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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 3: So you have a global it collapse, right, just really

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Speaker 3: putting a CrowdStrike front and center in that spotlight. Now,

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Speaker 3: CrowdStrike stock is only down by about nine percent, and

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Speaker 3: I say that because it was down as much as

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Speaker 3: twenty percent not too long ago. This is a dominant

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Speaker 3: supplier of software that protects businesses from ransomware attacks, and

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Speaker 3: it was really thrust into the spotlight as it struggled

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Speaker 3: to fix a faulty patch that led to cascading system

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Speaker 3: wide failures that just paralyzed the operations of clients ranging

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Speaker 3: from banks to global re tail giants to healthcare systems

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Speaker 3: today and then for everyone else social media, which I'm

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Speaker 3: sure was disastrous for influencers everywhere. Just a little history

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Speaker 3: here on CrowdStrike. Guys, we're going to talk to mandyp

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Speaker 3: saying more about what it means for the company, what

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Speaker 3: it means for revenue and earnings in addition to what

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Speaker 3: it means for their customers and do they wind up

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Speaker 3: switching gears at any point. But here's some of the

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Speaker 3: details and the history of CrowdStrike. It was founded by

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Speaker 3: former executives of antivirus pioneer McAfee, and it launched back

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Speaker 3: in twenty twelve, and now it has grown into the

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Speaker 3: leading maker of a relatively new type of security software

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Speaker 3: that's considered among the best defenses against ransomware and other

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Speaker 3: hacking threats. It controls about eighteen percent of the eight

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Speaker 3: point six billion dollar global market for so called quote

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Speaker 3: modern endpoint protection software, just ahead of our rival Microsoft.

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Speaker 3: And this is all according to market research firm IDC.

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Speaker 3: So it is distinct from the older, more limited types

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Speaker 3: of security software. And traditional antivirus was pretty useful in

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Speaker 3: those early days of computing in the Internet, and this

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Speaker 3: is basically where CrowdStrike is at. That's kind of your

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Speaker 3: history of how CrowdStrike got to be so popular and

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Speaker 3: so big in this market. That stock still down by

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Speaker 3: about nine percent. Man Deep saying is joining us. He's

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Speaker 3: much more details than I do on this. Bloomberg Intelligence

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Speaker 3: senior technology industry analyst Mandy I guess my question is

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Speaker 3: is CrowdStrike going to lose a bowload of customers?

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Speaker 4: I don't think so. I think right now we are

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Speaker 4: just learning that. Clearly this was something they shipped last night.

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Speaker 4: It was an outage because of the changes they made

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Speaker 4: to their software. So the good thing is it wasn't

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Speaker 4: a breach. I mean, the last thing you want is

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Speaker 4: a cybersecurity company getting breached themselves.

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Speaker 5: So that's not the.

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Speaker 3: Case, right, So plus time, yes, yeah.

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Speaker 4: Yeah, But at the same time, the fact that this

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Speaker 4: happened at the scale at which it did, and look,

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Speaker 4: there will be liabilities. I mean, there will be fines.

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Speaker 4: I think that I've heard GDPR findes because the outage

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Speaker 4: was pretty big, there was lost business. So clearly the

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Speaker 4: fallout from this would be, you know, it will impact

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Speaker 4: their free cash flow for this year and also delay

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Speaker 4: their deals. I mean, look, they are two weeks away

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Speaker 4: from closing this quarter. A lot of these deals are

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Speaker 4: signed at the very end of the quarter. I bet

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Speaker 4: you they're not happening now given the outage.

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Speaker 3: So if I'm a customer, so I'm Delta, Yeah, what

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Speaker 3: do I say to CrowdStrike if I can't operate and

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Speaker 3: I lose money for two days? Or I have to

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Speaker 3: shell out cash to help customers who are really mad

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Speaker 3: at me.

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Speaker 4: Yeah, so that's where you know.

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Speaker 3: That's where the finds are going to come in.

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Speaker 4: And look, Microsoft also is involved here, so it's not

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Speaker 4: just Crowdstrike's fault. The fact that this happened at the

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Speaker 4: Windows operating system level, you have to ask yourself, could

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Speaker 4: Microsoft has done something here in terms of preventing that

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Speaker 4: sort of a change where the system would not book?

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Speaker 4: I mean, Microsoft is the operating system layer, and anytime

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Speaker 4: you change things at the operating system layer, it's like

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Speaker 4: all your critical systems will be down. So the fact that,

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Speaker 4: and that's the broader point here is if you have

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Speaker 4: an agent based solution where you're installing something at the

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Speaker 4: operating system layer, who's liable for that? Is it the

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Speaker 4: operating system vendor or is it the software vendor? And

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Speaker 4: that's where I think, I mean, everyone is saying, oh,

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Speaker 4: they rolled back the changes, the outage is over, there

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Speaker 4: will be a fallout in terms of who is paying

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Speaker 4: the fines, and more than the fines for the lost business,

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Speaker 4: there's somebody who is liable here, and it's CrowdStrike and

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Speaker 4: probably Microsoft.

