wherever you get your podcasts, or watch us live on YouTube. 316 00:16:57,760 --> 00:16:59,920 Speaker 2: Or news coming out of Washington as it relates to 317 00:17:00,120 --> 00:17:03,720 Speaker 2: Ukraine in Russia, the US today unveils its biggest sankets 318 00:17:03,720 --> 00:17:07,480 Speaker 2: package on Russia since the war began. A drone maker 319 00:17:07,840 --> 00:17:11,440 Speaker 2: and a payment system company are among targets of penalties. 320 00:17:11,800 --> 00:17:16,080 Speaker 2: Secretary Yellens as Russia's economy is showing quote signs of weakness. 321 00:17:16,119 --> 00:17:18,880 Speaker 2: Let's break it down with Dan flat Lake, national security 322 00:17:18,880 --> 00:17:23,120 Speaker 2: reporter for Bloomberg News, joins is to via zoom from Washington, DC. Dan, 323 00:17:23,160 --> 00:17:26,520 Speaker 2: what's in this sanctions package? 324 00:17:27,480 --> 00:17:29,639 Speaker 4: Well, there's a lot of stuff in it. 325 00:17:30,040 --> 00:17:33,080 Speaker 8: We're talking about, you know, all told about six hundred 326 00:17:33,160 --> 00:17:35,880 Speaker 8: or so targets, but a lot of them aren't really 327 00:17:35,960 --> 00:17:39,720 Speaker 8: household names, so you're looking at primarily Russian companies with 328 00:17:40,040 --> 00:17:44,600 Speaker 8: or individuals no ties to the US financial system. But 329 00:17:44,800 --> 00:17:48,040 Speaker 8: they are getting shipments and they're getting some goods in 330 00:17:48,040 --> 00:17:51,520 Speaker 8: from third countries that are helping kind of keep the 331 00:17:51,520 --> 00:17:54,040 Speaker 8: war machine going. So the idea here is basically to 332 00:17:54,119 --> 00:17:56,840 Speaker 8: kind of ratchet up some pressure on the Russian economy, 333 00:17:56,960 --> 00:17:59,760 Speaker 8: kind of clamp down on some of the places where 334 00:17:59,760 --> 00:18:03,199 Speaker 8: things are still getting through, and then really kind of 335 00:18:03,720 --> 00:18:07,240 Speaker 8: you know, look forward to potentially some other measures that 336 00:18:07,320 --> 00:18:09,840 Speaker 8: may be taken, you know, in the next few months. 337 00:18:10,280 --> 00:18:13,280 Speaker 5: Dan tell us how effective, if at all, the sanctions 338 00:18:13,359 --> 00:18:16,080 Speaker 5: up to date have been, because you know, the IMF 339 00:18:16,080 --> 00:18:18,800 Speaker 5: and your story said that Russia's economy is actually on 340 00:18:18,880 --> 00:18:21,840 Speaker 5: track to grow almost three percent this year and it's 341 00:18:21,880 --> 00:18:25,760 Speaker 5: really seems to be holding up pretty well by and large. 342 00:18:26,000 --> 00:18:28,280 Speaker 4: Yeah, there's no question that, you know, as far as 343 00:18:28,359 --> 00:18:29,560 Speaker 4: the strategic goal of. 344 00:18:29,520 --> 00:18:32,080 Speaker 8: Getting putin to you know, give up the invasion and 345 00:18:32,160 --> 00:18:35,440 Speaker 8: withdraw from Ukraine, that obviously hasn't happened, and we're now 346 00:18:35,440 --> 00:18:38,920 Speaker 8: two years into this conflict. There have been some effects, 347 00:18:39,400 --> 00:18:42,080 Speaker 8: you know, on the Russian economy. Growth is a little 348 00:18:42,080 --> 00:18:44,399 Speaker 8: bit slower, at least it was initially. Now, as you mentioned, 349 00:18:44,440 --> 00:18:47,160 Speaker 8: the IMF projects that it will be close to two 350 00:18:47,200 --> 00:18:49,080 Speaker 8: point six or three pert, you know, up to three 351 00:18:49,119 --> 00:18:54,560 Speaker 8: percent this year. So it's it's blowing the economy, uh, 352 00:18:55,000 --> 00:18:57,119 Speaker 8: you know, not as much as the US would have hoped, 353 00:18:57,440 --> 00:19:00,560 Speaker 8: but it has forced Putin to sort of turn economy 354 00:19:00,600 --> 00:19:05,119 Speaker 8: into a wartime economy, to basically kind of turn his 355 00:19:05,280 --> 00:19:08,680 Speaker 8: entire manufacturing sector over to producing stuff for the war, 356 00:19:09,200 --> 00:19:17,119 Speaker 8: and the hope is obviously over. Of course, that doesn't 357 00:19:17,160 --> 00:19:19,720 Speaker 8: really help Ukraine now, and that's where we get into 358 00:19:19,720 --> 00:19:22,200 Speaker 8: some of the funding battles that are happening here in Congress. 359 00:19:24,320 --> 00:19:26,199 Speaker 2: Oh, thank you very much, Hey Dan. We had Deputy 360 00:19:26,280 --> 00:19:30,480 Speaker 2: US Treasury Secretary Wally Adayamo on Bloomberg Surveillance television this morning, 361 00:19:30,480 --> 00:19:33,960 Speaker 2: and Jonathan Farrow asked him about India because Indian India 362 00:19:34,160 --> 00:19:35,960 Speaker 2: has been one of those countries that it's kind of 363 00:19:36,000 --> 00:19:39,679 Speaker 2: been a little bit loose with its relationship with Russia. 364 00:19:40,280 --> 00:19:43,080 Speaker 2: How does the administration think about India and its placed 365 00:19:43,119 --> 00:19:45,399 Speaker 2: kind of geopolitics and how it may be interacting with 366 00:19:45,520 --> 00:19:48,400 Speaker 2: Russia maybe against some of these sanctions. 367 00:19:49,040 --> 00:19:52,360 Speaker 8: Yeah, it's a huge, huge problem some of our colleagues 368 00:19:52,359 --> 00:19:55,280 Speaker 8: from Bloomberg Economics have done a great analysis on sort 369 00:19:55,280 --> 00:19:58,240 Speaker 8: of the ten Lessons from the Russia Ukraine War that 370 00:19:58,359 --> 00:20:01,480 Speaker 8: was out yesterday, and you know, they look at sort 371 00:20:01,520 --> 00:20:05,200 Speaker 8: of the rise of this block of countries that are 372 00:20:05,240 --> 00:20:08,760 Speaker 8: really rivaling the US and its allies, not necessarily in 373 00:20:08,840 --> 00:20:12,640 Speaker 8: terms of size of economic weight or power in terms 374 00:20:12,640 --> 00:20:16,760 Speaker 8: of global GDP, but certainly as an alternative to the 375 00:20:16,920 --> 00:20:18,919 Speaker 8: US led kind of financial system. 376 00:20:18,960 --> 00:20:21,400 Speaker 4: And that's India, and that's China, and when it. 377 00:20:21,320 --> 00:20:25,399 Speaker 8: Comes to Russia, those countries are really keeping Russia propped 378 00:20:25,440 --> 00:20:26,359 Speaker 8: up to a large extent. 379 00:20:26,440 --> 00:20:27,760 Speaker 4: India is buying Russian. 