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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple, Coarclay, and Android Auto with the Bloomberg

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Speaker 1: Business App. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: Again.

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Speaker 3: The big story on the MNA front Electronic Arts going

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Speaker 3: public via LBO. How about that kid's fifty five billion dollars.

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Speaker 3: JP Morgan advising Goldman Sachs. On the other side of

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Speaker 3: the deal, JP Morgan r in a twenty billion dollars

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Speaker 3: check to get this deal done.

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Speaker 2: What's the mean for the gaming business?

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Speaker 3: Nathan Nadu joins us here technology research channel for Bloomberg Intelligence.

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Speaker 3: He's based in London. Nathan, what's the how's this price

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Speaker 3: tag look for you? How's the evaluation here?

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Speaker 4: The valuation is at a twenty to thirty percent premium

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Speaker 4: versus the last recorded market CAB before this deal was announced.

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Speaker 4: And it seems like, you know, is a premium deal,

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Speaker 4: but actually, you know, EA has a lot going for it.

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Speaker 4: It is actually launching a new battlefield game and there's

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Speaker 4: a strong prospect for this game. And actually the game

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Speaker 4: is now in prely release, and even then he has

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Speaker 4: already smashed all prior records set by the biggest game

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Speaker 4: in that genre, and that genre is first person should

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Speaker 4: and that game that's dominated that genre is called Duty

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Speaker 4: from Microsoft. So Betterview six is looking to be a

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Speaker 4: successful launch. And next year we have FIFA, and obviously

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Speaker 4: we know that EA has the biggest soccer game in

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Speaker 4: the industry, and that's FIFA. What was called FIFA but

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Speaker 4: now it's called EA Sports FC. And next year FIFA

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Speaker 4: World Cup will be a special one because it will

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Speaker 4: be hosted across three cities, including the US, and if

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Speaker 4: people don't know, US is actually the biggest market in

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Speaker 4: terms of revenue for all kinds of sports game. So

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Speaker 4: that's the second thing going for EA that I think

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Speaker 4: it's going to lead to at least two rounds circumstensus

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Speaker 4: be on EPs er share. So I think for e A,

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Speaker 4: this is a this this this is actually a good deal,

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Speaker 4: and we can talk about the common struggles faced by

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Speaker 4: you know, game publishers and how these deals would make

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Speaker 4: sense for e A as well as the investors in

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Speaker 4: this context.

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Speaker 5: So yeah, let's do that.

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Speaker 6: Because you mentioned a bunch of the titles and these

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Speaker 6: are you know, very valuable franchises. These this is a

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Speaker 6: top quality IP, whether it's E Sports, FC.

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Speaker 5: Madden, NFL, the SIMS battlefield.

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Speaker 6: What does ownership by private equity, by private investors allow

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Speaker 6: e A to do that it can't do as a

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Speaker 6: publicly traded company.

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Speaker 4: I think it's all down to funds. So publishers. Game

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Speaker 4: publishers in general have been have been facing two struggles.

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Speaker 4: First one is gamers attention spend and playtime are increasingly

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Speaker 4: getting limited. The reason is people are sticking to brands

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Speaker 4: or franchises that they have played for a long time.

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Speaker 4: And in fact, New Zoom published data saying that eighty

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Speaker 4: percent of playtime tend to go back to the sixty

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Speaker 4: or so titles, leaving only eight percent of playtime for

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Speaker 4: brand new IP. And this is actually in favor of

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Speaker 4: EA because we mentioned those valuable IP. In fact, if

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Speaker 4: we look at global unit sales, EA has topped twenty

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Speaker 4: has four of those top twenty selling IP globally, he

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Speaker 4: has four out of the twenty. So that is actually

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Speaker 4: a pretty enticing deal thing for companies like private equity

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Speaker 4: because you know, profit generation is key. And what this

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Speaker 4: means is that EA has franchises that can bring in

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Speaker 4: recurring revenue. We talked about EA Sports FC, we talk

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Speaker 4: about MET and MFL and they actually revived a new franchise,

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Speaker 4: College Football, and you know, it was one of the

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Speaker 4: best selling titles in the US last year. So recurring

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Speaker 4: revenue is key here. And the second struggle that I

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Speaker 4: was going to go into is development cost is really high,

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Speaker 4: especially in the US, so that means that we publishers

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Speaker 4: actually have a cost disadvantage when compared to Eastern developers.

