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Speaker 2: The story again today is Nvidio stock trading up on
Speaker 2: the back of that really good earnings we had earlier
Speaker 2: in the week, and obviously had that big surge yesterday,
Speaker 2: but it's up a few percent here today. I'm looking
Speaker 2: at this stock again, trailing twelve months, up over two
Speaker 2: hundred and forty up sixty percent, just a year to
Speaker 2: date two point zero two trillion dollars. Let's check in
Speaker 2: with man Deep Singh. He's a senior technology analyst for
Speaker 2: Bloomberg Intelligence and he knows all about this kind of stuff. So,
Speaker 2: Man Deep, you know, I think we've broken down the quarter.
Speaker 2: We know that business is good. We had gene Monster
Speaker 2: on in the last hour for a couple segments there.
Speaker 2: He remains uber uber bullish here and he says that
Speaker 2: this AI is just below electricity in terms of how
Speaker 2: it's going to impact our lives and well above the Internet. Man.
Speaker 2: That's bullish. Do you have any sobering thoughts as it
Speaker 2: relates to AI and in video Here I.
Speaker 3: Concur with him. I think this is, you know, something
Speaker 3: transformational multi year. The only thing that as an investor
Speaker 3: you have to be cognizant of is clearly and video
Speaker 3: is compounding, you know, at fifty percent, and because it's
Speaker 3: a multi year trend, they can do that. What is
Speaker 3: the price you pay for getting in this dock? And
Speaker 3: what is a multiple that you know discounts for the
Speaker 3: growth going far out beyond you know three to four quarters,
Speaker 3: which I think they have great visibility on And so
Speaker 3: that's where you know there there is always a price
Speaker 3: for you know, even a high quality stock like in
Speaker 3: VideA where the fundamentals are great, but it's not infinity.
Speaker 3: And so that's the I think part where clearly you
Speaker 3: know they're writing the momentum. It's it's great, I mean,
Speaker 3: they had a blockbuster earning Siattra game, but it's we
Speaker 3: know it's not forever.
Speaker 4: And the price.
Speaker 3: That's why we look at prices, multiples and you know, valuation,
Speaker 3: and I think that's the part that market still is
Speaker 3: figuring out what is the right multiple for stock like
Speaker 3: in Video.
Speaker 5: Mande, let's just come back for a second to what
Speaker 5: in Video's technology actually is. It says here that they
Speaker 5: dominate the market for graphics chips designed for complex computing
Speaker 5: tasks needed to power AI applications. So in plain speak,
Speaker 5: how does somebody like me make use of that?
Speaker 3: Well, so think of you know, all the processing that
Speaker 3: was done in the last thirty thirty five years. It
Speaker 3: was used a CPU central processing unit, and CPU works
Speaker 3: in a certain way in terms of the instructions you
Speaker 3: pass through the processor, the way it does the processing,
Speaker 3: and the way results are split out. That was the
Speaker 3: same even with data centers, even though the CPU and
Speaker 3: data centers is a lot more powerful within media because
Speaker 3: they've focused on graphics and gaming related processing, that's a
Speaker 3: different type of chip altogether. And now they've been able
Speaker 3: to bring that to AI computation, which is all matrix space.
Speaker 3: So we're talking about you know, vectors and matrix multiplication
Speaker 3: and you know, billions of dimensions in terms of the
Speaker 3: data that you're dealing with, and that's a very different
Speaker 3: operation than what CPU is designed to handle. That's why
Speaker 3: they've had such a great headstart because they've been doing
Speaker 3: this for you know, twenty five plus years in terms
Speaker 3: of that gaming processor that is being used for AI,
Speaker 3: and that's why I think others are finding it hard
Speaker 3: to catch up. But at the end of the day,
Speaker 3: it's still a hardware company that makes chips, so it's
Speaker 3: not a recurring revenue and that's something to be mindful
Speaker 3: of that others are trying to build the capabilities that
Speaker 3: they have.
Speaker 2: All right, Mandy, let's switch gears a little bit. We've
Speaker 2: i think beaten that one to death in Nvidia, but
Speaker 2: certainly it's certainly worth talking about. But we've actually had
Speaker 2: another piece of news that really caught my attention. Reddit
Speaker 2: is looking to go public. They foiled their IPO. Can
Speaker 2: you tell us, for those of us that don't use
Speaker 2: Reddit exclusively, tell us kind of what Reddit is, kind
Speaker 2: of what their business model is, and kind of how
Speaker 2: you think this might be received by the market.
Speaker 3: Yeah, so it's an online network. I mean, I would
Speaker 3: lump it with the social media network companies, even though
Speaker 3: it's more community based and interest based. And look, they've
Speaker 3: got seventy three million daily active users. Think of you know,
Speaker 3: all the large angled models. What are they trained on?
Speaker 3: They're trained on user generated content and in reddits case,
Speaker 3: it's all text content. The parallel that I have on
Speaker 3: the video side is YouTube has a lot of user
Speaker 3: generated video content, TikTok has a lot of user generated
Speaker 3: video content. Reddit is your text repository for user generated content,
Speaker 3: and that's what large angreid models are using to train
Speaker 3: these models so that they can generate you know, right
Speaker 3: kind of text because they have so much context from
Speaker 3: these Reddit posts. I mean, we're talking about one billion
Speaker 3: posts you know that Reddit generates in a year. So
Speaker 3: clearly Reddit has the scale. They have created a niche
Speaker 3: within this large social network community where Meta dominates with
Speaker 3: three billion daily active users, but Reddit has seventy three million,
Speaker 3: and these are pretty engaged users. I mean, the business
Speaker 3: model isn't fleshed out because even though it's ads driven,
Speaker 3: we're talking about a billion dollar run rate. And now
Speaker 3: they're opening another line data licensing that all these large
Speaker 3: and A model companies are going to pay for. So
Speaker 3: that's going to be probably a mid to high single
Speaker 3: digit revenue contributors this year. I think that's the part
Speaker 3: that's going to accelerate because you need to retrain these
Speaker 3: models every few months, and Reddit is the best data
Speaker 3: that you can train on.
Speaker 5: So Reddit's really like a forum for a lot of
Speaker 5: communities to gather. You know, they're like these different threads
Speaker 5: on there, and people get like really hyped on different ideas. Obviously,
Speaker 5: the meme stock rally really just originated so much from
Speaker 5: these different Reddit communities. Can you just explain mandeep, like
Speaker 5: where the value is going to come in generating you know,
Speaker 5: investor you know value from some of these different threads.
