Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Bloomberg Tech is alive
Speaker 1: from coast to coast with Caroline Hide in New York
Speaker 1: and Edva Low in San Francisco.
Speaker 2: This is Bloomberg Tech coming up a Bloomberg exclusive SpaceX
Speaker 2: targeting and IPO next year. The goal to raise far
Speaker 2: beyond thirty billion dollars.
Speaker 3: The most in history.
Speaker 2: The valuation around one point five trillion. Why data centers
Speaker 2: in space plus open then closed meta making a pivot
Speaker 2: on open source models. We had the Bloomberg deep dive
Speaker 2: and reports that deep Seak smuggled thousands of banned Blackwell
Speaker 2: chips into China. Nvidio pushes back, let's get to our
Speaker 2: top story in the private markets and soon to be
Speaker 2: public markets. Bloomberg reporting the SpaceX is very much underway
Speaker 2: targeting in IPO in mid twenty twenty six. They want
Speaker 2: to raise far north of thirty billion dollars. In terms
Speaker 2: of dollar raised, that would be the biggest IPO in history.
Speaker 2: The valuation we're hearing one point five trillion. There's a
Speaker 2: lot in play here, but my understanding this is very real.
Speaker 2: It had an impact in public market. Some of the
Speaker 2: names out there in the space sector, particularly EchoStar that
Speaker 2: is in talks on licensing spectrum deals with SpaceX really
Speaker 2: moving over the course of two sessions in reaction to this.
Speaker 2: I use that as an illustrative example. This is the
Speaker 2: IPO that all corners of the technology market and the
Speaker 2: private market have been waiting for. Let's bring in Bloomberg
Speaker 2: Space editor Eric Johnson. Eric broke this story with me
Speaker 2: yesterday afternoon, and we'll go back to the basics of
Speaker 2: what we're reporting, Eric, because there's a lot of data
Speaker 2: in there, but the main headline, I suppose, beyond the valuation,
Speaker 2: is SpaceX wants to raise north for thirty billion dollars.
Speaker 2: You and I are getting a sense on why they
Speaker 2: need that capital.
Speaker 4: That'd great to be here, and congratulations on your scoop
Speaker 4: and great reporting.
Speaker 5: Yes they are.
Speaker 4: What we're hearing is thirty billion dollar rays, which you know,
Speaker 4: if you look at the history of SpaceX, you know
Speaker 4: Musk is known for his grandiose visions. They're building Starship,
Speaker 4: a colossal rocket which he expects to put humans on
Speaker 4: the Moon and eventually one day go to Mars, so
Speaker 4: the money could.
Speaker 6: Be used for that.
Speaker 4: He also has talked about, as you mentioned, the idea
Speaker 4: of putting data centers in space, harnessing solar power and
Speaker 4: having you know, huge amount of computing resources in space.
Speaker 4: They would need to buy chips to do so, so
Speaker 4: the money could be used for that, you know. Of course,
Speaker 4: the other side of SpaceX is starlink, you know, the
Speaker 4: satellite internet business, which has grown substantially over the past
Speaker 4: few years. So there's a huge portfolio that SpaceX is
Speaker 4: bringing as they transform space travel.
Speaker 7: Eric.
Speaker 2: We're showing the other parts of what we reported, which
Speaker 2: is through our reporting confirmation of this tender or secondary
Speaker 2: that's going on. In other words, SpaceX allowing employees to
Speaker 2: sell shares. But to do that you need to set
Speaker 2: a price and that gives evaluation. We've now done that reporting,
Speaker 2: run us through the numbers that we need to know
Speaker 2: about this tender, and for me, the important bit here
Speaker 2: is that this kind of settles valuation ahead.
Speaker 3: Of that IPO.
Speaker 4: Absolutely, this level sets the market valuation as they as
Speaker 4: they as a precursor to the IPO. But essentially SpaceX
Speaker 4: runs you know, bi annual tender offers secondary offerings where
Speaker 4: they allow existing you know, shareholders, employees and others insiders
Speaker 4: to essentially generate liquidity from their from their piece of SpaceX,
Speaker 4: and so as part of that they set a valuation
Speaker 4: of eight hundred billion dollars, which is a record, beating
Speaker 4: open AI's latest tally from October a five hundred billion,
Speaker 4: so making it once again the most valuable space startup
Speaker 4: in the world. So this is walking up to that IPO,
Speaker 4: and of course, as you mentioned, the IPO would be
Speaker 4: one point five trillion roughly valuation in.
Speaker 3: The private markets.
Speaker 2: The share price right now is about four hundred and
Speaker 2: twenty four hundred and twenty one dollars a share. There
Speaker 2: is so much that left to discuss. I think that
Speaker 2: a lot of people will say, how expected was this.
Speaker 2: We've done reporting over a number of years actually on
Speaker 2: the Space team that originally the focus was on spinning
Speaker 2: off starlink right because you and I also reported some
Speaker 2: of the financials for SpaceX in this current year and
Speaker 2: next year. Starlink right now is really the cash cow
Speaker 2: for this company.
Speaker 5: That's right.
Speaker 4: They bring in the majority of revenue they're expected to
Speaker 4: do so last year. As I said, they've now they've
Speaker 4: got thousands of satellites and lower Earth orbit.
Speaker 3: It's a booming business. Millions of customers.
Speaker 4: I've flown on many flights around the country that the
Speaker 4: airlines are starting to use starlink. You're starting to you know,
Speaker 4: the customer reviews are favorable. So I think investors are
Speaker 4: seeing that growth. You know, people as they've watched this company,
Speaker 4: they're seeing Musk make these promises and then and then
Speaker 4: is you know, iteratively incrementally delivering on them. So there's
Speaker 4: a lot to be seen as far as you know,
Speaker 4: can he continue the growth of starlink and also direct
Speaker 4: to sell That's another, you know, nascent business area that
Speaker 4: Musk has promised to link regular consumer cell phones with
Speaker 4: this network of satellites and low Earth orbit. There's just
Speaker 4: a lot of growth, a lot of promises, but a
Speaker 4: lot of challenges. Right the company has to meet these expectations,
Speaker 4: live up to them to earn that valuation and to
Speaker 4: excite people.
