WEBVTT - Cisco Tumbles After Profit-Margin Squeeze Overshadows AI Gains 0:00:02.720 --> 0:00:10.559 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.600 --> 0:00:14.560 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.600 --> 0:00:17.840 Eastern on Apple, Cocklay and Android Auto with the Bloomberg 0:00:17.920 --> 0:00:21.040 Business App. Listen on demand wherever you get your podcasts, 0:00:21.360 --> 0:00:24.080 or watch us live on YouTube. 0:00:24.200 --> 0:00:26.400 We are still knee deep in earning season. 0:00:26.600 --> 0:00:28.680 And even though I keep saying that most of big 0:00:28.720 --> 0:00:31.479 tech has reported, not all of tech has reported. 0:00:31.560 --> 0:00:34.760 Cisco was the latest to report. It's a hardware company. 0:00:35.000 --> 0:00:40.000 They make the gear for Internet networking, and they're benefiting 0:00:40.080 --> 0:00:43.000 from AI. They're getting more business from AI like many 0:00:43.080 --> 0:00:45.360 hardware companies, but they're also seeing a downside to that, 0:00:45.400 --> 0:00:47.960 and that is higher costs. Woujin Hoo is our senior 0:00:48.000 --> 0:00:51.000 hardware networking analyst here now to give us some insight 0:00:51.040 --> 0:00:55.440 into Cisco. So Ujin, it sounds like the increasing cost 0:00:55.480 --> 0:00:58.120 of memory chips is kind of dogging Cisco like we've 0:00:58.120 --> 0:01:00.960 seen with other hardware companies. How do you think about 0:01:01.000 --> 0:01:03.040 the increase in cost of memory chips? Is this kind 0:01:03.040 --> 0:01:05.680 of a one time problem, one time adjustment, or is 0:01:05.720 --> 0:01:08.320 this creating a new normal for hardware companies? 0:01:08.880 --> 0:01:09.119 Yeah? 0:01:09.160 --> 0:01:12.840 Hey, Scarlett, So now when we think about it. It 0:01:12.920 --> 0:01:16.280 is going to create a new normal. Quite quite frankly, 0:01:16.319 --> 0:01:20.920 the magnitude of the DRAM price increases was a bit 0:01:21.000 --> 0:01:23.480 higher that we had anticipated, and it's going to be 0:01:23.520 --> 0:01:27.760 a drag on margins. At least it already hit the 0:01:27.800 --> 0:01:30.840 current reported quarter, and then it is going to be 0:01:30.880 --> 0:01:34.080 another two hundred basis points gross margin rosion next quarter. 0:01:34.640 --> 0:01:38.000 The one thing that we can be assured of is 0:01:38.000 --> 0:01:39.720 that there's going to be a price increases across the 0:01:39.720 --> 0:01:43.679 board for a lot of Cisco's products and more importantly 0:01:43.720 --> 0:01:47.520 a lot of big tech products such as Dell and 0:01:47.880 --> 0:01:50.000 Hpe going forward. 0:01:50.400 --> 0:01:54.080 So is this more today an industry problem or a 0:01:54.120 --> 0:01:55.040 Cisco problem here? 0:01:55.760 --> 0:02:00.320 No, it's an everybody problem, Plum quite frankly. I mean, look, 0:02:01.080 --> 0:02:03.560 there's a couple of things here right. The DRAM pricing 0:02:03.680 --> 0:02:07.560 isn't going to hurt only Cisco. But I'm scrambling to 0:02:07.680 --> 0:02:11.639 get new laptops from my kids before the DEVAM prices 0:02:11.720 --> 0:02:15.320 hit the PC market as well. And you know what 0:02:15.360 --> 0:02:18.040 we are going to see is that anything that's DRAM heavy, 0:02:18.360 --> 0:02:22.440 in particular servers, that's going to be bogged down on 0:02:22.480 --> 0:02:25.600 the gross of margin side. But what I'm trying to 0:02:25.639 --> 0:02:28.480 balance out is how much of that is going to 0:02:28.639 --> 0:02:31.160 how much are the companies going to eat that gross margin? 0:02:31.200 --> 0:02:32.680 And how much is that going to be passed through? 0:02:34.760 --> 0:02:36.680 Okay, so I guess the other part of it was 0:02:36.720 --> 0:02:39.200 that Cisco shares were kind of priced to perfection as 0:02:39.240 --> 0:02:40.360 a lot of people were putting it. 0:02:40.800 --> 0:02:42.800 So it didn't take a whole lot. 0:02:42.720 --> 0:02:47.160 For investors to react negatively to Cisco and the latest results. 