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Speaker 3: So can you just explain it done that downy for me.

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Speaker 3: Even more so, CrowdStrike says, hey, guys, I got a

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Speaker 3: software updated. Microsoft's like cool, and then they press go

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Speaker 3: what should they have done instead?

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Speaker 4: I mean, this should have been tested one hundred times

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Speaker 4: before you roll something like that out.

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Speaker 3: Then they test it, they find the bugs, they fix it.

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Speaker 4: There's a whole software industry just for testing changes. That's

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Speaker 4: why cloud software it's great because you deploy it for

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Speaker 4: all your customers with the click off a button. But

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Speaker 4: that's your risk. I mean, when people used to do

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Speaker 4: things in the on prem world, you had to ship

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Speaker 4: a disk, the disc had to be installed it and look,

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Speaker 4: not everyone would have done it overnight. In this case,

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Speaker 4: all the customers got the change overnight and they were

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Speaker 4: affected overnight. And some of them are running all machines.

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Speaker 4: So even though crowd strikes says that they rolled back

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Speaker 4: the update and it's going to automatically fix things, well,

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Speaker 4: some people are running Windows two thousand, so it doesn't

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Speaker 4: roll back that way because those people have to take

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Speaker 4: some different steps compared to the ones that are running

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Speaker 4: the latest version of Windows where it can be rolled

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Speaker 4: back easily.

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Speaker 6: Well.

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Speaker 3: Really caught my eye is there is report that someone

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Speaker 3: has issued a paper ticket in handwriting to get on

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Speaker 3: a plane. I was like, oh, this is real now to.

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Speaker 4: Get rid of systems are down.

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Speaker 3: Oh man, So I know you're not going to give

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Speaker 3: stock prices, but just looking at CrowdStrike down nine percent,

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Speaker 3: it was down twenty percent. What kind of hit to

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Speaker 3: the stock price is reasonable that we should really be

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Speaker 3: looking at.

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Speaker 4: I mean, look, we don't know the extent of liability

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Speaker 4: they have in this case. Depending on that, I think

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Speaker 4: fifteen percent is warranted. And some of their competitors are

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Speaker 4: up Sentinel one Palo Alto Networks, So endpoint security is

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Speaker 4: primarily four vendors. CrowdStrike is the leading one Sentinel Palo Alto.

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Speaker 4: And there's a company, vis Security, that Google is looking

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Speaker 4: to buy. There were rumors about that last week. Well

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Speaker 4: guess what that validates? Why Google, a cloud player, is

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Speaker 4: looking to buy a cybersecurity provider. So clearly, given it's

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Speaker 4: a four kind of company race here, CrowdStrike fallout means

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Speaker 4: the others stand to benefit here.

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Speaker 3: What else are you looking at right now? I mean,

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Speaker 3: I know this occupied most of your morning, but now

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Speaker 3: we seem to be resuming somewhat as is operations with

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Speaker 3: some question marks, But what else is on your mind

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Speaker 3: right now? After this week? Or you've seen what I

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Speaker 3: think the Nasdaq, the S and P, and the Nasdaq

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Speaker 3: one hundred seeing its worst week since April? What do

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Speaker 3: you think?

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Speaker 4: I mean? Look, we got the print from Netflix last

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Speaker 4: night at TSMC ASML, they all reported results and AI

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Speaker 4: spends still continues to be robust. So with Google reporting

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Speaker 4: next week, I think you may see a pretty strong

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Speaker 4: print going by what happened this week, even though the

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Speaker 4: market was down and everyone is raising concerns around valuation

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Speaker 4: and just you know, the market risk. But I mean

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Speaker 4: AI spend is still what's driving the market, and you

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Speaker 4: want to see how Google does next week.

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Speaker 3: When you say the AI spend part, how do we

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Speaker 3: know about the monetization of it on the end user?

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Speaker 3: Because that's going to be where the investment continues, right,

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Speaker 3: Like you're going to invest a bowtload of money now, great,

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Speaker 3: but then you actually have to make money off of

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Speaker 3: it to then keep spending money on it. When does

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Speaker 3: that start to come into play?

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Speaker 4: Well, so I think you will see that in Google's

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Speaker 4: result as well. They have launched their Gemini offering that's

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Speaker 4: part of their Google One bundle, Microsoft has a GitHub copilot.