Speaker 2: Bloomberg's Eric Johnson, who leads the team on space coverage,
Speaker 2: thank you very much. I point out SpaceX hasn't commented
Speaker 2: on this as it stands. Elon Musk has not posted
Speaker 2: on X about it. That's just the Bloomberg reporting. Let's
Speaker 2: bring it.
Speaker 3: Phil Haslitt for more.
Speaker 2: He's the chief strategy off sobe at Equisizen, one of
Speaker 2: the largest platforms for pre i PO shares. There's a
Speaker 2: lot that you and I have to cover on a
Speaker 2: potential SpaceX IPO, which we've reported is for the entirety
Speaker 2: of the business, right, not just starlink, but actually important
Speaker 2: to start with, you would note that SpaceX is the
Speaker 2: private company that uses of your platform are most interested in.
Speaker 2: In quantifying that for us, just transparently explain what equity
Speaker 2: zen relationship to SpaceX's private market shares is.
Speaker 5: Sure, thanks for having me ed. Yeah, you hit the
Speaker 5: nail on the head.
Speaker 8: SpaceX is the most popularly requested private company on equity Zen.
Speaker 8: It's been that way for probably our entire existence as
Speaker 8: a business over the last thirteen years. And that really
Speaker 8: just means that there is retail exuberance about investing in SpaceX.
Speaker 8: You know, the company is twenty three years old, it's
Speaker 8: older than a lot of my employees. It has garnered interests,
Speaker 8: it's had success, it's out in the public. People have
Speaker 8: done incredibly well with Tesla as public market investors, and
Speaker 8: so there's a lot of enthusiasm to invest in the
Speaker 8: company while it's private. And what seems to be now
Speaker 8: an opportunity to invest in it. Well, it's public and
Speaker 8: maybe even less than a year, which is pretty surprising.
Speaker 2: There is, of course a lot that we don't know
Speaker 2: what percentage of the company is SpaceX going to offer,
Speaker 2: what is the structure of the IPO going to be.
Speaker 2: But in reporting this story, Phil, one of the things
Speaker 2: I reflect on is that existing SpaceX shareholders.
Speaker 3: Aren't that diverse.
Speaker 2: You have founders fund fidelity Google through Google Ventures and
Speaker 2: through Corp dev one three seven Ventures, and then like
Speaker 2: others in the world of venture capital and strategics. But
Speaker 2: my point is that quite a lot of the company
Speaker 2: is owned by quite a small group. And then there's
Speaker 2: the Elon Musk factor as well. How does that translate
Speaker 2: in an IPO environment for anyone that wanted to get
Speaker 2: into the company.
Speaker 8: Well, there's a couple of other things to think about,
Speaker 8: which is that a twenty three year old company has
Speaker 8: had a lot of employees come, stay, leave, right, and
Speaker 8: so you have a wide slot of shareholders, kind of
Speaker 8: like a long tale of ownership. And so sure there's
Speaker 8: some concentration in some of their biggest investors and in
Speaker 8: the founder shares, but this thing is pretty widely held.
Speaker 8: I'd go so far as to say that an IPO
Speaker 8: might also be a solve for the fact that the
Speaker 8: company is a private entity and can only have two
Speaker 8: thousand shareholders that is a requirement before they have to
Speaker 8: start filing financials. That may actually be a bit of
Speaker 8: a driver here as well. But as far as what
Speaker 8: the IPO is going to look like, this is uncharted
Speaker 8: waters right, Saudi Ramco, Ali Baba, those would actually be
Speaker 8: smaller than these IPOs, right, And we don't know or
Speaker 8: than this IPO, and we don't know if it's going
Speaker 8: to be primarily secondary liquidity to existing, if it's going
Speaker 8: to be new capital. Though I would posit it's probably
Speaker 8: going to be new capital based on a lot of
Speaker 8: your reporting as well, because there's going to need to
Speaker 8: be investment from SpaceX into new computing and processing power.
Speaker 2: So to a big portion of the Bloomberg Tech audience
Speaker 2: that work in the world of technology tenders and the
Speaker 2: secondary market is something they'll be familiar with. Loads of
Speaker 2: people will not be familiar with that, And so what
Speaker 2: usually happens with a big IPO is in late stage growth,
Speaker 2: prior Marie rounds, where the company raises money issues new equity.
Speaker 2: You get these kind of anchor investors that come in
Speaker 2: ahead of an IPO might be a year in advance.
Speaker 2: In this case, what we're reporting is the tender is confirmed,
Speaker 2: eight hundred billion dollar valuation, four hundred and twenty one.
Speaker 3: Dollar share price.
Speaker 2: Could you explain that dynamic ahead of a big IPO,
Speaker 2: how there isn't any new primary round not raising new money, which,
Speaker 2: as you know Elon Musk has been at pains to
Speaker 2: point out on.
Speaker 8: X sure in as simplest form, if you're a business
Speaker 8: that's profitable and you don't need new capital to continue growing,
Speaker 8: why dilute yourself by taking in new investment injection? You know,
Speaker 8: through a primary a secondary liquidity offering is a way
Speaker 8: to reward employees or perhaps early investors by getting them
Speaker 8: liquidity for their shares without diluting ownership overall for everybody else.
Speaker 8: And this is something that SpaceX has elected to do
Speaker 8: over the past few years, I believe, kind of semi
Speaker 8: annually in a way to provide liquidity not dilute themselve
Speaker 8: we also set a new kind of external price for
Speaker 8: their shares, but still maintaining an immense amount of control
Speaker 8: and the only thing I would call out here, Ed
Speaker 8: is that obviously two billion dollars of liquidity is a
Speaker 8: big number, but it's actually only probably two to five
Speaker 8: percent of the valuation of this company. And so I
Speaker 8: hesitate to kind of identify that eight hundred billion is
Speaker 8: the new market price for SpaceX, more so that it
Speaker 8: is the market price that SpaceX has decided is out there.
