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Speaker 2: Busy twenty four hours or so. Here in the ipo market,
Speaker 2: we've got Esteri Labs that price last lane at thirty six,
Speaker 2: indicating to open at fifty six, so that would be
Speaker 2: good for the ipo market. And then we've also got
Speaker 2: Reddit looking to price tonight. And we saw some Bloomberg
Speaker 2: reporting earlier today. It says they are considering the high
Speaker 2: end or perhaps even above it abobove the range. So
Speaker 2: let's break it all down with Bailly Lipschaltz. She covers
Speaker 2: the equity markets, including the new issue markets. So Billy,
Speaker 2: let's sell with Astera Labs. Boy, if this would open
Speaker 2: we had fifty six dollars again after pricing at thirty six,
Speaker 2: that would be huge news for the ico market.
Speaker 3: The even more interesting thing this is an ipo that
Speaker 3: bumped up its rage, increased the allocation and number of shares,
Speaker 3: and then priced above. So we're already talking about it
Speaker 3: pricing almost twenty six.
Speaker 4: Percent of government for this kind of bump necessarily.
Speaker 3: No, and this is the deal that everyone had circled.
Speaker 3: We're all talking about Reddit. But when I talk to
Speaker 3: bankers and investors, they say a stair Labs, they're backed
Speaker 3: by Intel, they make AI chips, they fit into every
Speaker 3: tailwind that you want in this market. That's the deal
Speaker 3: that you want to keep an eye on.
Speaker 2: And they're profitable, but they don't do the weight lossing.
Speaker 5: As far as I know, they're profitable, which begs the
Speaker 5: question is Reddit profitable?
Speaker 2: They are not.
Speaker 3: They've been on the path to profitability, if you will.
Speaker 3: They talked up kind of the fact that they tightened spending.
Speaker 3: They have AI licensing, data licensing partnerships that really kind
Speaker 3: of bolstered numbers in three Q really four Q of
Speaker 3: last year. But when you talk to investors in some
Speaker 3: of the skeptical analysts, the big question is it's almost
Speaker 3: two decades old, it's not profitable. It operates in social media,
Speaker 3: which has its own flurry of issues. You look at
Speaker 3: Snapchat and Pinterest, who are the two best comps publicly traded?
Speaker 3: Those docks aren't doing too well. But if it does,
Speaker 3: price at the top of the range. That'd be a
Speaker 3: six point four billion dollar valuation haircut from the ten
Speaker 3: billion it raised at in twenty twenty one, but still
Speaker 3: maybe a bit of a green shoot. It does remind
Speaker 3: me quite a bit of the instacart ipo in the
Speaker 3: fall of last year, which took a quote unquote down round,
Speaker 3: but right now is trading up about twenty three percent
Speaker 3: from that IPO price, despite some choppy aftermarket performance.
Speaker 2: So when Reddit, I also understand in addition to the
Speaker 2: advertising component, which again we've seen before as you mentioned
Speaker 2: with Pinterest and others Snapchat, there's also a data component
Speaker 2: to it, and they're trying to tie it into a
Speaker 2: little bit of an AI situation. You can explain what
Speaker 2: that pitch is.
Speaker 3: Yeah, So I talked to one of the pitch book
Speaker 3: analysts who laid it out, I think pretty easily.
Speaker 2: He said.
Speaker 3: Basically, they're trying to license data for AI makers, so
Speaker 3: they have exactly what some of these AI companies want,
Speaker 3: which is engagement and human beings posting and talking to
Speaker 3: each other. He basically said, though the question is it's
Speaker 3: still in the early stages.
Speaker 2: Well, exactly the human.
Speaker 3: Beings, and that's one of the things I talked to
Speaker 3: a number of Wall Street Bets moderators about whether or
Speaker 3: not they're buying into the IPO.
Speaker 2: They were very much divided.
Speaker 3: But the big quest question for them, the boal case
Speaker 3: for these believers of Reddit, these redditors, is that as
Speaker 3: of now where we are in kind of the AI
Speaker 3: technology landscape, you need data, you need input, you need
Speaker 3: humans to create something. So that's one of the big
Speaker 3: kind of pitches from Reddit is that if you open
Speaker 3: up a partnership with Google or whoever and say, hey,
Speaker 3: here's the thousands and millions of people actively engaging with
Speaker 3: each other, do with it what you want. Though, that
Speaker 3: does kind of raise questions for users and whether or
Speaker 3: not they would maybe taper.
Speaker 2: Off their usage.
Speaker 5: Well also yes, and also I was going to say,
Speaker 5: like I've never been on Reddit. Do we want language
Speaker 5: models to know Reddit? Really like, do we like that relationship?
Speaker 2: That's the big question.
Speaker 3: I mean, I lurk, So I don't, Alex, I don't
Speaker 3: have a Reddit account, but I do.
Speaker 2: You know, I lurk.
Speaker 3: You know you're planning a trip, you kind of want
Speaker 3: to see what people recommend or if you're looking to
Speaker 3: make a purchase, see what what.
Speaker 2: The forums are talking about.
Speaker 3: But I think even if you talk to Reddit users,
Speaker 3: a lot of their content is not safe for work.
Speaker 3: A lot of it is shall we say, not family friendly,
Speaker 3: and they call each other a lot of names and taking.
Speaker 4: Actually I did go on Reddit. I went down the
Speaker 4: Kate Middleton reddit rabbit hole.
Speaker 2: Oh okay, did you find good content?