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Speaker 4: For example, you know, salaries for game engineers in China

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Speaker 4: is more than half the level in California, and personnel

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Speaker 4: cost game engineers is a huge part of developing a game.

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Speaker 4: So you know, tens and actually launched a new game

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Speaker 4: in the same genre as Better Few six and that

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Speaker 4: scaltalk course is doing really well. And what that costs

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Speaker 4: disadvantage is stopping EA from is continuously to push out

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Speaker 4: a strong salence of content to essentially extending the shelf

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Speaker 4: life of any game, and Eastern developers can do that

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Speaker 4: better because of that cost edge.

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Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast Catch US Live

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Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto

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Speaker 1: with the Bloomberg Business App. Listen on demand wherever you

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Speaker 1: get your podcasts, or watch US Live one.

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Speaker 3: Carnival Cruise Line raised its full year earnings forecast for

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Speaker 3: the third straight quarter, citing a record pace for forward

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Speaker 3: bookings and improving net yields.

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Speaker 2: So what's the stock do it? Trades off three and

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Speaker 2: a half percent?

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Speaker 7: Go figure?

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Speaker 2: Maybe our next guest can help us out here. Brian Egger.

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Speaker 3: He covers his gaming stuff, the lodging stuff, the crew stuff,

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Speaker 3: all the fun industries outter He's been doing on Wall

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Speaker 3: Street for a very long time. One of the top

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Speaker 3: folks in the street in his industry.

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Speaker 2: He's Bloomberg Intelligence. Joining us live here in our Bloomberg

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Speaker 2: and Interactive broker studio. Brian Carnival. It seems like I

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Speaker 2: do know, pretty good quarter for them, what you hear?

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Speaker 8: Yeah, very strong third quarter. You know the fifty percent

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Speaker 8: book for next year or so. On the surface, these

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Speaker 8: results are really good, and it was initially a bit

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Speaker 8: of a head scratcher to see the sell off. I

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Speaker 8: think there are two ways in which maybe they're being

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Speaker 8: perceived as conservative. The one is that their yield growth

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Speaker 8: guidance for the fourth quarter, while it's certainly very solid

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Speaker 8: in there in the mid fords, you know, with a

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Speaker 8: little bit below consensus, maybe the street got a little

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Speaker 8: bit heav itself. The second thing is for all of

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Speaker 8: their optimists about bookings and direction of yields, they are

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Speaker 8: very conservative and how they're deploying capital. They've only got

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Speaker 8: about one percent annual yield growth for this year in

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Speaker 8: the next two years, so they're growing very effectively, but

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Speaker 8: they are also very measured in how they deploy capacity.

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Speaker 8: So all this is really good, but they do mention that,

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Speaker 8: you know, they can afford to they can really be

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Speaker 8: judicious on expense growth because they're only growing capacity at

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Speaker 8: a very modest pace.

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Speaker 6: Is that a bad thing to be conservative? How does

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Speaker 6: Carnival compare with Norwegian or Royal Caribbean.

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Speaker 8: Yeah, so if you look at Norwegian Wild Caribbean, they're

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Speaker 8: anticipating or actually scheduling about a mid single digit, call

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Speaker 8: it five percent ish level of annual capacity growth for

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Speaker 8: twenty twenty six, twenty seven to twenty eight. You know,

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Speaker 8: it's closer to one percent for Carnival, maybe two percent

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Speaker 8: in twenty twenty eight. So they're just taking a more

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Speaker 8: conservative tack. And I think they're equally long term optimistic

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Speaker 8: about their ability to penetrate the vacation market, but they're

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Speaker 8: going about it in a much more measured way.

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Speaker 7: And then that sense it could strike people's conservative.

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Speaker 2: Talk to us about capacity.

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Speaker 3: I mean, if they added a couple of ships, would

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Speaker 3: they sell them out?

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Speaker 4: Yeah?

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Speaker 7: I mean certainly.

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Speaker 8: Their their auquancy is back to pre pandemic levels. Their

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Speaker 8: yield growth against that capacity increase is positive, and we

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Speaker 8: were looking at we've seen steadily increasing yield expectations throughout

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Speaker 8: twenty twenty five, and they've got the free cash let.