Speaker 2: Yes, yeah, the tender was capped at two billion dollars.
Speaker 2: That's what I reported. We just have thirty seconds valuation
Speaker 2: at IPO one point five trillion dollars.
Speaker 3: What do you make of that?
Speaker 5: That I think would put it in uncharted waters?
Speaker 8: Right, You've got three public companies that are worth north
Speaker 8: of three trillion dollars.
Speaker 5: Where's the upside from one point five? I'm not sure.
Speaker 8: At the same time, the bull in me, says Palenteer,
Speaker 8: how a robust retail investor audience, it trades it north
Speaker 8: of one hundred times revenue. So the art of the
Speaker 8: possible is somewhere in between those numbers. I do know
Speaker 8: that this would probably be literally the most exciting IPO
Speaker 8: we've ever seen.
Speaker 2: Phil Haslich, chief strategy officer at Equiszen, thank you very much.
Speaker 2: Coming up Meta making moves toward a new AI model
Speaker 2: from open to close.
Speaker 3: That's next. This is Bloomberg Tech.
Speaker 2: Metas Mark Zuckerberg is shifting the company's focus toward a
Speaker 2: new artificial intelligence model that can make it some money.
Speaker 2: One new model is expected to launch next spring, potentially
Speaker 2: as a closed model that Meta can sell access to.
Speaker 2: This would mark Meta's biggest move yet away from open
Speaker 2: source models. The reporting comes from Bloomberg Tech's Riley Griffin.
Speaker 2: There's a case study. The case study is Avocado. So
Speaker 2: let's start there. This is all what we're hearing from sources.
Speaker 2: But my under saying it is originally Avocado might have
Speaker 2: been an open source model. It's now not going to
Speaker 2: be based on our reporting. Take it from there and
Speaker 2: then we'll get into the bigger picture.
Speaker 9: Yeah. Essentially Meta is working on this Avocado model that
Speaker 9: is the code name internally, and they have not officially
Speaker 9: decided whether it will be open or closed, but closed
Speaker 9: is the way they are leaning out the moment. And
Speaker 9: this is a really important distinction because it points to
Speaker 9: a monetization strategy, and as you know, Meta is under
Speaker 9: pressure to show that it can return on its multi
Speaker 9: hundred billion dollar investment in AI, and this is one
Speaker 9: path towards that.
Speaker 2: There's detail in the reporting about how Alexander Wang, who's
Speaker 2: basically you know, the lieutenant leading the AI lab effort,
Speaker 2: is pro closed model. In July, Mark Zarkobak kind of
Speaker 2: told us why open source in this environment isn't that great?
Speaker 2: As the models get bigger, there are fewer people that
Speaker 2: can access them. It's a resource and constraint issue. But
Speaker 2: what else are you putting in the story here? Because
Speaker 2: you know Meta was the sort of flag waiver for
Speaker 2: open source.
Speaker 3: Yeah, I mean.
Speaker 9: Things we heard from in and around the company. For one,
Speaker 9: employees after July were told that they should not be
Speaker 9: talking publicly about open source as Meta reset its strategy. Remember,
Speaker 9: Mark Zuckerberg brought in all of these expensive researchers and
Speaker 9: had to reset after a very disappointing release of Lama
Speaker 9: for that was their open source model earlier this year.
Speaker 3: And so this is a.
Speaker 9: Resetting of the strategy under Alex's leadership, with close involvement
Speaker 9: from Mark Zuckerberg who.
Speaker 3: Sits quite close to Alex.
Speaker 9: And the pressure is leading to tensions too, but that
Speaker 9: steer to employees internally to not be speaking publicly about
Speaker 9: open source should be a big tell.
Speaker 2: The report is a muster read Bluemog's Riley Griffin with
Speaker 2: the reporting alongside Kurt Wagnan. Thank you very much. President
Speaker 2: Trump decided to let him videos. So it's h two
Speaker 2: hundred AI chips to China, after concluding the move carried
Speaker 2: a lowest security risk because the company's Chinese arts rival,
Speaker 2: Huawei already offers some AI systems with parapol performance. That's
Speaker 2: according to a Bloomberg source Bloomberg Tech report. Maggie Eastland
Speaker 2: joins us. Maggie, you and I broke this story together yesterday.
Speaker 2: As we understand it right, the President was presented with
Speaker 2: a range of options from exporting no technology at all
Speaker 2: to the latest technology, and they landed somewhere in the middle.
Speaker 2: Take it from there. And what else we reported and
Speaker 2: what we know about the Huawei Cloud Matrix three eighty
Speaker 2: four system.
Speaker 10: Yes, one key detail we've reported is that this Cloud
Speaker 10: Matrix three eighty four system, which can link together hundreds
Speaker 10: of chips, was a key rationale underpinning the White House's
Speaker 10: logic to allow these advanced chips, which are better on
Speaker 10: a per chip basis than what Chinese companies.
Speaker 3: Are capable of.
Speaker 10: However, as was made clear in our reporting, the White
Speaker 10: House is looking at this more at a system level,
Speaker 10: and their understanding was that Huawei's systems are actually advancing
Speaker 10: quite quickly, so that was the rationale here. And though
Speaker 10: this is a paradigm shift from previous administrations during which
Speaker 10: Huawei's advancements were an impetus to actually crack down and
Speaker 10: further restrict those Chinese companies, now that same evidence is
Speaker 10: being used as a reason to loosen controls and kick
Speaker 10: off this new strategy of selling in video chips to China.
Speaker 2: The main focus, as I understand it, is that age
Speaker 2: two hundred is eighteen months behind Blackwell generation to generation,
Speaker 2: and that's the comfort level this administration has. In Vidia's
Speaker 2: down one point three percent in the session right now.
Speaker 2: The other big report out there is from the Information
Speaker 2: which reported that deep Seek smuggled in thousands of Blackwell
Speaker 2: chips into China, getting them from countries of origin where
Speaker 2: they were allowed dismantling the servers. Nvidia has come out
Speaker 2: with a statement, Maggie, pushing back on that report. Let's
Speaker 2: start with that in Vidia's statement.