Speaker 6: No?
Speaker 4: I didn't know what to trust. I didn't know what
Speaker 4: was real.
Speaker 5: I got really confused, and then I got scared and
Speaker 5: I left. But that's a great example of like what
Speaker 5: what reddit is?
Speaker 3: It sounds about right, Yeah, And Reddit is built on
Speaker 3: so called karma points. So you get karma points when
Speaker 3: people upvote your comments or upvote your posts vote, which
Speaker 3: is just basically liking. It's liking, but you can also
Speaker 3: dislike it. I actually trying to get people to talk
Speaker 3: to me and said I was a Bloomberg reporter and
Speaker 3: wanted to talk about the IPO. Immediately had negative karma like.
Speaker 5: That hurts.
Speaker 3: Yeah, and then you can't comment. So then I couldn't
Speaker 3: comment anything. I couldn't respond to people because I know exactly.
Speaker 3: And then yeah, I got hit with some of the
Speaker 3: Steve Belushia giffs and memes of like hey, cool, fellow
Speaker 3: fellow friends like what's going on?
Speaker 1: Which?
Speaker 2: All right, how important are these two IPOs to the
Speaker 2: new issue market here? I mean, do we have a
Speaker 2: whole bunch backed up and we're just looking for some
Speaker 2: good karma in the IPO market? How important these two
Speaker 2: names here? They're critical? And it's really because they both
Speaker 2: are in the tech space. They are what we would
Speaker 2: call kind of down the middle of the fairway IPOs
Speaker 2: in that five hundred to a billion dollar raise in
Speaker 2: terms of cash being funded.
Speaker 3: You look at arm and armor sports, Yeah, big deals,
Speaker 3: they're their own thing. The big thing though, when I
Speaker 3: talked to bankers is that at this point in time,
Speaker 3: the new issue market is going to be idiosyncratics. So
Speaker 3: the reason for Asteria Labs going public is very different
Speaker 3: than the reason that Rerdeup's going public. And they're they're
Speaker 3: kind of trying to take or at least trying to
Speaker 3: read the signals from investors on who's willing to pay
Speaker 3: what multiple. But if these deals price as they are
Speaker 3: indicated and trade strongly, I definitely think, at least from
Speaker 3: my channel checks and conversations, that people will be drawn
Speaker 3: from the sidelines.
Speaker 5: Is it do you think that these companies and I
Speaker 5: appreciate their all different companies. Do they need the money
Speaker 5: to go stuff? Is it a commentary on while this
Speaker 5: market's awesome when we get a piece of it, or
Speaker 5: is it we need investors need to cash out or
Speaker 5: employees have shares and they need a vehicle?
Speaker 4: Like what is the reasoning?
Speaker 3: A little bit of both, so you have in both
Speaker 3: cases insider selling is part of the IPO, so trying
Speaker 3: to get some form of a return. But when you
Speaker 3: look at a Steri Labs taking those proceeds and being
Speaker 3: able to kind of bolster on their operations. Again to
Speaker 3: your point, they're writing the AI wave. So if you
Speaker 3: can have Jensen wang As filming a video for your roadshow,
Speaker 3: that's going to get people excited.
Speaker 2: So why not go public now?
Speaker 3: Whereas write it again, you look at the business, the
Speaker 3: evolution of the business on that path to profitability. It's
Speaker 3: been private, it's about nineteen years old, so it's kind
Speaker 3: of due time for it to go public again, similar
Speaker 3: to instacart. So they all kind of have their own reasons.
Speaker 3: But the big thing when you talk to investors and
Speaker 3: bankers either profitability, path to profitability or some form of
Speaker 3: unit economics and that's been the big thing, and that's
Speaker 3: why we can see some of the more interesting names
Speaker 3: I think potentially going public in the next few weeks
Speaker 3: and months, those names that have been in the pipeline,
Speaker 3: but also some that just have good, strong, fundamental businesses.
Speaker 2: I would think there'd be a lot of private equity
Speaker 2: sponsored deals that would like to come.
Speaker 3: So we haven't seen a lot that was Homer Sports
Speaker 3: was essentially private equity, not necessarily bright Spring is just
Speaker 3: KKR back that was a disaster of a deal and
Speaker 3: traded terribly. That was at least when I talked to
Speaker 3: some investors and strategists, was kind of.
Speaker 2: They just needed to get it out the door.
Speaker 3: But to your point, when you're a private equity company,
Speaker 3: a private equity firm, you're kind of looking to recycle
Speaker 3: and get that fund of flows. We've had the IPO
Speaker 3: market really frozen for a few years at this point,
Speaker 3: so it's really a question of will they kind of
Speaker 3: cave on valuation and meet investors where they are Because
Speaker 3: a lot of those assets are big, they aren't necessarily growing,
Speaker 3: and you need to get someone to at least buy
Speaker 3: the IPO.
Speaker 4: Will they do you think they will?
Speaker 2: I don't know.
Speaker 3: I think again, it goes back to the whole case
Speaker 3: by case argument.
Speaker 4: That company a company.
Speaker 3: The big thing is when you look at your comps.
Speaker 3: So if you're again an Asteri Labs, Semiconductors AI perfect,
Speaker 3: If you're Reddit, a little bit tougher again because Snapchat Pinterest,
Speaker 3: but you're pitching that AI kind of part of the
Speaker 3: business and also trying to get more tied to meta platforms.
