1 00:00:02,720 --> 00:00:10,559 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,600 --> 00:00:14,560 Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am. 3 00:00:14,600 --> 00:00:17,239 Speaker 1: He's done on Apple, Cocklay and Android Auto with the 4 00:00:17,280 --> 00:00:21,040 Speaker 1: Bloomberg Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,360 --> 00:00:23,520 Speaker 1: or watch us live on YouTube. 6 00:00:24,040 --> 00:00:26,279 Speaker 2: Let's go back to big tech, because we can't stay 7 00:00:26,280 --> 00:00:29,160 Speaker 2: away from them for too long. We have one more 8 00:00:29,160 --> 00:00:32,120 Speaker 2: mags have a name reporting today. Amazon will be reporting. 9 00:00:32,320 --> 00:00:34,959 Speaker 2: Alphabet reported yesterday. And I want to go back to 10 00:00:35,000 --> 00:00:38,360 Speaker 2: that CAPEX number which just blew people's minds. One hundred 11 00:00:38,400 --> 00:00:40,960 Speaker 2: and eighty five billion dollars all full of your capex, 12 00:00:41,720 --> 00:00:44,320 Speaker 2: much much higher than what was anticipated. Man Deep Singh 13 00:00:44,760 --> 00:00:47,040 Speaker 2: is our go to guy for all things tech. He's 14 00:00:47,040 --> 00:00:49,600 Speaker 2: our global tech research head here at Bloomberg Intelligence and 15 00:00:49,680 --> 00:00:50,360 Speaker 2: joins us now. 16 00:00:50,640 --> 00:00:53,040 Speaker 3: One trader called it alphabets mic drop. 17 00:00:53,200 --> 00:00:57,560 Speaker 2: Capex highlights the have versus havenots and AI capabilities, commitments 18 00:00:57,680 --> 00:01:01,880 Speaker 2: and balance sheet. Once upon a time, spending on you know, 19 00:01:02,120 --> 00:01:05,880 Speaker 2: your future growth was a good thing. But now any 20 00:01:05,959 --> 00:01:09,200 Speaker 2: kind of CAPEX commitment bigger than what people anticipated as 21 00:01:09,200 --> 00:01:09,960 Speaker 2: seen as negative. 22 00:01:10,440 --> 00:01:13,319 Speaker 4: Well, I think in this case the market is thinking 23 00:01:13,680 --> 00:01:17,479 Speaker 4: what comes next. So for twenty twenty six. Yeah, they've 24 00:01:17,480 --> 00:01:20,960 Speaker 4: guided two hundred and eighty five billion dollars. I mean, 25 00:01:21,200 --> 00:01:24,479 Speaker 4: chances are the growth rates are going to decelerate from 26 00:01:24,480 --> 00:01:27,360 Speaker 4: this point on. So twenty twenty six will be the 27 00:01:27,440 --> 00:01:30,760 Speaker 4: peak capex for a lot of these companies, Especially in 28 00:01:30,880 --> 00:01:33,640 Speaker 4: terms of growth rates. You're not going to see you know, 29 00:01:33,680 --> 00:01:36,679 Speaker 4: fifty sixty percent growth in capex going forward. 30 00:01:36,640 --> 00:01:37,520 Speaker 5: From these numbers. 31 00:01:37,520 --> 00:01:39,679 Speaker 4: So that's a given, and that's why you know the 32 00:01:39,720 --> 00:01:43,240 Speaker 4: market will be anticipatory in that sense in terms of 33 00:01:43,280 --> 00:01:45,760 Speaker 4: how that capex growth is going to pan out from 34 00:01:45,760 --> 00:01:48,560 Speaker 4: this point on, because you know, for some of the 35 00:01:48,760 --> 00:01:54,480 Speaker 4: chip makers, their growth is directly correlated to capex growth 36 00:01:54,520 --> 00:01:56,960 Speaker 4: of the hyperscaler So yes, this year is going to 37 00:01:57,040 --> 00:02:00,800 Speaker 4: look phenomenal, but as you look past this year, you 38 00:02:00,880 --> 00:02:05,280 Speaker 4: will see deceleration. The point about I think Alphabet is 39 00:02:05,320 --> 00:02:08,000 Speaker 4: really how is it reflected in their numbers? And to 40 00:02:08,080 --> 00:02:11,840 Speaker 4: my mind, they've already seen a two hundred basis point 41 00:02:12,000 --> 00:02:15,800 Speaker 4: growth in their overall top line. So they were growing, 42 00:02:15,840 --> 00:02:18,160 Speaker 4: you know, fourteen to sixteen percent. Now they are growing 43 00:02:18,200 --> 00:02:21,400 Speaker 4: eighteen percent. And so for a business with four hundred 44 00:02:21,480 --> 00:02:25,000 Speaker 4: billion dollars in run rate, two hundred basis points is 45 00:02:25,080 --> 00:02:28,520 Speaker 4: like almost that's Romney eight billion, you know, So that's 46 00:02:28,680 --> 00:02:31,680 Speaker 4: the ROI on all this capex. Is that eight to 47 00:02:31,800 --> 00:02:34,640 Speaker 4: ten billion dollar left in top line that they're seeing 48 00:02:34,680 --> 00:02:38,680 Speaker 4: across search and cloud and cloud numbers were just monster 49 00:02:38,800 --> 00:02:41,480 Speaker 4: when it comes to what they had did last nine Yeah. 50 00:02:41,360 --> 00:02:43,560 Speaker 5: So is this AI spending? 51 00:02:44,400 --> 00:02:48,200 Speaker 6: Is it one time in nature or does this suggest 52 00:02:48,760 --> 00:02:52,400 Speaker 6: a higher level of ongoing capex question? 