380 00:20:27,440 --> 00:20:32,600 Speaker 8: Oil, China is buying Russian oil, China is sending technology 381 00:20:32,640 --> 00:20:36,080 Speaker 8: and other goods onto Russia. Russia is also getting weapons 382 00:20:36,080 --> 00:20:39,280 Speaker 8: from Iran and North Korea and other places. So there's 383 00:20:39,359 --> 00:20:43,960 Speaker 8: kind of a whole rival faction that has cropped up 384 00:20:44,280 --> 00:20:46,760 Speaker 8: that is going to be very hard to counteract, especially 385 00:20:46,760 --> 00:20:49,439 Speaker 8: when you're talking about India, which is an ally the 386 00:20:49,520 --> 00:20:51,120 Speaker 8: US in so many other ways. 387 00:20:51,320 --> 00:20:53,040 Speaker 5: Yeah, Dan, you know, you and I had talked about 388 00:20:53,080 --> 00:20:56,480 Speaker 5: this a bit time ago last year. The idea of 389 00:20:56,760 --> 00:21:00,000 Speaker 5: export controls is that what we're alluding to here, Like basically, 390 00:21:00,119 --> 00:21:02,639 Speaker 5: when you know, some of these countries that you know, 391 00:21:02,720 --> 00:21:05,960 Speaker 5: like India maybe in this case that aren't being directly 392 00:21:06,000 --> 00:21:09,440 Speaker 5: sanctioned by the US, but can still you know, kind 393 00:21:09,440 --> 00:21:12,000 Speaker 5: of work with Russia behind the scenes and help get 394 00:21:12,040 --> 00:21:14,199 Speaker 5: around these sanctions and maybe a bit more of an 395 00:21:14,240 --> 00:21:15,040 Speaker 5: indirect way. 396 00:21:16,200 --> 00:21:18,280 Speaker 8: Yeah, I mean, it's a really it's a huge issue 397 00:21:18,320 --> 00:21:20,719 Speaker 8: right now, just from a policy perspective. If you think 398 00:21:20,760 --> 00:21:23,520 Speaker 8: about sanctions and the history of sanctions, the way sanctions work, 399 00:21:23,560 --> 00:21:25,760 Speaker 8: they really leverage the financial system. 400 00:21:25,880 --> 00:21:29,800 Speaker 4: Which you know it works. It's technology, so you can 401 00:21:29,840 --> 00:21:31,520 Speaker 4: see payments moving through the system. 402 00:21:31,560 --> 00:21:35,800 Speaker 8: It's very easy for banks to know that they you know, 403 00:21:35,840 --> 00:21:37,679 Speaker 8: if they violate sanctions, they're going to get hit with 404 00:21:37,760 --> 00:21:41,240 Speaker 8: big fines. Export controls is a totally different game because 405 00:21:41,240 --> 00:21:45,920 Speaker 8: you're talking about boxes and microchips and things that are 406 00:21:45,960 --> 00:21:49,960 Speaker 8: moving through sometimes a more informal economy, and it's harder 407 00:21:50,000 --> 00:21:52,320 Speaker 8: to track that sort of thing. And I've talked to 408 00:21:52,320 --> 00:21:54,159 Speaker 8: folks in the last week or so that say, you know, 409 00:21:54,240 --> 00:21:57,800 Speaker 8: once that stuff hits Hong Kong, once it hits Turkey, 410 00:21:57,880 --> 00:21:59,600 Speaker 8: or once it hits some of these certain countries, we 411 00:21:59,680 --> 00:22:01,800 Speaker 8: lose all all visibility of them. We don't really know 412 00:22:02,160 --> 00:22:05,120 Speaker 8: where it's going, so how do you stop that from happening. 413 00:22:05,920 --> 00:22:07,800 Speaker 8: It's just not as well developed as sanctions. 414 00:22:08,840 --> 00:22:11,919 Speaker 2: So Dan, we had Admiral Sturritis on earlier today, the 415 00:22:11,920 --> 00:22:15,840 Speaker 2: former NATO Supreme Commander, four star admiral retired US Navy. 416 00:22:16,560 --> 00:22:19,240 Speaker 2: He was saying, boy, they need the weapons now, the 417 00:22:19,320 --> 00:22:23,879 Speaker 2: Ukrainians now, And you know, it's really at a critical 418 00:22:23,960 --> 00:22:27,600 Speaker 2: time here. You get a feeling within DC that there's 419 00:22:27,640 --> 00:22:29,800 Speaker 2: a belief that that this is a critical time or 420 00:22:29,920 --> 00:22:32,879 Speaker 2: is this simply a political game at this point? 421 00:22:34,160 --> 00:22:36,920 Speaker 4: You know, it's a good question. It's hard to say exactly. 422 00:22:37,040 --> 00:22:41,760 Speaker 8: I think that there are some folks on Capitol Hill who. 423 00:22:41,560 --> 00:22:42,960 Speaker 4: Do feel the urgency. 424 00:22:43,440 --> 00:22:47,959 Speaker 8: Senator Schumer, the Senate majority leader, is in Kiev today 425 00:22:48,000 --> 00:22:51,040 Speaker 8: as we speak, visiting with Ukrainian leadership. 426 00:22:51,760 --> 00:22:53,640 Speaker 4: Republicans have gone as well. In the past. 427 00:22:53,680 --> 00:22:56,639 Speaker 8: Mitch McConnell has certainly been pushing for Ukraine a The 428 00:22:56,680 --> 00:23:00,520 Speaker 8: Senate did pass a package that will provide Ukraine with 429 00:23:00,560 --> 00:23:02,879 Speaker 8: weapons and other financial support, but it's. 430 00:23:02,720 --> 00:23:03,639 Speaker 4: Stuck in the House. 431 00:23:03,760 --> 00:23:07,040 Speaker 8: And that's where it gets into a much stricier political 432 00:23:07,400 --> 00:23:10,960 Speaker 8: situation because you have the former President Donald Trump really 433 00:23:11,280 --> 00:23:16,119 Speaker 8: pushing against this kind of package. You have some isolationists 434 00:23:16,160 --> 00:23:17,959 Speaker 8: in the Republican Party who say, you know, why are 435 00:23:18,000 --> 00:23:20,320 Speaker 8: we spending all this money in Europe when we should 436 00:23:20,320 --> 00:23:22,880 Speaker 8: be spending it on the southern border. There's a lot 437 00:23:22,920 --> 00:23:25,520 Speaker 8: of things that are happening there in an election year 438 00:23:25,560 --> 00:23:28,879 Speaker 8: that makes it very hard for something that ordinarily would 439 00:23:28,920 --> 00:23:32,280 Speaker 8: get you know, a majority support and really probably would 440 00:23:32,400 --> 00:23:34,840 Speaker 8: and put it on the floor of the House, makes 441 00:23:34,840 --> 00:23:36,120 Speaker 8: it much harder to get done. 442 00:23:36,119 --> 00:23:38,560 Speaker 4: So that's that's a real sticking point right now. 443 00:23:39,000 --> 00:23:41,359 Speaker 5: When we're talking about sanctions, though, Dan, is that something 444 00:23:41,359 --> 00:23:43,920 Speaker 5: that would be subject to the same kind of approval 445 00:23:44,000 --> 00:23:47,480 Speaker 5: process as Ukraine aimed, would be as going through Congress 446 00:23:47,480 --> 00:23:48,440 Speaker 5: in that same kind of way. 447 00:23:49,280 --> 00:23:50,520 Speaker 4: Well, I think this is one of the things. 448 00:23:50,520 --> 00:23:52,880 Speaker 8: One of the reasons why sanctions, the use of sanctions 449 00:23:52,920 --> 00:23:54,960 Speaker 8: is up like one thousand percent over the last two 450 00:23:55,000 --> 00:23:57,919 Speaker 8: decades or two and a half decades, is because you 451 00:23:57,960 --> 00:24:01,160 Speaker 8: don't have to spend a ton of money to wield them, 452 00:24:01,440 --> 00:24:02,879 Speaker 8: don't necessarily need. 453 00:24:02,720 --> 00:24:03,679 Speaker 4: Approval from Congress. 