Speaker 5: All right, Bailey, great stuff, really really great stuff. I'm
Speaker 5: amazed that you can be that excited about so many
Speaker 5: different companies going ipo and Billy Lipschaltz, a Bloomberg News
Speaker 5: IPO reporter, joining us there.
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Speaker 2: The other news item out there, in addition to the
Speaker 2: FED one of the key ones. It's just kind of
Speaker 2: in the chip business. Got a couple data points for
Speaker 2: you here. Today, Intel wins almost twenty billion dollars in
Speaker 2: chips incentives for US plants. That's good for Intel in
Speaker 2: the US chip business. On the flip side, the US
Speaker 2: ways sanctioning Huawei's secretive Chinese chip network. Let's get the
Speaker 2: latest on kind of what's happening there. We're joined by
Speaker 2: Mackenzie Hawkins. She is a Bloomberg News US industrial reporter. Mackenzie,
Speaker 2: thanks so much for joining us here. Let's start with
Speaker 2: Intel here here. I guess this is part of on shoring.
Speaker 2: You know, a lot of stuff on the US soil,
Speaker 2: particularly on the chip side, talks about this Intel story, right.
Speaker 7: So today we saw the first preliminary term sheet for
Speaker 7: an advanced chip maker to come out of this broader
Speaker 7: US effort to bring semi conductor manufacturing back to American soil.
Speaker 7: So Biden signed the chips back into law in August
Speaker 7: twenty twenty two. Companies have been waiting for you know,
Speaker 7: well over a year to see those funds start flowing
Speaker 7: out the door. They haven't actually flowed out the door yet.
Speaker 7: Intel's award today is just a preliminary agreement, and it
Speaker 7: will be likely until the end of this year that
Speaker 7: they start to actually see money doled out in tranches.
Speaker 7: But this is a huge investment in you know, the
Speaker 7: real leading American chip maker, and I mean these chips
Speaker 7: will power you know, the AI friends. There are the
Speaker 7: types of tips that go into nuclear missiles and hypersonics,
Speaker 7: and this is a really significant investment for the company
Speaker 7: and for the states for they're building, including Arizona, Ohio, Oregon,
Speaker 7: and New Mexico.
Speaker 5: So Mackenzie pair of this. So okay, I love covering energy.
Speaker 5: So I'm really into the IRA And like what you've
Speaker 5: seen a lot in the IRA is everyone got super excited,
Speaker 5: but then actually sort of putting shovels in the ground
Speaker 5: was a lot more difficult. So there's like, yeah, yeah,
Speaker 5: we're gonna get the money, It's gonna happen, but it's
Speaker 5: not happening quite yet. How do we think this plays
Speaker 5: out from the chips act? Like when does Intel put
Speaker 5: a shovel in the ground. What other companies are trying
Speaker 5: to put their shovels in the ground and get the
Speaker 5: funding and will it actually you know, happen.
Speaker 7: So Intel's already building these facilities. They've had a twenty
Speaker 7: billion dollar Arizona expansion underway for some time. They're building
Speaker 7: multiple fabrication facilities, there. They're making some progress in Ohio,
Speaker 7: although there's been reporting that that's slightly delayed. We expect
Speaker 7: that construction to finish in twenty twenty six. Intel's rival
Speaker 7: Taiwan Semi Conductor Manufacturing Company and Samsung out of South
Speaker 7: Korea are also building plants in the US. Both of
Speaker 7: their sites have seen some delays that the companies and
Speaker 7: the Biden administration insist are in line with typical projections,
Speaker 7: but time will tell on this one. It will be
Speaker 7: years before these facilities are stood up. The Commerce Department
Speaker 7: has set a goal that the US will produce twenty
Speaker 7: percent of the world's advanced logic shows by the end
Speaker 7: of the decade. Currently we're at about zero, so that's
Speaker 7: a lot of progress to catch up on. Most of
Speaker 7: that productions happening in East Asia. The companies announced their
Speaker 7: projects before they got the funding from the federal government,
Speaker 7: but it is certainly their expectation that they will receive
Speaker 7: that funding, and they would like it to happen, probably
Speaker 7: a little bit faster than it did.
Speaker 2: Hey McKinnie, how secure is this funding over time? Thinking
Speaker 2: about we may have a new administration in twenty twenty five,
Speaker 2: how secure is this funding particularly you know in the
Speaker 2: out years.
Speaker 7: It's a great question. So today's announcement is a preliminary agreement.
Speaker 7: Then there's a due diligence stage, and then a final
Speaker 7: term sheet between Intel and the Commerce Department that will
Speaker 7: likely come closer to the time of the presidential election.
Speaker 7: And the Commerce Department is setting all types of benchmarks
Speaker 7: that Intel must need for the money to be doled
Speaker 7: out over time. So it's not that they get the
Speaker 7: final agreement and then they get eight and a half
Speaker 7: billion dollars in grants and eleven billion dollars worth of
Speaker 7: love loan guarantees. They have to meet benchmarks related to production,
Speaker 7: related to workforce development, and there are all types of
Speaker 7: requirements that Biden's Commerce Department might set that a potential
Speaker 7: from Commerce Department might not be as interested in. You've
Speaker 7: seen saying like child care facilities, which Intel and other
Speaker 7: companies have committed to community development agreements, all those types
Speaker 7: of things. It's entirely possible that that could shift over time.