Speaker 11: Please, yes, So Nvidia has said that these smuggling claims
Speaker 11: are a bit far fetched in its own words, and
Speaker 11: while it investigates every tip it receives, it hasn't seen
Speaker 11: evidence of this.
Speaker 2: Now.
Speaker 10: One interesting thing from the report. Jensen Wong has said
Speaker 10: before that these Blackwell racks are just a bit too
Speaker 10: heavy to be feasible to smuggle, but this report from
Speaker 10: the Information did say that the smuggling for a deepseek
Speaker 10: took place in these sort of eight chip segments that
Speaker 10: could potentially fit in the suitcase.
Speaker 2: Bloomberg's Maggie east Land, who's out in DC, covers the
Speaker 2: intersection of tech and politics with the reporting.
Speaker 3: Thank you very much.
Speaker 2: Another story, Amazon pledged to invest thirty five billion dollars
Speaker 2: in India over the next five years, boosting its spending
Speaker 2: in the key growth market to expand in businesses from
Speaker 2: quick commerce to cloud computing. The e commerce giant says
Speaker 2: it will invest in areas such as AI and logistics infrastructure,
Speaker 2: and that the planned outlay through twenty thirty will help
Speaker 2: create an additional one million jobs in India.
Speaker 3: Oracle reporting earnings.
Speaker 2: After the bell, this is the story they expect on
Speaker 2: the street. The backlog to grow, remaining performance obligations basically
Speaker 2: deals signed but revenue not booked to continue pushing north
Speaker 2: for five hundred billion dollars. But Oracle's got a very
Speaker 2: big debt pile and the one metric we're looking at
Speaker 2: negative free cash flow expected to be almost six billion
Speaker 2: dollars in the quarter. Let's preview, let's discuss City Panagrahi
Speaker 2: Managing director, senior analyst and Mazuho covering SAS but also
Speaker 2: covering Oracle.
Speaker 3: This is the equation.
Speaker 2: We want to see growth in the cloud division OCI
Speaker 2: in particular. But in the background there's that stat Oracle
Speaker 2: swinging to negative free cash flow for the first time
Speaker 2: since nineteen ninety two. Remind us what your price target
Speaker 2: and call is on the stock, and then how you
Speaker 2: feel about that stat.
Speaker 6: That's great, thanks for having me here.
Speaker 7: Look, I think what you said right at this point,
Speaker 7: investors are concerned about.
Speaker 5: Free cast flow more.
Speaker 7: You know, they have to build massive CAPEX build out
Speaker 7: for AI capacity data center build out, and also they
Speaker 7: need to do the funding for that.
Speaker 6: So what matters at.
Speaker 7: This today in the earnings call, is Oracle during some
Speaker 7: kind of clarity on that. Look, I think what investors
Speaker 7: missing is that Oracle has multiple options. They don't have
Speaker 7: to raise data or CAPEX. They can also go for
Speaker 7: alternative financing like vendor financing or capital leasing. Then you
Speaker 7: won't see that in a capex. But at this point
Speaker 7: Oracle is not able to tell you how much you
Speaker 7: the capex as how much they have to raise because
Speaker 7: they are going to evaluate this as they are building
Speaker 7: out data center. Each data center, they are going to
Speaker 7: look at their own cost of capital and compare that
Speaker 7: to the leasing. So that's what I think the one
Speaker 7: of the concerns we hope to hear from management on
Speaker 7: that how they are going to fund the capex they're
Speaker 7: going to build their data center.
Speaker 2: Right, I've been trying to learn as much as I
Speaker 2: can about how this world works. CT Remaining performance obligation
Speaker 2: RPO is a term that gets bandied around all the time,
Speaker 2: but basically it's a backlog right of business five hundred
Speaker 2: billion as it stands as Bloomberg's reported it, quite a
Speaker 2: lot of that is open AI. Now in the future,
Speaker 2: if something happens and a deal falls through, often in
Speaker 2: the contracts there's some kind of penalty for cancelation or severance.
Speaker 2: But the question still out there, how do we know
Speaker 2: that open AI in particular is good for it that
Speaker 2: they'll be able to actually front up on the projects
Speaker 2: that they're committed to.
Speaker 5: Yeah.
Speaker 7: I mean that's a fair point, as you say, But
Speaker 7: if you look at right now, they're only handful of
Speaker 7: EI companies like clear or four, Open Ai Andthropy, Mata
Speaker 7: and Xai. So Oracle got most of them except Anthropic,
Speaker 7: so yes, and open Ai is a trail blazer in that,
Speaker 7: so they have that as a customer. That's I think
Speaker 7: most important at this point. To your point, can open
Speaker 7: Ai pay or that contract will fall apart. Look, this
Speaker 7: is a non cancellable contract, what Oracle says.
Speaker 5: So with that and there will be demand.
Speaker 7: If we think about AI at this point, the rate
Speaker 7: it's growing, probably probably will need that demand at this point.
Speaker 7: But I think if you look at the concern Oracle
Speaker 7: lost more than three hundred billion dollar market gap, you know,
Speaker 7: and or open a contract is only three hundred billion
Speaker 7: I think if I remember, it's three hundred twenty two
Speaker 7: billion market dollar market cap loss. So even investors are
Speaker 7: more skeptical beyond even open Ai at this point, which
Speaker 7: we don't think like core business is still doing well
Speaker 7: the way we are looking at You asked about the
Speaker 7: price target. I think if you're an investor, you need
Speaker 7: to believe on this long term AI story. Growth is
Speaker 7: accelerating twenty one dollars EPs they guided for fiscal thirty
Speaker 7: and if you discount it back, even applying twenty five times,
Speaker 7: we get to this four hundred dollars price target.
Speaker 3: Sidi, we just have less than a minute here.
Speaker 2: Do you like this co CEO structure and the leadership
Speaker 2: of Oracle?
Speaker 3: Yes.
