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Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
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Speaker 3: Each and every week, we provide in depth research and
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Speaker 2: Today, as earning season rolls on, we'll take a look
Speaker 2: at results from some of the biggest names in food, travel,
Speaker 2: and entertainment.
Speaker 3: Plus the cash stock While at Berkshire, Hathway grows through
Speaker 3: a record.
Speaker 2: But first this week, Young Brands launched a strategic review
Speaker 2: for the pizza maker Pizza Hut. This comes after the
Speaker 2: company reported earnings that beat Wall Street estimates. For more,
Speaker 2: we were joined by Michael Halen, Bloomberg Intelligence senior restaurant
Speaker 2: and food service analyst, first to ask Michael for his
Speaker 2: take on the possible sale of Pizza Hut.
Speaker 5: I think this was kind of a long time coming.
Speaker 5: It's really been a drag on the top and bottom
Speaker 5: line growth. Taco Bell is an absolute monster as putting
Speaker 5: up strong unit growth as well as same store sales
Speaker 5: growth quarter after quarter after quarter. KFC has had some
Speaker 5: well documented same store sales issues in the US, but
Speaker 5: that seems to be turning. They had a solid little
Speaker 5: quarter here with flat same store sales versus six straight
Speaker 5: quarters of decline, so that business seems to be accelerating
Speaker 5: a little bit. And KFC unit growth overseas is phenomenal,
Speaker 5: absolutely phenomenal. They crush it overseas. Yeah, So Pizza Hut
Speaker 5: has been this drag on this business for quite some time.
Speaker 5: I think the street is is really excited about a
Speaker 5: potential divestiture here.
Speaker 2: Any potential buyers out there that you can identify, No,
Speaker 2: we don't have.
Speaker 5: We don't think any of the companies in the public
Speaker 5: market are going to be an acquirer of pizza hut.
Speaker 6: Yeah.
Speaker 5: We you know this this thing is, like I said,
Speaker 5: has struggled mightily. I mean we can see pete private equity.
Speaker 5: I think private equity would be a good fit, right,
Speaker 5: because it's going to take you know, management set on
Speaker 5: the call. It might take some of their markets two
Speaker 5: three years to get them back to like their rightful
Speaker 5: position as market leader in those countries they which they
Speaker 5: see as their rightful h you know position. I think
Speaker 5: Dominos would have something to say about that. But you know,
Speaker 5: it's going to take a few years to turn around
Speaker 5: some of these markets, and private equity obviously looking at
Speaker 5: a five to seven year time horizon, would be a
Speaker 5: good fit.
Speaker 2: All right, Mike, let's step back the restaurant space in general,
Speaker 2: getting through you know, earning season here. What are you
Speaker 2: learning about kind of the consumer out there from the
Speaker 2: restaurant perspective.
Speaker 5: We heard from Wingstop and another fast casual chain that's
Speaker 5: struggling also partly been a victim of its own success, right,
Speaker 5: It's absolutely crushed it over the last six years, and
Speaker 5: it's lapping very very strong results from last year, but
Speaker 5: they talked some more about low income consumers and Hispanic
Speaker 5: consumer weakness and it broadening here in the third quarter.
Speaker 5: There's some optimism here, I think around the smart kitchens.
Speaker 5: So what's a smart kitchen they're so they're rolling out
Speaker 5: some kitchen technology that's boosting operations. It's speeding up service times,
Speaker 5: you know, they're they're putting out consistent ten minute service times,
Speaker 5: which is fifty percent better than they were doing prior.
Speaker 5: Accuracy is better, Food's getting to customers hotter and fresher,
Speaker 5: and people are going to have a better experience. And
Speaker 5: so stores that have had this technology right now, it's
Speaker 5: in about two thirds of the US stores, it's going
Speaker 5: to be in all three thousand by the end of
Speaker 5: the year. But stores that have this equipment and have
Speaker 5: had it the longest are outperforming on same source sales
Speaker 5: by five hundred basis points. So we think that's that's
Speaker 5: why the stock is up so much. People are now
Speaker 5: a little bit more confident in a positive twenty twenty
Speaker 5: six despite the decelerating trends here in the third quarter.
Speaker 2: What's going on on the laborfront for restaurants I think
Speaker 2: quick service restaurants, you know, with the Southern border shut off,
Speaker 2: that was one of the industries that said we may
Speaker 2: have some labor problems associated with that. Have you heard
Speaker 2: from your companies about that?
Speaker 5: Yeah, you know, our companies just talk about the fact
Speaker 5: that they use Everify and there and they do everything
Speaker 5: by the book, which you know, I think is predominantly
Speaker 5: the case. The impact that you know you're seeing a
Speaker 5: is with more of the independent restaurants. Okay, then be
Speaker 5: also kind of causes labor costs to go higher here
Speaker 5: for the public chains, right right, they're seeing another four
Speaker 5: to five percent you know, wage rate inflation this year.
Speaker 5: That's been pretty common year in and year out since
Speaker 5: the pandemic.
Speaker 2: All right, Thanks to Michael Halin, Bloomberg Intelligence Senior Restaurant
Speaker 2: and Food Service ANLS.
Speaker 3: We move now to earnings from the fast food giant McDonald's.
Speaker 3: The company reported faster than expected US sales growth in
Speaker 3: the third quarter, and this comes as the restaurant looks
Speaker 3: to restore its reputation for affordable meals with new deals
Speaker 3: and promotions. We're joined by Red Brown, Bloomberg News earnings reporter.