Speaker 7: But the reality is, once they've got the equipment in
Speaker 7: the building, these are machines that cost hundreds of millions
Speaker 7: of dollars, they're committed to these facilities but Intel's CEO
Speaker 7: Podcassingers said just yesterday, we might need to shift back
Speaker 7: to two point zero companies buying for a lot more
Speaker 7: money than they currently have. The advance chipmakers together asked
Speaker 7: for more than double what the Commerce Department has available.
Speaker 7: So this is really something to watch over the next
Speaker 7: couple of years and decades.
Speaker 5: I mean, is President Trump really going to go to
Speaker 5: Ohio and Arizona and Oregon in New Mexico and be like,
Speaker 5: just kidding, I'm gonna take this development back. I mean,
Speaker 5: I think that's going to be a tricky proposition since
Speaker 5: hearing it.
Speaker 4: Is so much money.
Speaker 5: So I just came back mackenzie from energy conference basically,
Speaker 5: and I was just telling Paul that all the talk
Speaker 5: there was that tech companies are finally getting wise to
Speaker 5: the fact that they're going to build all this stuff
Speaker 5: they need power, and that power isn't as easy to
Speaker 5: come by as they might have thought. Do you hear
Speaker 5: that at all on your industrial side, Like, hey, this
Speaker 5: is great, build all these data centers Intel, but like,
Speaker 5: who's going to how are you going to get that power?
Speaker 4: What do you plug it in?
Speaker 7: Absolutely, the infrastructure is a top concern for these companies.
Speaker 7: You know, a big part of their ability to apply
Speaker 7: for chap X funding is to demonstrate commercial viability and
Speaker 7: that they have buy in from state and localists to
Speaker 7: marshal the resources necessary to stand up factories that cost
Speaker 7: tens of billions of dollars to build, sometimes require entire
Speaker 7: new water pipelines or energy resources. You know, take Arizona,
Speaker 7: which has not just this massive Intel expansion but also
Speaker 7: a huge factory to factories under construction from PSMC. Arizona
Speaker 7: does one hundred year water planning. This is a desert
Speaker 7: and so they've had to very carefully plan their water
Speaker 7: development ensure residents that their water supply is not going
Speaker 7: to be impacted, and I mean down to the land
Speaker 7: parcels in Arizona, they've planned these industrial park. You see
Speaker 7: similar things happening in Indiana, which is expected to get
Speaker 7: a roughly fifteen billion dollar investment from Skhinex, which is
Speaker 7: one of the main advanced packaging companies out of South Korea.
Speaker 7: That announcement hasn't been formally announced yet on Boo Bloomberg
Speaker 7: has reported on it. So I mean, this is a
Speaker 7: massive infrastructural effort which, as you note, is coming alongside
Speaker 7: a lot of other investments in other sectors coming from
Speaker 7: the Inflation Reduction Act, things like UV's batteries, hydrogen, wind, solar,
Speaker 7: and sort of more traditional heart infrastructure from the Byparts
Speaker 7: and Infrastructure Law.
Speaker 2: All Right, more news mackenzie on the chip front, which
Speaker 2: you're reporting as well. Well, you're all over this stuff.
Speaker 2: The US ways sanctioning Huawei's secretive Chinese chip network. This
Speaker 2: sounds like another round of what may be a technological
Speaker 2: cold war between China and the West. What's the latest
Speaker 2: year with Whuahwei?
Speaker 7: Certainly so this is I would say the strongest potential
Speaker 7: US reactions so far. So a pretty significant breakthrough that
Speaker 7: Huawei had last August. So Huawei has been the target
Speaker 7: of US efforts to curtail China's text development for years now.
Speaker 7: Is originally sanctioned in twenty nineteen the Biden administration that
Speaker 7: was under Trump. The Biden administration followed up with sweeping
Speaker 7: export controls on the ability of US companies and foreign
Speaker 7: companies that use US technology to ship advance shifts and
Speaker 7: ship making equipment to China, and the goal was to
Speaker 7: cap Huawei and other Chinese companies chip development. At what
Speaker 7: we consider an older generation or mature node. And then
Speaker 7: while the Commerce Secretary Junior Raimondo was visiting China in August,
Speaker 7: Huawei unveiled a smartphone that was powered by an advanced
Speaker 7: seven nanimeter chips produced by their chip making partner, Smick,
Speaker 7: also a Chinese company, and a lot of people who've
Speaker 7: been watching the industry for a while saying this isn't
Speaker 7: actually hugely surprising. Of course, China's doubling down on efforts
Speaker 7: to build a full domestic semi conductor supply chain. They
Speaker 7: figured out how to retool some older generation machines from
Speaker 7: the main Dutch equipment maker to produce these chips. But
Speaker 7: a lot of folks in Washington were caught a little
Speaker 7: bit by surprise and has been working on a response.
Speaker 7: And so this is what the response could look like.
Speaker 7: There's a network that Bloomberg reported on last year. The
Speaker 7: Semi Conductor Industry Association of Washington based trade group identified
Speaker 7: several companies that could potentially produce chips for Huawei in
Speaker 7: the future. And so this list affirms that BIDEN is
Speaker 7: considered sanctioning, meaning that any shipments to those companies would
Speaker 7: require a formal license from the Commerce department includes four
Speaker 7: companies that might make chips for Huawei and two companies
Speaker 7: that they're worried. These are not actual shipmakers themselves, but
Speaker 7: they could import advanced equipment and then send that to
Speaker 7: Huaweis or to Huawei's other infomating partners to continue producing
Speaker 7: these chips.