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Speaker 4: They all run cloud businesses where they are deploying these workloads,

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Speaker 4: the AI workloads. And look, the biggest driver of this

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Speaker 4: is how big is the GPT five and GPT six

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Speaker 4: going to be. If the models that are being trained

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Speaker 4: are going to be much larger, ten twenty times larger,

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Speaker 4: you need more compute. And if the companies are spending

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Speaker 4: the capex to train these models, that means they are

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Speaker 4: in it. I mean, these companies are the biggest spenders

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Speaker 4: on capex, Your Microsoft, Google, Amazon. If they continue that path,

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Speaker 4: they're telling you that we believe in it. And if

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Speaker 4: one of these vendors blinks first, that's the big risk.

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Speaker 4: Who says, Okay, I'm pausing spending on training cloud models

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Speaker 4: now because we don't see the ROI we haven't seen

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Speaker 4: that yet.

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Speaker 5: Everyone is going big.

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Speaker 3: And then to your point, like there is a no

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Speaker 3: first mover advantage to not doing that right, Like Google's

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Speaker 3: not gonna want to do it first, Amazon not gonna

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Speaker 3: want to do it first, Like who does that first?

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Speaker 3: And when that happens, So is there a possibility that

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Speaker 3: they'll just keep spending because of that?

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Speaker 4: Even if like there is fear pressure because and right

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Speaker 4: now the GPUs are still supply constraints. So nobody wants

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Speaker 4: to say, oh, I'm not raising my capex and I

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Speaker 4: have enough of these GPUs because there are still a

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Speaker 4: hot commodity. Well, time will tell, if you know, the

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Speaker 4: market kind of stabilizes, their the supply demand equation gets better,

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Speaker 4: and that's when you will see market reaction. But until

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Speaker 4: that time, what TSMC told us, yeah, is they're still

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Speaker 4: supply constrained. They have more demand to make those leading

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Speaker 4: at chips, and so that's why I think the ai

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Speaker 4: story continues.

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Speaker 3: Yeah. They said also that that supply and demand imbalance

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Speaker 3: is going to last what until twenty twenty six.

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Speaker 4: Yes, yeah, well, I mean and couple that with the

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Speaker 4: geopolitical risk. You know what's going on with the election situation,

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Speaker 4: the former Trump, former President Trump saying he doesn't believe

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Speaker 4: in Taiwan. So that's a chill point. If something happens

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Speaker 4: to Taiwan and the relationships changes, then TSMC is not

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Speaker 4: spending capex on expanding their capacity. Well, everyone wants TSMC

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Speaker 4: to expand capacity, so that's a big risk in itself.

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Speaker 4: It's TSMC is not expanding capacity of their notes amazing.

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Speaker 3: You look really excited, by the way. I definitely heard

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Speaker 3: Man Deep tag about this it thing and he was

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Speaker 3: a little giddy. There's like something really interesting going on here. Mandy,

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Speaker 3: thanks a lot, really appreciate it. Thanks for the hustle.

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Speaker 3: Man Deep saying, Bloomberg Intelligence senior technology industry analyst, amazing stuff.

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Speaker 3: Cannot wait for Google next week. That's going to be

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Speaker 3: really great as well.

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Speaker 3: Well, Alex Deal. Paulsweenis off today. This is Bloomberg Intelligence Radio.

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Speaker 3: We bring you all the top news in business, finance,

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Speaker 3: economics through our lens of our Bloomberg Intelligence analysts. They

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Speaker 3: covered two thousand companies and one hundred and thirty industries worldwide.

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Speaker 3: The next top story of the morning, aside from CrowdStrike

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Speaker 3: and what's happening there, is what's happening in DC with

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Speaker 3: President Biden. So the reports earlier from NBC said that

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Speaker 3: Biden's family is starting to discuss his exit plan from

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Speaker 3: the race. Shortly after that, the White House came out

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Speaker 3: and said that that NBC report was wrong, but the

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Speaker 3: clock is still ticking towards the DNC. Oh and by

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Speaker 3: the way, the RNC just wrapped up last night with

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Speaker 3: a ninety three minute speech from former President Donald Trump.

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Speaker 3: Let's go to Nathan Dean. He's Bloomberg Intelligence, a senior.

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Speaker 3: Let me get your title right, senior policy analyst joining

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Speaker 3: us from there. Hey, Nathan, there's a lot to kind

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Speaker 3: of get through right now. But before we kiss everything

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Speaker 3: off here, let's just go to what's happening in DC

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Speaker 3: and the White House. What is your take on the

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Speaker 3: Biden campaign?