454 00:24:03,720 --> 00:24:06,520 Speaker 8: Every time you want to levy su sanctions, you do 455 00:24:06,760 --> 00:24:10,159 Speaker 8: you want to spend you know, fifty sixty seventy billion 456 00:24:10,200 --> 00:24:13,560 Speaker 8: dollars if you want to reinvigorate the Defense Industrial Base. 457 00:24:13,600 --> 00:24:15,560 Speaker 8: If you want to do all these things that actually 458 00:24:16,000 --> 00:24:19,800 Speaker 8: matter on the battlefield, you need Congress, you need the 459 00:24:19,800 --> 00:24:23,200 Speaker 8: purse strings, and you know, so that's a much harder sell. 460 00:24:23,320 --> 00:24:26,840 Speaker 8: But sanctions, you know, I won't say they're easier to 461 00:24:26,920 --> 00:24:29,840 Speaker 8: wield necessarily, but they are more efficient in the sense 462 00:24:29,880 --> 00:24:32,320 Speaker 8: that the administration can do it on its own without 463 00:24:32,359 --> 00:24:33,960 Speaker 8: having to go to Congress for authorization. 464 00:24:34,680 --> 00:24:36,680 Speaker 2: All right, Dan, thanks so much for joining us. Really 465 00:24:36,680 --> 00:24:40,520 Speaker 2: appreciate getting your thoughts and analysis there. Dan Flatley, a 466 00:24:40,640 --> 00:24:43,679 Speaker 2: national security reporter for Bloomberg News, joining us via zoom 467 00:24:44,200 --> 00:24:45,800 Speaker 2: from Washington, DC. 468 00:24:47,480 --> 00:24:51,359 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 469 00:24:51,440 --> 00:24:54,960 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 470 00:24:55,000 --> 00:24:57,760 Speaker 1: Auto with the Bloomberg Business app. You can also listen 471 00:24:57,880 --> 00:25:00,960 Speaker 1: live on Amazon Alexa from our Flag New York station 472 00:25:01,359 --> 00:25:03,919 Speaker 1: just say Alexa playing Bloomberg eleven th. 473 00:25:05,480 --> 00:25:07,960 Speaker 2: Our c SUEE conversation today. Kevin Butler Joints, and he's 474 00:25:07,960 --> 00:25:11,080 Speaker 2: the CEA of Excellent ex C is a ticker to 475 00:25:11,119 --> 00:25:14,240 Speaker 2: put into your Bloomberg terminal here at Utility Company. But 476 00:25:14,280 --> 00:25:15,680 Speaker 2: I want you to tell us just start off, Calvin, 477 00:25:15,680 --> 00:25:17,800 Speaker 2: thanks so much for joining us, but tell us about 478 00:25:17,800 --> 00:25:19,560 Speaker 2: your company, what you guys are doing, and don't get 479 00:25:19,560 --> 00:25:20,439 Speaker 2: into kind of the meat of it. 480 00:25:20,560 --> 00:25:23,240 Speaker 9: Absolutely, and good morning and thank you for having me so. 481 00:25:23,440 --> 00:25:27,840 Speaker 9: Excellent is the largest transmission and distribution utility in the country. 482 00:25:28,160 --> 00:25:31,960 Speaker 9: We have the privileged and responsibility to serve approximately ten 483 00:25:32,000 --> 00:25:35,760 Speaker 9: point five million customers across some of the most diverse 484 00:25:35,800 --> 00:25:38,720 Speaker 9: and largest cities in the United States through our utilities 485 00:25:38,800 --> 00:25:42,520 Speaker 9: Commonwealth Edison in Chicago, Baltimore Gas and Electric and of 486 00:25:42,560 --> 00:25:47,000 Speaker 9: course Baltimore Pico out of Philadelphia, Pepco Holdings, which is 487 00:25:47,000 --> 00:25:50,960 Speaker 9: sitting in our nation's capital, VC del Marble Power and 488 00:25:51,000 --> 00:25:54,080 Speaker 9: Light in Wilmington, Delaware, and Atlantic City Electric. So when 489 00:25:54,080 --> 00:25:58,240 Speaker 9: you look at that scale and size, Excellent is positioned 490 00:25:58,280 --> 00:26:01,119 Speaker 9: well to lead this energy transfer and that's who we 491 00:26:01,160 --> 00:26:02,720 Speaker 9: are and how we show up for our customers. 492 00:26:02,960 --> 00:26:06,560 Speaker 5: So you guys just had earnings a couple of days ago, right, Yeah, 493 00:26:06,600 --> 00:26:09,400 Speaker 5: So tell us about the latest quarters, some of the highlights, 494 00:26:09,400 --> 00:26:12,040 Speaker 5: and what you're looking forward to in the year or. 495 00:26:12,000 --> 00:26:12,520 Speaker 6: So to come. 496 00:26:12,760 --> 00:26:15,760 Speaker 9: No, thank you for asking, as Wednesday was a good day, 497 00:26:16,359 --> 00:26:19,840 Speaker 9: and I say that because we beat our fourth quarter 498 00:26:19,880 --> 00:26:24,280 Speaker 9: expectations and we exceeded expectations for the twenty twenty three, 499 00:26:24,720 --> 00:26:27,400 Speaker 9: and I was just so proud of the team that 500 00:26:27,760 --> 00:26:30,000 Speaker 9: we were able to deliver on our commitments that we 501 00:26:30,040 --> 00:26:33,159 Speaker 9: made in twenty twenty three despite all the challenges, and 502 00:26:33,200 --> 00:26:35,960 Speaker 9: when I say challenges, when you look at in Pennsylvania 503 00:26:36,160 --> 00:26:37,879 Speaker 9: had one of the warmest winters that had in the 504 00:26:38,000 --> 00:26:42,199 Speaker 9: last fifty years, and being a distribution company the gas 505 00:26:42,480 --> 00:26:45,280 Speaker 9: company that we do there, we continue we overcame those 506 00:26:45,320 --> 00:26:48,960 Speaker 9: headwinds and still met the number. And in addition to that, 507 00:26:49,560 --> 00:26:53,280 Speaker 9: despite the challenges in our regulatory environment, because of our skill, 508 00:26:53,720 --> 00:26:56,280 Speaker 9: we will continued to able to shift capital around our 509 00:26:56,320 --> 00:26:59,520 Speaker 9: platform to invest in the things that are most important 510 00:26:59,520 --> 00:27:00,400 Speaker 9: to our custos. 511 00:27:00,520 --> 00:27:01,639 Speaker 4: So it was a good day, all right. 512 00:27:01,720 --> 00:27:04,240 Speaker 2: My analyst of Bloomberg Intelligence that covers your stocks, she writes, 513 00:27:04,280 --> 00:27:07,800 Speaker 2: since she says, ask them about Illinois, so talk about 514 00:27:07,800 --> 00:27:10,160 Speaker 2: some regulatory headwinds. It seems like Illinois in the news 515 00:27:10,240 --> 00:27:12,000 Speaker 2: and not always for the right reasons, but anyway, talks 516 00:27:12,000 --> 00:27:13,800 Speaker 2: about doing business in Illinois. 517 00:27:14,040 --> 00:27:16,880 Speaker 9: You know, KMET is the largest hutility in Illinois, having 518 00:27:16,920 --> 00:27:20,520 Speaker 9: the privilege of serving Chicago, and your analyst is right on, 519 00:27:20,600 --> 00:27:23,960 Speaker 9: Illinois is a difficult jurisdiction for us, right Now, we 520 00:27:24,080 --> 00:27:28,440 Speaker 9: had a ruling on December fourteenth, and that ruling set 521 00:27:28,600 --> 00:27:33,600 Speaker 9: I think their efforts to decarbonize and to move forward 522 00:27:33,600 --> 00:27:37,679 Speaker 9: on transportational electrification that they were on. But we are 523 00:27:37,720 --> 00:27:41,040 Speaker 9: committed to working with all of our stakeholders, including the Commission, 524 00:27:41,080 --> 00:27:44,040 Speaker 9: to get to where we have a shared vision to 525 00:27:44,080 --> 00:27:47,040 Speaker 9: move Illinois forward. But it was it was a December 526 00:27:47,119 --> 00:27:49,520 Speaker 9: fourteenth I remember it well. It was a tough day. 527 00:27:49,800 --> 00:27:53,160 Speaker 9: But what you've seen now is we've reduced about one 528 00:27:53,240 --> 00:27:56,280 Speaker 9: point four billion dollars in capital in Illinois. 