Speaker 5: Really great stuff. You were coming out all the time
Speaker 5: at Kensie Hawkins. Thank you so much, Bloomberg News US
Speaker 5: Industrial Reporter. It's just the whole decoupling thing. Yeah, exactly,
Speaker 5: really hard. It's take out a lot of time.
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Speaker 2: Speaking of Boeing, I'm looking at the stock here. It's
Speaker 2: up about one point eight percent, as Abigail suggested, so
Speaker 2: still down twenty nine percent year to date and off
Speaker 2: about ten percent over tilling twelve months. There really some
Speaker 2: concerns there from investors. So let's check in with George
Speaker 2: Fergus and he's an aerospace and airlines analyst for Bloomberg Intelligence.
Speaker 2: He joins us a via a zoom from Princeton. God
Speaker 2: for Biddy gets on the train and comes to New York.
Speaker 2: But anyway, he's the best on the street, so we
Speaker 2: appreciate getting a few minutes at his time. George, you know,
Speaker 2: I love Boeing. It's just a great American company. I
Speaker 2: love aerospace. But boy, these guys have just seems like
Speaker 2: every day something's happening here.
Speaker 7: Now.
Speaker 2: I guess it's partly you know, the press is just
Speaker 2: picking up on any little thing. But what's going on
Speaker 2: there with Boeing? Really, do you think?
Speaker 6: Well?
Speaker 8: I mean, I think we heard it from Brian West
Speaker 8: this morning. He was in London at the Bank of
Speaker 8: America conference. And you know, besides, I think the cash
Speaker 8: flow guidance he provided, he provided few details about anything else.
Speaker 9: And so.
Speaker 8: He describes a lot of processes, you know, processes at
Speaker 8: the FAA to get airplanes certified, processes and refining, the
Speaker 8: manufacturing process, curing, you know, the excess outsourcing they've probably
Speaker 8: done over the last couple of dedys aids.
Speaker 9: So I think what you really get.
Speaker 8: Is a sense of a company that's in a state
Speaker 8: of a lot of flux, and you know, I think
Speaker 8: that the markets have shown us, you know, the stock
Speaker 8: prices sort of reflects that.
Speaker 5: So George, does that mean so if the stock is
Speaker 5: up two percent, does that mean that it could have
Speaker 5: been worse? Like?
Speaker 4: Is that my takeaway?
Speaker 5: Like that cash burn and the cash outflow could have
Speaker 5: been worse than foreign a half billion.
Speaker 8: Well, that's my biggest takeaway from this was that, you know,
Speaker 8: the market likes the fact that he talked about cashual
Speaker 8: being positive by the end of the year. So it
Speaker 8: sounds like they've got a pretty nice ramp up in
Speaker 8: you know, sort of resuming build rates of their factories
Speaker 8: across the year.
Speaker 9: That was better than what I expected.
Speaker 8: But again, the storyline inside the company is still one
Speaker 8: that's all about flux and not about details. So I
Speaker 8: just wonder. I think I got a sense there's some
Speaker 8: risk in that cashlow projection.
Speaker 2: So, George, you've covered Boeing for decades here, can you
Speaker 2: recall a time when maybe they're they've had these quality
Speaker 2: issues before? Is this how unprecedented disease? You know, last
Speaker 2: couple of years?
Speaker 8: Really, I think thoroughly unprecedented. Right, So, even as I
Speaker 8: was leaving Blackrock, you know, on the during the global
Speaker 8: financial crisis. I remember Boeing stock was down at thirty
Speaker 8: three dollars a share, pretty cheap than what it is today.
Speaker 8: But the discussion then was just about like a defense portfolio,
Speaker 8: who products really weren't that modern, you know, and and
Speaker 8: angst about the company's future, but not these kind of
Speaker 8: problems inside their manufacturing business, which is the core business
Speaker 8: of this company, right, it's an engineering and manufacturing company.
Speaker 8: If you can't manufacture things well in aerospace, that's a
Speaker 8: bad science. So I don't think it's ever been this
Speaker 8: bad ever.
Speaker 5: So just to recap today, at a Bank of America
Speaker 5: conference in London, the CFO, so the cash outflow is
Speaker 5: going to reach four to four and a half billion
Speaker 5: in the first quarter. Analysts we're looking for maybe five
Speaker 5: billion plus, and like you said that maybe we'll get
Speaker 5: cash flow positive by the end of the year.
Speaker 4: That was the indication from Boeing. Do we believe.
Speaker 5: Okay, that's not the right question. How did they come
Speaker 5: up with this estimate? Like what are the factors that
Speaker 5: go into this kind of estimate?
Speaker 8: That's exactly we don't know, right, And so some of
Speaker 8: it's all about deliveries, it's all about deliveries of commercial airplanes.
Speaker 8: And so what I heard, you know, listening to it
Speaker 8: this morning was I heard what I thought was, we're
Speaker 8: going to be at rate thirty eight by the end
Speaker 8: of the year, which is the rate they should have
Speaker 8: probably built out.
Speaker 2: All year long.
Speaker 8: And then we'll move to the next higher rate, that's
Speaker 8: thirty eight a month, sorry on the seven thirty seven,
Speaker 8: and we'll move to the next higher rate when.
Speaker 9: The FAA lets us.
Speaker 8: So we'll publish tomorrow on the Bloomberg Terminal our view
Speaker 8: at Bloomberg Intelligence of what we think build rates were.
