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Speaker 2: Again.
Speaker 3: The big story on the MNA front Electronic Arts going
Speaker 3: public via LBO. How about that kid's fifty five billion dollars.
Speaker 3: JP Morgan advising Goldman Sachs. On the other side of
Speaker 3: the deal, JP Morgan r in a twenty billion dollars
Speaker 3: check to get this deal done.
Speaker 2: What's the mean for the gaming business?
Speaker 3: Nathan Nadu joins us here technology research channel for Bloomberg Intelligence.
Speaker 3: He's based in London. Nathan, what's the how's this price
Speaker 3: tag look for you? How's the evaluation here?
Speaker 4: The valuation is at a twenty to thirty percent premium
Speaker 4: versus the last recorded market CAB before this deal was announced.
Speaker 4: And it seems like, you know, is a premium deal,
Speaker 4: but actually, you know, EA has a lot going for it.
Speaker 4: It is actually launching a new battlefield game and there's
Speaker 4: a strong prospect for this game. And actually the game
Speaker 4: is now in prely release, and even then he has
Speaker 4: already smashed all prior records set by the biggest game
Speaker 4: in that genre, and that genre is first person should
Speaker 4: and that game that's dominated that genre is called Duty
Speaker 4: from Microsoft. So Betterview six is looking to be a
Speaker 4: successful launch. And next year we have FIFA, and obviously
Speaker 4: we know that EA has the biggest soccer game in
Speaker 4: the industry, and that's FIFA. What was called FIFA but
Speaker 4: now it's called EA Sports FC. And next year FIFA
Speaker 4: World Cup will be a special one because it will
Speaker 4: be hosted across three cities, including the US, and if
Speaker 4: people don't know, US is actually the biggest market in
Speaker 4: terms of revenue for all kinds of sports game. So
Speaker 4: that's the second thing going for EA that I think
Speaker 4: it's going to lead to at least two rounds circumstensus
Speaker 4: be on EPs er share. So I think for e A,
Speaker 4: this is a this this this is actually a good deal,
Speaker 4: and we can talk about the common struggles faced by
Speaker 4: you know, game publishers and how these deals would make
Speaker 4: sense for e A as well as the investors in
Speaker 4: this context.
Speaker 5: So yeah, let's do that.
Speaker 6: Because you mentioned a bunch of the titles and these
Speaker 6: are you know, very valuable franchises. These this is a
Speaker 6: top quality IP, whether it's E Sports, FC.
Speaker 5: Madden, NFL, the SIMS battlefield.
Speaker 6: What does ownership by private equity, by private investors allow
Speaker 6: e A to do that it can't do as a
Speaker 6: publicly traded company.
Speaker 4: I think it's all down to funds. So publishers. Game
Speaker 4: publishers in general have been have been facing two struggles.
Speaker 4: First one is gamers attention spend and playtime are increasingly
Speaker 4: getting limited. The reason is people are sticking to brands
Speaker 4: or franchises that they have played for a long time.
Speaker 4: And in fact, New Zoom published data saying that eighty
Speaker 4: percent of playtime tend to go back to the sixty
Speaker 4: or so titles, leaving only eight percent of playtime for
Speaker 4: brand new IP. And this is actually in favor of
Speaker 4: EA because we mentioned those valuable IP. In fact, if
Speaker 4: we look at global unit sales, EA has topped twenty
Speaker 4: has four of those top twenty selling IP globally, he
Speaker 4: has four out of the twenty. So that is actually
Speaker 4: a pretty enticing deal thing for companies like private equity
Speaker 4: because you know, profit generation is key. And what this
Speaker 4: means is that EA has franchises that can bring in
Speaker 4: recurring revenue. We talked about EA Sports FC, we talk
Speaker 4: about MET and MFL and they actually revived a new franchise,
Speaker 4: College Football, and you know, it was one of the
Speaker 4: best selling titles in the US last year. So recurring
Speaker 4: revenue is key here. And the second struggle that I
Speaker 4: was going to go into is development cost is really high,
Speaker 4: especially in the US, so that means that we publishers
Speaker 4: actually have a cost disadvantage when compared to Eastern developers.