Speaker 7: I think the way right now Oshi is very important
Speaker 7: for Oracle. So that's where they're separate, separating OSCI.
Speaker 6: This Clay is.
Speaker 7: He's going to SUPERVISEE. He's going to look at that
Speaker 7: business and rest of the application and rest of the business.
Speaker 7: Mike Cecilia is going to do it. I think this
Speaker 7: model works. Larry's still there, he's the chairman, he's leading
Speaker 7: the group, leading the company there.
Speaker 6: So we like it. I think we'll see how it goes.
Speaker 2: Oracle down three tens percent with treading water. That is
Speaker 2: the big earnings print after the bell CT Panagrahi of
Speaker 2: MISSOI great to have you on the show.
Speaker 3: Welcome back to Bloomberg Tech.
Speaker 2: Probably the story of the week maybe has been the
Speaker 2: saga around Warner Brothers Discovery two competing bids, one from
Speaker 2: Netflix cash and stock at twenty seven dollars seventy five
Speaker 2: cents a share, which is just for the streaming and studios,
Speaker 2: and one from Paramount Skydarks thirty dollars per share for
Speaker 2: the whole Enchilada. This is what those stocks have traded
Speaker 2: like on week. We're not quite in the sort of
Speaker 2: discussion territory around arbitrage, in other words, looking at the
Speaker 2: gap between where the stock's trading and the price of
Speaker 2: the deals offered, because it's a live situation with multiple bids.
Speaker 2: But we are looking at the structure of the deals. Now.
Speaker 2: Netflix is looking to become debt Flix again.
Speaker 3: Do you see what we did there?
Speaker 2: After cutting back on debt during the pandemic, it's back
Speaker 2: to borrowing heavily to finance its planned acquisition. For most
Speaker 2: of Warner Brothers Discovery, the caveat that they'd spin off
Speaker 2: the legacy network and cable lines. The difference is that
Speaker 2: now Netflix has a stronger balance. Hot of the press
Speaker 2: just hit the wire. Bloomburst Cross Asset reporter Emily Graffeo
Speaker 2: has the deep dive. Debt is becoming so important generally
Speaker 2: across technology, but in this case with Netflix, it is
Speaker 2: a change of corporate policy in what is a potentially
Speaker 2: very big deal.
Speaker 3: What are you reporting? It really is ed.
Speaker 12: So what we found is that this term Debtflix was
Speaker 12: introduced a couple years ago by some detractors when the
Speaker 12: company was rated high yields. They really built their business
Speaker 12: around borrowing heavily in the junk bond market, and some
Speaker 12: people didn't like how much cash the company was burning.
Speaker 12: But they've really turned that credit profile around now. So
Speaker 12: now the company's rated investment grade. That allows Netflix to
Speaker 12: tap into a deeper market more investors here, and they
Speaker 12: have to raise a lot of debt to finance this
Speaker 12: acquisition of Warner Brothers. Bloomberg Intelligence estimates that right now
Speaker 12: they have about fifteen billions dollars of debt that's going
Speaker 12: to about seventy five billion given the current terms here.
Speaker 12: But what we're hearing from a lot of different credit
Speaker 12: analysts is that Netflix has the balance sheet to fund this.
Speaker 12: So it's a turnaround story here. They are Debtflix. It's
Speaker 12: a fun term. I wish I could take credit for
Speaker 12: coming up with it, but I did not. But again,
Speaker 12: here it's it's investment grade debt, and it's debt that
Speaker 12: most analysts are confident Netflix can actually still keep that
Speaker 12: investment grade rating and it can actually even potentially raise
Speaker 12: more debt if need be, to top that hostile takeover
Speaker 12: bid because that balance sheet is so strong.
Speaker 3: Ed Bloomo's Emi Crofeo.
Speaker 2: It's a must read on the Bloomberg terminal Netflix to
Speaker 2: Debtflix check it out. All right, let's bring in Laura
Speaker 2: Martin for more on this deal. There is a lot
Speaker 2: more to discuss. Laura's senior entertainment analysts at Needam and Co.
Speaker 2: It's one of these situations where there's the Wall Street
Speaker 2: view on this deal, the structure of the deal, and
Speaker 2: then there's the what is this for Hollywood? And the
Speaker 2: reason I'm so excited to have you on the program
Speaker 2: is I think we could probably talk about both. But
Speaker 2: this is the first opportunity I've had to talk to
Speaker 2: you about two competing bids. I set the stage for
Speaker 2: it on Netflix's offer cash and stock and paramounts offer.
Speaker 2: What is your position at this time and what is
Speaker 2: your research into the competing bids?
Speaker 13: So, I mean, I think the kudos have to go
Speaker 13: to Zaslov for creating this auction for an asset that's
Speaker 13: worth twelve dollars. We're now at thirty dollars a share,
Speaker 13: and now we've hear over the tape this morning that
Speaker 13: both Paramount and Netflix have said they could go higher.
Speaker 13: So so far we have a three hundred percent like
Speaker 13: premium over what the assets were trading at before the
Speaker 13: auction rumors. So, first of all, kudos to David Zaslov
Speaker 13: and the Warner Brothers team for selling an asset deer.
Speaker 13: In terms of who wins, you know, we are much
Speaker 13: more sanguine about Paramounts or Peace Guy is its ticker
Speaker 13: regulatory ability to get it through the Trump administration, right.
Speaker 13: You know, we think that there are real issues with
Speaker 13: Netflix being successful, not only with Hollywood talent who see
Speaker 13: this as anti competitive. I sit in Hollywood is anti competitive,
Speaker 13: especially because Netflix has said repeatedly it does not believe
Speaker 13: in the theatrical box office release window, and so all
Speaker 13: of Hollywood is scared to death that if suddenly Netflix
Speaker 13: owned Warner Brothers that within five years they would stop
Speaker 13: releasing films in the theatrical box office, which is why
Speaker 13: we've seen pressure on the exhibitors also, So I think
Speaker 13: Hollywood is really negative or let me say it this way,
Speaker 13: much more negative about Netflix taking over Warner Brothers than
Speaker 13: Peace guy, So I would say that.