Speaker 5: I guess, like I'm just having a hard time imagining
Speaker 5: where that value proposition comes from.
Speaker 3: Yeah, so these threads are all user interaction, and that's
Speaker 3: quite powerful. How do you train the machines to behave
Speaker 3: like users? You train it on actual user data and
Speaker 3: this is you know, communities coming together who share similar interests,
Speaker 3: and that's what you use to train the machines. The
Speaker 3: one problem I have found with Reddit's business model is
Speaker 3: advertisers are leary of putting their ads on a platform
Speaker 3: where there is hate or you know, other kind of
Speaker 3: stuff because they are brand conscious. You know, they don't
Speaker 3: want to show their ads next to something that is
Speaker 3: paid or something like that. And that's where they haven't
Speaker 3: had a lot of traction. I mean it sounds to
Speaker 3: be very similar to Twitter. Twitter is a great platform
Speaker 3: for engagement, but they haven't been able to monetize it
Speaker 3: because of all these aspects. So brand safety is huge
Speaker 3: that Reddit needs to solve for if they want to
Speaker 3: scale on the ad side. But as I said before,
Speaker 3: you know, on the data licensing side, this is the
Speaker 3: data set that every foundational, large angrege model company wants
Speaker 3: to train their models on. Because this is all user generated.
Speaker 2: Content, it sounds like, I mean, you know, from an
Speaker 2: advertising perspective, it's you know, it's Meta, it's you know,
Speaker 2: it's Google, it's Amazon now maybe even you know some others.
Speaker 2: But I mean, this is too small to be a
Speaker 2: player in the advertising space. So in order for me
Speaker 2: to buy this IPO, I have to buy off that
Speaker 2: it's also a I guess AI play as well, don't I?
Speaker 3: It absolutely is, and look, ads can be fixed. I mean,
Speaker 3: I compare it to Pinterest. So Pinterest has got twenty
Speaker 3: three million daily active users in the US. Reddit has
Speaker 3: got thirty seven million daily active users in the US,
Speaker 3: so it actually has higher daily active users question and
Speaker 3: Pinterest is four times the size of Reddit in terms
Speaker 3: of revenue run rate, So Pinterest is close to four billion,
Speaker 3: Reddit is a billion. So in terms of runway, clearly,
Speaker 3: you know, Reddit is under monetizing the engagement. But the
Speaker 3: reason for that is advertisers still don't feel like spending
Speaker 3: you know, five ten billion dollars on the platform because
Speaker 3: of brand safety issues and all the type of post
Speaker 3: or discussions they have on Reddit. So they need to
Speaker 3: clean up that part. I'm sure the advertisers that you know,
Speaker 3: they're advertising dollars of well spend, offer measurement, etc. But
Speaker 3: this is fixable. I mean, we've seen Beta do so
Speaker 3: much in terms of ad measurement and ad targeting and
Speaker 3: look at what they have done this year. So clearly
Speaker 3: there is a long runway for Reddit, and the data
Speaker 3: licensing part has a lot of upside because of all
Speaker 3: the generatord ai interests.
Speaker 2: All right, Mandy, thanks so much for joining us. A
Speaker 2: man deep seeing he's a senior technology analyst Bloomberg Intelligence
Speaker 2: joining us via zoom there. So again, Reddit, it's interesting,
Speaker 2: it's it's an ipo. We like to see more of
Speaker 2: those hitting the market. It's a good signed for the market,
Speaker 2: so the IPO buyers will be happy, and it's another
Speaker 2: kind of social media play. But as Mandeep was saying,
Speaker 2: it's got this AI angle to it as well.
Speaker 5: I feel like every time we have a topic here
Speaker 5: on the radio where we're talking about AI, I have
Speaker 5: to ask, like, how is this like somebody like me
Speaker 5: going to use these tools? Because, like, you know, we
Speaker 5: talk about the impact, and sometimes it's hard to imagine
Speaker 5: something that's really going to impact your life more than
Speaker 5: the Internet or a cell phone, and like, is this
Speaker 5: really accessible to the mass market?
Speaker 2: Exactly so, But I mean you'd listen to every company
Speaker 2: in s and P five hundred saying AI is can
Speaker 2: to impact our business. You're going to go up to
Speaker 2: a drive through and it's going to be a different experience,
Speaker 2: of better experience thanks to the technology. And so we'll see,
Speaker 2: you know, but that's clearly what we're a lot of
Speaker 2: the bulls are banking on.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: You know, I don't know what to do with this market, Moley,
Speaker 2: Maybe I just is it just all in Nvidia all the.
Speaker 6: Time, all teams like all Ta AI or nothing.
Speaker 2: Al Tech exactly AI or nothing. But let's talk about
Speaker 2: this market a more broad sense. Lauren Gilbert can help
Speaker 2: us do that. She's a seat of wealth Wise Financial,
Speaker 2: joining us via zoom from I believe Houston, Texas on
Speaker 2: behalf of Houston, Texas. I'll call out WTI cud oil
Speaker 2: is off about two percent today, seventy seven dollars. I
Speaker 2: think that people in Houston care about that stuff.
Speaker 6: I think they do a little bit.
Speaker 2: Lauren, thanks much for joining us here. What do you
Speaker 2: make of what we've experienced over the past few days,
Speaker 2: in a few weeks as it relates to AI and
Speaker 2: in Vidia and what it means for the tech space
Speaker 2: and the market overall. I haven't seen anything like this
Speaker 2: in a long time.
Speaker 7: Right, Well, we are in the age of AI, which
Speaker 7: is similar to the age of the Internet when it
Speaker 7: came to be. Although this is going to transform really
Speaker 7: every sector in every business, and so it is a
Speaker 7: huge story. It is the catalyst of the market and
Speaker 7: will continue to be in The good news from Nvidia
Speaker 7: yesterday really was that it spread across the semiconductor space
Speaker 7: as all of these different companies are looking to get
Speaker 7: some market share. And so while we still don't know
Speaker 7: who the winner is right now, certainly in Vidia has been,
Speaker 7: but we like the whole space, so semiconductors and also
Speaker 7: what it's going to do to other sectors as well,
Speaker 7: So that is the catalyst.