529 00:27:56,280 --> 00:27:59,480 Speaker 2: But more importantly because of this, this. 530 00:27:59,560 --> 00:28:03,639 Speaker 9: Cost of decision, and what really hurts is that the 531 00:28:03,680 --> 00:28:07,640 Speaker 9: sitence of Illinois, their transition to a clean energy stacking 532 00:28:08,080 --> 00:28:10,360 Speaker 9: is going to slow down. And we had to lay 533 00:28:10,400 --> 00:28:15,120 Speaker 9: off nine hundred contractors that's direct contractors, and impacted by 534 00:28:15,200 --> 00:28:19,520 Speaker 9: that was roughly two thousand indirect jobs. Now that's just us, 535 00:28:19,560 --> 00:28:21,800 Speaker 9: so you could imagine the other utilities, the other electric 536 00:28:21,880 --> 00:28:24,680 Speaker 9: utilities and gas utilities had to do the exact same thing. 537 00:28:25,119 --> 00:28:29,080 Speaker 9: But we have a path forward and we continue to 538 00:28:29,119 --> 00:28:32,080 Speaker 9: work with the Commission to right. 539 00:28:32,080 --> 00:28:35,439 Speaker 5: Size this and obviously you guys are looking to do 540 00:28:35,840 --> 00:28:38,440 Speaker 5: you know, switch over to clean energy and other markets 541 00:28:38,480 --> 00:28:41,440 Speaker 5: as well. So how does Illinois maybe give you a 542 00:28:41,440 --> 00:28:43,920 Speaker 5: bit of a blueprint for how to approach these other markets. 543 00:28:44,160 --> 00:28:47,600 Speaker 9: Well, I would tell you that the same day, although 544 00:28:47,600 --> 00:28:49,680 Speaker 9: there was a bad outcome in Illinois, we had a 545 00:28:49,720 --> 00:28:52,760 Speaker 9: solid outcome in Maryland exact same day. So it just 546 00:28:52,800 --> 00:28:54,600 Speaker 9: goes to show you when you have a shared vision 547 00:28:54,640 --> 00:28:57,440 Speaker 9: of how to get there. We don't expect the commissions 548 00:28:57,440 --> 00:28:59,800 Speaker 9: to give us everything we're asking for, but if we 549 00:28:59,840 --> 00:29:03,160 Speaker 9: have a shared vision and a mutual understand the mutual benefits, 550 00:29:03,320 --> 00:29:05,600 Speaker 9: you can do it. And I always say, in my 551 00:29:05,840 --> 00:29:08,800 Speaker 9: golf parlance, you know, Maryland, you know we hit it. 552 00:29:08,800 --> 00:29:12,200 Speaker 9: It was a part, it wasn't a party, and we're 553 00:29:12,200 --> 00:29:14,720 Speaker 9: working on that. So it is a shared vision across 554 00:29:14,720 --> 00:29:18,080 Speaker 9: and each jurisdiction is different because you can imagine in 555 00:29:18,160 --> 00:29:21,200 Speaker 9: Illinois they're saying we're going all electric sooner rather than later, 556 00:29:21,560 --> 00:29:25,480 Speaker 9: Maryland doing the exact same thing. Pennsylvania we like our gas, 557 00:29:25,960 --> 00:29:28,080 Speaker 9: you know, we're saying gas is going to be part 558 00:29:28,080 --> 00:29:30,600 Speaker 9: of that portfolio in Pennsylvania, and it's up to us 559 00:29:30,640 --> 00:29:33,920 Speaker 9: to understand what those jurisdictions want and determine how to 560 00:29:33,960 --> 00:29:35,440 Speaker 9: get there with those mutual benefits. 561 00:29:35,480 --> 00:29:36,760 Speaker 2: So that's how I was going to ask you, how 562 00:29:36,760 --> 00:29:39,400 Speaker 2: do we to the extent that we move this economy 563 00:29:39,440 --> 00:29:43,240 Speaker 2: to a more greener fashion, including on any energy grid. 564 00:29:43,520 --> 00:29:45,880 Speaker 2: Who drives the bus? Is that you guys saying this 565 00:29:45,960 --> 00:29:48,240 Speaker 2: is how we're going to invest our capital in our plant. 566 00:29:48,320 --> 00:29:50,640 Speaker 2: Or is it more of the municipality saying we want 567 00:29:50,640 --> 00:29:52,200 Speaker 2: to go this way, we want to stay gas, we 568 00:29:52,240 --> 00:29:54,040 Speaker 2: want to go green, or is it kind of a 569 00:29:54,160 --> 00:29:55,040 Speaker 2: I guess partnership. 570 00:29:55,040 --> 00:29:58,120 Speaker 9: It has to be a partnership. So you know, by 571 00:29:58,200 --> 00:30:01,160 Speaker 9: us not owning generation, what I can tell you is 572 00:30:02,080 --> 00:30:04,040 Speaker 9: we are brought to the table more often than not 573 00:30:04,160 --> 00:30:07,320 Speaker 9: now because they don't few I have a vested interest. 574 00:30:07,360 --> 00:30:10,680 Speaker 9: By me not owning, no longer owning nuclear, wind or solar, 575 00:30:11,360 --> 00:30:14,280 Speaker 9: my job is delivered to you. So once they understand 576 00:30:14,360 --> 00:30:16,920 Speaker 9: that and really get it, I'm now a trusted partner. 577 00:30:17,160 --> 00:30:19,760 Speaker 9: Now having said that, what I can tell them is 578 00:30:19,760 --> 00:30:23,160 Speaker 9: that here's the cost to achieve what you're trying to achieve. 579 00:30:23,320 --> 00:30:26,440 Speaker 9: Give you an example. In Maryland, we had a jurisdiction 580 00:30:26,480 --> 00:30:29,840 Speaker 9: that wanted to go all electric, and we said, look, 581 00:30:30,040 --> 00:30:32,959 Speaker 9: I'm an electric and gas I'm going to benefit. I 582 00:30:33,000 --> 00:30:35,280 Speaker 9: can do that for you sooner rather than later. But 583 00:30:35,400 --> 00:30:37,960 Speaker 9: this is what it's going to cost the average customer 584 00:30:38,240 --> 00:30:40,479 Speaker 9: in your city if you do that. And when you 585 00:30:40,520 --> 00:30:42,600 Speaker 9: put those costs in front of them, they're like, Okay, 586 00:30:42,680 --> 00:30:44,640 Speaker 9: let's slow it down a little bit, let's be more 587 00:30:44,640 --> 00:30:47,520 Speaker 9: pragmatic about it, and let's do a balanced approach. And 588 00:30:47,520 --> 00:30:48,440 Speaker 9: that's what we're finding. 589 00:30:48,560 --> 00:30:50,000 Speaker 6: Well, that's what I was going to come to you 590 00:30:50,000 --> 00:30:51,000 Speaker 6: next about is that. 591 00:30:51,240 --> 00:30:52,880 Speaker 5: I'm sure a lot of people would you know, if 592 00:30:52,880 --> 00:30:55,960 Speaker 5: given the choice, would probably say, yeah, cleaner energy, let's 593 00:30:56,000 --> 00:30:56,200 Speaker 5: do it. 594 00:30:56,240 --> 00:30:57,480 Speaker 6: But then what does it cost? 595 00:30:57,640 --> 00:30:59,960 Speaker 5: And so are you saying then that this is like 596 00:31:00,200 --> 00:31:02,480 Speaker 5: is it markedly more expensive than gas? And is that 597 00:31:02,640 --> 00:31:05,479 Speaker 5: just because it's a new technology it's going to take 598 00:31:05,520 --> 00:31:08,520 Speaker 5: some time or even once it's further developed, this is 599 00:31:08,560 --> 00:31:11,160 Speaker 5: still a more expensive energy alternative. 