Speaker 7: I think in the context of the other results that
Speaker 7: we've gotten from a couple of other restaurants. I think
Speaker 7: it's really interesting. During the call, the McDonald's CEO CFO
Speaker 7: really talked about this bifurcation that they've been observing for
Speaker 7: the last two years between higher income diners and lower
Speaker 7: income people, and it seems like that trend is cantinuing, persisting,
Speaker 7: potentially accelerating. It seems like, and specifically what I'm talking
Speaker 7: about is the higher income consumers seem to be coming
Speaker 7: down into McDonald's and shopping a bit more drawn in
Speaker 7: by the value that McDonald's has been pushing over the
Speaker 7: last couple of quarters. And we're seeing that across all
Speaker 7: of the fast food chains that's young as well, and
Speaker 7: also burger king things like that. And then on the
Speaker 7: other side of that, companies like Chipotle and Cava, these
Speaker 7: kind of like middle tier that you know, twenty dollars
Speaker 7: bowls of food are struggling a little bit more. Is
Speaker 7: like people lose interest in that value proposition that they're offering.
Speaker 7: So I think McDonald's, obviously the biggest name in the space,
Speaker 7: really kind of hammers that point home for this earning season,
Speaker 7: and I think that's kind of the thing like the
Speaker 7: main takeaway for me at the moment, And.
Speaker 3: Of course McDonald's is leaning into this idea that it
Speaker 3: offers value at a difficult time for a lot of consumers.
Speaker 3: It's got a lot of deals and promotions to maintain
Speaker 3: that reputation. Does that cost it in any way or
Speaker 3: do the same source of sales kind of back that
Speaker 3: up that this works.
Speaker 7: I think it's a little early before they've seen that
Speaker 7: benefit from it quite yet, Like they have seen a
Speaker 7: little bit of pressure on the profitability because the company
Speaker 7: is so committed to this, like getting restoring the value
Speaker 7: reputations kind of the language that they use with their
Speaker 7: customers that they're actually supporting the franchisees. They're giving them marketing,
Speaker 7: they're helping them make up some of that losses that
Speaker 7: they will make they will have from offering these discounts
Speaker 7: on the menu. So McDonald's committed to this. It sounds
Speaker 7: like they're committed to this in the long term because
Speaker 7: they do want to get people back in the stores.
Speaker 7: It doesn't it's kind of remains to be seen whether
Speaker 7: or not the foot traffic is actually benefiting such that
Speaker 7: it is driving the bottom line as well. But they see,
Speaker 7: it is so important to kind of refreshing or kind
Speaker 7: of reintroducing the brand proposition to people that they're willing
Speaker 7: to commit to this. Take a little bit of that
Speaker 7: short term pain for the long term benefits.
Speaker 2: What are they saying about their cost structure here? Actue
Speaker 2: beef prices much higher over the last year or two.
Speaker 2: What are they saying about there's some of their cost
Speaker 2: to get sold here.
Speaker 7: Well, the one thing they call it on the cost
Speaker 7: of good soul before we get into the beef issue
Speaker 7: is the marketing, So they are kind of bumping up
Speaker 7: the marketing. They saw around a twenty percent jump in
Speaker 7: their their SGNA expense because of that. But on the
Speaker 7: beef thing, McDonald's is the largest buyer of beef yep,
Speaker 7: so that scale kind of allows them to take it.
Speaker 7: They can take advantage of the scale and and you know,
Speaker 7: and negotiate strong contracts when it comes to beef. Obviously,
Speaker 7: beef inflation has been hitting all of these companies, but
Speaker 7: not in a way that the companies are like outsized.
Speaker 7: Negatively impact thus far, but definitely something to watch as
Speaker 7: the beef prices continue to go higher.
Speaker 3: And the improvement here, especially for its US comparable sales
Speaker 3: really comes at a timely point because for a while
Speaker 3: the company had been laggered when it came to comparable
Speaker 3: sales at least domestically.
Speaker 7: Yeah, definitely, And it does speak to the kind of
Speaker 7: strategic changes that they've they've made, like they did act
Speaker 7: maybe a little bit late in the game. Burger King
Speaker 7: has been rolling out their value offerings for a little
Speaker 7: over a year, butmc Donald's has like acted and acted swiftly,
Speaker 7: like you know, it's it's a big deal, I think
Speaker 7: to get the buy in from the franchise ease of McDonald's,
Speaker 7: like they had almost a consensus. It's very rare that
Speaker 7: you see almost like a high ninety percentage of franchisees
Speaker 7: willing to take the prices because they're the ones that
Speaker 7: are dealing with this at the end of the day.
Speaker 7: But I think, you know, McDonald's acting fast, acting boldly
Speaker 7: to kind of get back into the green.
Speaker 2: I've noticed, really really in the last several years, so
Speaker 2: much more technology in the stores, Like you can a
Speaker 2: lot of them don't even have people practically taking your order.
Speaker 2: It's all done electronically. What are they saying about their
Speaker 2: investments in technology, maybe even AI how's that impacting that business?
Speaker 7: Yeah, for McDonald's, like they it was. There's quite a
Speaker 7: bit of talk about their their digital offerings for this quarter.
Speaker 7: All of these companies, so so between McDonald's, Young which
Speaker 7: has KFC, Taco Bell, and a couple other brands under
Speaker 7: that umbrella, are all really pushing the digital for that
Speaker 7: exact reason to get the cost down. You know, McDonald's
Speaker 7: just rolled out their Monopoly program. And when I was
Speaker 7: a kid, Monopoly was the peel off on the cops.