53 00:02:53,000 --> 00:02:56,600 Speaker 4: Yeah, I mean, look, we know the public cloud businesses 54 00:02:57,080 --> 00:03:02,480 Speaker 4: were a data center of heavy in the sense you 55 00:03:02,639 --> 00:03:06,120 Speaker 4: had to replace your server gear every five years. So 56 00:03:06,240 --> 00:03:11,400 Speaker 4: there is a depreciation aspect to AI as well. And 57 00:03:11,600 --> 00:03:15,480 Speaker 4: the fact that Alphabet has built this enterprise business which 58 00:03:15,520 --> 00:03:17,760 Speaker 4: is almost a seventy billion dollar rund rate out of 59 00:03:17,800 --> 00:03:22,760 Speaker 4: there four hundred billion. Now it's phenomenal because that cloud 60 00:03:22,800 --> 00:03:25,880 Speaker 4: business is going to accelerate. So what we saw last 61 00:03:25,960 --> 00:03:29,120 Speaker 4: night forty eight percent. I won't be surprised if they 62 00:03:29,280 --> 00:03:33,760 Speaker 4: grow cloud over fifty percent for the next four quarters, 63 00:03:34,080 --> 00:03:37,520 Speaker 4: simply because a lot of that data center capacity that 64 00:03:37,560 --> 00:03:40,880 Speaker 4: they've been building will come online. They'll be renting a 65 00:03:40,920 --> 00:03:44,360 Speaker 4: lot of that, and they're very well taking share at 66 00:03:44,360 --> 00:03:46,800 Speaker 4: this point. Given the numbers we have seen so far 67 00:03:46,880 --> 00:03:51,600 Speaker 4: between Azure and Google Cloud. Google Cloud grew ten percent 68 00:03:51,720 --> 00:03:55,280 Speaker 4: more than Azure, and it probably grew more than twenty percent. 69 00:03:55,320 --> 00:03:58,280 Speaker 4: I mean, even if Amazon has a great quarter tonight, 70 00:03:58,680 --> 00:04:01,120 Speaker 4: they probably won't print more more than twenty five percent. 71 00:04:01,240 --> 00:04:04,320 Speaker 4: So there you go. You probably are seeing Shure shift 72 00:04:04,400 --> 00:04:05,600 Speaker 4: and it sounds like a. 73 00:04:05,520 --> 00:04:08,120 Speaker 2: Behind a weakness called I mean, clearly, Alphabet is the 74 00:04:08,200 --> 00:04:10,880 Speaker 2: big winner among the mag seven names when it comes 75 00:04:10,920 --> 00:04:14,040 Speaker 2: to AI, up sixty five percent over the past twelve months, 76 00:04:14,640 --> 00:04:16,320 Speaker 2: much better than Microsoft. 77 00:04:15,960 --> 00:04:17,120 Speaker 3: Which is down in that period. 78 00:04:17,440 --> 00:04:20,560 Speaker 2: So did this set of results justify that kind of 79 00:04:20,600 --> 00:04:21,120 Speaker 2: price action? 80 00:04:21,800 --> 00:04:25,039 Speaker 4: Yes, the market did anticipate that. And look, there was 81 00:04:25,120 --> 00:04:29,080 Speaker 4: a lot of bearishness around what chat ChiPT could do 82 00:04:29,240 --> 00:04:33,520 Speaker 4: to Alphabet's core search business. I mean, search grew seventeen 83 00:04:33,560 --> 00:04:38,279 Speaker 4: percent talking about ROI on spend. It's reflected not only 84 00:04:38,360 --> 00:04:42,200 Speaker 4: in cloud but also in core search, where the number 85 00:04:42,200 --> 00:04:45,360 Speaker 4: of clicks grew six percent. Who would have thought, you know, 86 00:04:45,720 --> 00:04:50,479 Speaker 4: Alphabet clicks going up when chatchipt has nine hundred million 87 00:04:50,520 --> 00:04:54,000 Speaker 4: monthly actives. I would have imagined pricing would hold steady 88 00:04:54,040 --> 00:04:57,800 Speaker 4: for Alphabet, but not clicks growth. How are the impressions 89 00:04:57,800 --> 00:05:03,120 Speaker 4: and clicks growing? It's unfathomable, you know, in Alphabet's case, 90 00:05:03,160 --> 00:05:05,880 Speaker 4: and partly it has to do with the success of Gemini. 91 00:05:06,279 --> 00:05:10,960 Speaker 4: That's seven hundred and fifty million standalone app users. Those 92 00:05:11,120 --> 00:05:14,840 Speaker 4: are people who are going directly to Gemini beyond. 93 00:05:14,720 --> 00:05:16,839 Speaker 6: Just using how I use it, which is when I 94 00:05:16,880 --> 00:05:18,840 Speaker 6: go to Google. Yeah, first thing that comes up is 95 00:05:18,920 --> 00:05:20,440 Speaker 6: often Gemini. That's my answer. 96 00:05:20,480 --> 00:05:22,560 Speaker 5: I'm done. Yeah, But there's people separately go to a 97 00:05:22,600 --> 00:05:23,560 Speaker 5: Gemini app. 98 00:05:23,560 --> 00:05:25,880 Speaker 4: And they are engaging for a lot longer that So 99 00:05:25,920 --> 00:05:29,000 Speaker 4: it's under which is people monetizing that they're I mean, 100 00:05:29,040 --> 00:05:32,280 Speaker 4: they're monetizing using subscriptions, and what they're saying is we 101 00:05:32,400 --> 00:05:36,320 Speaker 4: will not roll out ads anytime soon. Let Opening Eye 102 00:05:36,320 --> 00:05:39,240 Speaker 4: do it because that's going to interfere with the experience 103 00:05:39,279 --> 00:05:42,280 Speaker 4: that people have. So we'll monetize with subscriptions, and they're 104 00:05:42,360 --> 00:05:44,960 Speaker 4: bundling subscription Stay with us. 105 00:05:45,120 --> 00:05:47,480 Speaker 5: More from Bloomberg Intelligence coming up after this. 106 00:05:51,320 --> 00:05:55,039 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 107 00:05:55,120 --> 00:05:58,160 Speaker 1: weekdays at ten am Eastern on Apple, Corplay and Android 108 00:05:58,200 --> 00:06:01,520 Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever 109 00:06:01,560 --> 00:06:05,120 Speaker 1: you get your podcasts, or watch us live on YouTube. 