600 00:31:11,440 --> 00:31:13,320 Speaker 9: It will be more cast you know, it will be 601 00:31:13,360 --> 00:31:16,960 Speaker 9: more costly in the short run. Why because the infrastructure 602 00:31:17,040 --> 00:31:21,440 Speaker 9: to handle when solar and increased renewables, you have to 603 00:31:21,480 --> 00:31:25,000 Speaker 9: build this infrastructure to do that. So that substation that's 604 00:31:25,040 --> 00:31:27,840 Speaker 9: in your right around the corner from your home, it's 605 00:31:27,920 --> 00:31:30,480 Speaker 9: not equipped to handle that amount of load if you 606 00:31:30,520 --> 00:31:33,880 Speaker 9: were to convert directly to electricity sooner rather than later, 607 00:31:34,280 --> 00:31:36,479 Speaker 9: so you have to build up that infrastructure. But I 608 00:31:36,520 --> 00:31:39,920 Speaker 9: do believe technology is going to catch up and balance 609 00:31:39,960 --> 00:31:44,280 Speaker 9: out the costs. And my responsibility as the CEO is 610 00:31:44,320 --> 00:31:47,600 Speaker 9: to ensure that this transition is done equably. Those of 611 00:31:47,680 --> 00:31:49,880 Speaker 9: us who can afford it, you know, they're not going 612 00:31:49,880 --> 00:31:52,719 Speaker 9: to miss a beat. But what about those communities that 613 00:31:53,000 --> 00:31:56,440 Speaker 9: are struggling to pay their bill today? When you start 614 00:31:56,480 --> 00:31:59,360 Speaker 9: going down this path quicker, they're going to be the 615 00:31:59,400 --> 00:32:00,440 Speaker 9: ones most impacted. 616 00:32:01,280 --> 00:32:06,120 Speaker 2: How do you your company Excellent? Do you grow via acquisition? 617 00:32:06,160 --> 00:32:09,400 Speaker 2: And if so, how do you think about acquisition related growth? 618 00:32:09,600 --> 00:32:11,920 Speaker 9: Yes, so when you think of Excellent, Excellent was formed 619 00:32:11,960 --> 00:32:15,040 Speaker 9: in two thousand with the combination of Commonwealth Edison out 620 00:32:15,040 --> 00:32:18,840 Speaker 9: of Chicago and Pico out of Philadelphia. So Excellent formed 621 00:32:18,920 --> 00:32:23,720 Speaker 9: via acquisition. In twenty twelve, we bought Constellation Energy, which 622 00:32:23,760 --> 00:32:26,960 Speaker 9: was Baltimore Gas and Electric. In twenty sixteen we bought 623 00:32:27,000 --> 00:32:30,360 Speaker 9: Pepco Holdings, which was Pepco, d C, del Marva and 624 00:32:30,400 --> 00:32:34,760 Speaker 9: Atlantic City. So we're conglomeration. I think the industry will 625 00:32:34,760 --> 00:32:37,440 Speaker 9: continue to move that way because scale matters when you 626 00:32:37,560 --> 00:32:41,320 Speaker 9: go to costs and affordability. For us, at this point, 627 00:32:41,400 --> 00:32:44,800 Speaker 9: that is not a priority because we're investing over thirty 628 00:32:44,800 --> 00:32:47,440 Speaker 9: five billion dollars over the next few years. That has 629 00:32:47,480 --> 00:32:48,880 Speaker 9: to be our priority right now. 630 00:32:48,960 --> 00:32:50,520 Speaker 2: How do you think about it? I'm sorry, I'm just 631 00:32:50,560 --> 00:32:54,760 Speaker 2: looking at the FA function, my financial analysis function, free 632 00:32:54,800 --> 00:32:57,760 Speaker 2: cash flow. Is it all go to the dividend? And 633 00:32:57,880 --> 00:33:00,680 Speaker 2: or do you say, yeah, you have a four percent 634 00:33:00,680 --> 00:33:02,280 Speaker 2: dividend field a little bit high than a four percent 635 00:33:02,280 --> 00:33:04,840 Speaker 2: dividend yield. How do you balance the dividend versus maybe 636 00:33:04,920 --> 00:33:06,240 Speaker 2: using cash for acquisitions. 637 00:33:06,320 --> 00:33:08,760 Speaker 9: Yeah, we have a rule of thumb that we try 638 00:33:08,760 --> 00:33:12,800 Speaker 9: to target sixty percent dividend payout with earnings. So we 639 00:33:12,880 --> 00:33:16,440 Speaker 9: target that and we look at issuing equity as well 640 00:33:16,560 --> 00:33:19,920 Speaker 9: to our capital investment. Our equity plan is forty percent 641 00:33:20,520 --> 00:33:23,040 Speaker 9: of our capital investment. That's what we rolled out on 642 00:33:23,080 --> 00:33:25,480 Speaker 9: our earnings call. So we're going to issue about one 643 00:33:25,480 --> 00:33:28,520 Speaker 9: point two billion dollars of equity over our LRP to 644 00:33:28,680 --> 00:33:31,680 Speaker 9: fund that dually a long range plan. I'm sorry, Yes, 645 00:33:31,840 --> 00:33:34,680 Speaker 9: So twenty twenty four through twenty twenty seven, we're going 646 00:33:34,720 --> 00:33:37,720 Speaker 9: to invest thirty five billion, and that's about three point 647 00:33:37,760 --> 00:33:40,120 Speaker 9: seven million in new capital, and we're going to fund 648 00:33:40,160 --> 00:33:43,360 Speaker 9: that forty percent with new equity. So we balance that 649 00:33:43,960 --> 00:33:47,920 Speaker 9: and also the earnings. You know, our debt ratio is 650 00:33:47,640 --> 00:33:50,320 Speaker 9: on the lowest in the industry, our CFO to debts, 651 00:33:50,400 --> 00:33:52,520 Speaker 9: So those are all the things we look to to 652 00:33:52,680 --> 00:33:53,960 Speaker 9: fund opportunities. 653 00:33:54,120 --> 00:33:55,800 Speaker 5: Yeah, it looks like you guys just had a bond 654 00:33:55,840 --> 00:34:00,000 Speaker 5: offering earlier this week almost two billion dollars, so that helps, 655 00:34:00,320 --> 00:34:02,200 Speaker 5: but that's mostly refinancing data. 656 00:34:02,280 --> 00:34:05,000 Speaker 9: Looks like it was and it was the best spreads 657 00:34:05,040 --> 00:34:08,680 Speaker 9: we've received in the past fifteen years. So people understand 658 00:34:08,680 --> 00:34:10,480 Speaker 9: the value proposition of Excellon. 659 00:34:10,760 --> 00:34:13,560 Speaker 2: Okay, real quick, thirty seconds. You're based in Chicago, right, Yes, 660 00:34:14,000 --> 00:34:14,719 Speaker 2: Chicago today? 661 00:34:15,080 --> 00:34:19,400 Speaker 9: How Chicago today? Chicago. It's a city that's struggling, like 662 00:34:19,440 --> 00:34:21,960 Speaker 9: many urban cities. But I always tell people it's one 663 00:34:22,000 --> 00:34:27,120 Speaker 9: of the greatest cities from June to October. But it is. 664 00:34:27,160 --> 00:34:29,920 Speaker 9: It's a wonderful city and it's vibrant and that's that. 665 00:34:30,040 --> 00:34:31,600 Speaker 9: And I tell you, you know, when we get to 666 00:34:31,640 --> 00:34:34,120 Speaker 9: serve some of the best cities in the nation and 667 00:34:34,520 --> 00:34:35,920 Speaker 9: we are community partner. 