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Speaker 8: But I think they just want to build this out slowly,

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Speaker 8: you know, and maybe strike people some people as being

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Speaker 8: too slowly.

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Speaker 3: Hey, not for nothing. You get paid a lot of

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Speaker 3: money here, Josh Weinstein. Fourteen million in cash compensation for county.

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Speaker 3: You're twenty four fourteen million in stock twenty eight million

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Speaker 3: to drive a cruise ship round.

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Speaker 7: That's not too bad.

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Speaker 5: Nice job if you can get it right.

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Speaker 6: So here's my question to you, Brian, how do roil

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Speaker 6: Caribbean Norwegian Cruise and Carnival. How do they grow their

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Speaker 6: market are they stealing from each other or is there

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Speaker 6: still a big base from which to grow.

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Speaker 8: There's definitely a penetration opportunity. Just back up for a

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Speaker 8: second on Carnival. Their goal is to become investment grade,

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Speaker 8: So part of the conservativism I think you're seeing, which

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Speaker 8: may be a head scratch. They want to get to

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Speaker 8: invest grade and I think that's probably priority one, shifting

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Speaker 8: some of the enterprise value from bondholders.

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Speaker 7: To equity holders.

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Speaker 8: That being said, yes, they see opportunity to grow a

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Speaker 8: relatively underpenetrated overall vacation market, but they're going about it

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Speaker 8: with kind of balance sheet being front center if that

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Speaker 8: helps it all.

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Speaker 3: The only thing I know about the cruise business is

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Speaker 3: what I learned from Disney, who got into the business

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Speaker 3: fifteen twenty years ago and it's been a great business

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Speaker 3: for them.

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Speaker 2: How do you stratify the cruise market?

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Speaker 3: Now, I'm going to be the very very top mind you,

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Speaker 3: but how does the cruise industry kind of stratify itself?

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Speaker 4: Yeah?

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Speaker 8: I mean I think they, I think convincingly argue that

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Speaker 8: they are relatively affordable form of vacation. The package product,

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Speaker 8: the value is very good for the consumer, but it

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Speaker 8: runs across different tiers from luxury side you know, Seaborn,

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Speaker 8: Windstar Oceania Region seventies to the more mass market like

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Speaker 8: Carnival cruise line. So they run the gamup, but the

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Speaker 8: overall spectrum tends to be generally, you know, relatively affordable

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Speaker 8: and part of that package vacation product people buying cruises beforehand,

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Speaker 8: buying stuff on the cruise with a good share of

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Speaker 8: wallet left over.

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Speaker 7: That works to their favor.

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Speaker 5: How brand loyal are cruising fans?

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Speaker 6: I mean, if you are a carnival person, are you

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Speaker 6: a Carnival person for life?

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Speaker 8: Yeah, there's certainly some brand loyalty. And remember they've they've

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Speaker 8: got kind of as an industry, they've companies got two goals.

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Speaker 8: One is to drive bookings for their particular brand, and

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Speaker 8: they do that through new hardware with all the bells

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Speaker 8: and whistles. The other is to drive the overall awareness

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Speaker 8: of the value of cruising relative to other forms of vacationing.

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Speaker 8: And so you know, they've kind of got that dual mandate.

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Speaker 2: So you're sitting on the Jersey Shore Sunday after in around.

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Speaker 6: Five sweety's sitting on there. Okay, go ahead, all this.

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Speaker 3: Every Sunday during the summer, you'd see this massive cruise

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Speaker 3: ship coming out of New York Harbor. I think it's

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Speaker 3: the Star of the Seas.

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Speaker 7: Yeah, that's a new one. Yeah, I mean.

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Speaker 2: Things massive, and they filled that thing up.

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Speaker 8: Oh just and that's a that's a Royal Caribbean ship.

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Speaker 8: But I will point out that one of the things

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Speaker 8: Carnivals pointing to is, you know, they've reached the thirteen

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Speaker 8: percent return on invested capital this year, so they're kind

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Speaker 8: of getting to that double digit return pace that they targeted.