0:02:47.160 --> 0:02:48.800 But ten and a half percent, you know, that's that's 0:02:48.840 --> 0:02:51.720 a pretty big adjustment. Are people re rating this company completely? 0:02:52.520 --> 0:02:52.800 Yeah? 0:02:53.240 --> 0:02:55.560 And you actually make a good point. Right, as I 0:02:55.639 --> 0:02:59.240 was looking into the print, the PE was at roughly 0:02:59.280 --> 0:03:01.240 twenty one twenty two times, and the last time we 0:03:01.280 --> 0:03:03.320 saw the pees like that was back in twenty twenty 0:03:03.360 --> 0:03:08.240 three when people were pre buying a lot of networking 0:03:08.240 --> 0:03:12.200 gear and during the COVID cycle, right, And what you know, 0:03:12.440 --> 0:03:16.760 historically ps are roughly around seventeen to eighteen times for Cisco, 0:03:17.160 --> 0:03:20.080 and what we are seeing is that the multiples coming 0:03:20.120 --> 0:03:22.080 back to the seventeen to eighteen times. And I do 0:03:22.120 --> 0:03:26.640 think that's kind of a bit wrong, Scarlett, primarily because 0:03:26.680 --> 0:03:29.640 this AI story is actually has a lot of sales 0:03:30.040 --> 0:03:33.320 behind a lot of wind behind its sales. And I 0:03:33.360 --> 0:03:38.240 think a lot of investors are overlooking the AI opportunity, 0:03:38.360 --> 0:03:40.040 which is going to be multi year for Cisco. 0:03:40.560 --> 0:03:42.640 How long will the industry have to deal with I 0:03:42.640 --> 0:03:46.600 guess chip shortage going forward? Is this something that chip 0:03:46.680 --> 0:03:48.880 makers can just go up a switch and start making 0:03:48.880 --> 0:03:49.880 more chips? 0:03:50.080 --> 0:03:52.960 You know, I wish I had a bottle with the 0:03:52.960 --> 0:03:56.200 magic gen that will pop up and create new DRAMs. 0:03:56.200 --> 0:03:58.280 But the fact of the matter is is that every 0:03:58.320 --> 0:04:03.040 time you have if you want to create capacity for 0:04:03.280 --> 0:04:05.680 new memory chips, it takes about two to three years. 0:04:06.240 --> 0:04:11.480 And the memory manufacturers were struggling very bad during the 0:04:12.360 --> 0:04:15.320 during the COVID period when there was over capacity, and 0:04:15.360 --> 0:04:17.680 they've been hasn't to build up the capacity. But this 0:04:17.800 --> 0:04:20.440 AI boom and the memory demand related to the AI 0:04:20.560 --> 0:04:22.520 boom is a lot stronger than we had anticipated in 0:04:22.960 --> 0:04:25.880 you know, I think my colleague Jake Silverman has a 0:04:25.880 --> 0:04:28.440 good piece out on how long it'll last. It might 0:04:28.480 --> 0:04:31.000 take another two three years before it gets resolved. 0:04:31.080 --> 0:04:33.760 So is there and I realized that this is more 0:04:33.839 --> 0:04:37.000 Jake's remit But is there still any kind of excess 0:04:37.040 --> 0:04:39.080 inventory of those memory chips or have we drawn down 0:04:39.080 --> 0:04:39.640 on all of that. 0:04:41.480 --> 0:04:41.680 Well. 0:04:41.720 --> 0:04:46.080 I also covered the hard discrip space Scarlett. So my guy, 0:04:46.240 --> 0:04:49.360 my hard dest right guys are sold out until twenty 0:04:49.440 --> 0:04:52.320 twenty six and possibly the twenty twenty seven. All the 0:04:52.360 --> 0:04:55.839 read throughs from s K high Neck, Samsung, Micron, and 0:04:55.920 --> 0:04:58.839 sand Disk, they're all sold out through twenty six and 0:04:59.160 --> 0:05:01.400 into twenty seven, already taking orders for twenty seven and 0:05:01.440 --> 0:05:01.960 twenty eight. 0:05:02.040 --> 0:05:04.920 So this is a global problem. This isn't a trade 0:05:05.000 --> 0:05:09.320 spat supply chain screwing everything up, trade war tariff type thing. 0:05:09.360 --> 0:05:11.400 This is just global supply issue. 