Speaker 6: How are you feeling right now about earnings in general?
Speaker 5: Loreen, And I mean, obviously there's a lot of positives
Speaker 5: to take from these AI stocks, but what about elsewhere?
Speaker 7: Yeah, So with over eighty percent of the SMP having reported,
Speaker 7: we're having a good earning season. We've clearly come out
Speaker 7: of an earnings recession with year over year growth over
Speaker 7: five percent. So we're in pretty good space there with earnings,
Speaker 7: and we do see opportunities in other areas of the market.
Speaker 7: Communications services is one that we like quite a bit
Speaker 7: as well as healthcare is another sector that we like.
Speaker 7: Just with inflation continuing to come down, and so the
Speaker 7: story is that the backdrop is there with inflation coming down,
Speaker 7: with the FED that's going to make a move sometime
Speaker 7: this year. We're still holding on to the idea of
Speaker 7: May maybe the first rate cut, even though probability has
Speaker 7: come down to twenty one percent now for a May
Speaker 7: rate cut, we still think, you know, it's sooner than
Speaker 7: later with a rate cut, which is going to help
Speaker 7: the many items, especially even housing and home builders for
Speaker 7: the second half of the year. So we do see
Speaker 7: a lot of optimism in areas of the market.
Speaker 2: Laurie and I to see that you like preferred stock,
Speaker 2: and we don't talk about preferred stock preferred stock market
Speaker 2: opportunities with preferred stock. Why in some markets it's a
Speaker 2: real advantageous vehicle. How do you think about preferred stock.
Speaker 7: Yeah, the way that we're thinking about right now is
Speaker 7: the yield is good and it helps us mitigate duration
Speaker 7: risk on fixed income, and so it's a nice play
Speaker 7: between the stock and the bond and looking at preferred
Speaker 7: stock as a way to capture some yield and mitigate
Speaker 7: some risk.
Speaker 5: Well, how are you thinking about the broader fixed income
Speaker 5: space right now? You know you just said that your
Speaker 5: that is sooner rather than later for a FED rate cut,
Speaker 5: which seems like is not what a lot of FED
Speaker 5: officials are saying these days.
Speaker 7: Right, And there's always what is being said and what
Speaker 7: will ultimately be done. But you know, so having some
Speaker 7: duration is good, but not extending too far. We're you know,
Speaker 7: just right pretty close to the benchmark as far as
Speaker 7: duration is concerned. On fixed income, we do like fixed income,
Speaker 7: and we do think that fixed income is going to
Speaker 7: be a good part of a portfolio this year as
Speaker 7: we don't see necessarily a straight line in the equity markets,
Speaker 7: and so having some fixed income there will be good
Speaker 7: to moderate risk on the equity side. We're also looking
Speaker 7: at the earning zeald on stocks right now is not
Speaker 7: that attractive, you know, compared to ten year treasury, so
Speaker 7: you know, looking at that idea. So once again, blended
Speaker 7: portfolio we think is going to be a good story
Speaker 7: this year. And of course, just depending on somebody's risk tolerance,
Speaker 7: where will that blend be. But not being all equity
Speaker 7: or not all fixed income, but having a blend, we
Speaker 7: think it's going to be provide some some decent returns
Speaker 7: this year.
Speaker 2: Hitherin you hear from your clients about their interest in
Speaker 2: I guess alternatives, whether it's private equity, private credit, maybe
Speaker 2: hedge funds. What's the interest level there and kind of
Speaker 2: how do you steer them?
Speaker 7: Yeah, we like alternative investments. We hold alternative investment in
Speaker 7: the spaces you know, you've mentioned a number of them,
Speaker 7: and there's liquid alternatives and there's non liquid alternatives, and
Speaker 7: that's really the conversation to have with investors is you know,
Speaker 7: how much liquidity do you need? And certainly what the
Speaker 7: public markets offer us is liquidity, and that's important. And
Speaker 7: then there are ways to drive more alpha, more excess
Speaker 7: returns versus what might be expected, and that those are
Speaker 7: some of those non liquid alternatives. So I think a
Speaker 7: combination of both is important, and once again looking at
Speaker 7: investors to see what kind of liquidity they actually need.
Speaker 6: So it sounds like tech's a good place to be
Speaker 6: right now.
Speaker 5: You've mentioned you also like some communications stocks. Where else
Speaker 5: are you looking in terms of the industry breakdown?
Speaker 7: Like I was mentioning in healthcare, we like biotech as well,
Speaker 7: just because that is an area that as inflation wanes,
Speaker 7: tends to be positive for that area of the market.
Speaker 7: Those also tend to be oftentimes smaller companies, and while
Speaker 7: we're still seeing a dominance of the large cap space,
Speaker 7: we think there will be a reversal to that trend
Speaker 7: this year and we'll see benefits from smaller cap companies
Speaker 7: as rates start to come down. So that's another area
Speaker 7: that we like.
Speaker 2: All Right, Lurene, thank you so much for joining us.
Speaker 2: Really appreciate getting a few minutes of your time with
Speaker 2: Loreen Gilbert, CEO of wealth Wise Financial, joining us via
Speaker 2: zoom from Houston, Texas.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Or news coming out of Washington as it relates to
Speaker 2: Ukraine in Russia, the US today unveils its biggest sankets
Speaker 2: package on Russia since the war began. A drone maker
Speaker 2: and a payment system company are among targets of penalties.
Speaker 2: Secretary Yellens as Russia's economy is showing quote signs of weakness.
Speaker 2: Let's break it down with Dan flat Lake, national security
Speaker 2: reporter for Bloomberg News, joins is to via zoom from Washington, DC. Dan,
Speaker 2: what's in this sanctions package?
Speaker 4: Well, there's a lot of stuff in it.
Speaker 8: We're talking about, you know, all told about six hundred
Speaker 8: or so targets, but a lot of them aren't really
Speaker 8: household names, so you're looking at primarily Russian companies with
Speaker 8: or individuals no ties to the US financial system. But
Speaker 8: they are getting shipments and they're getting some goods in
Speaker 8: from third countries that are helping kind of keep the
Speaker 8: war machine going. So the idea here is basically to
Speaker 8: kind of ratchet up some pressure on the Russian economy,
Speaker 8: kind of clamp down on some of the places where
Speaker 8: things are still getting through, and then really kind of
Speaker 8: you know, look forward to potentially some other measures that
Speaker 8: may be taken, you know, in the next few months.