Speaker 7: It was very exciting. Now it's completely digital, right, So,
Speaker 7: like that's another way of their kind of drive people
Speaker 7: into the app to beet people to shop through there.
Speaker 7: This is where a lot of promotions are that'll help
Speaker 7: also drive foot traffic. So it's two it's helping in
Speaker 7: two ways. It's helping people get in chop more and
Speaker 7: also helping on the cost front.
Speaker 3: Our Thanks to Red Brown, he is a Bloomberg News
Speaker 3: earnings reporter.
Speaker 2: Moving next to the hospitality industry, this week, Cruse, company
Speaker 2: in the Reach and Cruise line, reported earnings that missed expectations.
Speaker 2: For more on this, we were joined by Brian Egger,
Speaker 2: Bloomberg Intelligence Senior Gaming and lodging analyst.
Speaker 8: People are still cruising, the bookings are higher. I think
Speaker 8: that there was a bit of a change in their
Speaker 8: strategy related to the Norwegian Cruise Line brand, trying to
Speaker 8: get more families and kids and all that could talk
Speaker 8: about that, but that does have some slightly dampiting impact
Speaker 8: on you'll growth for the fourth quarter.
Speaker 3: So this is the idea that they're broadening their customer base,
Speaker 3: not just targeting the super high income consumer, which by
Speaker 3: all accounts is doing just in this economy, whereas the
Speaker 3: lower income consumer and the mass consumer perhaps is struggling
Speaker 3: with rates staying fairly elevated and a lot of question
Speaker 3: marks over their job prospects. What is Norwegian Cruise Lines
Speaker 3: strategy here, certainly compared to its peers like Carnival and
Speaker 3: Royal Caribbean.
Speaker 8: I think it's twofold. I think number one, to try
Speaker 8: to attract more of a family audience, increase the core
Speaker 8: customer base of the Norwegian Cruise Line brand, and also
Speaker 8: by having more shorter duration cruises, maybe with homeports closer
Speaker 8: to where people live, that could result the longer term
Speaker 8: and kind of more efficient operations and some you know,
Speaker 8: more savings on the net cruise costs for net unicost side,
Speaker 8: but it remains to be seen, and I think that's
Speaker 8: why there's a little bit of caution, because the near
Speaker 8: trim effect will be a slightly dampening impact on the
Speaker 8: overall mix of yields. You know, caverns filled with children
Speaker 8: or families may have a slightly lower combined revenue yield
Speaker 8: than a different type of customer.
Speaker 2: Audience, typically the cruiser. They're pretty loyal people, Brian, how
Speaker 2: did they typically react or how did they spend during
Speaker 2: what could be maybe a little bit softer economic environment.
Speaker 8: So if you judge by the current environment, the overall
Speaker 8: bookings pace, I think for the third quarter overall was
Speaker 8: up twenty percent. The out for next year is quite
Speaker 8: good with at least modest field growth, you know, so
Speaker 8: I think we're seeing still a pretty steady pace of
Speaker 8: consumer demand. Obviously, that could always change if we see
Speaker 8: a more severe economic downturn, But the overall pace in
Speaker 8: terms of bookings demand, notwithstanding this kind of tweak and
Speaker 8: marketing strategy, has been quite good.
Speaker 2: Our thanks to Brian Eggert, Bloomberg Intelligence senior gaming and lodging.
Speaker 3: Analysts coming up inside one of the biggest deals of
Speaker 3: the Week, Kimberly clarkbind can you the maker of til
Speaker 3: and All?
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: depth research at data on two thousand companies and one
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Speaker 3: You can access Bloomberg Intelligence via bi go on the terminal.
Speaker 3: I'm Scarlett and.
Speaker 2: I'm Paul Swimming. This is Bloomberg.
Speaker 1: This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney
Speaker 1: on Bloomberg Radio.
Speaker 2: It was a merger Monday this week in the consumer
Speaker 2: goods space, Kimberly Clark announced plans to by ken View,
Speaker 2: the maker of tile On, in a forty billion dollar
Speaker 2: cash and stock deal.
Speaker 3: A combination would create a company with thirty two billion
Speaker 3: dollars in revenue and become the second biggest seller of
Speaker 3: health and wellness products for more. We were joined by
Speaker 3: Diana Gomez, Bloomberg Intelligence senior equity research analyst.
Speaker 4: So it is surprising in many ways from the perspective
Speaker 4: of Kimberly Clark, I must confess it shows that ken
Speaker 4: View really has a lot of work to do to
Speaker 4: turn around the business since it split from Jane Jay
Speaker 4: about two years ago and the third quarter miss just
Speaker 4: added up to a pile of disappointing results. Obviously, there
Speaker 4: there's a ton of law hanging fruit, let's say, in
Speaker 4: terms of efficiencies that can be gained in terms of
Speaker 4: plugging the great iconic, well known trusted brands from Canview
Speaker 4: into Canview's system that is running at a more efficient
Speaker 4: level at the moment, but it will there is septicism
Speaker 4: there because we are talking about revenue synergies as well
Speaker 4: as cost synergies, and this will be quite a complex
Speaker 4: new company. At the point when Kimberly Clark was just
Speaker 4: simplifying as they were, they are aiming to close the
Speaker 4: transaction on their international business that includes segments like tissue
Speaker 4: by mid twenty twenty six, and now this merger expected
Speaker 4: to close around the same time, just seems to complicate
Speaker 4: the picture a little bit. The file andal, yes, and
Speaker 4: we know ow Kenvy has been dealing with some crisis
Speaker 4: in the last months with tailan Ore and then with
Speaker 4: talk all suits outside the.