0:05:12.040 --> 0:05:15.480 Yeah, this is this is That's exactly it, right. You know, 0:05:15.520 --> 0:05:18.080 the b I team has been writing about this for 0:05:18.480 --> 0:05:21.239 a couple of couple of months now, and they started 0:05:21.279 --> 0:05:27.680 to exasperate into higher levels. To give you some context, 0:05:28.040 --> 0:05:30.839 we picked up on the higher chip memory prices back 0:05:30.839 --> 0:05:34.480 in November when they were rising. We're fully around fifty 0:05:34.560 --> 0:05:38.000 sixty percent on a year or year basis. Over the 0:05:38.040 --> 0:05:42.880 past quarter dround prices have doubled to almost tripled, So 0:05:43.360 --> 0:05:46.320 everyone's scrambling to get chips before they rise even further. 0:05:47.240 --> 0:05:49.680 All right, So inevitably that means laptop prices are going 0:05:49.720 --> 0:05:50.960 to be higher a long with everything else. 0:05:51.000 --> 0:05:52.400 What about smart appliances. 0:05:52.880 --> 0:05:54.560 Do they use memory chips or do they use the 0:05:54.800 --> 0:05:57.920 analytic chips that Texas Instrument makes well. 0:05:57.800 --> 0:06:01.640 I mean, get to get your smart TV, get your 0:06:01.640 --> 0:06:06.400 smart refrigerator, laundry matt stove as quickly as possible. I 0:06:06.480 --> 0:06:08.640 think the bigger issue here Scarlett is probably going to 0:06:08.680 --> 0:06:13.360 be the smartphone market. You know, IDC has cut their 0:06:13.360 --> 0:06:16.800 smartphone forecast to be in decline, primarily because there aren't 0:06:16.920 --> 0:06:20.839 enough memory memory DRAM chips and as well as storage 0:06:21.240 --> 0:06:26.080 to help supply all the smartphones. Apples should be okay, 0:06:26.880 --> 0:06:28.520 but at the end of the day that there is 0:06:28.520 --> 0:06:29.960 going to be a supply constraint there. 0:06:30.839 --> 0:06:31.440 Stay with us. 0:06:31.600 --> 0:06:33.960 More from Bloomberg Intelligence coming up after this. 0:06:37.839 --> 0:06:41.520 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:06:41.600 --> 0:06:45.000 weekdays at ten am Eastern on Applecarplay and Android Auto 0:06:45.120 --> 0:06:48.159 with the Bloomberg Business app. Listen on demand wherever you 0:06:48.200 --> 0:06:51.200 get your podcasts, or watch us live on YouTube. 0:06:51.880 --> 0:06:54.080 And again, all the hotels reporting, a lot of the 0:06:54.160 --> 0:06:56.480 leisure companies reporting here high it just report it and 0:06:56.680 --> 0:06:58.920 some decent numbers of street likes it stocks up five 0:06:58.960 --> 0:07:02.839 point six percent today, that's a fifty two week high 0:07:02.880 --> 0:07:04.920 and a stocks up eleven percent year to date. Let's 0:07:04.960 --> 0:07:07.240 check in with Jody Lourie. She's a senior credit analyst 0:07:07.320 --> 0:07:10.520 for Bloomberg Intelligence. Jody talk to us about Hyat. We 0:07:10.560 --> 0:07:12.720 heard from Hilton. What are the folks at Hyatt saying 0:07:12.720 --> 0:07:13.600 about their business? 0:07:15.080 --> 0:07:17.800 So everything is seeming to be pretty upbeat. I mean, 0:07:17.800 --> 0:07:19.720 we're seeing a lot of the same narrative that we 0:07:19.760 --> 0:07:22.400 heard from Marriott that we heard from Hilton, and it's 0:07:22.440 --> 0:07:25.560 that we're seeing the strength in the luxury market at 0:07:25.560 --> 0:07:30.000 the moment. And it's not so surprising for us because 0:07:30.040 --> 0:07:31.800 we've been talking about this. I mean, we did our 0:07:31.840 --> 0:07:34.600 travel survey, we ran it in November, and we talked 0:07:34.600 --> 0:07:37.800 about the k shaped economy. We anticipated that coming into 0:07:37.840 --> 0:07:41.120 this year, people who have the ability to spend on 0:07:41.160 --> 0:07:44.160 travel are going to continue and those who aren't might 0:07:44.240 --> 0:07:46.120 pull back a little bit, and so we've started to 0:07:46.160 --> 0:07:49.480 see that. I think what's probably more interesting maybe is 0:07:49.520 --> 0:07:51.800 that both Brian Egger, my equity counterpart, and I have 0:07:51.880 --> 0:07:55.239 been talking about this topic and we've been comparing notes 0:07:55.240 --> 0:07:58.240 and we're pretty in lined, which usually don't really see 0:07:58.280 --> 0:08:01.800 equity and credit analysts line. But