Speaker 5: Dan tell us how effective, if at all, the sanctions
Speaker 5: up to date have been, because you know, the IMF
Speaker 5: and your story said that Russia's economy is actually on
Speaker 5: track to grow almost three percent this year and it's
Speaker 5: really seems to be holding up pretty well by and large.
Speaker 4: Yeah, there's no question that, you know, as far as
Speaker 4: the strategic goal of.
Speaker 8: Getting putin to you know, give up the invasion and
Speaker 8: withdraw from Ukraine, that obviously hasn't happened, and we're now
Speaker 8: two years into this conflict. There have been some effects,
Speaker 8: you know, on the Russian economy. Growth is a little
Speaker 8: bit slower, at least it was initially. Now, as you mentioned,
Speaker 8: the IMF projects that it will be close to two
Speaker 8: point six or three pert, you know, up to three
Speaker 8: percent this year. So it's it's blowing the economy, uh,
Speaker 8: you know, not as much as the US would have hoped,
Speaker 8: but it has forced Putin to sort of turn economy
Speaker 8: into a wartime economy, to basically kind of turn his
Speaker 8: entire manufacturing sector over to producing stuff for the war,
Speaker 8: and the hope is obviously over. Of course, that doesn't
Speaker 8: really help Ukraine now, and that's where we get into
Speaker 8: some of the funding battles that are happening here in Congress.
Speaker 2: Oh, thank you very much, Hey Dan. We had Deputy
Speaker 2: US Treasury Secretary Wally Adayamo on Bloomberg Surveillance television this morning,
Speaker 2: and Jonathan Farrow asked him about India because Indian India
Speaker 2: has been one of those countries that it's kind of
Speaker 2: been a little bit loose with its relationship with Russia.
Speaker 2: How does the administration think about India and its placed
Speaker 2: kind of geopolitics and how it may be interacting with
Speaker 2: Russia maybe against some of these sanctions.
Speaker 8: Yeah, it's a huge, huge problem some of our colleagues
Speaker 8: from Bloomberg Economics have done a great analysis on sort
Speaker 8: of the ten Lessons from the Russia Ukraine War that
Speaker 8: was out yesterday, and you know, they look at sort
Speaker 8: of the rise of this block of countries that are
Speaker 8: really rivaling the US and its allies, not necessarily in
Speaker 8: terms of size of economic weight or power in terms
Speaker 8: of global GDP, but certainly as an alternative to the
Speaker 8: US led kind of financial system.
Speaker 4: And that's India, and that's China, and when it.
Speaker 8: Comes to Russia, those countries are really keeping Russia propped
Speaker 8: up to a large extent.
Speaker 4: India is buying Russian.
Speaker 8: Oil, China is buying Russian oil, China is sending technology
Speaker 8: and other goods onto Russia. Russia is also getting weapons
Speaker 8: from Iran and North Korea and other places. So there's
Speaker 8: kind of a whole rival faction that has cropped up
Speaker 8: that is going to be very hard to counteract, especially
Speaker 8: when you're talking about India, which is an ally the
Speaker 8: US in so many other ways.
Speaker 5: Yeah, Dan, you know, you and I had talked about
Speaker 5: this a bit time ago last year. The idea of
Speaker 5: export controls is that what we're alluding to here, Like basically,
Speaker 5: when you know, some of these countries that you know,
Speaker 5: like India maybe in this case that aren't being directly
Speaker 5: sanctioned by the US, but can still you know, kind
Speaker 5: of work with Russia behind the scenes and help get
Speaker 5: around these sanctions and maybe a bit more of an
Speaker 5: indirect way.
Speaker 8: Yeah, I mean, it's a really it's a huge issue
Speaker 8: right now, just from a policy perspective. If you think
Speaker 8: about sanctions and the history of sanctions, the way sanctions work,
Speaker 8: they really leverage the financial system.
Speaker 4: Which you know it works. It's technology, so you can
Speaker 4: see payments moving through the system.
Speaker 8: It's very easy for banks to know that they you know,
Speaker 8: if they violate sanctions, they're going to get hit with
Speaker 8: big fines. Export controls is a totally different game because
Speaker 8: you're talking about boxes and microchips and things that are
Speaker 8: moving through sometimes a more informal economy, and it's harder
Speaker 8: to track that sort of thing. And I've talked to
Speaker 8: folks in the last week or so that say, you know,
Speaker 8: once that stuff hits Hong Kong, once it hits Turkey,
Speaker 8: or once it hits some of these certain countries, we
Speaker 8: lose all all visibility of them. We don't really know
Speaker 8: where it's going, so how do you stop that from happening.
Speaker 8: It's just not as well developed as sanctions.
Speaker 2: So Dan, we had Admiral Sturritis on earlier today, the
Speaker 2: former NATO Supreme Commander, four star admiral retired US Navy.
Speaker 2: He was saying, boy, they need the weapons now, the
Speaker 2: Ukrainians now, And you know, it's really at a critical
Speaker 2: time here. You get a feeling within DC that there's
Speaker 2: a belief that that this is a critical time or
Speaker 2: is this simply a political game at this point?
Speaker 4: You know, it's a good question. It's hard to say exactly.
Speaker 8: I think that there are some folks on Capitol Hill who.
Speaker 4: Do feel the urgency.
Speaker 8: Senator Schumer, the Senate majority leader, is in Kiev today
Speaker 8: as we speak, visiting with Ukrainian leadership.
Speaker 4: Republicans have gone as well. In the past.
Speaker 8: Mitch McConnell has certainly been pushing for Ukraine a The
Speaker 8: Senate did pass a package that will provide Ukraine with
Speaker 8: weapons and other financial support, but it's.
Speaker 4: Stuck in the House.
Speaker 8: And that's where it gets into a much stricier political
Speaker 8: situation because you have the former President Donald Trump really
Speaker 8: pushing against this kind of package. You have some isolationists
Speaker 8: in the Republican Party who say, you know, why are
Speaker 8: we spending all this money in Europe when we should
Speaker 8: be spending it on the southern border. There's a lot
Speaker 8: of things that are happening there in an election year
Speaker 8: that makes it very hard for something that ordinarily would
Speaker 8: get you know, a majority support and really probably would
Speaker 8: and put it on the floor of the House, makes
Speaker 8: it much harder to get done.