Speaker 3: US as well, So I'm glad you went there. The
Speaker 3: tailan Al situation. The Trump administration has been attacking Thailand
Speaker 3: a overall. Do you think that's something that might complicate
Speaker 3: this deal. Could regulators step in and hold things up
Speaker 3: or raise questions that will just drag things out.
Speaker 4: Quite different questions, I would say, but great questions. So
Speaker 4: in terms of thailan O, the legal risk is there.
Speaker 4: They can View was already fighting in the courts some lawsuits,
Speaker 4: but we now have Texas State wawsuit on top on
Speaker 4: top of it, the Humbroway Quarks price. When we walk
Speaker 4: in terms of for instance, UH and a bit to enterprise,
Speaker 4: you multiple and I'm taking twenty twenty five, twenty six,
Speaker 4: twenty twenty five, sorry that they will report, so that
Speaker 4: will come at about fourteen times, whereas historic call transactions
Speaker 4: in the consumer health space were in the range of
Speaker 4: sixteen to twenty times. So fourteen times comes built all
Speaker 4: that so really reflecting not only the struggles of can
Speaker 4: View where their organic growth is still declining, but also
Speaker 4: that viability risk with lawsuits that are ongoing. And that's
Speaker 4: a new lawsuits that can be added as well. In
Speaker 4: terms of the say anti trust competition regulatory approval, as
Speaker 4: I see it, they don't really overlap directly, but it
Speaker 4: really depends on a country, region by region basis. Because
Speaker 4: we know the US stands can be very different from
Speaker 4: the European Commission one.
Speaker 2: Yeah, I'm should we expect more consolidation and consumer product space?
Speaker 2: Do you think.
Speaker 7: Yes?
Speaker 4: So that's a team that I've been watching very closely. Obviously,
Speaker 4: we had other large former groups with significant consumer health businesses,
Speaker 4: so we are talking not only over the counter medicines
Speaker 4: but also the more personal care that deals with wellness.
Speaker 4: Sonofi decided to sell it to private equity, so at
Speaker 4: least for the next few years. That is that buyer
Speaker 4: is still considering while not considering, as management says, puts it.
Speaker 4: But buyer still has their consumer health business and they
Speaker 4: could be walking into either listing it or further consolidation
Speaker 4: within the current employers.
Speaker 3: Our Thanks to Diana Gomez Bloomberg Intelligence here equity research journalists, we.
Speaker 2: Also got earnings in the media space as well.
Speaker 3: Warner Brothers Discovery, the parent of HBO and CNN, reported
Speaker 3: third sales that missed analyst estimates, providing a glimpse into
Speaker 3: the company's businesses as it puts itself up for sale.
Speaker 3: For details, we caught up with KEITHA. Rung Andathan Bloomberg
Speaker 3: intelligence analysts on US media.
Speaker 9: So fundamental Scarlett really don't measure all that much at
Speaker 9: this point. Especially yes, the TV networks business, as we
Speaker 9: know now for many many quarters, has been severely challenged.
Speaker 9: We saw a twenty percent slump in TV advertising, We
Speaker 9: saw a twenty percent decline in TV EBITDA. This was
Speaker 9: kind of well expected, and this really speaks to why
Speaker 9: they need to separate themselves, why they need to separate
Speaker 9: the low growth or rather the no growth TV assets
Speaker 9: from one part from the part of the business that's
Speaker 9: actually growing, which is studio and streaming. That part of
Speaker 9: the business actually posted really good numbers. We saw the
Speaker 9: studio Warner Brothers has actually been having a very very
Speaker 9: successful run in the box office this year. They have
Speaker 9: about a twenty seven percent share of domestic box office
Speaker 9: and we've seen that kind of translate into really strong
Speaker 9: IBIDA numbers. So we saw studio and streaming actually put
Speaker 9: up really really good numbers, and that again speaks to
Speaker 9: why so many different parties, including a Netflix, including a Comcast,
Speaker 9: are interested in going after those studio and streaming assets.
Speaker 9: So right now, again fundamentals don't matter that much. It's
Speaker 9: really all about the M and A.
Speaker 2: And I'm actually surprised KEITHA that maybe we haven't had
Speaker 2: some more news on the MNA front because we've seen,
Speaker 2: you know, the m and A environment is very very
Speaker 2: active with the market. It's very receptive to m and A.
Speaker 2: Here we have a willing seller in terms of David
Speaker 2: Zaslov and the board of directors here, who do you
Speaker 2: how do you think this is going to play out?
Speaker 2: Is something to make a bid for the entire company
Speaker 2: or just maybe the good pieces for it.
Speaker 9: We're having all possible permutations and combinations here, Paul. So
Speaker 9: we know that Paramounts Guidance is actually interested in all
Speaker 9: of the company, including the TV networks. They've already made
Speaker 9: three bids. The highest one was for twenty three and
Speaker 9: a half dollars per share for Warner Brothers Discovery. All
Speaker 9: of that was turned down, so they obviously have to
Speaker 9: come up with a much better offer now. The other bidders,
Speaker 9: and the two that are most often mentioned are Netflix
Speaker 9: and Comcast. They are the ones that are only interested
Speaker 9: in the studio and streaming assets, no interest at all
Speaker 9: in the TV linear network business. We know that Netflix
Speaker 9: has started looking into the books of Warner Brothers Discovery.