110 00:06:05,520 --> 00:06:08,919 Speaker 2: I've been looking at the Philadelphia Semiconductor Index, which tracks 111 00:06:09,000 --> 00:06:11,479 Speaker 2: chip companies, and it's had a brutal couple of days. 112 00:06:11,480 --> 00:06:15,120 Speaker 2: It's rebounded today off a one month low. But you 113 00:06:15,200 --> 00:06:18,960 Speaker 2: look inside the index and Qualcomm is the biggest loser 114 00:06:19,160 --> 00:06:22,040 Speaker 2: in that group, down more than seven percent at the moment. 115 00:06:22,080 --> 00:06:26,320 Speaker 2: Kunjohn Sabani is our senior analyst on semiconductors, and Kunjohn, 116 00:06:26,440 --> 00:06:30,600 Speaker 2: when you look at Qualcom's results, Qualcomm is primarily making 117 00:06:30,880 --> 00:06:34,760 Speaker 2: chips for smartphones and this forecast that it gave is 118 00:06:34,800 --> 00:06:36,560 Speaker 2: not so great. What does that tell us? Is that 119 00:06:36,600 --> 00:06:39,240 Speaker 2: more a case of, you know, supply chain issues or 120 00:06:39,480 --> 00:06:41,680 Speaker 2: is there just not so much demand for new smartphones? 121 00:06:43,040 --> 00:06:45,880 Speaker 7: No, it's nothing to do with demand. There's two factors here. 122 00:06:45,960 --> 00:06:49,360 Speaker 7: One for Qualcomm, this year was a unique year where 123 00:06:49,400 --> 00:06:53,000 Speaker 7: most of their Android handset makers, so think of Samsung, 124 00:06:53,080 --> 00:06:57,120 Speaker 7: think of Jaumi, Opo, Vivo, launched their phones earlier than 125 00:06:57,160 --> 00:06:59,840 Speaker 7: they used to. So remember the handsut businesses are very 126 00:07:00,040 --> 00:07:02,400 Speaker 7: seasonal business, so you have up quarters when the phone 127 00:07:02,440 --> 00:07:05,360 Speaker 7: chart launched and really down quarters. So in the nutshell, 128 00:07:05,440 --> 00:07:08,200 Speaker 7: a lot of that revenue was sort of pulled ahead 129 00:07:08,240 --> 00:07:10,600 Speaker 7: of time. That's why what you saw is they beat 130 00:07:10,680 --> 00:07:13,760 Speaker 7: so strongly in the current quarter. So the flip part 131 00:07:13,760 --> 00:07:15,960 Speaker 7: of that is the next quarter, which is a tropt quarter, 132 00:07:16,000 --> 00:07:18,040 Speaker 7: is going to be even a word straff on top 133 00:07:18,080 --> 00:07:20,640 Speaker 7: of that. What's happening is as we are all aware 134 00:07:20,640 --> 00:07:23,520 Speaker 7: of the memory crunch happening because of HBM memory and 135 00:07:23,600 --> 00:07:27,040 Speaker 7: data centers and the rising memory costs, that's freaking out 136 00:07:27,160 --> 00:07:32,240 Speaker 7: the Chinese OEMs, which Qualcomm is now really disproposately exposed 137 00:07:32,280 --> 00:07:34,520 Speaker 7: to compared to all other hands at SEMIS. So the 138 00:07:34,560 --> 00:07:38,040 Speaker 7: guys like Apple and Samsung are probably doing fine. They 139 00:07:38,080 --> 00:07:41,120 Speaker 7: have their ability to get access to memory and procure 140 00:07:41,160 --> 00:07:43,560 Speaker 7: memory ahead of time, but the smaller players are not 141 00:07:43,600 --> 00:07:46,360 Speaker 7: as sophisticated. So those players are freaking out and they 142 00:07:46,480 --> 00:07:49,440 Speaker 7: basically have decided, we're going to stop ordering a lot 143 00:07:49,480 --> 00:07:51,240 Speaker 7: more chips and we're going to clear out what we 144 00:07:51,320 --> 00:07:53,640 Speaker 7: have in our inventory. And that's why what we're seeing 145 00:07:53,680 --> 00:07:56,440 Speaker 7: is basically the memory impacting Qualcom's guidance. 146 00:07:56,600 --> 00:07:59,280 Speaker 6: All right, So we step back from some of the 147 00:07:59,360 --> 00:08:01,880 Speaker 6: chip makers and they're earning something at am D and 148 00:08:01,880 --> 00:08:06,280 Speaker 6: that's soft again today Qualcom here, what are some of 149 00:08:05,760 --> 00:08:09,600 Speaker 6: the takeaways from an interships perspective are you chatting about 150 00:08:09,600 --> 00:08:10,160 Speaker 6: with clients? 