Speaker 4: So that's that's a real sticking point right now.
Speaker 5: When we're talking about sanctions, though, Dan, is that something
Speaker 5: that would be subject to the same kind of approval
Speaker 5: process as Ukraine aimed, would be as going through Congress
Speaker 5: in that same kind of way.
Speaker 4: Well, I think this is one of the things.
Speaker 8: One of the reasons why sanctions, the use of sanctions
Speaker 8: is up like one thousand percent over the last two
Speaker 8: decades or two and a half decades, is because you
Speaker 8: don't have to spend a ton of money to wield them,
Speaker 8: don't necessarily need.
Speaker 4: Approval from Congress.
Speaker 8: Every time you want to levy su sanctions, you do
Speaker 8: you want to spend you know, fifty sixty seventy billion
Speaker 8: dollars if you want to reinvigorate the Defense Industrial Base.
Speaker 8: If you want to do all these things that actually
Speaker 8: matter on the battlefield, you need Congress, you need the
Speaker 8: purse strings, and you know, so that's a much harder sell.
Speaker 8: But sanctions, you know, I won't say they're easier to
Speaker 8: wield necessarily, but they are more efficient in the sense
Speaker 8: that the administration can do it on its own without
Speaker 8: having to go to Congress for authorization.
Speaker 2: All right, Dan, thanks so much for joining us. Really
Speaker 2: appreciate getting your thoughts and analysis there. Dan Flatley, a
Speaker 2: national security reporter for Bloomberg News, joining us via zoom
Speaker 2: from Washington, DC.
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Speaker 2: Our c SUEE conversation today. Kevin Butler Joints, and he's
Speaker 2: the CEA of Excellent ex C is a ticker to
Speaker 2: put into your Bloomberg terminal here at Utility Company. But
Speaker 2: I want you to tell us just start off, Calvin,
Speaker 2: thanks so much for joining us, but tell us about
Speaker 2: your company, what you guys are doing, and don't get
Speaker 2: into kind of the meat of it.
Speaker 9: Absolutely, and good morning and thank you for having me so.
Speaker 9: Excellent is the largest transmission and distribution utility in the country.
Speaker 9: We have the privileged and responsibility to serve approximately ten
Speaker 9: point five million customers across some of the most diverse
Speaker 9: and largest cities in the United States through our utilities
Speaker 9: Commonwealth Edison in Chicago, Baltimore Gas and Electric and of
Speaker 9: course Baltimore Pico out of Philadelphia, Pepco Holdings, which is
Speaker 9: sitting in our nation's capital, VC del Marble Power and
Speaker 9: Light in Wilmington, Delaware, and Atlantic City Electric. So when
Speaker 9: you look at that scale and size, Excellent is positioned
Speaker 9: well to lead this energy transfer and that's who we
Speaker 9: are and how we show up for our customers.
Speaker 5: So you guys just had earnings a couple of days ago, right, Yeah,
Speaker 5: So tell us about the latest quarters, some of the highlights,
Speaker 5: and what you're looking forward to in the year or.
Speaker 6: So to come.
Speaker 9: No, thank you for asking, as Wednesday was a good day,
Speaker 9: and I say that because we beat our fourth quarter
Speaker 9: expectations and we exceeded expectations for the twenty twenty three,
Speaker 9: and I was just so proud of the team that
Speaker 9: we were able to deliver on our commitments that we
Speaker 9: made in twenty twenty three despite all the challenges, and
Speaker 9: when I say challenges, when you look at in Pennsylvania
Speaker 9: had one of the warmest winters that had in the
Speaker 9: last fifty years, and being a distribution company the gas
Speaker 9: company that we do there, we continue we overcame those
Speaker 9: headwinds and still met the number. And in addition to that,
Speaker 9: despite the challenges in our regulatory environment, because of our skill,
Speaker 9: we will continued to able to shift capital around our
Speaker 9: platform to invest in the things that are most important
Speaker 9: to our custos.
Speaker 4: So it was a good day, all right.
Speaker 2: My analyst of Bloomberg Intelligence that covers your stocks, she writes,
Speaker 2: since she says, ask them about Illinois, so talk about
Speaker 2: some regulatory headwinds. It seems like Illinois in the news
Speaker 2: and not always for the right reasons, but anyway, talks
Speaker 2: about doing business in Illinois.
Speaker 9: You know, KMET is the largest hutility in Illinois, having
Speaker 9: the privilege of serving Chicago, and your analyst is right on,
Speaker 9: Illinois is a difficult jurisdiction for us, right Now, we
Speaker 9: had a ruling on December fourteenth, and that ruling set
Speaker 9: I think their efforts to decarbonize and to move forward
Speaker 9: on transportational electrification that they were on. But we are
Speaker 9: committed to working with all of our stakeholders, including the Commission,
Speaker 9: to get to where we have a shared vision to
Speaker 9: move Illinois forward. But it was it was a December
Speaker 9: fourteenth I remember it well. It was a tough day.
Speaker 9: But what you've seen now is we've reduced about one
Speaker 9: point four billion dollars in capital in Illinois.
Speaker 2: But more importantly because of this, this.
Speaker 9: Cost of decision, and what really hurts is that the
Speaker 9: sitence of Illinois, their transition to a clean energy stacking
Speaker 9: is going to slow down. And we had to lay
Speaker 9: off nine hundred contractors that's direct contractors, and impacted by
Speaker 9: that was roughly two thousand indirect jobs. Now that's just us,
Speaker 9: so you could imagine the other utilities, the other electric
Speaker 9: utilities and gas utilities had to do the exact same thing.
Speaker 9: But we have a path forward and we continue to
Speaker 9: work with the Commission to right.
Speaker 5: Size this and obviously you guys are looking to do
Speaker 5: you know, switch over to clean energy and other markets
Speaker 5: as well. So how does Illinois maybe give you a
Speaker 5: bit of a blueprint for how to approach these other markets.
Speaker 9: Well, I would tell you that the same day, although
Speaker 9: there was a bad outcome in Illinois, we had a
Speaker 9: solid outcome in Maryland exact same day. So it just
Speaker 9: goes to show you when you have a shared vision
Speaker 9: of how to get there. We don't expect the commissions
Speaker 9: to give us everything we're asking for, but if we
Speaker 9: have a shared vision and a mutual understand the mutual benefits,
Speaker 9: you can do it. And I always say, in my
Speaker 9: golf parlance, you know, Maryland, you know we hit it.