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Speaker 8: So there are their argument would be that they fill

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Speaker 8: it up, they get good pricing and relative that their

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Speaker 8: investments are getting, you know, solid low teens returns on

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Speaker 8: incremental invested capital with an opportunity to take that higher.

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Speaker 8: So as long as they can get that return, I

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Speaker 8: think they can convincingly say we're getting there. But obviously,

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Speaker 8: in the case of Carnival, through relatively conservative capital to

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Speaker 8: point I.

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Speaker 3: Mean Star of the Sea, Icon of the Seas, they

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Speaker 3: have a massive passenger capacity with the ability to hold

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Speaker 3: over seventy six hundred passengers and a large group and

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Speaker 3: for somebody who doesn't like people like me, that would

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Speaker 3: be that's a tough.

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Speaker 2: No, it's not.

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Speaker 8: It's not the misanthropes favorite vacation activity. But you know

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Speaker 8: they do get good economies by they were those field

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Speaker 8: peoples and.

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Speaker 2: You know how big those things.

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Speaker 6: Well, I'm always talking with my friend who suggests that

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Speaker 6: instead of retiring to a nursing home or tournament community,

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Speaker 6: just go on.

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Speaker 5: A cruise trip.

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Speaker 2: I've heard that's heard that too.

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Speaker 3: You know, you know it's a big cruisers Charlie Pellett,

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Speaker 3: and he doesn't like cruise the Caribbean.

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Speaker 5: He was cruises like adventurous places.

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Speaker 3: Yeah, like I'm going to I'm cruising to Turkey and

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Speaker 3: I don't know Antarctica, ger Yes, that's what Charlie.

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Speaker 7: People pair a premium for those.

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Speaker 5: Yeah, so's he's that kind of cruiser.

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Speaker 8: Well, I'm just saying on average, the customer pays the premium.

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Speaker 3: We talk about going investment grade again, day one or

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Speaker 3: day two of the pandemic. Who are the first companies

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Speaker 3: going to the bond market the cruise industry because those companies.

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Speaker 2: Knew, oh boy, this is not gonna be good for its.

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Speaker 8: Back from their break and therefore trying to run the

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Speaker 8: business in a measured way.

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Speaker 2: Stay with us more from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 3: AI and we're talking to technology. You're talking AI, and

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Speaker 3: you know, people trying to figure out how do you

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Speaker 3: get exposure to it beyond you know, the chip manufacturers.

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Speaker 2: I get Nvidia, maybe beyond some of.

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Speaker 3: The software players like Microsoft, What how about computer hardware

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Speaker 3: and storage?

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Speaker 2: Go figure, well, we get somebody here that can help

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Speaker 2: us out on this stuff.

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Speaker 3: Wujino, Bloomberg Intelligence, Senior Technology Analysts. Which let's talk about

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Speaker 3: some of this hardware and storage companies that that you cover.

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Speaker 3: Super Micro is one of those companies that stock has

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Speaker 3: done really really well this year.

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Speaker 2: Talk to us about that company. How do you approach

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Speaker 2: this company, super Micro Computer.

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Speaker 9: Yeah, hey, Paul, So super Micro's actually been a very

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Speaker 9: controversial name throughout the year, but at the end of

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Speaker 9: the day, they're highly exposed to the three into twelve

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Speaker 9: billion dollar AI market. And you know the fact of

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Speaker 9: the matter is, even though they've had choppy execution. They

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Speaker 9: are one of the market leaders there and as these

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Speaker 9: deals come through, expect super Micro to continue to be

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Speaker 9: involved in those deals and possibly win their fair share.

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Speaker 3: Just looking at your research, which you can do folks

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Speaker 3: going B I go on the Bloomberg terminal nets, reaccess

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Speaker 3: all the Bloomerg intelligence investment research, you write super Micro's

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Speaker 3: AI rack system expertise, and at short delivery times position

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Speaker 3: a company to boot sales seventy four twenty twenty six.

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Speaker 2: That is extraordinary.

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Speaker 7: Yeah.