151 00:08:11,640 --> 00:08:13,320 Speaker 7: Yeah, so you mean you know, the sort of the 152 00:08:13,360 --> 00:08:16,680 Speaker 7: software meltdown is trying to the fever is spreading in 153 00:08:16,720 --> 00:08:19,120 Speaker 7: a little bit into semis. I would not say as 154 00:08:19,200 --> 00:08:22,720 Speaker 7: broad strokes this earning season. What we're seeing is if 155 00:08:22,760 --> 00:08:25,200 Speaker 7: companies didn't come out and blow the quarter out of 156 00:08:25,240 --> 00:08:28,280 Speaker 7: the quarter, of the results and for their outlook, they're 157 00:08:28,280 --> 00:08:31,600 Speaker 7: basically getting punished. A lot of that has to also remember, 158 00:08:31,800 --> 00:08:34,079 Speaker 7: taking to context, a lot of these companies in the 159 00:08:34,160 --> 00:08:37,480 Speaker 7: last six to seven months have seen significant rallies because 160 00:08:37,679 --> 00:08:40,600 Speaker 7: a lot of good expectations, especially for the AI names 161 00:08:40,600 --> 00:08:43,160 Speaker 7: like AMD being priced in. So the market is now 162 00:08:43,160 --> 00:08:45,760 Speaker 7: in the mood where if you're not showing me real excitement, 163 00:08:46,880 --> 00:08:49,160 Speaker 7: you're sort of being ready for a little bit of 164 00:08:49,160 --> 00:08:50,360 Speaker 7: a pullback, right. 165 00:08:50,440 --> 00:08:53,600 Speaker 2: They call it a show me kind of market environment. 166 00:08:53,920 --> 00:08:57,680 Speaker 2: So our colleagues will be speaking with the CEO of Qualcom, 167 00:08:57,840 --> 00:09:01,080 Speaker 2: Christiano Aman, how would you grate his performance so far? 168 00:09:01,240 --> 00:09:05,319 Speaker 7: Con John, Well, look, he's doing everything right. It's just 169 00:09:05,400 --> 00:09:08,160 Speaker 7: the company is in a tough spot. Investors have been 170 00:09:08,200 --> 00:09:12,040 Speaker 7: wanting them to diversify away from handsets for many years now, 171 00:09:12,440 --> 00:09:15,200 Speaker 7: and since he's been the CEO, that's what his primary 172 00:09:15,240 --> 00:09:18,400 Speaker 7: objective has been. They're making good stries on the auto 173 00:09:18,440 --> 00:09:21,400 Speaker 7: and IoT. In fact, both of those segments had much 174 00:09:21,440 --> 00:09:23,560 Speaker 7: better than expected results and outlook. 175 00:09:23,840 --> 00:09:25,080 Speaker 4: But when you still think. 176 00:09:24,960 --> 00:09:27,600 Speaker 7: About the company now, even three four years down the road, 177 00:09:27,840 --> 00:09:33,120 Speaker 7: it's still majority significantly a handset revenue company. So until 178 00:09:33,360 --> 00:09:35,960 Speaker 7: the revenue exposure of hand sets doesn't get to at 179 00:09:36,040 --> 00:09:38,600 Speaker 7: least fifty percent or lower, I think that sort of 180 00:09:39,120 --> 00:09:42,320 Speaker 7: had been on the company. Impact from handsets is going 181 00:09:42,320 --> 00:09:44,600 Speaker 7: to continue, and I think Ristiana just has to keep 182 00:09:44,600 --> 00:09:46,360 Speaker 7: doing what he's doing and write this out. 183 00:09:47,160 --> 00:09:50,320 Speaker 6: So John, I know most of or much of the 184 00:09:50,520 --> 00:09:53,240 Speaker 6: selling in the tech spaces, in the software space, not 185 00:09:53,320 --> 00:09:56,280 Speaker 6: in your chip sector. But when you talk to investors, 186 00:09:56,400 --> 00:09:59,360 Speaker 6: we talk to clients, what's their mood over the last 187 00:09:59,400 --> 00:10:02,720 Speaker 6: week or so, Like they're just kind of selling in 188 00:10:02,720 --> 00:10:05,240 Speaker 6: a panic, selling because hey, I've got it such a 189 00:10:05,240 --> 00:10:08,360 Speaker 6: big gain, I've taken something off the table. My fundamental 190 00:10:08,440 --> 00:10:10,319 Speaker 6: view of AI is change. What's the tone. 191 00:10:11,600 --> 00:10:13,600 Speaker 7: I don't think the fundamental view has changed. I think 192 00:10:13,600 --> 00:10:15,800 Speaker 7: a couple of things. Once you said, if whatever is 193 00:10:15,840 --> 00:10:19,559 Speaker 7: happening in the other sectors will impact this sector as well, right, 194 00:10:19,559 --> 00:10:23,160 Speaker 7: because there is some definitely that risk of profit taking. Also, 195 00:10:23,200 --> 00:10:26,320 Speaker 7: remember getting into this year a lot of investors in 196 00:10:26,360 --> 00:10:29,800 Speaker 7: my sector are trying to reposition their books, right, they're revaluating. 197 00:10:30,000 --> 00:10:30,640 Speaker 4: Last year in. 198 00:10:30,600 --> 00:10:33,280 Speaker 7: Semis was like, look, everything was doing great. AI is 199 00:10:33,320 --> 00:10:35,880 Speaker 7: helping everyone. I think now it's becoming a more of 200 00:10:35,920 --> 00:10:38,240 Speaker 7: a stock pickers market in the sector, where people are 201 00:10:38,280 --> 00:10:41,679 Speaker 7: really focusing deep and thinking which guys are going to 202 00:10:41,679 --> 00:10:44,560 Speaker 7: be the real winners and let's focus on them, but 203 00:10:44,760 --> 00:10:47,040 Speaker 7: let's get off or at least take some profit off 204 00:10:47,040 --> 00:10:49,560 Speaker 7: the other folks which don't seem to be the top 205 00:10:49,679 --> 00:10:52,000 Speaker 7: number and one and two in the areas that they're playing. 