Speaker 9: It was a part, it wasn't a party, and we're
Speaker 9: working on that. So it is a shared vision across
Speaker 9: and each jurisdiction is different because you can imagine in
Speaker 9: Illinois they're saying we're going all electric sooner rather than later,
Speaker 9: Maryland doing the exact same thing. Pennsylvania we like our gas,
Speaker 9: you know, we're saying gas is going to be part
Speaker 9: of that portfolio in Pennsylvania, and it's up to us
Speaker 9: to understand what those jurisdictions want and determine how to
Speaker 9: get there with those mutual benefits.
Speaker 2: So that's how I was going to ask you, how
Speaker 2: do we to the extent that we move this economy
Speaker 2: to a more greener fashion, including on any energy grid.
Speaker 2: Who drives the bus? Is that you guys saying this
Speaker 2: is how we're going to invest our capital in our plant.
Speaker 2: Or is it more of the municipality saying we want
Speaker 2: to go this way, we want to stay gas, we
Speaker 2: want to go green, or is it kind of a
Speaker 2: I guess partnership.
Speaker 9: It has to be a partnership. So you know, by
Speaker 9: us not owning generation, what I can tell you is
Speaker 9: we are brought to the table more often than not
Speaker 9: now because they don't few I have a vested interest.
Speaker 9: By me not owning, no longer owning nuclear, wind or solar,
Speaker 9: my job is delivered to you. So once they understand
Speaker 9: that and really get it, I'm now a trusted partner.
Speaker 9: Now having said that, what I can tell them is
Speaker 9: that here's the cost to achieve what you're trying to achieve.
Speaker 9: Give you an example. In Maryland, we had a jurisdiction
Speaker 9: that wanted to go all electric, and we said, look,
Speaker 9: I'm an electric and gas I'm going to benefit. I
Speaker 9: can do that for you sooner rather than later. But
Speaker 9: this is what it's going to cost the average customer
Speaker 9: in your city if you do that. And when you
Speaker 9: put those costs in front of them, they're like, Okay,
Speaker 9: let's slow it down a little bit, let's be more
Speaker 9: pragmatic about it, and let's do a balanced approach. And
Speaker 9: that's what we're finding.
Speaker 6: Well, that's what I was going to come to you
Speaker 6: next about is that.
Speaker 5: I'm sure a lot of people would you know, if
Speaker 5: given the choice, would probably say, yeah, cleaner energy, let's
Speaker 5: do it.
Speaker 6: But then what does it cost?
Speaker 5: And so are you saying then that this is like
Speaker 5: is it markedly more expensive than gas? And is that
Speaker 5: just because it's a new technology it's going to take
Speaker 5: some time or even once it's further developed, this is
Speaker 5: still a more expensive energy alternative.
Speaker 9: It will be more cast you know, it will be
Speaker 9: more costly in the short run. Why because the infrastructure
Speaker 9: to handle when solar and increased renewables, you have to
Speaker 9: build this infrastructure to do that. So that substation that's
Speaker 9: in your right around the corner from your home, it's
Speaker 9: not equipped to handle that amount of load if you
Speaker 9: were to convert directly to electricity sooner rather than later,
Speaker 9: so you have to build up that infrastructure. But I
Speaker 9: do believe technology is going to catch up and balance
Speaker 9: out the costs. And my responsibility as the CEO is
Speaker 9: to ensure that this transition is done equably. Those of
Speaker 9: us who can afford it, you know, they're not going
Speaker 9: to miss a beat. But what about those communities that
Speaker 9: are struggling to pay their bill today? When you start
Speaker 9: going down this path quicker, they're going to be the
Speaker 9: ones most impacted.
Speaker 2: How do you your company Excellent? Do you grow via acquisition?
Speaker 2: And if so, how do you think about acquisition related growth?
Speaker 9: Yes, so when you think of Excellent, Excellent was formed
Speaker 9: in two thousand with the combination of Commonwealth Edison out
Speaker 9: of Chicago and Pico out of Philadelphia. So Excellent formed
Speaker 9: via acquisition. In twenty twelve, we bought Constellation Energy, which
Speaker 9: was Baltimore Gas and Electric. In twenty sixteen we bought
Speaker 9: Pepco Holdings, which was Pepco, d C, del Marva and
Speaker 9: Atlantic City. So we're conglomeration. I think the industry will
Speaker 9: continue to move that way because scale matters when you
Speaker 9: go to costs and affordability. For us, at this point,
Speaker 9: that is not a priority because we're investing over thirty
Speaker 9: five billion dollars over the next few years. That has
Speaker 9: to be our priority right now.
Speaker 2: How do you think about it? I'm sorry, I'm just
Speaker 2: looking at the FA function, my financial analysis function, free
Speaker 2: cash flow. Is it all go to the dividend? And
Speaker 2: or do you say, yeah, you have a four percent
Speaker 2: dividend field a little bit high than a four percent
Speaker 2: dividend yield. How do you balance the dividend versus maybe
Speaker 2: using cash for acquisitions.
Speaker 9: Yeah, we have a rule of thumb that we try
Speaker 9: to target sixty percent dividend payout with earnings. So we
Speaker 9: target that and we look at issuing equity as well
Speaker 9: to our capital investment. Our equity plan is forty percent
Speaker 9: of our capital investment. That's what we rolled out on
Speaker 9: our earnings call. So we're going to issue about one
Speaker 9: point two billion dollars of equity over our LRP to
Speaker 9: fund that dually a long range plan. I'm sorry, Yes,
Speaker 9: So twenty twenty four through twenty twenty seven, we're going
Speaker 9: to invest thirty five billion, and that's about three point
Speaker 9: seven million in new capital, and we're going to fund
Speaker 9: that forty percent with new equity. So we balance that
Speaker 9: and also the earnings. You know, our debt ratio is
Speaker 9: on the lowest in the industry, our CFO to debts,
Speaker 9: So those are all the things we look to to
Speaker 9: fund opportunities.
Speaker 5: Yeah, it looks like you guys just had a bond
Speaker 5: offering earlier this week almost two billion dollars, so that helps,
Speaker 5: but that's mostly refinancing data.