Speaker 4: For example, you know, salaries for game engineers in China
Speaker 4: is more than half the level in California, and personnel
Speaker 4: cost game engineers is a huge part of developing a game.
Speaker 4: So you know, tens and actually launched a new game
Speaker 4: in the same genre as Better Few six and that
Speaker 4: scaltalk course is doing really well. And what that costs
Speaker 4: disadvantage is stopping EA from is continuously to push out
Speaker 4: a strong salence of content to essentially extending the shelf
Speaker 4: life of any game, and Eastern developers can do that
Speaker 4: better because of that cost edge.
Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 3: Carnival Cruise Line raised its full year earnings forecast for
Speaker 3: the third straight quarter, citing a record pace for forward
Speaker 3: bookings and improving net yields.
Speaker 2: So what's the stock do it? Trades off three and
Speaker 2: a half percent?
Speaker 7: Go figure?
Speaker 2: Maybe our next guest can help us out here. Brian Egger.
Speaker 3: He covers his gaming stuff, the lodging stuff, the crew stuff,
Speaker 3: all the fun industries outter He's been doing on Wall
Speaker 3: Street for a very long time. One of the top
Speaker 3: folks in the street in his industry.
Speaker 2: He's Bloomberg Intelligence. Joining us live here in our Bloomberg
Speaker 2: and Interactive broker studio. Brian Carnival. It seems like I
Speaker 2: do know, pretty good quarter for them, what you hear?
Speaker 8: Yeah, very strong third quarter. You know the fifty percent
Speaker 8: book for next year or so. On the surface, these
Speaker 8: results are really good, and it was initially a bit
Speaker 8: of a head scratcher to see the sell off. I
Speaker 8: think there are two ways in which maybe they're being
Speaker 8: perceived as conservative. The one is that their yield growth
Speaker 8: guidance for the fourth quarter, while it's certainly very solid
Speaker 8: in there in the mid fords, you know, with a
Speaker 8: little bit below consensus, maybe the street got a little
Speaker 8: bit heav itself. The second thing is for all of
Speaker 8: their optimists about bookings and direction of yields, they are
Speaker 8: very conservative and how they're deploying capital. They've only got
Speaker 8: about one percent annual yield growth for this year in
Speaker 8: the next two years, so they're growing very effectively, but
Speaker 8: they are also very measured in how they deploy capacity.
Speaker 8: So all this is really good, but they do mention that,
Speaker 8: you know, they can afford to they can really be
Speaker 8: judicious on expense growth because they're only growing capacity at
Speaker 8: a very modest pace.
Speaker 6: Is that a bad thing to be conservative? How does
Speaker 6: Carnival compare with Norwegian or Royal Caribbean.
Speaker 8: Yeah, so if you look at Norwegian Wild Caribbean, they're
Speaker 8: anticipating or actually scheduling about a mid single digit, call
Speaker 8: it five percent ish level of annual capacity growth for
Speaker 8: twenty twenty six, twenty seven to twenty eight. You know,
Speaker 8: it's closer to one percent for Carnival, maybe two percent
Speaker 8: in twenty twenty eight. So they're just taking a more
Speaker 8: conservative tack. And I think they're equally long term optimistic
Speaker 8: about their ability to penetrate the vacation market, but they're
Speaker 8: going about it in a much more measured way.
Speaker 7: And then that sense it could strike people's conservative.
Speaker 2: Talk to us about capacity.
Speaker 3: I mean, if they added a couple of ships, would
Speaker 3: they sell them out?
Speaker 4: Yeah?
Speaker 7: I mean certainly.
Speaker 8: Their their auquancy is back to pre pandemic levels. Their
Speaker 8: yield growth against that capacity increase is positive, and we
Speaker 8: were looking at we've seen steadily increasing yield expectations throughout
Speaker 8: twenty twenty five, and they've got the free cash let.