Speaker 8: I can tell you we have factored in a fourth
Speaker 8: quarter at rate thirty eight, but it sounds like quarter
Speaker 8: one is going to be a really rough quarter. So
Speaker 8: they'll have to pull a lot of things back together
Speaker 8: to get rate back to thirty eight by the end
Speaker 8: of the year.
Speaker 5: I think it's everything has to go right, yeah, for
Speaker 5: that to happen, Paul, And as we know, that never happened.
Speaker 2: Never happens. But George, you've told us in the past,
Speaker 2: in the airspace business, there is no hey, we did
Speaker 2: a pretty good job on this plane. It has to
Speaker 2: be perfect every single time, otherwise it's disastrous. And from
Speaker 2: their customers perspective.
Speaker 9: Georgia.
Speaker 2: If I'm a big buyer, like a Southwest or United,
Speaker 2: what am I saying to these guys? I mean, I
Speaker 2: fly thousands of these planes every single day in my fleet.
Speaker 2: What am I telling Boeing these days?
Speaker 8: Yeah, so you're watching very very closely. Of course, you're
Speaker 8: telling Boeing the quality is job one. Safety quality is
Speaker 8: job one. But if you're especially if you're like a
Speaker 8: Southwest or a Ryanair where you're a pure fleet, right,
Speaker 8: you really can't afford your most important supplier to have
Speaker 8: problems like this. So I think you're quietly coaching them
Speaker 8: to improve things, hoping for better, but you're probably biting
Speaker 8: your nails a little bit, right because if they it
Speaker 8: continues to be serious problems, You're not switching to Airbus,
Speaker 8: you know, overnight.
Speaker 9: And I don't know that those people are considering it.
Speaker 8: I'm not saying that they are, but you got to
Speaker 8: be concerned. You've got to be watching very closely.
Speaker 5: Does the cash burn that they're looking at for the
Speaker 5: first quarter would that I guess the answer is no.
Speaker 5: But I'm just wondering if they wind up buying Spirit
Speaker 5: what that does to their cash burn, Like, they look
Speaker 5: optimistic about getting back to their ramp rate of thirty
Speaker 5: eight per month by the end of the year, But
Speaker 5: what if they buy Spirit. Doesn't that get worse? Isn't
Speaker 5: there cash burn get worse?
Speaker 1: Well?
Speaker 8: I mean so, I guess to some degree, there's some
Speaker 8: things that end up getting hidden when you start buying Spirit, right,
Speaker 8: because there's no If Spirit's showing a loss because they're
Speaker 8: selling a fuselage to Boeing at a loss, you know
Speaker 8: Boeing is getting some excess out of that, that whole
Speaker 8: thing washes out. So you can't always say just because
Speaker 8: they're pulling Spirit in it's going to be a loss.
Speaker 8: It depends how they structure that whole thing too, Right,
Speaker 8: if they hive off the airbus businesses, we think some
Speaker 8: of those are loss making that can make things better.
Speaker 8: I think it's I think it's really really hard to tell.
Speaker 8: But for sure there'll be a lot of work down
Speaker 8: at Spirit to make sure they stabilize the production at Spirit,
Speaker 8: and that's not going to help cash burn either. But
Speaker 8: I'd assume Brian had that built into his assumptions.
Speaker 2: George, Let's talk about the other half of your research coverage,
Speaker 2: which is the airlines themselves. I just flew Newark to
Speaker 2: Salt Lake City seven thirty seven Max eight fully packed
Speaker 2: to the gills both ways. How are the airlines doing
Speaker 2: these days?
Speaker 8: Yeah, so in one queue, I think a bunch of
Speaker 8: them are going to show losses. So they're filling airplanes
Speaker 8: because I think the revenue managers never let airplanes go
Speaker 8: down the runway with almost you know, being entirely full.
Speaker 8: But everything what counts, as you know, the most is
Speaker 8: going to be the ticket prices. And you know, when
Speaker 8: we looked at four Q as we closed out of
Speaker 8: four Q, the biggest challenge to the higher revenue that
Speaker 8: they were bringing in was all about out these higher
Speaker 8: pilot salaries.
Speaker 9: Right. They gave a bunch away to the pilots, and
Speaker 9: so while.
Speaker 8: We're all paying more for the ticket, the pilot's getting
Speaker 8: more in the front seat.
Speaker 9: They probably deserve it. They work pretty hard.
Speaker 2: And it's so happy you do.
Speaker 9: Actually, So profitability is still challenged.
Speaker 8: Compared to what we saw last decade, I think fares
Speaker 8: would have to go even higher, and we've seen them
Speaker 8: softening a bit. This summer could be a little bit
Speaker 8: better for the airlines. You know, if we have a
Speaker 8: bunch of Airbus A three twenties out of the market
Speaker 8: because of the gear turbo fan problems. If Boeing deliveries
Speaker 8: are slowing down capacity gains in the.
Speaker 9: Marketplace, it could be a little bit better.
Speaker 8: But we're not looking at an environment where we think
Speaker 8: they're going to see twenty nineteen levels of profitability, not
Speaker 8: twenty nineteen, you know, even last decade levels of profitability
Speaker 8: this summer.
Speaker 9: So I'd say profits still a little bit weak. As
Speaker 9: the airlines recover, I think there might.
Speaker 8: Be just too much capacity in the marketplace to get
Speaker 8: at the cutting right.
Speaker 5: Like getn't just blu anounced they're going to cut capacity.
Speaker 5: They're getting out of certain markets and stuff like. I mean,
Speaker 5: it feels like the capacity cuts are underway.