Speaker 9: Looks like it was and it was the best spreads
Speaker 9: we've received in the past fifteen years. So people understand
Speaker 9: the value proposition of Excellon.
Speaker 2: Okay, real quick, thirty seconds. You're based in Chicago, right, Yes,
Speaker 2: Chicago today?
Speaker 9: How Chicago today? Chicago. It's a city that's struggling, like
Speaker 9: many urban cities. But I always tell people it's one
Speaker 9: of the greatest cities from June to October. But it is.
Speaker 9: It's a wonderful city and it's vibrant and that's that.
Speaker 9: And I tell you, you know, when we get to
Speaker 9: serve some of the best cities in the nation and
Speaker 9: we are community partner.
Speaker 2: So all right, Calvin, thank you so much for Jordan's
Speaker 2: really appreciate it. Calvin Butler, here's the CEO of Excellon.
Speaker 2: E XCA is a ticcker to put into your Bloomberg
Speaker 2: terminal there, joining us here in a Bloomberg Interactive broker studio.
Speaker 2: They recently reported some earnings. They were in the market,
Speaker 2: as Molly was saying, with a bond offering this week.
Speaker 2: So busy times for the good folks at Excellent based
Speaker 2: in Chicago, one of my all time favorite cities.
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Speaker 1: Just say Alexa playing Bloomberg eleven thirty.
Speaker 2: So let's get the ethera wrong, Aanathan, because she is
Speaker 2: the media analyst and there's a lot going on in
Speaker 2: the media space. Warner Brothers Discoveries is one of those
Speaker 2: companies that was put together by Warner Brothers merger with
Speaker 2: Discovery Communications. Everybody felt like, Okay, now this company's got
Speaker 2: some scale, some size, and they could make that transition
Speaker 2: into streaming. Well, their latest results came out and it's
Speaker 2: just kind of confirming not so fast it stocks down
Speaker 2: eleven percent today, down twenty five percent year to date,
Speaker 2: down forty six percent on a trailing twelve month basis
Speaker 2: really really tough out there for the traditional media companies. KEITHA.
Speaker 2: Rong Anathan joins us. She's a media anols for Bloomberg Intelligence. ETHA.
Speaker 2: What you take away or what does the market not
Speaker 2: like about what they heard from their conference call?
Speaker 10: Yeah, really really tough, Paul. I mean it's it's lower
Speaker 10: earnings and you know, earnings pressure that's kind of dominating
Speaker 10: the whole narrative for Warner Brothers Discovery. So you know,
Speaker 10: their EBITDA for twenty twenty three came in way below guidance.
Speaker 10: They had guided to somewhere between ten and a half
Speaker 10: to eleven billion dollars in EBITDA. It actually came in
Speaker 10: at ten point two billion. And I think what's worse
Speaker 10: and what kind of really spooked investors was there was
Speaker 10: absolutely no guidance whatsoever for twenty twenty four, a kind
Speaker 10: of you know suggesting, I mean, consensus had twenty twenty
Speaker 10: four estimates at about ten and a half billion. I
Speaker 10: think it's going to be way below ten billion. And
Speaker 10: if you just kind of look at the commentary for
Speaker 10: the TV networks business, remember more than fifty percent of
Speaker 10: their revenue comes from their TV networks business, you know,
Speaker 10: networks like TNTTBS. Again, advertising is really in the doll drums,
Speaker 10: So you know, nothing to really cheer about right now.
Speaker 5: How much of this GITA is really just coming out
Speaker 5: of those Hollywood strikes last year, just you know, it's
Speaker 5: going to take a little bit of time or there's
Speaker 5: really more of a longer term issue at play here.
Speaker 10: The Hollywood strikes, Molly definitely had a huge impact and
Speaker 10: they weighed that. Those strikes definitely weighed on ebitdah. So
Speaker 10: so the numbers that we kind of talked about, the
Speaker 10: ten point two billion versus eleven billion, a lot of
Speaker 10: that was from the Hollywood strikes. The flip side was
Speaker 10: the Hollywood strikes did have a positive effect on free
Speaker 10: cash flow, so you know, the free casual numbers of
Speaker 10: this company throughout were obviously huge. But again that's going
Speaker 10: to reverse once content production restarts. But I think you know,
Speaker 10: it's not just the content pipeline, right We're looking at
Speaker 10: a business model that is very, very challenged right now
Speaker 10: because of cord cutting. You know, you look at a
Speaker 10: PATV ecosystem that has lost about thirty percent of its
Speaker 10: base and that is really having some huge ramifications for
Speaker 10: this company. So, you know, we spoke about fifty percent
Speaker 10: of its revenue coming from the TV networks, ninety percent
Speaker 10: of its EBITDAH comes from that TV network's business. So
Speaker 10: we're seeing a steady ten to fifteen percent decline every
Speaker 10: year because of cord cutting, because of pressures, and that's
Speaker 10: not going to go away.
Speaker 2: All right, Keitha. We're looking waiting for the President. Biden
Speaker 2: is about to speak in Washington, DC, so we may
Speaker 2: have to cut away from that. So Keitha, say, we
Speaker 2: have President Bond walking up to the lectern, I believe,
Speaker 2: So we'll have to see how this plays up down
Speaker 2: in Washington, DC, some comments from the President, So we'll
Speaker 2: have to wait and see how that plays out. KEITHA,
Speaker 2: Real quick is a merger between Warner Brothers Discovery and
Speaker 2: Paramount something that could happen, should happen. It seems like
Speaker 2: two relatively weak companies, two relatively levered balance sheets.
Speaker 10: Yeah, Paul, I mean there is a lot of strategic rationale,
Speaker 10: you know, and Warner Brothers Discovery has been really good
Speaker 10: at extracting synergies. They got out almost four and a
Speaker 10: half five billion dollars from just that combination of Warner
Speaker 10: and Discovery, so they obviously could do that again with Paramount.
Speaker 10: The thing is, I just don't think the market has
Speaker 10: any appetite for more debt. I mean, we have Warner
Speaker 10: Brothers with forty five billion dollars in dead we have
Speaker 10: Paramount with about sixteen billion. I don't think investors will
Speaker 10: like it.
Speaker 6: And let's look at it.
Speaker 5: I mean, let the subscriber here looks like those actually
Speaker 5: came in above analyst estimates. But I mean, is that
Speaker 5: I feel like that's normally something that would drive a
Speaker 5: bit more optimism here. But Lake, you said, everything else
Speaker 5: across the board is just like really just so negative.