it's kind of hard not. 0:08:01.720 --> 0:08:04.760 To be in this situation, right, the fundamentals are the fundamentals, 0:08:04.920 --> 0:08:08.920 and these companies are able to monetize on that ca 0:08:09.080 --> 0:08:13.000 shaped economy, certainly by focusing their efforts on the upper end. 0:08:13.400 --> 0:08:16.880 What about the lower end? Marriet runs Courtyard by Marriott, 0:08:16.880 --> 0:08:19.440 and that's it's branding right there. Does it mean that 0:08:19.480 --> 0:08:23.160 it just you know, focuses less on that or devotes 0:08:23.240 --> 0:08:25.920 less resources to it. Is that a brand that you know, 0:08:26.120 --> 0:08:27.040 kind of has a ceiling. 0:08:28.400 --> 0:08:30.920 So I don't think it necessarily has a ceiling per se, 0:08:31.080 --> 0:08:34.360 But I think that, you know, and what I think 0:08:34.360 --> 0:08:36.640 the companies are taking a longer term outlook of Okay, 0:08:36.800 --> 0:08:39.439 right now, at this moment, those businesses might be a 0:08:39.440 --> 0:08:41.920 little bit weaker. They also actually cost a little bit 0:08:41.960 --> 0:08:44.800 less to run, because when you think about luxury businesses, 0:08:44.800 --> 0:08:47.120 you have a lot more additional costs that you have 0:08:47.160 --> 0:08:50.400 to contribute to give the quality of service that the 0:08:50.600 --> 0:08:54.280 customer expects. So I don't think they're necessarily going to 0:08:54.480 --> 0:08:57.480 stop creating those brands and building out that platform. In fact, 0:08:57.480 --> 0:08:59.840 they think they're going to continue doing that because eventually 0:09:00.120 --> 0:09:02.200 will run its course. What I do think is an 0:09:02.200 --> 0:09:04.640 interesting point that we've talked about a few times is 0:09:04.640 --> 0:09:06.680 if you look at a company like Choice, which is 0:09:06.760 --> 0:09:10.440 much more heavily embedded in that lower income consumer, embedded 0:09:10.440 --> 0:09:14.240 in that extended stay market that was likely more so 0:09:14.440 --> 0:09:18.240 affected by, for instance, the government shutdown which Marriott, which 0:09:18.280 --> 0:09:21.360 Hilton talked about on most recent quarters. And so I 0:09:21.400 --> 0:09:23.679 think that's where you're going to really see. The differentiation 0:09:23.800 --> 0:09:26.080 is not so much in these companies that have these global, 0:09:26.240 --> 0:09:29.880 massive brands that they can sort of like shift around 0:09:29.920 --> 0:09:33.880 resources and also anticipate that some of their brands might 0:09:33.920 --> 0:09:36.760 be stronger than others at different times of the cycle. 0:09:37.160 --> 0:09:38.480 I think it's more in the ones that are a 0:09:38.480 --> 0:09:41.720 little bit more concentrated that might have some issues. 0:09:41.920 --> 0:09:43.080 Okay, that makes a lot of sense. 0:09:43.120 --> 0:09:44.920 And I want to pick up on what you said 0:09:44.920 --> 0:09:48.560 about how luxury running those luxury brands costs more. How 0:09:48.640 --> 0:09:51.040 much of those costs does high at the company which 0:09:51.200 --> 0:09:54.040 has an asset light business model bear versus whoever's paying 0:09:54.080 --> 0:09:57.199 the licensing fee to Hiatt Sure? 0:09:57.440 --> 0:10:00.760 And I think that's a key question too, because us start. 0:10:00.920 --> 0:10:02.960 When you think about it, you know, the Hyatt is 0:10:03.000 --> 0:10:05.360 doing the management of it, right, so they have the brand, 0:10:05.400 --> 0:10:07.400 they have the management, but you do have the company 0:10:07.440 --> 0:10:11.400 that owns the property. And more so, what you know, 0:10:11.400 --> 0:10:13.400 what they sort of reference on the call, and we've 0:10:13.440 --> 0:10:16.480 heard this a few times from the company, is more 0:10:16.600 --> 0:10:20.240 the anticipation that some of the owners of the hotels, 0:10:20.520 --> 0:10:22.880 if they have issues with financing, that these companies have 0:10:22.960 --> 0:10:25.160 to sort of