Speaker 8: There's a lot of discussion at the airlines about how
Speaker 8: to optimize schedules to try to improve fares. Like you said,
Speaker 8: airlines like Jet Blue Spirit pushing back some of their
Speaker 8: new deliveries as they manage balance sheets a little better
Speaker 8: and think about, you know, their their financial health. I
Speaker 8: wouldn't say that all signals are rosy inside that market.
Speaker 8: I think they're especially on the low cost budget side.
Speaker 8: I think there's probably too much seat capacity in the
Speaker 8: in the budget world, and folks have to think about
Speaker 8: how they could fix that in order to get better
Speaker 8: fares and improve profitability.
Speaker 5: I have a question, why do some of my business
Speaker 5: class tickets I have Sometimes I have a TV on
Speaker 5: the back, and sometimes I don't, And it gets really confusing.
Speaker 4: Why is this? George?
Speaker 8: You know, it's all about how you know the airplane
Speaker 8: they're using, how it's been outfitted. Sometimes it's on length
Speaker 8: of haul and how important the market is.
Speaker 9: Right.
Speaker 8: I've had overnight flights that come out of San Diego
Speaker 8: where I can't even get a live flat seat on it,
Speaker 8: and I'm a business class. You come out of LA
Speaker 8: you get a live flat seat. Because competition is a
Speaker 8: lot more intense than it. It depends about competition in
Speaker 8: those marketplaces. It's about airlines using older equipment. But there
Speaker 8: is even a school out there that says, why bother
Speaker 8: putting a screen behind any seat anymore? Because everybody gets
Speaker 8: on the airplane with an iPad or an iPhone will
Speaker 8: stream them their content. Save all those electronics behind the
Speaker 8: see save all that weight. Maybe it's a better world.
Speaker 8: Sounds like you vote no exactly.
Speaker 2: That's a good point.
Speaker 5: Yeah, well it's just not consistent. So it makes me
Speaker 5: scratch my head. So going to Houston. I've been back
Speaker 5: and forth and called last couple weeks TV super nice plane,
Speaker 5: all good.
Speaker 4: Coming back.
Speaker 5: Both times I'm like, oh, okay, this is an old plane,
Speaker 5: isn't it, And like you don't have a TV.
Speaker 2: George Ferguson, what's happening? I mean, right, George Ferguson, Thank
Speaker 2: you very much. You can go back to work here
Speaker 2: George Ferguson Aerospace Airlines and.
Speaker 1: You're listening to the Bloomer Intelligence podcast. Catch us live
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Speaker 2: Looking at the shares of Caring. That's the owner of
Speaker 2: a bunch of luxury good manufacturers, most notably Gucci. And
Speaker 2: if you're looking for a good book in a good movie,
Speaker 2: the House of Gucci is awesome and it really gives
Speaker 2: a good sense what's happening there in that world. But boy,
Speaker 2: the stocks down thirteen percent here today. I need to
Speaker 2: figure out why. So I go to one person, one
Speaker 2: person only. That's Debacon. She's a senior in retail annalys
Speaker 2: of Bloomberg Intelligence covering the luxury space, amongst others. But
Speaker 2: I think your real forte is the luxury space. Got
Speaker 2: a really good sense of what's going on out there
Speaker 2: Bloomberg Intelligence in London. So deb carrying this is a
Speaker 2: big company, it's got a forty five billion dollar market
Speaker 2: cap stock, but it's really taking it on the chin today.
Speaker 2: What did the company announce? And what's going on with
Speaker 2: friends of Gucci.
Speaker 6: Right high? So it was a prelimb on the Q
Speaker 6: one in the knowledge that Gucci was by far weaker
Speaker 6: than the market had expected, particularly out of Asia. So
Speaker 6: the idea here a guided ten percent for coring overall
Speaker 6: in the one queue. This whole group will start reporting
Speaker 6: mid April, and then for Gucci in particular, they expected
Speaker 6: to be down around twenty percent. Now what that does
Speaker 6: Gucci into these numbers was fifty percent of cells and
Speaker 6: a much higher contributor to profitability and cash flow. We
Speaker 6: already know that the whole sector is up against very
Speaker 6: high comps, including but not actually Gucci, because we know
Speaker 6: that it's been going through almost two years of transition,
Speaker 6: but the brand did. The underlying product that's behind the
Speaker 6: brand while it transitions to a new creative director, is
Speaker 6: just not resonating out in Asia or is not being
Speaker 6: backed perhaps in the way that it should with investment
Speaker 6: and direct advertising.
Speaker 5: How much of it is also that Gucci in some
Speaker 5: ways I appreciate it's not cheap, but it became like
Speaker 5: an aspirational thing for young people. And if that's the
Speaker 5: area of consumer that's also getting hit, like it's not
Speaker 5: our mes right, Like it's not like insane high end.
Speaker 5: They're trying to be sort of cooler. They're trying to
Speaker 5: get that aspirational buyer.
Speaker 4: Is that a mistake?
Speaker 6: So the idea actually with Gucci's that that's where they
Speaker 6: ended up after three years of thirty to forty percent
Speaker 6: of sales and into so many categories and their brand.
Speaker 6: It reminds me of something that happened a few years
Speaker 6: ago also with Birbury. So their brand became more of
Speaker 6: a fashion focus brand, a lot of a listers in
Speaker 6: the younger generation, a lot of products that were kind
Speaker 6: of niche in their product portfolio, and it lost what
Speaker 6: I would classes the exclusivity, the high end, the level
Speaker 6: of production that is expected for one of the names
Speaker 6: you've given at the very high end, and what has
Speaker 6: actually tried to do over the last two years is
Speaker 6: to elevate luxury and identity and it's failed on that.