Speaker 9: This doesn't necessarily mean that they have to come out
Speaker 9: with a bid. I mean, remember this. You know zaslav Is,
Speaker 9: as you just mentioned, he's a very very tough negotiator.
Speaker 9: He's a deal maker. He is going to make sure
Speaker 9: that they really get paid well for the streaming and
Speaker 9: studio assets if they sell that, and we expect, you know,
Speaker 9: a price tag somewhere in the ballpark of about seventy
Speaker 9: five to eighty billion. So you know, whoever makes a
Speaker 9: big bid has to cough up a huge chunk of
Speaker 9: change for this asset.
Speaker 3: So we keep talking about how it's Netflix, Comcast and
Speaker 3: Paramount Skuidance. Could there be another bidder that emerges from
Speaker 3: the shadows.
Speaker 9: Absolutely, I mean you can never rule out big tech.
Speaker 9: You know, Amazon obviously has shown some interest in the past.
Speaker 9: They bought the MGM studio. We're not necessarily sure whether
Speaker 9: they've actually taken a look at the Warner brother assets.
Speaker 9: But again, Scarlett, as you kind of think about the
Speaker 9: whole media landscape and you kind of think about the
Speaker 9: various assets out there, This is kind of a once
Speaker 9: in a lifetime, kind of a generational opportunity for anybody
Speaker 9: who wants to get big in media to really go
Speaker 9: after Warner I mean, they have some of the best
Speaker 9: ip out there. They have a streaming business that has
Speaker 9: performed really well. Hbo Max is a name that resonates
Speaker 9: across the globe. So you know, anybody and everybody should
Speaker 9: really be taking a look at this asset. So I
Speaker 9: wouldn't be surprised if we have some kind of a
Speaker 9: dark horsepitter here.
Speaker 7: Oh.
Speaker 2: Thanks to KEITHA. Wrong Andathan Bloomberg Intelligence, US media analyst.
Speaker 3: We also got earnings reports this week from two of
Speaker 3: the world's biggest ride share companies, Uber and Lyft.
Speaker 2: Men Deep Singh Joints is here research head of Bloomberg
Speaker 2: Intelligence on tech stories. Talk to us about that segment
Speaker 2: of the economy, the ride sharing, the outsourcing, you know,
Speaker 2: the third party delivery. Are people still spend money on
Speaker 2: that stuff?
Speaker 6: They are and all these companies, I mean, Uver reported
Speaker 6: over twenty percent growth, door Dash reported twenty five percent
Speaker 6: top line growth. Even though the stock reaction was negative,
Speaker 6: that was primarily because they plan to spend more money
Speaker 6: next year on building their tech stack. I think what
Speaker 6: the playbook here is to expand in more geographies as
Speaker 6: well as branch out into other areas of last mile
Speaker 6: delivery and in the case of door Dash, their experimenting
Speaker 6: with you know, delivering food without a career human person involved,
Speaker 6: and also expanding into restaurant point of sale devices. I
Speaker 6: mean they're developing technology where you can pay using a
Speaker 6: DoorDash hardware and point of sale device. So clearly there
Speaker 6: is a lot that these companies are doing beyond you know,
Speaker 6: the original all business that they.
Speaker 2: Have, you know, having you know, when you spend time
Speaker 2: in England and you go pay for meal, the car
Speaker 2: never leaves your presence. They just tap it on some
Speaker 2: machine and ball here. They take it, They put it
Speaker 2: in a little folder, they take it away for five.
Speaker 3: Minutes, and that's what you pay twenty person for.
Speaker 2: You don't know where it's going. And that's what I'm surprised.
Speaker 2: We're so behind here in Yos about that at point.
Speaker 3: We've always been kind of behind this, you know that
Speaker 3: that's been our calling card.
Speaker 6: The way to think about it is, there are so
Speaker 6: many legacy systems that anytime you have new technology, even
Speaker 6: everyone is talking about AI agents and whatnot, it has
Speaker 6: to sit on top of a lot of legacy technology.
Speaker 6: And like the promise of AI is it can rewrite
Speaker 6: a lot of that legacy code and migrate into the
Speaker 6: you know, the modern technology. But we have yet to
Speaker 6: come across you know, real proof points of that.
Speaker 3: So when you're talking man Deep, I noticed that you
Speaker 3: talked a lot about how these companies are spending, they're investing,
Speaker 3: and I'm curious about the reception that gets from investors
Speaker 3: because initially in the big AI build up, everyone was
Speaker 3: excited about these plans. But now more and more everyone's like, oh,
Speaker 3: I'm not so sure that's a great idea that you're
Speaker 3: spending so much, whether it's on AI or whether it's
Speaker 3: on new products and internal platform like it is with
Speaker 3: door Dash. Why do you think investors are now more
Speaker 3: skeptical about this idea of companies spending, Well.
Speaker 6: Just because we've seen you know, Uber and all these
Speaker 6: companies really struggle with free cash flow initially, I mean
Speaker 6: in the zerp era, you know, these companies burned a
Speaker 6: lot of cash. Now they have gotten to a point
Speaker 6: where the business model does generate you know, seven to
Speaker 6: eight billion dollars in free cash flow for Uber and
Speaker 6: even for door Dash it's twenty percent ebit dumb margins.
Speaker 6: So the fact that they're talking about spending again, it
Speaker 6: makes you think Okay, if you're an investor, you waited
Speaker 6: all this while for these companies to get mature and
Speaker 6: you know, start delivering on cash, and now they're talking
Speaker 6: about another investment cycle. And that's where you know, in
Speaker 6: the case of Uber, it's their hand is forced by
Speaker 6: Veimo launching on ten cities and really expanding it potentially Tesla.