think about ways that they can leverage 0:10:25.440 --> 0:10:28.480 their higher quality ratings to help them with financing, to 0:10:28.559 --> 0:10:30.560 grow up the business and to make these sort of 0:10:30.600 --> 0:10:36.600 modifications on the properties themselves. Hyatt is an interesting company 0:10:36.640 --> 0:10:38.880 in and of itself because you know, it generates great 0:10:38.920 --> 0:10:42.440 cashloads and anticipates to generate strong cashloads this year. But 0:10:42.640 --> 0:10:45.880 it's twice now done the same thing where it made 0:10:45.880 --> 0:10:49.560 these relatively large scale acquisitions to expand its footprint and 0:10:49.600 --> 0:10:52.880 to build out into all inclusives, into other parts of 0:10:52.880 --> 0:10:56.720 the market and extend their sort of you know, vertical integration. 0:10:57.559 --> 0:11:00.240 And in both instances they levered up to do so, 0:11:00.360 --> 0:11:02.560 but they've been pretty quick to de lever and to 0:11:02.600 --> 0:11:06.800 your point, Scarlett, they use their pivot into asset light, 0:11:06.920 --> 0:11:11.560 meaning selling their properties and entering into management agreements to 0:11:11.600 --> 0:11:14.840 do so, so they benefit from that fee structure instead. 0:11:15.880 --> 0:11:18.120 So is there debt for you to look at for 0:11:18.160 --> 0:11:21.120 these hotel companies are there all this asset like stuff. 0:11:22.440 --> 0:11:25.640 There is debt because the companies are still borrowing. You know, 0:11:25.640 --> 0:11:28.480 they're borrowing to sort of build out their platforms, they're 0:11:28.520 --> 0:11:31.320 borrowing to do tech upgrades, They're borrowing for all sorts 0:11:31.320 --> 0:11:35.120 of reasons. Marriott has sort of this I don't want 0:11:35.120 --> 0:11:38.160 to say it's a flywheel, because it's not. But they're 0:11:38.200 --> 0:11:40.400 at the point now where they you know, they have 0:11:40.440 --> 0:11:44.480 triple V ratings, they access the commercial payment market and 0:11:44.520 --> 0:11:47.280 they can access it because of their short term ratings 0:11:47.280 --> 0:11:50.360 at the moment, and they use it as cash gaps, right, 0:11:50.600 --> 0:11:52.800 and they'll fill those cash gaps and then they refinance 0:11:52.880 --> 0:11:55.160 the debt that's coming due. So I don't think we're 0:11:55.160 --> 0:11:58.320 in a situation where these higher grade companies like Marriott 0:11:58.679 --> 0:12:01.920 is going to necessarily increase their jet load. They're just 0:12:02.040 --> 0:12:05.160 going to sort of lean on the ebdout growth. They're 0:12:05.160 --> 0:12:06.480 going to lean on the fact that they have these 0:12:06.559 --> 0:12:09.120 cash flows to support that. You know, they are going 0:12:09.120 --> 0:12:10.920 to give back to shareholders. They're continuing to do so. 0:12:10.960 --> 0:12:13.440 We're seeing Hyatt talk about that as well, and I 0:12:13.480 --> 0:12:15.280 expect that that's going to be the case now in 0:12:15.320 --> 0:12:18.040 Hyatt's situation. They are still talking a little bit more 0:12:18.040 --> 0:12:21.520 about deleveraging just to get back to the category that 0:12:21.520 --> 0:12:23.880 they need to be in. But I think that over time, 0:12:24.000 --> 0:12:25.559 and it's the type of thing that we see these 0:12:25.559 --> 0:12:29.720 companies issue debt, foreign acquisition, and then they do lever 0:12:29.840 --> 0:12:30.680 and then they do it again. 0:12:31.720 --> 0:12:32.320 Stay with us. 0:12:32.480 --> 0:12:34.800 More from Bloomberg Intelligence coming up after this. 0:12:38.760 --> 0:12:42.440 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:12:42.520 --> 0:12:45.600 weekdays at ten am Eastern on Apple, Coarclay, and Android 0:12:45.640 --> 0:12:48.920 Auto with the Bloomberg Business App. Listen on demand wherever 0:12:49.000 --> 0:12:52.679 you get your podcasts, or watch us live on YouTube. 