Speaker 3: And on the side, let me jump in real quick.
Speaker 2: On the money side, we will get to Hollywood, particularly technology,
Speaker 2: because you know, Netflix's competency is the algorithm to an extent,
Speaker 2: and the library and the content. But I just want
Speaker 2: to go back and back to basics and what you said,
Speaker 2: twelve dollars with Warner Brothers Discovery. You're not the first
Speaker 2: person to make this point, Laura, but just explain the
Speaker 2: basics to our audience.
Speaker 3: Please.
Speaker 2: People do feel that the value of what iver entity
Speaker 2: ends up getting may not be at twenty seven dollars
Speaker 2: seventy five cents for the studio streaming or thirty for
Speaker 2: the whole enchilada, as I keep saying.
Speaker 13: Right, So, I mean, I'm comparing the trading price for
Speaker 13: WBD Warner Brothers for like a year. Essentially it was
Speaker 13: falling and it hit about a twelve dollars price before
Speaker 13: the first rumor of a Pea Skuy bid started the
Speaker 13: stock moving up. And then I can't remember the Larry
Speaker 13: Ellison first bid or the David Ellison first bid, but
Speaker 13: now we're up at thirty dollars a share for the
Speaker 13: whole thing, and that includes twenty seven from Netflix for studios,
Speaker 13: plus the ideas there'd be a two dollars three dollars
Speaker 13: stub left trading for the network's division, which would add
Speaker 13: up to thirty dollars also. But in theory, so anyway,
Speaker 13: I'm saying we're like at thirty dollars for the comparable
Speaker 13: asset that was trading at twelve dollars before the auction began.
Speaker 2: For this asset, I think there's a lot of value
Speaker 2: in that answer, because the next question is of course
Speaker 2: about antitrust and what the combined entities would look like.
Speaker 2: In either case, you said you believe or you're more
Speaker 2: sanguine about Paramount Skuidance combined Warner Brothers Discovery.
Speaker 3: Why okay?
Speaker 13: So in streaming, in the streaming industry, Netflix has over
Speaker 13: three hundred million global subscribers and HBO Max has one
Speaker 13: hundred and fifty, so together there's some duplication there, but
Speaker 13: let's just call it four hundred and fifty subscribers, which
Speaker 13: is like forty percent of the streaming market. Whereas Paramount
Speaker 13: or Peace Guides now called has seventy five million subscribers
Speaker 13: that you would add to the HBO which is one
Speaker 13: hundred and fifty So now you're two hundred and twenty
Speaker 13: five million subscribers, much smaller market share of streaming than
Speaker 13: if you combine Netflix, which is the industry leader, with
Speaker 13: Warner Brothers HBO Maxset streaming asset. So I would say
Speaker 13: that's one reason, and then the Hollywood Studios. As you know,
Speaker 13: Netflix is one of the largest global creators of content,
Speaker 13: and you would combine it with Warner Brothers, which is
Speaker 13: one of the largest global creators of content. They have
Speaker 13: different windows, meaning distribution windows, meaning Netflix primarily creates for
Speaker 13: television direct to streaming the television screen, and Warner Brothers
Speaker 13: primarily creates content for both TV but also the film business.
Speaker 13: It's a big film a distributor. So I think the
Speaker 13: idea is putting these two huge content creators together would
Speaker 13: dampen competition for talent and lower prices for talent and
Speaker 13: also raise prices for consumer. That is not a concern
Speaker 13: with Peace Guide Bar Warner.
Speaker 2: Brothers, Laura, we have less than a minute, Netflix would argue,
Speaker 2: and I am simplifying that. You know it would simplify
Speaker 2: it for the consumer. You know, having HBO Max Netflix,
Speaker 2: people have multiple subscriptions. But it sounds like you don't
Speaker 2: think that that argument will make traction.
Speaker 6: Oh no, it would simplify it for the consumer.
Speaker 13: But if they collapse, the thinking is they would collapse
Speaker 13: Netflix and HBO Max.
Speaker 6: Great, But what happens to the price.
Speaker 13: The consumer is going to get a much higher price
Speaker 13: if you add those two things together. So it's simpler,
Speaker 13: But really a monopoly policy is based on simplicity versus complexity.
Speaker 13: It's based on the price to the consumer and consumer welfare,
Speaker 13: and price is part.
Speaker 6: Of consumer welfare.
Speaker 13: Actually, simplicity is not and in the laws as a
Speaker 13: driving factor, but prices and price would go up for
Speaker 13: consumers if they combine those two assets.
Speaker 2: I think, Laura Martin o'needham, it's great to have you
Speaker 2: back on bloombog Tech. I suspect we'll be talking about
Speaker 2: steal for quite a long time to come.
Speaker 3: Thank you.
Speaker 2: Sticking with entertainment M and A, Disney co chairman Dana Wolman.
Speaker 2: Dana Wolman sat down last month with Bloomberg's Emily Chang
Speaker 2: for an episode of the Circuit to discuss broadly the
Speaker 2: m and A landscape and what she thinks of the
Speaker 2: competition coming out of a potential merger.
Speaker 3: Listen to this.
Speaker 14: I don't worry about a stronger competitor coming out of it,
Speaker 14: because we already went through an incredible transformation in twenty
Speaker 14: nineteen as Disney integrated the entertainment assets of Fox. We
Speaker 14: already went through you know, a big em and a
Speaker 14: event to expand our library, to increase the amount of
Speaker 14: IP that we ultimately could take over the top directly
Speaker 14: to the consumer.
Speaker 3: So I'm not worried right now. I also think.
Speaker 14: Whichever whoever ends up in you know, in this situation
Speaker 14: acquiring WBD or any asset that's available, these are situations
Speaker 14: that require a lot of time, time for regulatory approval,
Speaker 14: time for integration, time to figure out, you know, how
Speaker 14: to combine apps, a lot of the things that we've
Speaker 14: already been through now.