Speaker 6: I think in the case of DoorDash, they feel, you know,
Speaker 6: making acquisitions will help them expand their geographic footprint, and
Speaker 6: then obviously they want to expand their text tech to
Speaker 6: more areas.
Speaker 2: Our thanks to man deep Seeing, Bloomberg Intelligence global tech
Speaker 2: research head coming up, Berksher's cash pile sorted almost three
Speaker 2: hundred and eighty two billion dollars.
Speaker 3: That is a fresh record for Warren Buffett's company will
Speaker 3: bring you details.
Speaker 2: You're listening to bloomerg Intelligence on Bloomberg Radio, providing in
Speaker 2: depth research and data on two thousand companies and one
Speaker 2: hundred and thirty industries.
Speaker 3: You can always access Bloomberg Intelligence via big on the terminal.
Speaker 3: I'm Scarlet Foo.
Speaker 2: And I'm Paul Sweeney, and this is Bloomberg.
Speaker 1: This is Bloomberg Intelligence with Scarlettfoo and Paul Sweeney on
Speaker 1: Bloomberg Radio.
Speaker 2: Berksher Hathway reported it's cash pile reached over three hundred
Speaker 2: and eighty one billion dollars in the third quarter, a record.
Speaker 2: This comes as Bercher Hathway declined to buy back its
Speaker 2: own shares for the fit straight quarter.
Speaker 3: So we brought in Matthew Palizola, Bloomber Intelligence, senior analysts
Speaker 3: of P ANDC Insurance. We began by asking Matthew to
Speaker 3: break down Berkshire's most recent quarter.
Speaker 10: The interesting thing is the stock has underperformed the market
Speaker 10: by like thirty percent since Buffett announced that he was
Speaker 10: stepping down in May, and they haven't bought back any
Speaker 10: stock over that entire period.
Speaker 8: Yeah.
Speaker 2: Does that turned my mic on? I say, why?
Speaker 10: Yeah? So Buffett used to have a rule when the
Speaker 10: stock was above one point two times priced to book,
Speaker 10: they wouldn't buy it back. They kind of kicked that
Speaker 10: out and they said, we're just going to buy it
Speaker 10: back whenever we see intrinsic value below. So, you know,
Speaker 10: I don't to me it begs question. I mean, maybe
Speaker 10: he sees the stock as kind of fully valued, even down.
Speaker 3: You know, year to date, even with the lagging performance
Speaker 3: as well. So does that change when Greg Able, the
Speaker 3: handpicked successor to Warren Buffett, takes the reins officially at
Speaker 3: the end of the year.
Speaker 10: You know, Scarlett, he walks a fine line between putting
Speaker 10: some sort of stamp on the company maybe over time,
Speaker 10: and then kind of respecting the ethos of Berkshire and
Speaker 10: how they've operated. I would hope something happens. I mean,
Speaker 10: they did a ten billion dollar deal in the fourth quarter,
Speaker 10: they bought the oxycam business from Occidental. They just don't
Speaker 10: have things that can move the needle very much. Even
Speaker 10: in the quarter, their net stock buys and sells or
Speaker 10: a negative six billion dollars, so they were negative on
Speaker 10: other equities as well.
Speaker 3: Yeah, there were net seller stocks for twelfth straight quarter,
Speaker 3: and that cash and equivalents was at a record high
Speaker 3: at the end of September. Is that a signal that
Speaker 3: they're waiting for the market to tank, that they see
Speaker 3: a correction, Maybe not tank that might be too strong.
Speaker 3: They see a correction or consolidation in the nearer terment
Speaker 3: are ready for it.
Speaker 10: They're always ready for it.
Speaker 2: You know.
Speaker 10: Buffett has always said, we're not looking to time the market.
Speaker 10: We're just looking for good companies. He's also been you know,
Speaker 10: when I talk to people that the thought is, is
Speaker 10: he just hoarding money for greg Abel and kind of
Speaker 10: setting the company up and just handing it over. He's
Speaker 10: said he's not doing that, so you know, unfortunately I don't.
Speaker 10: They don't talk to investors, so we don't can't really
Speaker 10: pick his brain besides at the annual meeting, so we
Speaker 10: don't exactly know what's going on there. I think he's
Speaker 10: just extra conservative in his old age.
Speaker 2: I guess. All right, And here's my cynical Wall Street perspective.
Speaker 2: When mister Buffet passes three percent dividend yield, massive stock buyback,
Speaker 2: do you think that's a scenario. I think.
Speaker 10: Dividend yield, hopefully you know, some sort of dividend, maybe
Speaker 10: special dividends. The buyback, I think will also kind of
Speaker 10: weigh on what able sees the intrinsic value, So I
Speaker 10: don't I would say probably hopefully dividend. I would say
Speaker 10: maybe more steady buyback. There's also they can't buy back
Speaker 10: a ton of shares on volume, because you know, there's
Speaker 10: rules on how much they can buy back and how
Speaker 10: active they can be in the market, so that limits
Speaker 10: them a little bit.
Speaker 2: That's planned b get it. Don't you have to split
Speaker 2: the stock like a gajillion to one.