Speaker 8: But I think they just want to build this out slowly,
Speaker 8: you know, and maybe strike people some people as being
Speaker 8: too slowly.
Speaker 3: Hey, not for nothing. You get paid a lot of
Speaker 3: money here, Josh Weinstein. Fourteen million in cash compensation for county.
Speaker 3: You're twenty four fourteen million in stock twenty eight million
Speaker 3: to drive a cruise ship round.
Speaker 7: That's not too bad.
Speaker 5: Nice job if you can get it right.
Speaker 6: So here's my question to you, Brian, how do roil
Speaker 6: Caribbean Norwegian Cruise and Carnival. How do they grow their
Speaker 6: market are they stealing from each other or is there
Speaker 6: still a big base from which to grow.
Speaker 8: There's definitely a penetration opportunity. Just back up for a
Speaker 8: second on Carnival. Their goal is to become investment grade,
Speaker 8: So part of the conservativism I think you're seeing, which
Speaker 8: may be a head scratch. They want to get to
Speaker 8: invest grade and I think that's probably priority one, shifting
Speaker 8: some of the enterprise value from bondholders.
Speaker 7: To equity holders.
Speaker 8: That being said, yes, they see opportunity to grow a
Speaker 8: relatively underpenetrated overall vacation market, but they're going about it
Speaker 8: with kind of balance sheet being front center if that
Speaker 8: helps it all.
Speaker 3: The only thing I know about the cruise business is
Speaker 3: what I learned from Disney, who got into the business
Speaker 3: fifteen twenty years ago and it's been a great business
Speaker 3: for them.
Speaker 2: How do you stratify the cruise market?
Speaker 3: Now, I'm going to be the very very top mind you,
Speaker 3: but how does the cruise industry kind of stratify itself?
Speaker 4: Yeah?
Speaker 8: I mean I think they, I think convincingly argue that
Speaker 8: they are relatively affordable form of vacation. The package product,
Speaker 8: the value is very good for the consumer, but it
Speaker 8: runs across different tiers from luxury side you know, Seaborn,
Speaker 8: Windstar Oceania Region seventies to the more mass market like
Speaker 8: Carnival cruise line. So they run the gamup, but the
Speaker 8: overall spectrum tends to be generally, you know, relatively affordable
Speaker 8: and part of that package vacation product people buying cruises beforehand,
Speaker 8: buying stuff on the cruise with a good share of
Speaker 8: wallet left over.
Speaker 7: That works to their favor.
Speaker 5: How brand loyal are cruising fans?
Speaker 6: I mean, if you are a carnival person, are you
Speaker 6: a Carnival person for life?
Speaker 8: Yeah, there's certainly some brand loyalty. And remember they've they've
Speaker 8: got kind of as an industry, they've companies got two goals.
Speaker 8: One is to drive bookings for their particular brand, and
Speaker 8: they do that through new hardware with all the bells
Speaker 8: and whistles. The other is to drive the overall awareness
Speaker 8: of the value of cruising relative to other forms of vacationing.
Speaker 8: And so you know, they've kind of got that dual mandate.
Speaker 2: So you're sitting on the Jersey Shore Sunday after in around.
Speaker 6: Five sweety's sitting on there. Okay, go ahead, all this.
Speaker 3: Every Sunday during the summer, you'd see this massive cruise
Speaker 3: ship coming out of New York Harbor. I think it's
Speaker 3: the Star of the Seas.
Speaker 7: Yeah, that's a new one. Yeah, I mean.
Speaker 2: Things massive, and they filled that thing up.
Speaker 8: Oh just and that's a that's a Royal Caribbean ship.
Speaker 8: But I will point out that one of the things
Speaker 8: Carnivals pointing to is, you know, they've reached the thirteen
Speaker 8: percent return on invested capital this year, so they're kind
Speaker 8: of getting to that double digit return pace that they targeted.
Speaker 8: So there are their argument would be that they fill
Speaker 8: it up, they get good pricing and relative that their
Speaker 8: investments are getting, you know, solid low teens returns on
Speaker 8: incremental invested capital with an opportunity to take that higher.