Speaker 10: Yeah, I mean streaming subscribers. Yes, that used to be
Speaker 10: a metric that investors used to kind of get excited about.
Speaker 10: Not any more. We're really looking more for profitability. And
Speaker 10: at the end of the day, yeah, they could add
Speaker 10: you know, a million, two million, even three million subscribers,
Speaker 10: but it's really not going to move the needle. I mean, yes,
Speaker 10: you have them at about ninety seven million subscribers for
Speaker 10: their max platform, but it's still a very far cry
Speaker 10: from Netflix, which has two hundred and sixty million from
Speaker 10: Amazon Prime, which again has maybe about two hundred million,
Speaker 10: from Disney, which has one hundred and fifty million. So
Speaker 10: they will always kind of be that tier two player.
Speaker 10: And so then it's going to come down to, Okay,
Speaker 10: what is their place going to be in this new
Speaker 10: streaming world? And we're still kind of uncertain about that.
Speaker 2: Hey, keith it Tom Keene asked me a good question
Speaker 2: this morning. He noted, reminded me that John Malone is
Speaker 2: a big, big owner of Warner Brothers Discovery, and he
Speaker 2: doesn't have a whole lot of patients. What do you
Speaker 2: think his intentions are with Warner Brothers Discovery? Is David
Speaker 2: Zaslov the CEO? Is his job in jeopardy? Do you
Speaker 2: expect John Malone to exert some pressure on this company
Speaker 2: to enhance shareholder value? How do you think that dynamic
Speaker 2: might play out?
Speaker 10: I think twenty twenty four Paul is definitely going to
Speaker 10: be a difficulty or for media all across the board.
Speaker 10: That's it. They do have certain things in place. So
Speaker 10: they do have this new Skinny sports app that they're
Speaker 10: working with both Disney and Fox that's going to come
Speaker 10: out in the fall. So you know, that's a positive.
Speaker 10: I really don't know what kind of impact it's going
Speaker 10: to have on earnings just yet, but they are definitely
Speaker 10: trying to hedge their bets. But going into twenty twenty five,
Speaker 10: I mean they're still talking about you know, streaming profitability
Speaker 10: and things like that. Again, I'm not sure whether it's
Speaker 10: enough to kind of offset the linear TV pressures. So
Speaker 10: I'm not sure what kind of pressure John Malone is
Speaker 10: going to be exerting on them. But I don't necessarily
Speaker 10: see anything major happening at least in twenty two twenty
Speaker 10: four from both an m and A perspective or from
Speaker 10: a financial perspective. Right now, it's all about you know,
Speaker 10: organic opportunities for WBT, So it's there's really no major
Speaker 10: catalyst as far as I can see.
Speaker 2: Yeah, Well, my good friend Laura Martin, she's meeting anost
Speaker 2: over and need him and company, and she's one of
Speaker 2: the top adamsts out there, a lot of experience. She's
Speaker 2: keeping her hold on this company. She says, you know,
Speaker 2: twenty twenty four is an investment year, not a free
Speaker 2: cash flow growth year, so she's waiting for revenue growth
Speaker 2: to come, which might be might be next year, So
Speaker 2: she's staying on the sidelines at least.
Speaker 5: You know, when I see an earnings report like this, Githa,
Speaker 5: when you see like something that's like free cash flow
Speaker 5: was like so overwhelmingly positive and everything else not so great,
Speaker 5: I feel like this is like case in point of
Speaker 5: like why bondholders and shareholders care about different things. So
Speaker 5: is there gonna is this maybe something where if you're
Speaker 5: a debt holder of Warner Bros. Discovery today, you're just like,
Speaker 5: praise be, They're gonna pray down, They're gonna pay down debt.
Speaker 5: This is a great deal leveraging story, or like you
Speaker 5: can't even take.
Speaker 6: That kind of an angle.
Speaker 10: Well, it is a good deal leveraging story, and they've
Speaker 10: done a great job. I mean, they paid down more
Speaker 10: than five billion dollars in debt Molley through twenty twenty three.
Speaker 10: But then you know, they had some pretty ambitious leverage targets.
Speaker 10: So we ended twenty twenty three at three three point
Speaker 10: nine x. You know, their goal was to get to
Speaker 10: a two and a half to three times leverage ratio
Speaker 10: by the end of twenty twenty four. They're obviously not
Speaker 10: going to get there. I think, you know the way
Speaker 10: that bondholders are going to look at. This is obviously
Speaker 10: the EBITDA guidance or the lack of guidance kind of
Speaker 10: speaks volumes at this point. You know, the earnings pressure
Speaker 10: is just tremendous right now for this company. I think
Speaker 10: once we get to below three times a leverage ratio,
Speaker 10: I think that's when the stock will really kind of
Speaker 10: start to work, both on the equity side as well
Speaker 10: as on the credit side.
Speaker 2: All Right, gith thanks so much for joining us. Well,
Speaker 2: we appreciate it. Eithan wrong Andothan. She covers all the
Speaker 2: media industry, all the companies there for Bloomberg Intelligence really
Speaker 2: leads our effort there, and we appreciate getting a few
Speaker 2: minutes over time, just a real time of transition in
Speaker 2: the media space here as the industry tries to transition
Speaker 2: from what was the traditional media model where you bundled
Speaker 2: everything up in a cable package and you paid your
Speaker 2: eighty year one hundred bucks a month and everybody made
Speaker 2: money all throughout the ecosystem. That was a very very
Speaker 2: good business for shareholders and for bondholders. Now let's transition
Speaker 2: to streaming. The economics are uncertain at best, and investors
Speaker 2: are just saying I'm going to wait on the sidelines
Speaker 2: before we get back.
Speaker 6: Well maybe you know, NASA shoot my own horn.
Speaker 5: But I did just get cable for the first time
Speaker 5: in my life really in my new apartment. It's part
Speaker 5: of our maintenance fees that we get a deal with RCN.
Speaker 6: So maybe I'll be helping them in why because you're
Speaker 6: a what spectrum cable just like millennial? Yeah that's the label.
Speaker 2: Yes, okay, so wow, I mean A'm millennial getting into
Speaker 2: the pad ecosyst that that is a It's a story
Speaker 2: in and of itself.
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