Speaker 6: So it has a new creative director in place. Products
Speaker 6: adjus in from mid February are only and ready to wear,
Speaker 6: which is fifteen percent of the business there, and it
Speaker 6: needs the rest of the year to roll that out.
Speaker 6: And in the meantime, particularly in Asia, it's very much
Speaker 6: a wholesale backed market where those wholesale accounts aren't willing
Speaker 6: to take the risk on inventry which could become very
Speaker 6: quickly obsolete from the prior creative director, and separately where
Speaker 6: the new creative director is not yet tested.
Speaker 2: So I know from talking to you in a pass
Speaker 2: and reading your research the Asian consumer is so key.
Speaker 2: The Asian market is so key, particularly China. What do
Speaker 2: we hear because I don't see the Chinese shoppers on
Speaker 2: Fifth Avenue. I'm not sure if you've seen them on
Speaker 2: the high streets in London.
Speaker 4: But nothing. There's French people now in for that avenue.
Speaker 2: There's all the Europeans are everywhere here, which is great.
Speaker 2: They're always welcome in New York. But I don't see
Speaker 2: the Asian shoppers. So talk to us about China. What
Speaker 2: that means for luxury?
Speaker 6: Oh, what's happening at the moment. There's a lot of
Speaker 6: domestic spend. Now there is certainly what's propping up in
Speaker 6: positive comments. After these results, we went through searching as
Speaker 6: a reminder what was said by Mmes, by Kushin Ali,
Speaker 6: Bipradra and others, and will certainly pop some of that
Speaker 6: information out there. But overall, when you think about the
Speaker 6: Chinese consumer, the numbers for the Chinese consumer or Asia
Speaker 6: overall is still only about eighty percent recovered where it was.
Speaker 6: Chinese consumer is shopping on the mainland. Excuse me, shopping
Speaker 6: on the mainland. But also I was hearing from one
Speaker 6: of our colleagues, Thailand is very very popular right now
Speaker 6: because of price sensitivity. They can get a very good
Speaker 6: break over there. Hong Kong, you only have a seven
Speaker 6: day permit to stay from the Chinese mainland and so
Speaker 6: therefore others are becoming more popular, like traveling to Singapore
Speaker 6: where you have thirty day visa free. So there is
Speaker 6: movement around, but it's just not really long haul yet,
Speaker 6: and we weren't expecting that until the second half the year.
Speaker 6: With what's happening with real estate another we're kind of
Speaker 6: pushing that into end of the year twenty twenty five.
Speaker 5: So clearly this news is driving down most luxury stocks today,
Speaker 5: all lugsury stocks today, which one shouldn't be beaten.
Speaker 6: Up if I look at the end of twenty twenty three.
Speaker 6: First of all, I should highlight half one twenty four.
Speaker 6: We came into this year saying it was very much
Speaker 6: going to be a tale of two halves. That's not
Speaker 6: on a big pickup in the market per se, but
Speaker 6: it's on the fact that the first half comps are
Speaker 6: particularly heavy versus the second half. Even for emes, you're
Speaker 6: looking at almost thirty percent growth in the first half
Speaker 6: and half of that in the second half, so they're
Speaker 6: up against big comps. But what doesn't get beaten up
Speaker 6: it's the very high end of the hierarchy. So generally
Speaker 6: it's MS. It's also prot should do very well. It's Kushnelly,
Speaker 6: it's within the alviumhor portfolio. There are some brands which
Speaker 6: they really pick out. Louis Vitandi or and others which
Speaker 6: should still hold well.
Speaker 5: But even with your stand I know they're really nice,
Speaker 5: it's really expensive and they're pretty, but it's like it's
Speaker 5: like suits and stuff, it's like regular clothes, Like it's
Speaker 5: not I don't get it right.
Speaker 6: I think with the Kushinelli side, it's about the quality
Speaker 6: and what it offers, the fact that the product is
Speaker 6: there with longevity, very well made, so it's a piece
Speaker 6: that you can but in your wardrobe. A lot of
Speaker 6: it is not seasonal, so you're buying a piece for
Speaker 6: an event or the office or so, and it's something
Speaker 6: that you can regularly use.
Speaker 2: How is the luxury shopping? I know, as part of
Speaker 2: your duligiens you'll go around to some of the luxury
Speaker 2: stores in London. How are things in London and maybe
Speaker 2: even Paris and the other places you go?
Speaker 6: Yeah, and I would say quite mixed. Actually you see
Speaker 6: more of the high end where they're in there and
Speaker 6: really being highly serviced and not so many not so
Speaker 6: many bags on the high street. We are still seeing
Speaker 6: decent numbers in terms of e commerce growth, but there
Speaker 6: are there are very high end product. There's very high
Speaker 6: end product out there in bags if you're in particular stores,
Speaker 6: but then you're only in selective stores where the brand
Speaker 6: is stocked, and so it is quite mixed out there
Speaker 6: in any major cities.
Speaker 2: Okay, Dev, thanks so much for joining us. As always,
Speaker 2: debiecon she covers all the retailers, including the luxury names.
Speaker 2: For Bloomberg Intelligence based in London again Carringstock, owner of
Speaker 2: several luxury brands including Gucci. Down about thirteen percent here today.
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