Speaker 8: So as long as they can get that return, I
Speaker 8: think they can convincingly say we're getting there. But obviously,
Speaker 8: in the case of Carnival, through relatively conservative capital to
Speaker 8: point I.
Speaker 3: Mean Star of the Sea, Icon of the Seas, they
Speaker 3: have a massive passenger capacity with the ability to hold
Speaker 3: over seventy six hundred passengers and a large group and
Speaker 3: for somebody who doesn't like people like me, that would
Speaker 3: be that's a tough.
Speaker 2: No, it's not.
Speaker 8: It's not the misanthropes favorite vacation activity. But you know
Speaker 8: they do get good economies by they were those field
Speaker 8: peoples and.
Speaker 2: You know how big those things.
Speaker 6: Well, I'm always talking with my friend who suggests that
Speaker 6: instead of retiring to a nursing home or tournament community,
Speaker 6: just go on.
Speaker 5: A cruise trip.
Speaker 2: I've heard that's heard that too.
Speaker 3: You know, you know it's a big cruisers Charlie Pellett,
Speaker 3: and he doesn't like cruise the Caribbean.
Speaker 5: He was cruises like adventurous places.
Speaker 3: Yeah, like I'm going to I'm cruising to Turkey and
Speaker 3: I don't know Antarctica, ger Yes, that's what Charlie.
Speaker 7: People pair a premium for those.
Speaker 5: Yeah, so's he's that kind of cruiser.
Speaker 8: Well, I'm just saying on average, the customer pays the premium.
Speaker 3: We talk about going investment grade again, day one or
Speaker 3: day two of the pandemic. Who are the first companies
Speaker 3: going to the bond market the cruise industry because those companies.
Speaker 2: Knew, oh boy, this is not gonna be good for its.
Speaker 8: Back from their break and therefore trying to run the
Speaker 8: business in a measured way.
Speaker 2: Stay with us more from Bloomberg Intelligence coming up after this.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 3: AI and we're talking to technology. You're talking AI, and
Speaker 3: you know, people trying to figure out how do you
Speaker 3: get exposure to it beyond you know, the chip manufacturers.
Speaker 2: I get Nvidia, maybe beyond some of.
Speaker 3: The software players like Microsoft, What how about computer hardware
Speaker 3: and storage?
Speaker 2: Go figure, well, we get somebody here that can help
Speaker 2: us out on this stuff.
Speaker 3: Wujino, Bloomberg Intelligence, Senior Technology Analysts. Which let's talk about
Speaker 3: some of this hardware and storage companies that that you cover.
Speaker 3: Super Micro is one of those companies that stock has
Speaker 3: done really really well this year.
Speaker 2: Talk to us about that company. How do you approach
Speaker 2: this company, super Micro Computer.
Speaker 9: Yeah, hey, Paul, So super Micro's actually been a very
Speaker 9: controversial name throughout the year, but at the end of
Speaker 9: the day, they're highly exposed to the three into twelve
Speaker 9: billion dollar AI market. And you know the fact of
Speaker 9: the matter is, even though they've had choppy execution. They
Speaker 9: are one of the market leaders there and as these
Speaker 9: deals come through, expect super Micro to continue to be
Speaker 9: involved in those deals and possibly win their fair share.
Speaker 3: Just looking at your research, which you can do folks
Speaker 3: going B I go on the Bloomberg terminal nets, reaccess
Speaker 3: all the Bloomerg intelligence investment research, you write super Micro's
Speaker 3: AI rack system expertise, and at short delivery times position
Speaker 3: a company to boot sales seventy four twenty twenty six.
Speaker 2: That is extraordinary.
Speaker 7: Yeah.