206 00:10:52,720 --> 00:10:56,400 Speaker 2: You mentioned earlier how Christian among the CEO, is trying 207 00:10:56,400 --> 00:10:59,880 Speaker 2: to diversify Qualcom to not rely so much on smart 208 00:11:00,240 --> 00:11:03,520 Speaker 2: makers as its main line of business as it tries 209 00:11:03,600 --> 00:11:06,640 Speaker 2: to get into the AI data center business. And you 210 00:11:07,160 --> 00:11:10,240 Speaker 2: make chips that would compete with Nvidia, what kind of 211 00:11:10,480 --> 00:11:13,840 Speaker 2: capex do you anticipate Quacom will have to commit to. 212 00:11:15,520 --> 00:11:18,480 Speaker 7: Yeah, so Quacam predominantly is a fabulous semi company, so 213 00:11:18,640 --> 00:11:22,000 Speaker 7: they don't have or would not have a significant capex 214 00:11:22,080 --> 00:11:24,960 Speaker 7: like you hear from other AI hyperscalers. They would have 215 00:11:25,000 --> 00:11:27,960 Speaker 7: to commit to significant opex, which is R and D dollars. 216 00:11:28,000 --> 00:11:30,240 Speaker 7: If They are going into a new line of business 217 00:11:30,240 --> 00:11:33,079 Speaker 7: where they need to develop newer chips, newer programs. They 218 00:11:33,120 --> 00:11:36,079 Speaker 7: have acquired a company recently to do this, so they 219 00:11:36,120 --> 00:11:38,720 Speaker 7: have spent some capital there and I think they will 220 00:11:38,760 --> 00:11:40,880 Speaker 7: have to really boost of their R and D, which 221 00:11:40,880 --> 00:11:43,160 Speaker 7: is their opecs spending to compete with the likes of 222 00:11:43,200 --> 00:11:43,680 Speaker 7: in media. 223 00:11:44,679 --> 00:11:47,839 Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this. 224 00:11:51,720 --> 00:11:55,360 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live 225 00:11:55,520 --> 00:11:58,600 Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android 226 00:11:58,600 --> 00:12:02,080 Speaker 1: Auto with the Bloomberginess app. Listen on demand wherever you 227 00:12:02,080 --> 00:12:05,080 Speaker 1: get your podcasts, or what's us Live on YouTube. 228 00:12:05,760 --> 00:12:07,920 Speaker 6: Lots of earnings coming out across the tape this week. 229 00:12:07,960 --> 00:12:09,719 Speaker 6: One of the busier weeks out there. One of the 230 00:12:09,800 --> 00:12:13,120 Speaker 6: names is Peloton or they can just not seem to 231 00:12:13,120 --> 00:12:16,400 Speaker 6: get any positive momentum going in that business. It kind 232 00:12:16,400 --> 00:12:19,000 Speaker 6: of for me at least, I'm like, does this company 233 00:12:19,000 --> 00:12:20,880 Speaker 6: need to be public? You know, it seems like they 234 00:12:20,920 --> 00:12:22,280 Speaker 6: should maybe be a private company. 235 00:12:22,280 --> 00:12:25,200 Speaker 3: But what did everyone call it the most expensive code rack. 236 00:12:25,200 --> 00:12:27,160 Speaker 6: Cot rap That's right exactly, Keith, it wrong enough, and 237 00:12:27,240 --> 00:12:30,400 Speaker 6: she covers Peloton as well as all of the media 238 00:12:30,720 --> 00:12:32,880 Speaker 6: and entertainment names for Bloomberg Intelligence. 239 00:12:33,559 --> 00:12:35,920 Speaker 5: What's the story this time, Keitha. With Peloton, they just 240 00:12:35,960 --> 00:12:37,360 Speaker 5: reported some results. 241 00:12:38,400 --> 00:12:41,920 Speaker 8: Yeah, Paul, So they had their biggest product refresh ever 242 00:12:42,040 --> 00:12:45,400 Speaker 8: in their history last fall. They had this huge price 243 00:12:45,480 --> 00:12:49,720 Speaker 8: increase that they implemented across all of their subscription offerings. 244 00:12:49,960 --> 00:12:52,240 Speaker 8: And even with all that and the benefit of a 245 00:12:52,280 --> 00:12:56,560 Speaker 8: holiday quarter, they basically disappointed on the sales number. And 246 00:12:56,640 --> 00:12:58,520 Speaker 8: you know, you have them kind of making all of 247 00:12:58,520 --> 00:13:01,640 Speaker 8: these making all of these cost efficiencies, You have a 248 00:13:01,679 --> 00:13:04,920 Speaker 8: lot of cost cuts. They are definitely making good progress 249 00:13:04,920 --> 00:13:07,800 Speaker 8: when it comes to profit, but boy, the top line 250 00:13:07,840 --> 00:13:10,800 Speaker 8: is just not moving and that's really causing a lot 251 00:13:10,840 --> 00:13:12,240 Speaker 8: of fear among investors. 252 00:13:12,800 --> 00:13:15,480 Speaker 2: And we always introduce U Gita as our media and 253 00:13:15,640 --> 00:13:18,200 Speaker 2: entertainment analysts here Bloomberg Intelligence. 254 00:13:18,480 --> 00:13:21,280 Speaker 3: Peloton makes exercise. 255 00:13:20,720 --> 00:13:23,240 Speaker 2: Bikes, but for a while it was trying to frame 256 00:13:23,280 --> 00:13:28,440 Speaker 2: itself as a media company. Much how reliant is it 257 00:13:28,600 --> 00:13:31,120 Speaker 2: on that software on the media side of its business? 