Speaker 10: They have the A shares and the B shares, but
Speaker 10: there's I don't have all the exact roles. But they've
Speaker 10: talked about we can only buy back so much at
Speaker 10: a time. They bought back none. So I think a
Speaker 10: steady buyback plus some returns of capital and forms of
Speaker 10: I would hope special dividends. They maybe they don't want
Speaker 10: to be beholden too a regular quarterly dividend.
Speaker 3: Yeah makes sense. Okay, so that's something we'll watch for
Speaker 3: when that eventually happens. In the meantime, how are the
Speaker 3: businesses of Berkshire Hathway performing, especially insurance?
Speaker 2: Yeah, so all good.
Speaker 10: In the quarter, the insurance business made much more money
Speaker 10: than the year ago, but that was because they had
Speaker 10: a bunch of large losses in the year ago. They
Speaker 10: also had this favorable reserve development, which means they write
Speaker 10: business and those losses come in better or worse than
Speaker 10: they expect over time, and that was those losses were
Speaker 10: coming in better than they expected. So that is it's
Speaker 10: a good thing, but it's not a super high quality
Speaker 10: source of earnings.
Speaker 1: Beat.
Speaker 10: So the insurance business performed well on those two things,
Speaker 10: which aren't super high quality in my opinion. The underlying
Speaker 10: business and the insurance doing well. The problem is is
Speaker 10: hard for it to get much better next year. The
Speaker 10: underwriting side. The prices in that are going down, so
Speaker 10: I think it's tough to see the insurance underwriting doing
Speaker 10: better next year. It's also tough to see the investments
Speaker 10: doing better next year. And we're talking about really just
Speaker 10: the fixed income investment, so like the equities, who knows
Speaker 10: what happens, but in terms of the interest income, we
Speaker 10: saw that decline in the quarter as well.
Speaker 2: The business fundamentals of the underlying businesses, did they move
Speaker 2: the stock historically? Not really, So it's tough because I
Speaker 2: asked the one fundamental question. That's enough. Let's get back
Speaker 2: to the main point of the story here. It's also
Speaker 2: my job too, But is there an activist investor who's
Speaker 2: ever oh, good question, one word about this company?
Speaker 10: So historically there have been investors very vocal about it.
Speaker 10: I don't have names, but no one's ever been able
Speaker 10: to move the new buffets always the majority shareholder, so
Speaker 10: there's really been no one who's ever been forcing them
Speaker 10: to do anything. And so why would they even listen?
Speaker 3: And can you do that with a company that has
Speaker 3: an A class year and B class year with this
Speaker 3: what is.
Speaker 2: His voting control? I haven't done it, man, I don't.
Speaker 10: I don't, I don't know off the top of my head,
Speaker 10: I thought it was something like sixty percent of the
Speaker 10: shares or something like that, and other insiders will hold more.
Speaker 10: So there's almost no way of wrestling control from him.
Speaker 10: The A shares and the B shares they did so
Speaker 10: the A shares are are several hundred thousand dollars, and
Speaker 10: then they instituted the B shares and they're they're going
Speaker 10: to peg to each other, so they can't.
Speaker 9: You can't.
Speaker 10: You couldn't buy up the B shares and kind of
Speaker 10: take control either.
Speaker 3: They've come up with all kinds of rules to make
Speaker 3: sure that all the things you just proposed can't happen.
Speaker 10: He's not a dumb guy.
Speaker 2: But yeah, still exactly right. It's been an extraordinary run.
Speaker 2: Is there a sense that the law of large numbers
Speaker 2: over the last several years, if not the last decade,
Speaker 2: is kind of caught up to this name? Yeah for sure.
Speaker 10: I mean they they bought a company for twelve billion
Speaker 10: dollars Allegheny and it barely moves the needle. They bought
Speaker 10: this oxycam for a ten billion, barely moves the needle.
Speaker 10: They bought like twenty billion of Chevron stock two years ago.
Speaker 10: It didn't even come up at the annual meeting. People
Speaker 10: didn't even ask about it. I was sitting there. I
Speaker 10: couldn't believe it, said, no one's going to ask about this. So,
Speaker 10: you know, there's just things that are are tough for
Speaker 10: them to move. The new from having so much money,
Speaker 10: they're making those investments in Japan, which I think are interesting.
Speaker 10: So they invest in the trading houses in Japan. It's
Speaker 10: hard to for me to know a ton about those businesses.
Speaker 10: Some of them are like mini Berkshires. Maybe this is
Speaker 10: stuff that they kind of do in the future. Also
Speaker 10: the energy business. Greg Abil's an energy guy. Aon is
Speaker 10: an insurance broker. They talked about last week this huge
Speaker 10: opportunity with the hyperscalers, needing, risk transfer services and other things.
Speaker 10: So like those are things that fit right into Berkshi's wheelhouse, right,
Speaker 10: the risk transfer and the energy businesses. So those are
Speaker 10: opportunities for them in the future.
Speaker 3: Our thanks to Matthew Paulazola, Bloomberg Intelligence Senior and for
Speaker 3: P and C Insurance.
Speaker 2: We move next to earnings from the entertainment space. This week,
Speaker 2: Spotify reported active users and sales beat expectations in the
Speaker 2: third quarter, but ad.
Speaker 3: Supported revenue declined six percent from a year ago because
Speaker 3: of pricing pressure for more. We were joined by Githa
Speaker 3: Rong Andathan Bloomberg Intelligence analysts on US media.