Speaker 2: Disney co Chairman Dana Wolman long with bloom eg Zemini
Speaker 2: Chang again, recorded last month. You can catch the full
Speaker 2: episode at the Circuit tomorrow at eight pm Eastern on
Speaker 2: Bloomberg Originals or ten pm Eastern on Bloomberg Television.
Speaker 3: All Right, coming up.
Speaker 2: Elon Musk, SpaceX aims to blast into the record books
Speaker 2: with possibly, possibly, maybe we're ready for lift off the
Speaker 2: biggest IPO of all time.
Speaker 3: That conversation. Next, this is Bloomberg chat range.
Speaker 2: In good call out healthy systems aren't the booster as
Speaker 2: it started to pitch over.
Speaker 5: Over the show.
Speaker 3: Okay, back to our top stories.
Speaker 2: SpaceX shooting for the stars yet again, this time in
Speaker 2: the financial context. Sources tell us the Elon Musk led
Speaker 2: space company well underway with plans for an IPO that
Speaker 2: would seek to raise far above thirty billion dollars, with
Speaker 2: the targeted valuation around one point five trillion dollars that
Speaker 2: would make this by money raised the biggest IPO ever.
Speaker 2: A representative for SpaceX didn't respond to my many requests
Speaker 2: for comment. Joining us to discuss is Will Whitehorn, chairman
Speaker 2: of Seraphim space. Will was also former chairman of Virgin Galactic.
Speaker 2: Somebody's works side by side with Richard Branson in the
Speaker 2: domain of commercial space. We have a lot to get
Speaker 2: to Seraphim. You know, an investor in all kinds of
Speaker 2: different space assets, and it's the space asset that I
Speaker 2: think is central to this.
Speaker 3: SpaceX IPO story.
Speaker 2: My reporting is that they want to raise the capitol
Speaker 2: for the SpaceX AI cluster, the SpaceX AI stack space
Speaker 2: Space Data Center.
Speaker 3: Your reaction to that.
Speaker 15: Will well, I think that's probably right, and I think
Speaker 15: that this is a seismic event for the entire space industry.
Speaker 6: We're not going to see the like of this.
Speaker 15: I think it's going to cause huge changes to the
Speaker 15: companies that are suppliers to SpaceX, to the whole massive
Speaker 15: kind of environment that they've created, particularly in the United
Speaker 15: States and in the UK. Some companies as a company
Speaker 15: in the UK called Filtronic, for example, which has become
Speaker 15: a major supplier to SpaceX. Many of the companies in
Speaker 15: the Seraphin portfolio they launch on SpaceX rockets. Starlink has
Speaker 15: obviously when you link Starlink to AI to data centers,
Speaker 15: you are seeing an entire ecosystem of businesses growing up.
Speaker 15: And many other constellations will benefit from this sort of
Speaker 15: InOrbit servicing, more data analytics coming out through the space industry.
Speaker 15: Space and AI will become interlinked in a way they've
Speaker 15: never been before. I mean, space really is going through
Speaker 15: a lot of change. As it goes through this industrial revolution.
Speaker 2: Will we're going to question report on react to wherever
Speaker 2: the valuation of this company settles. My reporting again is
Speaker 2: that the target based on what they want to raise,
Speaker 2: the amount of the percentage of the company they offer one
Speaker 2: point five trillion dollars. But macro, this is an industry,
Speaker 2: private commercial space that's growing. What is seraphim seeing What
Speaker 2: are the numbers that you're tracking on how an industry
Speaker 2: is basically growing out of SpaceX's wake.
Speaker 6: Well, I'll give you an example.
Speaker 15: We've got one of the biggest companies in airportload's called
Speaker 15: i Sie, which has a very special kind of apperture radar.
Speaker 6: The demand for it has gone through the roof.
Speaker 15: I sized business plan has ended up being two years
Speaker 15: ahead of play and they're in profit already. And they
Speaker 15: are They've just in the process of a very big fundraise.
Speaker 15: Other companies like Maucai three sixty, Satellite View, All Space,
Speaker 15: all of these companies, app orfolio are all doing very
Speaker 15: well and getting ahead of their business plans very rapidly
Speaker 15: because the demand for data from space is going through
Speaker 15: the roof for both climate change, defense, natural security, communications,
Speaker 15: I mean, everything is relying more and more on space.
Speaker 6: And of course as people get scared about.
Speaker 15: The underground and undersea cables that supply the Internet. The
Speaker 15: demand for Internet data from space is starting to rise
Speaker 15: as well in the fintech sector.
Speaker 6: So everything is happening all at once.
Speaker 15: The insurance companies want space data because they realize it's
Speaker 15: more accurate than ground based data for agricultural assets, buildings,
Speaker 15: infrastructure projects.
Speaker 6: So you've got insurance demand, agricultural demand, climate change demand.
Speaker 15: And now defense demand rocketing ahead since Ukraine and the
Speaker 15: Middle East happened over the last three years. And indeed,
Speaker 15: you know, I got an OBE today from Prince William
Speaker 15: which is one of the first in the space industry
Speaker 15: to show that even royalty are catching up in the
Speaker 15: Actually one of the first things he asked me, that's
Speaker 15: what I thought was going on in the space industry
Speaker 15: at the moment.
Speaker 2: From the UK okay well for our audience around the
Speaker 2: world outside of the UK. Obviousely, I originate from the
Speaker 2: United Kingdom, an OBE officer of the Most Excellent Order
Speaker 2: of the British Empire.
Speaker 3: So congratulations to you.
Speaker 2: Awarded to you this morning by Prince William, and I
Speaker 2: understand that you then ran to be here on the
Speaker 2: show and that actually Prince William may be tuning in
Speaker 2: and a fan of the show anyway, appreciate.
Speaker 6: That that's true, and that's very true.
Speaker 2: I believe in transparency on this program. One thing that
Speaker 2: we should have done to start is what is Sarah
Speaker 2: FIM's exposure to SpaceX?
Speaker 3: Have you any skin in the game.
Speaker 15: No, we don't have a steak in SpaceX. Only a
Speaker 15: couple of British investment trusts do have steaks, both of
Speaker 15: them Scottish based Seraphim. When we started, it was too
Speaker 15: late to get into SpaceX at that time, which is
Speaker 15: a shame.