258 00:13:32,320 --> 00:13:35,640 Speaker 8: Oh, it absolutely depends on the content, Scarlett. It is 259 00:13:35,679 --> 00:13:38,960 Speaker 8: the content that gave it it's cult following that you know, 260 00:13:39,040 --> 00:13:42,560 Speaker 8: gives it all of those sticky, affluent customers. The problem 261 00:13:42,600 --> 00:13:45,280 Speaker 8: for Peloton, right now is they're just not able to 262 00:13:45,320 --> 00:13:47,760 Speaker 8: move the needle. And yeah, you have all of these 263 00:13:47,880 --> 00:13:49,960 Speaker 8: new features that they're adding. I mean, you know you 264 00:13:50,040 --> 00:13:52,720 Speaker 8: have all of these AI powered features they're calling they've 265 00:13:52,720 --> 00:13:55,680 Speaker 8: added it to their entire product lineup. You know, they're 266 00:13:55,720 --> 00:13:57,880 Speaker 8: allowing you to kind of integrate all of your health 267 00:13:57,960 --> 00:14:01,440 Speaker 8: data from like garment and you know, basically making it 268 00:14:01,480 --> 00:14:04,600 Speaker 8: really really comfortable for the user. But those are all 269 00:14:04,640 --> 00:14:09,520 Speaker 8: really just incremental, they are not transformational. And basically the 270 00:14:09,559 --> 00:14:11,880 Speaker 8: company just coming out and saying that, you know, the 271 00:14:11,880 --> 00:14:14,720 Speaker 8: the upgrade cycle that they were expecting from the existing 272 00:14:14,760 --> 00:14:19,400 Speaker 8: customers just hasn't happened. So you know, it's You're absolutely 273 00:14:19,440 --> 00:14:21,560 Speaker 8: right that this is a content company in many ways 274 00:14:21,560 --> 00:14:23,720 Speaker 8: because you know, it relies on the content, but it 275 00:14:23,720 --> 00:14:27,600 Speaker 8: also needs the sales of its hardware to happen in 276 00:14:27,680 --> 00:14:29,600 Speaker 8: order for people to get access to that content, and 277 00:14:29,680 --> 00:14:31,440 Speaker 8: that just is not taking off. 278 00:14:32,040 --> 00:14:34,880 Speaker 2: Have you ever used a peloton before? We have in 279 00:14:34,920 --> 00:14:39,000 Speaker 2: our house, and do you follow any of the Karen from. 280 00:14:38,920 --> 00:14:41,440 Speaker 6: The Jersey Shore rides that every single day bides the 281 00:14:41,480 --> 00:14:44,960 Speaker 6: bike and the treadmill thing in our home. 282 00:14:46,640 --> 00:14:48,240 Speaker 5: You can't hide them. We don't have a basement. If 283 00:14:48,280 --> 00:14:50,280 Speaker 5: you can now take a forty five dollars pill from 284 00:14:50,360 --> 00:14:53,160 Speaker 5: him and hers? Why would you need a bit more? 285 00:14:53,160 --> 00:14:55,360 Speaker 6: So you need to keep tone up when you're losing weight, 286 00:14:55,480 --> 00:14:56,720 Speaker 6: and so they do the weight program. 287 00:14:56,800 --> 00:14:58,720 Speaker 5: So we use it. We haven't we use it, but 288 00:14:58,800 --> 00:15:00,040 Speaker 5: we're they're just not monetizing. 289 00:15:00,120 --> 00:15:00,600 Speaker 1: Uh. 290 00:15:00,640 --> 00:15:03,480 Speaker 6: Sokeitha real quickly, this is almost a time now at 291 00:15:03,520 --> 00:15:06,000 Speaker 6: one point nine billion market cap are people calling for 292 00:15:06,040 --> 00:15:09,360 Speaker 6: this company to go private to be sold? I mean 293 00:15:09,440 --> 00:15:12,000 Speaker 6: it doesn't seem to work as a publicly traded company. 294 00:15:12,960 --> 00:15:15,200 Speaker 8: Yeah, it doesn't fall. And you know, there's been so 295 00:15:15,320 --> 00:15:17,840 Speaker 8: much of chatter about whether an Apple or an Amazon 296 00:15:17,880 --> 00:15:21,200 Speaker 8: should buy this company. Nothing of course, has materialized. There's 297 00:15:21,200 --> 00:15:23,840 Speaker 8: also been you know, constant rumors about private equity maybe 298 00:15:23,880 --> 00:15:26,280 Speaker 8: kind of coming in milking it for whatever free cash 299 00:15:26,320 --> 00:15:29,520 Speaker 8: flow they can get. But again it's nobody really knows 300 00:15:29,520 --> 00:15:31,520 Speaker 8: what's going to happen here, all. 301 00:15:31,480 --> 00:15:33,640 Speaker 5: Right, So I guess I just don't know. 302 00:15:33,800 --> 00:15:35,600 Speaker 6: You know, what's interesting because some of the trainers they 303 00:15:35,640 --> 00:15:38,120 Speaker 6: have huge followings on social media and they're and they're 304 00:15:38,400 --> 00:15:41,640 Speaker 6: selling stuff all like crazy. So Keitha, does does Peloton 305 00:15:41,680 --> 00:15:45,600 Speaker 6: get any of the you know, the their employees, you know, 306 00:15:45,720 --> 00:15:47,800 Speaker 6: social media side hustle revenue at all. 307 00:15:49,120 --> 00:15:52,520 Speaker 8: No, not really. I mean it's it's just I guess 308 00:15:52,560 --> 00:15:53,600 Speaker 8: it's good for the brand. 309 00:15:54,240 --> 00:15:55,040 Speaker 3: But that's about it. 310 00:15:57,680 --> 00:16:00,000 Speaker 5: Stay with us. More from Bloomberg Intelligence coming up. 311 00:16:03,840 --> 00:16:07,520 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 312 00:16:07,600 --> 00:16:10,320 Speaker 1: weekdays at ten am. He's done on Apple, Coarclay, and 313 00:16:10,320 --> 00:16:13,600 Speaker 1: Android Auto with the Bloomberg Business app. Listen on demand 314 00:16:13,640 --> 00:16:17,200 Speaker 1: wherever you get your podcasts, or watch us live on YouTube. 