668 00:34:36,160 --> 00:34:38,120 Speaker 2: So all right, Calvin, thank you so much for Jordan's 669 00:34:38,120 --> 00:34:40,520 Speaker 2: really appreciate it. Calvin Butler, here's the CEO of Excellon. 670 00:34:41,200 --> 00:34:43,640 Speaker 2: E XCA is a ticcker to put into your Bloomberg 671 00:34:43,880 --> 00:34:46,760 Speaker 2: terminal there, joining us here in a Bloomberg Interactive broker studio. 672 00:34:46,800 --> 00:34:49,959 Speaker 2: They recently reported some earnings. They were in the market, 673 00:34:49,960 --> 00:34:52,080 Speaker 2: as Molly was saying, with a bond offering this week. 674 00:34:52,120 --> 00:34:55,120 Speaker 2: So busy times for the good folks at Excellent based 675 00:34:55,160 --> 00:34:57,520 Speaker 2: in Chicago, one of my all time favorite cities. 676 00:34:59,000 --> 00:35:02,920 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 677 00:35:03,000 --> 00:35:06,520 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 678 00:35:06,520 --> 00:35:09,320 Speaker 1: Auto with the Bloomberg Business App. You can also listen 679 00:35:09,440 --> 00:35:12,520 Speaker 1: live on Amazon Alexa from our flagship New York station. 680 00:35:12,880 --> 00:35:16,600 Speaker 1: Just say Alexa playing Bloomberg eleven thirty. 681 00:35:17,000 --> 00:35:19,440 Speaker 2: So let's get the ethera wrong, Aanathan, because she is 682 00:35:19,480 --> 00:35:21,400 Speaker 2: the media analyst and there's a lot going on in 683 00:35:21,680 --> 00:35:24,680 Speaker 2: the media space. Warner Brothers Discoveries is one of those 684 00:35:24,680 --> 00:35:27,680 Speaker 2: companies that was put together by Warner Brothers merger with 685 00:35:27,920 --> 00:35:32,200 Speaker 2: Discovery Communications. Everybody felt like, Okay, now this company's got 686 00:35:32,600 --> 00:35:35,360 Speaker 2: some scale, some size, and they could make that transition 687 00:35:35,440 --> 00:35:38,239 Speaker 2: into streaming. Well, their latest results came out and it's 688 00:35:38,239 --> 00:35:40,960 Speaker 2: just kind of confirming not so fast it stocks down 689 00:35:41,000 --> 00:35:44,399 Speaker 2: eleven percent today, down twenty five percent year to date, 690 00:35:44,440 --> 00:35:47,400 Speaker 2: down forty six percent on a trailing twelve month basis 691 00:35:47,440 --> 00:35:50,680 Speaker 2: really really tough out there for the traditional media companies. KEITHA. 692 00:35:50,760 --> 00:35:53,840 Speaker 2: Rong Anathan joins us. She's a media anols for Bloomberg Intelligence. ETHA. 693 00:35:53,840 --> 00:35:56,279 Speaker 2: What you take away or what does the market not 694 00:35:56,520 --> 00:35:59,960 Speaker 2: like about what they heard from their conference call? 695 00:36:00,160 --> 00:36:03,080 Speaker 10: Yeah, really really tough, Paul. I mean it's it's lower 696 00:36:03,200 --> 00:36:06,799 Speaker 10: earnings and you know, earnings pressure that's kind of dominating 697 00:36:06,840 --> 00:36:10,839 Speaker 10: the whole narrative for Warner Brothers Discovery. So you know, 698 00:36:10,920 --> 00:36:14,720 Speaker 10: their EBITDA for twenty twenty three came in way below guidance. 699 00:36:14,760 --> 00:36:16,719 Speaker 10: They had guided to somewhere between ten and a half 700 00:36:16,800 --> 00:36:18,880 Speaker 10: to eleven billion dollars in EBITDA. It actually came in 701 00:36:18,920 --> 00:36:21,560 Speaker 10: at ten point two billion. And I think what's worse 702 00:36:21,600 --> 00:36:24,120 Speaker 10: and what kind of really spooked investors was there was 703 00:36:24,200 --> 00:36:28,239 Speaker 10: absolutely no guidance whatsoever for twenty twenty four, a kind 704 00:36:28,280 --> 00:36:31,040 Speaker 10: of you know suggesting, I mean, consensus had twenty twenty 705 00:36:31,040 --> 00:36:32,799 Speaker 10: four estimates at about ten and a half billion. I 706 00:36:32,800 --> 00:36:35,239 Speaker 10: think it's going to be way below ten billion. And 707 00:36:35,280 --> 00:36:36,840 Speaker 10: if you just kind of look at the commentary for 708 00:36:37,000 --> 00:36:39,960 Speaker 10: the TV networks business, remember more than fifty percent of 709 00:36:40,000 --> 00:36:42,680 Speaker 10: their revenue comes from their TV networks business, you know, 710 00:36:42,719 --> 00:36:48,760 Speaker 10: networks like TNTTBS. Again, advertising is really in the doll drums, 711 00:36:48,840 --> 00:36:52,439 Speaker 10: So you know, nothing to really cheer about right now. 712 00:36:52,600 --> 00:36:55,160 Speaker 5: How much of this GITA is really just coming out 713 00:36:55,160 --> 00:36:57,839 Speaker 5: of those Hollywood strikes last year, just you know, it's 714 00:36:57,840 --> 00:36:59,560 Speaker 5: going to take a little bit of time or there's 715 00:36:59,560 --> 00:37:02,279 Speaker 5: really more of a longer term issue at play here. 716 00:37:03,360 --> 00:37:06,239 Speaker 10: The Hollywood strikes, Molly definitely had a huge impact and 717 00:37:06,320 --> 00:37:09,719 Speaker 10: they weighed that. Those strikes definitely weighed on ebitdah. So 718 00:37:09,719 --> 00:37:11,200 Speaker 10: so the numbers that we kind of talked about, the 719 00:37:11,200 --> 00:37:13,759 Speaker 10: ten point two billion versus eleven billion, a lot of 720 00:37:13,800 --> 00:37:16,480 Speaker 10: that was from the Hollywood strikes. The flip side was 721 00:37:16,600 --> 00:37:19,760 Speaker 10: the Hollywood strikes did have a positive effect on free 722 00:37:19,800 --> 00:37:22,800 Speaker 10: cash flow, so you know, the free casual numbers of 723 00:37:22,880 --> 00:37:25,879 Speaker 10: this company throughout were obviously huge. But again that's going 724 00:37:25,920 --> 00:37:29,000 Speaker 10: to reverse once content production restarts. But I think you know, 725 00:37:29,080 --> 00:37:31,960 Speaker 10: it's not just the content pipeline, right We're looking at 726 00:37:32,040 --> 00:37:35,719 Speaker 10: a business model that is very, very challenged right now 727 00:37:35,760 --> 00:37:38,279 Speaker 10: because of cord cutting. You know, you look at a 728 00:37:38,280 --> 00:37:41,319 Speaker 10: PATV ecosystem that has lost about thirty percent of its 729 00:37:41,440 --> 00:37:45,480 Speaker 10: base and that is really having some huge ramifications for 730 00:37:45,560 --> 00:37:48,200 Speaker 10: this company. So, you know, we spoke about fifty percent 731 00:37:48,200 --> 00:37:50,920 Speaker 10: of its revenue coming from the TV networks, ninety percent 732 00:37:50,960 --> 00:37:54,200 Speaker 10: of its EBITDAH comes from that TV network's business. So 733 00:37:54,480 --> 00:37:57,600 Speaker 10: we're seeing a steady ten to fifteen percent decline every 734 00:37:57,680 --> 00:38:01,040 Speaker 10: year because of cord cutting, because of pressures, and that's 735 00:38:01,080 --> 00:38:02,360 Speaker 10: not going to go away. 736 00:38:02,840 --> 00:38:05,719 Speaker 2: All right, Keitha. We're looking waiting for the President. Biden 737 00:38:05,800 --> 00:38:08,200 Speaker 2: is about to speak in Washington, DC, so we may 738 00:38:08,239 --> 00:38:12,040 Speaker 2: have to cut away from that. So Keitha, say, we 739 00:38:12,080 --> 00:38:15,000 Speaker 2: have President Bond walking up to the lectern, I believe, 740 00:38:15,120 --> 00:38:17,279 Speaker 2: So we'll have to see how this plays up down 741 00:38:17,280 --> 00:38:20,719 Speaker 2: in Washington, DC, some comments from the President, So we'll 742 00:38:20,760 --> 00:38:22,640 Speaker 2: have to wait and see how that plays out. KEITHA, 743 00:38:22,719 --> 00:38:25,400 Speaker 2: Real quick is a merger between Warner Brothers Discovery and 744 00:38:25,480 --> 00:38:28,680 Speaker 2: Paramount something that could happen, should happen. It seems like 745 00:38:28,719 --> 00:38:32,320 Speaker 2: two relatively weak companies, two relatively levered balance sheets. 746 00:38:33,080 --> 00:38:35,840 Speaker 10: Yeah, Paul, I mean there is a lot of strategic rationale, 747 00:38:36,239 --> 00:38:38,560 Speaker 10: you know, and Warner Brothers Discovery has been really good 748 00:38:38,560 --> 00:38:41,000 Speaker 10: at extracting synergies. They got out almost four and a 749 00:38:41,040 --> 00:38:43,360 Speaker 10: half five billion dollars from just that combination of Warner 750 00:38:43,400 --> 00:38:45,880 Speaker 10: and Discovery, so they obviously could do that again with Paramount. 751 00:38:46,200 --> 00:38:48,080 Speaker 10: The thing is, I just don't think the market has 752 00:38:48,200 --> 00:38:50,880 Speaker 10: any appetite for more debt. I mean, we have Warner 753 00:38:50,920 --> 00:38:53,120 Speaker 10: Brothers with forty five billion dollars in dead we have 754 00:38:53,160 --> 00:38:56,040 Speaker 10: Paramount with about sixteen billion. I don't think investors will 755 00:38:56,080 --> 00:38:56,359 Speaker 10: like it. 756 00:38:57,320 --> 00:38:58,120 Speaker 6: And let's look at it. 757 00:38:58,200 --> 00:39:01,520 Speaker 5: I mean, let the subscriber here looks like those actually 758 00:39:01,560 --> 00:39:05,040 Speaker 5: came in above analyst estimates. But I mean, is that 759 00:39:05,280 --> 00:39:07,200 Speaker 5: I feel like that's normally something that would drive a 760 00:39:07,200 --> 00:39:09,560 Speaker 5: bit more optimism here. But Lake, you said, everything else 761 00:39:09,600 --> 00:39:12,520 Speaker 5: across the board is just like really just so negative. 762 00:39:13,400 --> 00:39:16,360 Speaker 10: Yeah, I mean streaming subscribers. Yes, that used to be 763 00:39:16,440 --> 00:39:19,200 Speaker 10: a metric that investors used to kind of get excited about. 764 00:39:19,400 --> 00:39:22,719 Speaker 10: Not any more. We're really looking more for profitability. And 765 00:39:22,760 --> 00:39:24,239 Speaker 10: at the end of the day, yeah, they could add 766 00:39:24,239 --> 00:39:26,839 Speaker 10: you know, a million, two million, even three million subscribers, 767 00:39:26,880 --> 00:39:29,040 Speaker 10: but it's really not going to move the needle. I mean, yes, 768 00:39:29,120 --> 00:39:31,400 Speaker 10: you have them at about ninety seven million subscribers for 769 00:39:31,440 --> 00:39:34,040 Speaker 10: their max platform, but it's still a very far cry 770 00:39:34,120 --> 00:39:36,520 Speaker 10: from Netflix, which has two hundred and sixty million from 771 00:39:36,560 --> 00:39:39,040 Speaker 10: Amazon Prime, which again has maybe about two hundred million, 772 00:39:39,040 --> 00:39:40,719 Speaker 10: from Disney, which has one hundred and fifty million. So 773 00:39:40,719 --> 00:39:43,360 Speaker 10: they will always kind of be that tier two player. 774 00:39:44,560 --> 00:39:46,160 Speaker 10: And so then it's going to come down to, Okay, 775 00:39:46,200 --> 00:39:48,879 Speaker 10: what is their place going to be in this new 776 00:39:48,880 --> 00:39:51,279 Speaker 10: streaming world? And we're still kind of uncertain about that. 777 00:39:52,040 --> 00:39:54,320 Speaker 2: Hey, keith it Tom Keene asked me a good question 778 00:39:54,400 --> 00:39:57,719 Speaker 2: this morning. He noted, reminded me that John Malone is 779 00:39:57,760 --> 00:40:01,279 Speaker 2: a big, big owner of Warner Brothers Discovery, and he 780 00:40:01,320 --> 00:40:03,920 Speaker 2: doesn't have a whole lot of patients. What do you 781 00:40:03,920 --> 00:40:07,040 Speaker 2: think his intentions are with Warner Brothers Discovery? Is David 782 00:40:07,120 --> 00:40:09,880 Speaker 2: Zaslov the CEO? Is his job in jeopardy? Do you 783 00:40:09,880 --> 00:40:12,640 Speaker 2: expect John Malone to exert some pressure on this company 784 00:40:12,680 --> 00:40:15,360 Speaker 2: to enhance shareholder value? How do you think that dynamic 785 00:40:15,440 --> 00:40:16,000 Speaker 2: might play out? 786 00:40:17,040 --> 00:40:20,000 Speaker 10: I think twenty twenty four Paul is definitely going to 787 00:40:20,040 --> 00:40:22,719 Speaker 10: be a difficulty or for media all across the board. 788 00:40:22,760 --> 00:40:25,360 Speaker 10: That's it. They do have certain things in place. So 789 00:40:25,400 --> 00:40:28,560 Speaker 10: they do have this new Skinny sports app that they're 790 00:40:28,600 --> 00:40:31,239 Speaker 10: working with both Disney and Fox that's going to come 791 00:40:31,239 --> 00:40:33,840 Speaker 10: out in the fall. So you know, that's a positive. 