Speaker 9: So look, if you think about some of these hyperscale
Speaker 9: cloud providers as well as as neo clouds and the
Speaker 9: neo clouds I define as these newer AI infrastructures and
Speaker 9: service vendors like a core Weave or a LAMB, time
Speaker 9: to market means a lot, right, and if you can't
Speaker 9: deliver the equipment to their to their specs in a
Speaker 9: timely manner, you're not going to win those deals. There
Speaker 9: are actually two companies that have done that, super Micro
Speaker 9: is one and Dell. So if you can ship the
Speaker 9: AI servers, get the GPUs as quickly as possible, the
Speaker 9: likelihood is you're going to win the deals. Now, keep
Speaker 9: in mind these these guys were only generating roughly three
Speaker 9: billion dollars in revenue about five years back, and now
Speaker 9: we're talking about revenues closer to forty billion dollars in
Speaker 9: fiscal twenty seven and thirty three billion dollars in fiscal
Speaker 9: twenty six.
Speaker 3: Extraordinary and just super micro stock is a fifty five
Speaker 3: to fifty two.
Speaker 2: Percent year to date, So it's just extraordinary, all right.
Speaker 3: When I think hard dis drive, I think the little
Speaker 3: thing in my PC under my desk. But when we're
Speaker 3: talking about the cloud, we're talking about something totally different.
Speaker 3: Talk to us about kind of that the hard drive.
Speaker 3: A company like Western Digital provides the stack.
Speaker 9: I will tell you know, we've been very bullish on
Speaker 9: the hard disk drive market for a couple of years now,
Speaker 9: and it's really starting to materialize, not only Western Digital
Speaker 9: but also Seagate. If you think about the hard disk
Speaker 9: drive market, we're talking about a forty billion dollar in revenues,
Speaker 9: splitting roughly forty percent of it going to Western Digital,
Speaker 9: forty percent going to Seagate. And at the end of
Speaker 9: the day, a lot of the data that's generated by
Speaker 9: AI needs to be stored somewhere, right, and it's going
Speaker 9: into the Western Digital drives as well as the Seagate drives.
Speaker 9: And if you see the last month, the AI story
Speaker 9: has really started to materialize. Western Digital stock is up
Speaker 9: about forty over over the past month and because of
Speaker 9: the strong demand by the hyperscale cloud providers, these guys
Speaker 9: have lead times of over eight weeks visibility going into
Speaker 9: six quarters, and this is leading to price hikes. This
Speaker 9: is a commodity market that tends to have five percent
Speaker 9: annual pricing declines. Pricing stay stable. Not only stay stable,
Speaker 9: it's probably gonna rise over the next six weeks.
Speaker 2: I mean, you've been bullish on Western Digital for a
Speaker 2: couple of years. I missed that. Too bad for me.
Speaker 3: A year to date, Western Digital stock is up one
Speaker 3: and fifty five percent. This isn't any stock, folks. This
Speaker 3: is a company with a market cap of forty billion dollars.
Speaker 3: So woods from your perspective on the hardware networking side
Speaker 3: of the business, kind of where are we in this
Speaker 3: AI play?
Speaker 2: What are your companies kind of telling you?
Speaker 9: Yeah, A lot of my companies are telling me it's
Speaker 9: still in the early early days, right, but it's also
Speaker 9: going through a lot of disruptions as well, and some
Speaker 9: of the I guess legacy companies like Cisco, like an HPE,
Speaker 9: it still considers a smaller fraction of the business to
Speaker 9: really make any impact, but they're going to be involved
Speaker 9: in some way or another.
Speaker 3: Now.
Speaker 9: In terms of the hyperscale cloud providers, there are a
Speaker 9: small sub segment outside of the GPUs that are going
Speaker 9: to benefit the optical names in particular because there is
Speaker 9: this need for speed to traverse the data, to have
Speaker 9: the data traverse through the networks. You know, my colleague
Speaker 9: Jake Silverman, he covers those names. Companies like Coherent, companies
Speaker 9: like Lumentum. They've actually benefited quite a bit from a
Speaker 9: hardware perspective. Arista Networks. They have strong exposure to companies
Speaker 9: like Meta and they have a very They've actually seen
Speaker 9: their stock double over the past year or so. And
Speaker 9: also another small company called Celestica based out of Canada.
Speaker 9: They've been beneficiarias from from this AI span.
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