315 00:16:18,240 --> 00:16:21,560 Speaker 6: Another area of movement is in the world of luxury Stually, 316 00:16:21,560 --> 00:16:22,720 Speaker 6: a lotter put out some results. 317 00:16:22,960 --> 00:16:25,240 Speaker 5: Market doesn't like it. The stocks down twenty two percent. 318 00:16:25,280 --> 00:16:25,440 Speaker 8: Here. 319 00:16:25,480 --> 00:16:27,600 Speaker 6: Let's check in with deb Ak and she covers all 320 00:16:27,640 --> 00:16:30,760 Speaker 6: the luxury good companies for Bloomberg Intelligence. She's based in 321 00:16:30,800 --> 00:16:34,000 Speaker 6: our London office. Boy, what did Esday Lauder have to 322 00:16:34,000 --> 00:16:35,400 Speaker 6: say here that so spooked the market? 323 00:16:36,200 --> 00:16:42,440 Speaker 9: Deb I think that, you know, we're if we think 324 00:16:42,480 --> 00:16:45,600 Speaker 9: about two years where they've been turning around the US 325 00:16:46,240 --> 00:16:48,480 Speaker 9: and all of a sudden for the Americas, they came 326 00:16:48,560 --> 00:16:50,960 Speaker 9: in flat with the US doing a little bit better, 327 00:16:51,040 --> 00:16:56,080 Speaker 9: but the Latin side pulling somewhatern results and the expectation 328 00:16:56,200 --> 00:17:00,560 Speaker 9: for Q three and Q four is quite subdued. A 329 00:17:01,040 --> 00:17:01,880 Speaker 9: four Q to come. 330 00:17:01,960 --> 00:17:04,080 Speaker 3: So this is their two key report where. 331 00:17:03,960 --> 00:17:06,480 Speaker 9: Actually they beat on the top line, they beat a 332 00:17:06,480 --> 00:17:09,479 Speaker 9: little bit on margin, then they raise their EPs, but 333 00:17:09,560 --> 00:17:13,200 Speaker 9: it all kinds of sits EPs. It's mid or four 334 00:17:13,240 --> 00:17:18,240 Speaker 9: cents below mid consensus ranger on EPs. So although it 335 00:17:18,359 --> 00:17:22,520 Speaker 9: was a beat, it wasn't transformational. And so we have 336 00:17:22,640 --> 00:17:25,359 Speaker 9: yet we have the Americas. We have also the fact 337 00:17:25,400 --> 00:17:29,200 Speaker 9: that Europe is a little bit kind of stabilized, subdued. 338 00:17:29,920 --> 00:17:32,200 Speaker 9: And then when you think about the China market, which 339 00:17:32,240 --> 00:17:35,600 Speaker 9: was one of their big transition markets, they are expecting 340 00:17:35,640 --> 00:17:38,440 Speaker 9: for the second half mid single digit growth. I've had 341 00:17:38,480 --> 00:17:42,199 Speaker 9: some good mid growth in the first half, but you 342 00:17:42,520 --> 00:17:46,440 Speaker 9: still have a big issue with travel retail. So when 343 00:17:46,480 --> 00:17:50,560 Speaker 9: you consider North America and what's happening with department stores 344 00:17:50,600 --> 00:17:53,199 Speaker 9: and then transitioning there to about thirty percent of the 345 00:17:53,240 --> 00:17:57,160 Speaker 9: portfolio overall ninto more multi and then you have some 346 00:17:57,200 --> 00:18:02,439 Speaker 9: retailers in travel retail out of China actually changeovers in retailers, 347 00:18:02,480 --> 00:18:07,040 Speaker 9: which is conflicting and causing issues with their supply chains. 348 00:18:07,400 --> 00:18:10,080 Speaker 9: It isn't an easy story for the next few months ahead. 349 00:18:10,200 --> 00:18:13,639 Speaker 9: And the stock rallied massively ahead of results or thirty 350 00:18:13,640 --> 00:18:15,080 Speaker 9: percent over the three months. 351 00:18:15,280 --> 00:18:17,120 Speaker 2: Yeah, and if you expand that to over the past 352 00:18:17,160 --> 00:18:19,840 Speaker 2: twelve months, the stock had served eighty percent more than 353 00:18:19,880 --> 00:18:22,280 Speaker 2: eighty percent. So there is a lot, a lot built 354 00:18:22,280 --> 00:18:27,280 Speaker 2: into optimism here with this new CEO is the worst 355 00:18:27,280 --> 00:18:30,200 Speaker 2: then behind the company dev I mean, given what we heard, 356 00:18:30,560 --> 00:18:32,399 Speaker 2: sure the results were not good enough to keep the 357 00:18:32,400 --> 00:18:35,840 Speaker 2: stock moving higher. But have you know, have the restructuring 358 00:18:35,880 --> 00:18:39,000 Speaker 2: costs really been priced in and it's done your skies ahead? 359 00:18:40,280 --> 00:18:42,240 Speaker 9: I think so, yes, but I don't think it's going 360 00:18:42,280 --> 00:18:44,960 Speaker 9: to be as quick as some expected. If we think 361 00:18:44,960 --> 00:18:48,679 Speaker 9: about the market overall, the beauty market and what the 362 00:18:48,720 --> 00:18:52,479 Speaker 9: CEOs said and he reiterated it, they're looking for about 363 00:18:52,800 --> 00:18:55,359 Speaker 9: three percent growth in the beauty market this year, and 364 00:18:56,480 --> 00:18:59,160 Speaker 9: others such as Laurel will say that the market should 365 00:18:59,160 --> 00:19:03,399 Speaker 9: grow around four plus. And that's because they Laurel and 366 00:19:03,440 --> 00:19:07,960 Speaker 9: some others have a higher exposure into high end fragrances, 367 00:19:07,960 --> 00:19:12,480 Speaker 9: which are faster growth versus steal order. But aside from that, 368 00:19:12,960 --> 00:19:15,760 Speaker 9: you probably get that. You know, the idea from Steludo 369 00:19:15,920 --> 00:19:20,040 Speaker 9: for the full year is not to three percent on 370 00:19:20,400 --> 00:19:23,440 Speaker 9: constant currency, and they're hoping to get to the top 371 00:19:23,560 --> 00:19:26,040 Speaker 9: end of that. But that would mean that they're kind 372 00:19:26,040 --> 00:19:28,800 Speaker 9: of running a little bit behind the market still, but 373 00:19:28,880 --> 00:19:31,280 Speaker 9: that's because they have high travel retail and not so 374 00:19:31,359 --> 00:19:35,600 Speaker 9: much exposure as appeers on the fragrance side. So where 375 00:19:35,720 --> 00:19:39,199 Speaker 9: valuation sits right now, it's built in expectation that this 376 00:19:39,720 --> 00:19:42,639 Speaker 9: one point two to one point six billion restructuring costs 377 00:19:42,640 --> 00:19:45,560 Speaker 9: which is on track, does come through and that everything 378 00:19:45,600 --> 00:19:49,280 Speaker 9: cleans up through fiscal twenty seven. The company is shifting 379 00:19:49,359 --> 00:19:52,560 Speaker 9: to annual estimates only, which I think the US market 380 00:19:52,600 --> 00:19:56,800 Speaker 9: in particular won't like guidance only, you know, to try 381 00:19:56,880 --> 00:19:59,919 Speaker 9: and prevent volatility, but when it isn't a clear road ahead, 382 00:20:00,040 --> 00:20:03,600 Speaker 9: that's often needed to be able to really understand quarter 383 00:20:03,600 --> 00:20:06,720 Speaker 9: by quarter what's happening. So I think there are pros 384 00:20:06,760 --> 00:20:10,040 Speaker 9: and cons to this company overall, and I can understand 385 00:20:10,080 --> 00:20:11,199 Speaker 9: why it's down today. 386 00:20:12,000 --> 00:20:15,439 Speaker 6: What is este later saying about the market in China 387 00:20:15,560 --> 00:20:17,960 Speaker 6: and what are they saying about Chinese consumers in general? 388 00:20:18,520 --> 00:20:20,800 Speaker 6: Are where are they shopping? Are they coming to Europe? 389 00:20:20,800 --> 00:20:22,520 Speaker 6: Are they coming to the US? Are they staying in 390 00:20:22,560 --> 00:20:23,440 Speaker 6: Japan and China? 391 00:20:25,200 --> 00:20:30,960 Speaker 9: Japan, no, China. South Korea has taking some share and 392 00:20:30,640 --> 00:20:34,439 Speaker 9: some kind of domestic move out of China there's a 393 00:20:34,440 --> 00:20:38,120 Speaker 9: little bit of transition into Europe, but overall the way 394 00:20:38,160 --> 00:20:41,320 Speaker 9: that esther Lord used to account for their travel retail 395 00:20:41,359 --> 00:20:44,320 Speaker 9: in Europe and they shifted it, so it's separated with 396 00:20:44,520 --> 00:20:47,720 Speaker 9: China separate and then Asia, and within Asia you have 397 00:20:47,760 --> 00:20:51,760 Speaker 9: the travel retail business, so it's very clear what's happening 398 00:20:51,800 --> 00:20:54,399 Speaker 9: over there. So China is picking up, it's mid single 399 00:20:54,440 --> 00:20:57,560 Speaker 9: digit growth, but it's still down where it was versus 400 00:20:57,600 --> 00:21:01,159 Speaker 9: two years ago. There's still a lot of repaired to do, 401 00:21:01,520 --> 00:21:04,399 Speaker 9: and that's you know, the story from so many of 402 00:21:04,440 --> 00:21:08,360 Speaker 9: these companies. But certainly for still Auder and I think 403 00:21:08,400 --> 00:21:10,680 Speaker 9: we'll feel a bit of this pain. Also for Laurel, 404 00:21:11,480 --> 00:21:14,320 Speaker 9: they have high exposure to travel retail in China and 405 00:21:14,359 --> 00:21:17,800 Speaker 9: that isn't coming back. He Nan is solid, Macau not 406 00:21:17,880 --> 00:21:22,480 Speaker 9: so much. The Chinese aren't shopping in Japan, partly because 407 00:21:22,520 --> 00:21:25,359 Speaker 9: they're asked to shop at home and because there were 408 00:21:25,359 --> 00:21:28,360 Speaker 9: big comps from one or two years ago. And particularly 409 00:21:28,440 --> 00:21:32,560 Speaker 9: for ESDA Lauder two in Americas, they've already done so 410 00:21:32,680 --> 00:21:36,240 Speaker 9: much with third parties, which I should mention on digital 411 00:21:36,800 --> 00:21:39,240 Speaker 9: with Amazon and others, and they're going to be comping 412 00:21:39,280 --> 00:21:41,480 Speaker 9: against that as well, So it makes it hard there. 413 00:21:43,160 --> 00:21:47,840 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, 414 00:21:48,040 --> 00:21:51,960 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 415 00:21:52,200 --> 00:21:55,520 Speaker 1: ten am to Noone's Done on Bloomberg dot com, the 416 00:21:55,560 --> 00:21:59,439 Speaker 1: iHeartRadio app tune In, and the Bloomberg Business app. You 417 00:21:59,440 --> 00:22:02,760 Speaker 1: can also watch us live every weekday on YouTube and 418 00:22:02,960 --> 00:22:04,920 Speaker 1: always on the Bloomberg terminal