0:12:52.920 --> 0:12:54.840 Again, a busy day in the earnings from particularly for 0:12:54.920 --> 0:12:59.079 some of the restaurant companies. McDonald's reported numbers that beat estimates. 0:12:59.320 --> 0:13:02.760 Restaurant brand think Burger King, I think is kind of 0:13:03.240 --> 0:13:06.520 it raised its dividend. So let's talk to Michael Halen. 0:13:06.559 --> 0:13:09.280 He is the analyst of Bloomberg Intelligence. Well, I was 0:13:09.280 --> 0:13:12.000 all the restaurant companies out there. Mike, thanks so much 0:13:12.000 --> 0:13:15.720 for joining us here. Let's talk about McDonald's. Their value 0:13:16.240 --> 0:13:18.520 menu was a kind of a hit with consumers. 0:13:20.600 --> 0:13:24.560 Yeah, they've re established themselves as the value leader in 0:13:24.679 --> 0:13:26.040 QSR which makes sense. 0:13:26.120 --> 0:13:26.280 Right. 0:13:26.320 --> 0:13:28.839 They have fourteen thousand stores in the US, more scale 0:13:28.880 --> 0:13:32.520 than anybody, you know, and they've done a phenomenal job 0:13:32.559 --> 0:13:34.520 with the marketing. I mean, I think they sold fifty 0:13:34.559 --> 0:13:38.320 five million pairs of Grinch socks, right, the Grinch Happy Meal, 0:13:38.520 --> 0:13:43.600 they got one of their most successful promotions ever. Right, 0:13:44.440 --> 0:13:48.479 So yeah, they're firing on all cylinders. They also benefited 0:13:48.520 --> 0:13:52.120 from lapping E Coli a year ago, and that's that's 0:13:52.120 --> 0:13:54.280 how they ended up with such a strong comp in 0:13:54.600 --> 0:13:56.920 which was a pretty tough quarter for most of the 0:13:56.960 --> 0:13:59.320 industry because of the cold weather and the flu that 0:13:59.320 --> 0:14:01.000 we saw in decent right. 0:14:01.160 --> 0:14:04.520 And we also are hearing that McDonald's is not going 0:14:04.600 --> 0:14:06.959 to rest on his laurels. It's looking to innovate. It's 0:14:07.000 --> 0:14:12.040 going to introduce some new beverages under the McCafe mcafe, mcafe, 0:14:12.280 --> 0:14:19.560 mcafe mcafe that's hard to say cafe French anyway, indulging 0:14:19.600 --> 0:14:22.480 coffees that sounds kind of fancy? Is that to appeal 0:14:22.560 --> 0:14:26.960 to the consumer who might be trading down to McDonald's. 0:14:28.880 --> 0:14:31.320 Now, you know what it's it's beverages are hot, I 0:14:31.360 --> 0:14:35.120 mean cosmics, you know, although that that chain isn't isn't 0:14:35.360 --> 0:14:39.680 you know, has been kind of dissolved that they they've 0:14:39.760 --> 0:14:44.080 learned a lot about the beverage beverage industry through that 0:14:44.840 --> 0:14:49.040 through that test, right dirty sodas. You know, there's a 0:14:49.120 --> 0:14:52.440 chain out west called Swig that that absolutely crushes it 0:14:52.480 --> 0:14:55.800 with dirty sodas. Think you know, popa polo with added 0:14:55.880 --> 0:15:01.000 syrups and whipped cream on top and things of that nature. Right, 0:15:01.040 --> 0:15:04.120 It's a lot of energy drinks. These these are like 0:15:04.400 --> 0:15:07.840 really a really hot segment of the QSR industry. It 0:15:07.960 --> 0:15:10.840 has been for years, right as some of these bigger, 0:15:11.280 --> 0:15:14.400 slower moving chains like McDonald's are starting to kind of 0:15:14.480 --> 0:15:17.360 jump on this bandwagon a little bit later. But you know, 0:15:17.440 --> 0:15:21.920 we think this is this could be meaningful for them 0:15:22.040 --> 0:15:25.720 in the second half, you know, and it's no longer public, 0:15:25.760 --> 0:15:28.360 but you know, this could take a chunk out of 0:15:28.480 --> 0:15:33.280 Sonic's business, you know, because they've they've long been a 0:15:33.320 --> 0:15:37.520 beneficiary of the beverage market, you know. And what's nice 0:15:37.520 --> 0:15:39.520 about that business is a lot of those drinks are 0:15:39.560 --> 0:15:43.160 sold and during that snack period, you know, when these 0:15:43.200 --> 0:15:45.880 restaurants have a low around you know, two, three, four 0:15:45.880 --> 0:15:47.640 o'clock in the afternoon. 