792 00:40:34,000 --> 00:40:37,000 Speaker 10: I really don't know what kind of impact it's going 793 00:40:37,000 --> 00:40:38,960 Speaker 10: to have on earnings just yet, but they are definitely 794 00:40:38,960 --> 00:40:42,480 Speaker 10: trying to hedge their bets. But going into twenty twenty five, 795 00:40:42,480 --> 00:40:44,920 Speaker 10: I mean they're still talking about you know, streaming profitability 796 00:40:44,920 --> 00:40:48,040 Speaker 10: and things like that. Again, I'm not sure whether it's 797 00:40:48,200 --> 00:40:52,000 Speaker 10: enough to kind of offset the linear TV pressures. So 798 00:40:52,520 --> 00:40:55,279 Speaker 10: I'm not sure what kind of pressure John Malone is 799 00:40:55,320 --> 00:40:57,640 Speaker 10: going to be exerting on them. But I don't necessarily 800 00:40:57,640 --> 00:41:00,239 Speaker 10: see anything major happening at least in twenty two twenty 801 00:41:00,280 --> 00:41:02,239 Speaker 10: four from both an m and A perspective or from 802 00:41:02,239 --> 00:41:04,920 Speaker 10: a financial perspective. Right now, it's all about you know, 803 00:41:05,120 --> 00:41:09,200 Speaker 10: organic opportunities for WBT, So it's there's really no major 804 00:41:09,280 --> 00:41:11,120 Speaker 10: catalyst as far as I can see. 805 00:41:11,360 --> 00:41:13,840 Speaker 2: Yeah, Well, my good friend Laura Martin, she's meeting anost 806 00:41:13,880 --> 00:41:15,560 Speaker 2: over and need him and company, and she's one of 807 00:41:15,600 --> 00:41:17,960 Speaker 2: the top adamsts out there, a lot of experience. She's 808 00:41:18,040 --> 00:41:20,840 Speaker 2: keeping her hold on this company. She says, you know, 809 00:41:20,840 --> 00:41:22,799 Speaker 2: twenty twenty four is an investment year, not a free 810 00:41:22,800 --> 00:41:26,080 Speaker 2: cash flow growth year, so she's waiting for revenue growth 811 00:41:26,080 --> 00:41:28,480 Speaker 2: to come, which might be might be next year, So 812 00:41:28,640 --> 00:41:30,720 Speaker 2: she's staying on the sidelines at least. 813 00:41:31,640 --> 00:41:34,360 Speaker 5: You know, when I see an earnings report like this, Githa, 814 00:41:34,719 --> 00:41:37,400 Speaker 5: when you see like something that's like free cash flow 815 00:41:37,520 --> 00:41:40,960 Speaker 5: was like so overwhelmingly positive and everything else not so great, 816 00:41:41,040 --> 00:41:43,560 Speaker 5: I feel like this is like case in point of 817 00:41:43,600 --> 00:41:47,160 Speaker 5: like why bondholders and shareholders care about different things. So 818 00:41:47,320 --> 00:41:49,719 Speaker 5: is there gonna is this maybe something where if you're 819 00:41:50,239 --> 00:41:52,719 Speaker 5: a debt holder of Warner Bros. Discovery today, you're just like, 820 00:41:53,080 --> 00:41:55,799 Speaker 5: praise be, They're gonna pray down, They're gonna pay down debt. 821 00:41:56,040 --> 00:41:58,400 Speaker 5: This is a great deal leveraging story, or like you 822 00:41:58,440 --> 00:41:59,360 Speaker 5: can't even take. 823 00:41:59,200 --> 00:42:00,000 Speaker 6: That kind of an angle. 824 00:42:00,000 --> 00:42:02,680 Speaker 10: Well, it is a good deal leveraging story, and they've 825 00:42:02,719 --> 00:42:04,399 Speaker 10: done a great job. I mean, they paid down more 826 00:42:04,400 --> 00:42:07,879 Speaker 10: than five billion dollars in debt Molley through twenty twenty three. 827 00:42:07,880 --> 00:42:10,480 Speaker 10: But then you know, they had some pretty ambitious leverage targets. 828 00:42:10,520 --> 00:42:13,200 Speaker 10: So we ended twenty twenty three at three three point 829 00:42:13,280 --> 00:42:15,400 Speaker 10: nine x. You know, their goal was to get to 830 00:42:15,400 --> 00:42:17,800 Speaker 10: a two and a half to three times leverage ratio 831 00:42:17,800 --> 00:42:19,840 Speaker 10: by the end of twenty twenty four. They're obviously not 832 00:42:20,000 --> 00:42:22,200 Speaker 10: going to get there. I think, you know the way 833 00:42:22,200 --> 00:42:24,080 Speaker 10: that bondholders are going to look at. This is obviously 834 00:42:24,080 --> 00:42:26,640 Speaker 10: the EBITDA guidance or the lack of guidance kind of 835 00:42:26,640 --> 00:42:29,800 Speaker 10: speaks volumes at this point. You know, the earnings pressure 836 00:42:29,840 --> 00:42:32,359 Speaker 10: is just tremendous right now for this company. I think 837 00:42:32,400 --> 00:42:35,200 Speaker 10: once we get to below three times a leverage ratio, 838 00:42:35,320 --> 00:42:37,920 Speaker 10: I think that's when the stock will really kind of 839 00:42:37,920 --> 00:42:39,879 Speaker 10: start to work, both on the equity side as well 840 00:42:39,880 --> 00:42:41,160 Speaker 10: as on the credit side. 841 00:42:41,440 --> 00:42:43,040 Speaker 2: All Right, gith thanks so much for joining us. Well, 842 00:42:43,040 --> 00:42:45,480 Speaker 2: we appreciate it. Eithan wrong Andothan. She covers all the 843 00:42:45,480 --> 00:42:49,520 Speaker 2: media industry, all the companies there for Bloomberg Intelligence really 844 00:42:49,600 --> 00:42:51,359 Speaker 2: leads our effort there, and we appreciate getting a few 845 00:42:51,360 --> 00:42:54,200 Speaker 2: minutes over time, just a real time of transition in 846 00:42:54,239 --> 00:42:58,000 Speaker 2: the media space here as the industry tries to transition 847 00:42:58,080 --> 00:43:00,600 Speaker 2: from what was the traditional media model where you bundled 848 00:43:00,640 --> 00:43:02,680 Speaker 2: everything up in a cable package and you paid your 849 00:43:02,680 --> 00:43:04,560 Speaker 2: eighty year one hundred bucks a month and everybody made 850 00:43:04,560 --> 00:43:07,680 Speaker 2: money all throughout the ecosystem. That was a very very 851 00:43:07,719 --> 00:43:11,040 Speaker 2: good business for shareholders and for bondholders. Now let's transition 852 00:43:11,080 --> 00:43:15,120 Speaker 2: to streaming. The economics are uncertain at best, and investors 853 00:43:15,160 --> 00:43:16,560 Speaker 2: are just saying I'm going to wait on the sidelines 854 00:43:16,560 --> 00:43:17,239 Speaker 2: before we get back. 855 00:43:17,480 --> 00:43:19,680 Speaker 6: Well maybe you know, NASA shoot my own horn. 856 00:43:19,760 --> 00:43:21,480 Speaker 5: But I did just get cable for the first time 857 00:43:21,520 --> 00:43:24,040 Speaker 5: in my life really in my new apartment. It's part 858 00:43:24,040 --> 00:43:26,680 Speaker 5: of our maintenance fees that we get a deal with RCN. 859 00:43:26,840 --> 00:43:29,160 Speaker 6: So maybe I'll be helping them in why because you're 860 00:43:29,440 --> 00:43:34,280 Speaker 6: a what spectrum cable just like millennial? Yeah that's the label. 861 00:43:34,360 --> 00:43:37,520 Speaker 2: Yes, okay, so wow, I mean A'm millennial getting into 862 00:43:37,520 --> 00:43:40,480 Speaker 2: the pad ecosyst that that is a It's a story 863 00:43:40,480 --> 00:43:41,200 Speaker 2: in and of itself. 864 00:43:41,960 --> 00:43:46,480 Speaker 1: This is the Bloomberg Intelligence podcast, available on Apples, Spotify, 865 00:43:46,680 --> 00:43:49,600 Speaker 1: and anywhere else you will get your podcasts. Listen live 866 00:43:49,680 --> 00:43:53,280 Speaker 1: each weekday ten am to noon Eastern on Bloomberg dot com, 867 00:43:53,400 --> 00:43:56,799 Speaker 1: the iHeart Radio app, tune In, and the Bloomberg Business app. 868 00:43:56,920 --> 00:43:59,920 Speaker 1: You can also watch us live every weekday on YouTube 869 00:44:00,160 --> 00:44:01,839 Speaker 1: and always on the Bloomberg Train.