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Speaker 9: So look, if you think about some of these hyperscale

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Speaker 9: cloud providers as well as as neo clouds and the

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Speaker 9: neo clouds I define as these newer AI infrastructures and

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Speaker 9: service vendors like a core Weave or a LAMB, time

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Speaker 9: to market means a lot, right, and if you can't

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Speaker 9: deliver the equipment to their to their specs in a

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Speaker 9: timely manner, you're not going to win those deals. There

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Speaker 9: are actually two companies that have done that, super Micro

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Speaker 9: is one and Dell. So if you can ship the

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Speaker 9: AI servers, get the GPUs as quickly as possible, the

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Speaker 9: likelihood is you're going to win the deals. Now, keep

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Speaker 9: in mind these these guys were only generating roughly three

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Speaker 9: billion dollars in revenue about five years back, and now

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Speaker 9: we're talking about revenues closer to forty billion dollars in

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Speaker 9: fiscal twenty seven and thirty three billion dollars in fiscal

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Speaker 9: twenty six.

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Speaker 3: Extraordinary and just super micro stock is a fifty five

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Speaker 3: to fifty two.

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Speaker 2: Percent year to date, So it's just extraordinary, all right.

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Speaker 3: When I think hard dis drive, I think the little

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Speaker 3: thing in my PC under my desk. But when we're

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Speaker 3: talking about the cloud, we're talking about something totally different.

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Speaker 3: Talk to us about kind of that the hard drive.

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Speaker 3: A company like Western Digital provides the stack.

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Speaker 9: I will tell you know, we've been very bullish on

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Speaker 9: the hard disk drive market for a couple of years now,

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Speaker 9: and it's really starting to materialize, not only Western Digital

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Speaker 9: but also Seagate. If you think about the hard disk

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Speaker 9: drive market, we're talking about a forty billion dollar in revenues,

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Speaker 9: splitting roughly forty percent of it going to Western Digital,

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Speaker 9: forty percent going to Seagate. And at the end of

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Speaker 9: the day, a lot of the data that's generated by

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Speaker 9: AI needs to be stored somewhere, right, and it's going

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Speaker 9: into the Western Digital drives as well as the Seagate drives.

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Speaker 9: And if you see the last month, the AI story

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Speaker 9: has really started to materialize. Western Digital stock is up

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Speaker 9: about forty over over the past month and because of

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Speaker 9: the strong demand by the hyperscale cloud providers, these guys

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Speaker 9: have lead times of over eight weeks visibility going into

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Speaker 9: six quarters, and this is leading to price hikes. This

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Speaker 9: is a commodity market that tends to have five percent

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Speaker 9: annual pricing declines. Pricing stay stable. Not only stay stable,

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Speaker 9: it's probably gonna rise over the next six weeks.

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Speaker 2: I mean, you've been bullish on Western Digital for a

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Speaker 2: couple of years. I missed that. Too bad for me.

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Speaker 3: A year to date, Western Digital stock is up one

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Speaker 3: and fifty five percent. This isn't any stock, folks. This

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Speaker 3: is a company with a market cap of forty billion dollars.

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Speaker 3: So woods from your perspective on the hardware networking side

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Speaker 3: of the business, kind of where are we in this

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Speaker 3: AI play?

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Speaker 2: What are your companies kind of telling you?

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Speaker 9: Yeah, A lot of my companies are telling me it's

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Speaker 9: still in the early early days, right, but it's also

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Speaker 9: going through a lot of disruptions as well, and some

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Speaker 9: of the I guess legacy companies like Cisco, like an HPE,

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Speaker 9: it still considers a smaller fraction of the business to

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Speaker 9: really make any impact, but they're going to be involved

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Speaker 9: in some way or another.

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Speaker 3: Now.

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Speaker 9: In terms of the hyperscale cloud providers, there are a

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Speaker 9: small sub segment outside of the GPUs that are going

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Speaker 9: to benefit the optical names in particular because there is

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Speaker 9: this need for speed to traverse the data, to have

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Speaker 9: the data traverse through the networks. You know, my colleague

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Speaker 9: Jake Silverman, he covers those names. Companies like Coherent, companies

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Speaker 9: like Lumentum. They've actually benefited quite a bit from a

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Speaker 9: hardware perspective. Arista Networks. They have strong exposure to companies

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Speaker 9: like Meta and they have a very They've actually seen

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Speaker 9: their stock double over the past year or so. And

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Speaker 9: also another small company called Celestica based out of Canada.

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Speaker 9: They've been beneficiarias from from this AI span.

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