Speaker 9: I actually like the Spotify numbers, you know, the big
Speaker 9: numbers that we always look for are, of course, the
Speaker 9: user metrics. We want to see them kind of do
Speaker 9: well on both monthly active users, which are basically the
Speaker 9: free listeners, as well as the premium subscribers, which is basically,
Speaker 9: you know, everyone paying about twelve dollars a month for
Speaker 9: a Spotify subscription, and both those numbers came in well
Speaker 9: ahead of guidance. The other number that we look for
Speaker 9: in Spotify results is gross margin. This has been you know,
Speaker 9: a constant point of debate, but Spotify has done really
Speaker 9: well in terms of expanding their gross margin. They again
Speaker 9: delivered numbers ahead of guidance both for you know, third
Speaker 9: quarter as well as ahead of forecast for the fourth quarter.
Speaker 9: In terms of guidance, so fundamentals seem to be really strong.
Speaker 9: I think the one concern, Paul, that has really kind
Speaker 9: of emerged with Spotify over the past few months is
Speaker 9: pricing power. You know, are they going to keep you know,
Speaker 9: being able to increase prices? And this is something that
Speaker 9: has dominated the conversation for not just Spotify, but of
Speaker 9: course for any streaming company. We've seen Netflix, as you
Speaker 9: just pointed out, demonstrate really good pricing power. I think
Speaker 9: Spotify has very good pricing power as well, but people
Speaker 9: are really waiting for the next big US price hike
Speaker 9: to really gain more confidence in the story.
Speaker 2: Keith, what's the competitive landscape for Spotify out there? Because
Speaker 2: as we think about the video business, it's Netflix and
Speaker 2: then a kind of a big drop down to Disney
Speaker 2: and then a bigger drop to kind of everybody else
Speaker 2: fighting it out. What's the landscape for in the audio business.
Speaker 9: It's actually very similar, Paul. In fact, you know, Spotify
Speaker 9: just leads by a wide, wide margin. So if you
Speaker 9: just look at both the global audio streaming market in
Speaker 9: terms of subscribers, they have about a thirty three percent
Speaker 9: share globally they have close to almost a forty percent
Speaker 9: and share in the US market, so way ahead of
Speaker 9: their competitors. So obviously gives them a lot of I think,
Speaker 9: you know, again we come back to pricing power. Gives
Speaker 9: them definitely a lot of pricing power in the market.
Speaker 2: So what's on the cost structure for them? What are
Speaker 2: the real levers for them? It seems like you know,
Speaker 2: the I know at Netflix said they got to write big,
Speaker 2: big checks to you know, either license content or you know,
Speaker 2: create their own content. What's it like on the Spotify side.
Speaker 9: Yeah, you bring up an excellent point, Paul, And this
Speaker 9: has kind of again been one of the pain points
Speaker 9: for Spotify because again, this is a music streaming service.
Speaker 9: They don't own any of you know, the music music itself.
Speaker 9: That's all kind of controlled by the labels. And as
Speaker 9: you well know, content is king. So this is really
Speaker 9: where Spotify has a lot of trouble because for every
Speaker 9: dollar that they earned, about seventy cents goes back to
Speaker 9: the music label, So they have very little leverage. They've
Speaker 9: been trying to kind of change that whole dynamic, that
Speaker 9: whole equation come up with more of their content. So
Speaker 9: a big investment area for them has been, you know,
Speaker 9: podcast has been audiobooks where they kind of get better,
Speaker 9: you know, profit dynamics. It has worked well. But actually
Speaker 9: one of the things that we're kind of looking for
Speaker 9: next year is we're going to see a step up
Speaker 9: in all of the royalty costs. And that's again something
Speaker 9: that the street and investors are a little bit nervous
Speaker 9: about because we need to see how, you know, Spotify
Speaker 9: kind of manages their whole margin expansion story as those
Speaker 9: royalty costs go up, So the amount that they're paying
Speaker 9: all of the music labels, the warners, and the universals
Speaker 9: of the world is going to go up slightly. But
Speaker 9: we still think that they're in good shap. They've been
Speaker 9: adding a ton of new features to all of their tiers.
Speaker 9: They're probably going to debut some new tiers. Again. All
Speaker 9: of that bills to that whole pricing, power and monetization story.
Speaker 2: And how is Apple as a competitor here, because anytime
Speaker 2: I see a company that's even remotely in competition Apple,
Speaker 2: I get nervous.
Speaker 9: So Apple, you know, if you're just kind of looking
Speaker 9: at it, And in terms of share, they are way
Speaker 9: below Spotify, both globally as well as in the US market,
Speaker 9: so not much of a competitor from a share standpoint.
Speaker 9: In fact, they've even priced their products slightly lower. Some
Speaker 9: of the you know, some of the noise around Spotify
Speaker 9: and Apple has been you know in terms of the
Speaker 9: iOS and whether you know, Spotify can kind of get
Speaker 9: better terms and they've managed to do that as well.
Speaker 9: So some of the changes on the iOS system have
Speaker 9: actually helped Spotify in terms of getting a better market
Speaker 9: share and getting better economics. Actually, so Apple Music not
Speaker 9: too much of a worry for Spotify.
Speaker 2: Oh thanks to Githa Rong and Nottan Bloomberg Intelligence US
Speaker 2: media analyst. That's this week's edition of Bloomberg Intelligence on
Speaker 2: Bloomberg Radio, providing in research and data on two thousand
Speaker 2: companies and one hundred and thirty industries.
Speaker 3: And remember you can always access Bloomberg Intelligence via b
Speaker 3: I go on the terminal. I'm Scarlett Foe and.
Speaker 2: All Paul Sweeney. Stay with us. Today's top stories and
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Speaker 6: Zero