Speaker 6: But we have a lot of.
Speaker 15: Exposure to companies that I think are going to really
Speaker 15: benefit from this huge ecosystem of new investment as SpaceX
Speaker 15: will create. And I'm looking personally at other companies that
Speaker 15: will benefit. And in fact, I bought a steak in
Speaker 15: one today, which I think will be a beneficiar. This
Speaker 15: will have, as I said, a seismic effect on an
Speaker 15: industry already undergoing an industrial revolution.
Speaker 6: It is going to be, you know, one for me
Speaker 6: as an old hand.
Speaker 15: I mean I'm sixty five now and you know I
Speaker 15: was around in the days when the Netflix, the Netscape,
Speaker 15: moment happened in nineteen ninety five, which kicked off that
Speaker 15: range of Internet investment.
Speaker 6: That we still see today.
Speaker 15: And I think that this is the space equivalent happening
Speaker 15: right now.
Speaker 2: Will do you want to tell us what the company
Speaker 2: is that you invested in this morning?
Speaker 15: Mask Seraphim doesn't have mistake in It is a company
Speaker 15: called Filter Chemic.
Speaker 2: Okay, let me ask this. Then, let me ask this.
Speaker 2: You are sixty five years old. Thank you for sharing
Speaker 2: that with our audience. Elon Musk is fifty four. He's
Speaker 2: committed to Tesla for ten years. We just have thirty seconds.
Speaker 2: But is it realistic that this man leads to public
Speaker 2: companies at that scale for the long term?
Speaker 15: Well, this is going to be a big question around
Speaker 15: the ido of the sleep of SpaceX. Is he going
Speaker 15: to spend more time on SpaceX with this size of
Speaker 15: fundraise or is he going to carry on in his
Speaker 15: Tesla environment as well. Both companies will be quoted, both
Speaker 15: will be some of the biggest companies in the world,
Speaker 15: and you're quite right, this is going to be an
Speaker 15: issue that investors will look at very very closely.
Speaker 2: Will WHITEH Seraphim, space chairman ordered and ob this morning
Speaker 2: by Prince William then running over to the camera for us,
Speaker 2: thank you very much. The Adobe sets report Q four earnings
Speaker 2: this afternoon after the bell is The company looks to
Speaker 2: convince investors it is on the right track in the
Speaker 2: AI era. Bloomberg Intelligence says Adobe could see it's and
Speaker 2: your recurring revenue target in the low double digits for
Speaker 2: twenty twenty six. Let's get out to Bloomberg's Matt Day
Speaker 2: and Seattle with the preview. Matt, what do we need
Speaker 2: to know?
Speaker 16: That's right, Sir Jeffreys, Brint Phil said, and I know
Speaker 16: the other day, low expectations and low investor interest. There's
Speaker 16: a lot of worries about whether Adobe, which has navigated
Speaker 16: the transition from package software to subscription software, whether we're
Speaker 16: going to be able to do the same in the
Speaker 16: AI era and survive all beating newfound competitors they've got
Speaker 16: in the space.
Speaker 3: That sets the scene, it sets the tone as well.
Speaker 2: I mean, you know, I did a big interview with
Speaker 2: the Adobe CEO in the summer, and there's clearly a frustration
Speaker 2: this is a stock that's down twenty two percent this year,
Speaker 2: that they're not getting credit for the work they think
Speaker 2: they've done in AI. Part of it is how they
Speaker 2: sell it. Is there a bigger Adobe AI story that
Speaker 2: someone's buying.
Speaker 5: You know, there might be.
Speaker 16: They've tried to convince investor with a couple of metrics,
Speaker 16: you know, one sort of AI first revenue that's tracking
Speaker 16: about two hundred and fifty million dollars. They've got another
Speaker 16: one AI influenced revenue about five billion dollars. But you know,
Speaker 16: as the stock price to date shows, investors aren't buying
Speaker 16: that all the way. You know, particularly in a world
Speaker 16: where open ai is getting a whole lot of interest
Speaker 16: with Sora, Google's got new video generation models. If you're
Speaker 16: a creative professional doing something that's Adobe's wheelhouse and there's
Speaker 16: a whole lot of AI in the monitors.
Speaker 2: Right now, I'm grateful you mentioned that open ai in particular.
Speaker 2: The debate the Adobe's had, and maybe the shift is
Speaker 2: they try to pitch themselves as we have our own
Speaker 2: models with our own safeguards and data, and that's best
Speaker 2: for customers. Now they seem to be saying we're open
Speaker 2: to using other models and other data inputs as well.
Speaker 2: Have they kind of settled on their approach.
Speaker 16: It's a little bit both as you said, they definitely
Speaker 16: built their own models. They say their copyright compliant. But
Speaker 16: just this morning they've li've out with a partnership with
Speaker 16: chat gpt macer opening. I had to put Adobe products,
Speaker 16: a limited version of them inside of chat GPT, so
Speaker 16: they clearly realized they can't own the space entirely. Have
Speaker 16: kind of got to be everywhere that the users want
Speaker 16: to be.
Speaker 2: Yeah, Bloomg's Matt Day with the Adobe preview.
Speaker 3: Thank you very much.
Speaker 2: That's a good way to end a show that does
Speaker 2: do it for this edition of Bloomberg Tech. But I
Speaker 2: would remind you it's not just Adobe out with earnings
Speaker 2: after the Bell Oracles, the big one probably that we're
Speaker 2: looking for. We expect a big backlog of business with
Speaker 2: a big debt parle that we're worried about. Those are
Speaker 2: the two names we're watching. In the show, it was
Speaker 2: all about SpaceX and an IPO we think is coming
Speaker 2: in the middle of the next year. Recap that on
Speaker 2: the podcast. You know where to find it on the
Speaker 2: Bloomberg platforms and online Ihearts, Spotify and on Apple. From
Speaker 2: San Francisco, have a great afternoon. This is Bloomberg Tech.