0:15:48.560 --> 0:15:52.480 Restaurant brands. They also reported some numbership remind us who 0:15:52.480 --> 0:15:54.840 restaurant brands is and what they're doing these days? How 0:15:54.840 --> 0:15:55.560 are their results? 0:15:56.880 --> 0:15:59.560 Yeah, so you know it was kind of mixed results 0:15:59.680 --> 0:16:01.880 versus what the street was looking for. You know, I 0:16:02.200 --> 0:16:05.240 look at the underlying trends and I think they're still strong. 0:16:05.320 --> 0:16:07.880 So the reason why it's down right now is, you know, 0:16:08.080 --> 0:16:11.480 Burger King showed an acceleration in the US, which is 0:16:11.480 --> 0:16:16.400 is pretty promising. You know, they showed strong results at 0:16:16.400 --> 0:16:19.560 IT international and International is a pretty well oiled machine 0:16:19.600 --> 0:16:24.520 for this company. But there was some deceleration in the 0:16:24.560 --> 0:16:28.440 Tim Horton's numbers, which makes up sixty percent of adjusted EBITDA. 0:16:29.280 --> 0:16:33.040 And you know Popeyes remains kind of weak, right, So 0:16:33.160 --> 0:16:35.440 I'd say the biggest concern in this report is really 0:16:35.440 --> 0:16:39.400 about the slowdown in tim Horns. But it's lapping tougher comps. 0:16:39.440 --> 0:16:42.240 And when we look at you know, same store sales 0:16:42.320 --> 0:16:44.840 trends going back you know a handfull of years, the 0:16:44.920 --> 0:16:47.840 trends are actually accelerating even though it decelled the on 0:16:47.880 --> 0:16:50.240 the one year and a two year basis, And so 0:16:50.680 --> 0:16:53.240 you know, tim Horns is a monster in Canada. I 0:16:53.280 --> 0:16:57.040 wouldn't be too concerned about it. Like I said, a 0:16:57.080 --> 0:17:01.280 big part of this story is the internetational unit growth 0:17:01.320 --> 0:17:05.040 that they're putting up, and we think they can get 0:17:05.040 --> 0:17:07.959 back up to mid single digits here in another year 0:17:08.119 --> 0:17:12.800 or so. You know, Popeyes and Burger King are absolutely 0:17:12.840 --> 0:17:17.639 crushing it around the globe, and you know, we expect 0:17:17.400 --> 0:17:20.120 pretty solid growth here and we think they can outperform 0:17:20.160 --> 0:17:23.000 a lot of their quick service peers here in twenty 0:17:23.040 --> 0:17:23.520 twenty six. 0:17:23.720 --> 0:17:26.679 Michael, how are the McDonald's and the restaurant brands of 0:17:26.680 --> 0:17:31.320 the world using AI. We've seen them embraced automation with 0:17:31.680 --> 0:17:33.680 you know, you have to go order yourself at the 0:17:33.760 --> 0:17:36.800 kiosk and then someone calls your number, so they've removed 0:17:37.320 --> 0:17:39.960 they've made things more automated in that regard. 0:17:40.000 --> 0:17:42.639 But how will AI change the whole experience? 0:17:44.600 --> 0:17:48.280 Yeah, well, you know AI is going to change the experience, 0:17:49.000 --> 0:17:53.600 the restaurant experience in different ways, Like different chains are 0:17:53.600 --> 0:17:57.320 going to look to different solutions. Something that works for 0:17:57.400 --> 0:17:59.720 one type of chain like a Chipotle, isn't going to 0:17:59.800 --> 0:18:02.879 work for McDonald's and vice versus. So you know, I 0:18:02.880 --> 0:18:05.920 think when you're looking at AI first and foremost, it's 0:18:05.960 --> 0:18:08.560 going to be a continued progress on that one to 0:18:08.560 --> 0:18:12.560 one marketing, getting people into your loyalty program and eventually 0:18:12.600 --> 0:18:17.960 getting those very directed offers to them at the right times. Right, 0:18:18.040 --> 0:18:20.560 this has been kind of a long time coming. AI 0:18:20.640 --> 0:18:24.159 should really kind of help with that piece, and I 0:18:24.160 --> 0:18:28.119 think for these quick service chains, the thing that's going 0:18:28.200 --> 0:18:31.760 to be probably most useful is like an AI assistant. 0:18:31.760 --> 0:18:34.439 You know, Taco Bella is rolling this out, testing it 0:18:34.480 --> 0:18:36.359 and then eventually going to roll out to all its 0:18:36.440 --> 0:18:39.680 stores where they have basically an AI assistant for their 0:18:39.720 --> 0:18:42.320 GM tells them how much food they need to prep, 0:18:42.640 --> 0:18:46.320 if they need more labor on the line, helps them 0:18:46.760 --> 0:18:49.760 have more accurate sales projections, so they know how much 0:18:49.800 --> 0:18:51.959 labor they're going to need on any given day, how 0:18:52.040 --> 0:18:54.399 much food prep they need to do, whatever it might be. 0:18:55.080 --> 0:18:55.280 Right. 0:18:55.320 --> 0:18:58.200 So, I think those are going to be the two 0:18:58.920 --> 0:19:02.640 most ubiquitous use cases and probably the ones that we'll 0:19:02.680 --> 0:19:07.359 see most of the progress on in the near term. 0:19:07.480 --> 0:19:10.520 Stay with us more from Bloomberg Intelligence coming up here. 0:19:10.359 --> 0:19:10.560 For this. 0:19:13.640 --> 0:19:17.320 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:19:17.400 --> 0:19:20.520 weekdays at ten am Eastern on Apple, Cocklay and Android 0:19:20.520 --> 0:19:23.840 Auto with the Bloomberg business app listen on demand wherever 0:19:23.880 --> 0:19:27.200 you get your podcasts, or watch us live on YouTube. 0:19:27.880 --> 0:19:30.480 One of the stocks on the move to the downside 0:19:31.320 --> 0:19:34.040 is tech company app Lovin. I'm just looking at the 0:19:34.080 --> 0:19:36.680 stock here, really taking it on the chin here. Today 0:19:36.760 --> 0:19:40.320 they had some earnings and some guidance, a little bit 0:19:40.359 --> 0:19:44.080 of a challenge that stocks down nineteen percent today and 0:19:44.160 --> 0:19:46.680 forty five percent year to date. This is a big 0:19:46.680 --> 0:19:49.359 company that a lot of people, including myself, don't know 0:19:49.400 --> 0:19:51.119 a lot about. We're going to change that right now. 0:19:51.160 --> 0:19:52.280 It's got to mark a cap of one hundred and 0:19:52.280 --> 0:19:56.400 twenty five billion dollars. Nathan nade Joints is Bloomberg Intelligence 0:19:56.400 --> 0:19:59.480 technology research analysts. Nathan, do me a solid here and 0:19:59.560 --> 0:20:02.640 just tell me what app love and does. Number one 0:20:02.640 --> 0:20:05.280 and number two why should it start getting hammered today? 0:20:07.359 --> 0:20:11.159 So thanks for the questions. First question, app Lovin essentially 0:20:11.960 --> 0:20:16.119 controls and auction, which is a marketplace where ad space 0:20:16.280 --> 0:20:18.320 inside of mobile apps are bought and soul. 0:20:18.640 --> 0:20:19.120 It has a. 0:20:19.080 --> 0:20:22.119 Commanding influence on this sort of real time auctions for 0:20:22.280 --> 0:20:26.199 in app ad space and that is helping. You know. 0:20:26.840 --> 0:20:30.640 The reason it runs an auction houses because it essentially 0:20:30.640 --> 0:20:36.119 connects advertisers which one to advertise inside of mobile gaming apps, 0:20:36.400 --> 0:20:38.920 and also mobile gaming app publishers that want to sell 0:20:38.960 --> 0:20:41.440 ad space to make dollars. You know, because a lot 0:20:41.480 --> 0:20:44.360 of these states these days, a lot of mobile apps, 0:20:44.600 --> 0:20:47.520 games or otherwise I actually offer for free. So how 0:20:47.560 --> 0:20:49.639 else are they going to make money if not selling 0:20:49.680 --> 0:20:52.119 the ad space inside of the apps and Applevin is 0:20:52.200 --> 0:20:56.639 essentially the mediator connecting brands which one to advertise and 0:20:57.320 --> 0:21:00.240 apps which want to sell the ad space. And on 0:21:00.320 --> 0:21:03.840 the share price reaction we saw today, I think, you know, 0:21:04.440 --> 0:21:06.600 I think to some extent that's used to this sort 0:21:06.640 --> 0:21:10.359 of AI disruption risk or so called AI fears. And 0:21:10.400 --> 0:21:13.680 obviously Eplevin is not alone in facing disruption for any 0:21:13.680 --> 0:21:16.399 sort of AI companies. And there's been a lot of 0:21:16.440 --> 0:21:19.040