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Speaker 7: So, you know, it really sounds like the pressure. I mean, look,

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Speaker 7: I don't think he needs to be me to know

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Speaker 7: that the pressure is on the White House right now

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Speaker 7: and specifically on President of Biden to you know, make

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Speaker 7: the decision to step aside. You know, we've seen reporting

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Speaker 7: from Bloomberg News all throughout the week that not only

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Speaker 7: do your you know, his general allies in Congress, but

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Speaker 7: also you know, statements from you know, or the lack

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Speaker 7: of statements from President Obama for example. But what we

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Speaker 7: should note is the prediction right markets as of right

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Speaker 7: now are fifty seven to twenty one in terms of

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Speaker 7: Kamala Harris. Look again, these are prediction markets. To take

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Speaker 7: it if you will. But we've put out a whole

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Speaker 7: host of notes on the terminal this morning on healthcare, taxes, banks, evs,

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Speaker 7: and TMTs, And the crust of the matter is is

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Speaker 7: that if President Biden were to drop out of the

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Speaker 7: race this weekend, and similarly, like Kamala Harris comes in

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Speaker 7: the vice president to replace him, most of the policies

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Speaker 7: are a status quo. There's really not a lot of

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Speaker 7: difference between Kamala Harris and Joe Biden when it comes

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Speaker 7: to policies. And so just in terms of trying to

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Speaker 7: figure out the certainty in which sectors are being impacted,

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Speaker 7: I think it just be a continuation of the same factor.

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Speaker 3: So based on that, then what would be the big

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Speaker 3: changes with President Trump? I mean, ninety three minutes last

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Speaker 3: night we learned a ton tariffs and taxes.

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Speaker 7: Is that what we're looking at exactly? So I would

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Speaker 7: say tariffs and taxes are the top two. In fact,

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Speaker 7: our chief equity strategist Gina Martin Adams put out a

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Speaker 7: note specifically about that this morning, talking about what does

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Speaker 7: that mean for markets in terms of taxes. If you

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Speaker 7: go back to the twenty seventeen tax cuts and you

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Speaker 7: do something very similar to that, you get a slight

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Speaker 7: tailwind pushing earnings a little bit better in that if

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Speaker 7: you get the tariffs, well, there's a lot of uncertainty there.

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Speaker 7: So but I would say in terms of people thinking

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Speaker 7: about how President Trump would implement this, it's almost short

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Speaker 7: term versus long term. Short term tariffs. The power of

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Speaker 7: the presidency is a lot more powerful when it comes

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Speaker 7: to trade in tariffs. So look for that to be

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Speaker 7: one of the first actions that the president would do

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Speaker 7: if he were to win in say the first quarter

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Speaker 7: of next year. The tax reform debate, however, goes through

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Speaker 7: twenty twenty five. Remember that's when the individual tax cuts expire.

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Speaker 7: So we have to see a the makeup of Congress,

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Speaker 7: and b we're going to see a lot of debate

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Speaker 7: over what the tax issue is. So if you're trying

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Speaker 7: to model this out from a you know, timing perspective,

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Speaker 7: trade and tariff's number one tax is number two.

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Speaker 3: Yeah, and also, you know what it actually does to

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Speaker 3: the equity market is a whole different story. Can you

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Speaker 3: talk to me a little bit about energy policies. So

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Speaker 3: clearly it's a drill baby drill situation for President Trump.

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Speaker 3: On the flip side, though, the more you drill baby drill,

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Speaker 3: the lower oil prices can go, which is not always

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Speaker 3: happiness for oil companies and built drill baby drill.

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Speaker 1: Yeah, you know, if funny enough.

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Speaker 7: I was on a chat last night with some of

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Speaker 7: our energy analysts when he mentioned drill BA to b drill,

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Speaker 7: and a lot of the feedback I got from Bi's

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Speaker 7: energy team was, look, there's a lot of policy things

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Speaker 7: that President Biden can do, but also just remember the

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Speaker 7: markets are moving in a certain way. Solar and win

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Speaker 7: and renewable technology is continuing to get cheaper, and so

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Speaker 7: you know, there are policies that we'll see on the

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Speaker 7: energy side that certainly could make it easier for drill

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Speaker 7: built drill.

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Speaker 1: I know it's tough, right, it's hard.

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Speaker 7: You know, there's certainly going to be policies to coming

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Speaker 7: from the White House. But also remember is this policy

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Speaker 7: a regulation or is it an executive order or is

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Speaker 7: it legislation? And so I think that even though you know,

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Speaker 7: I'm not an energy analyst, but at least, you know

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Speaker 7: our group chat last night, a lot of our energy

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Speaker 7: analysts think that solar renewables are here to stay.

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Speaker 3: What about EV's Again the contradiction of Elon Musk contributing

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Speaker 3: heavily to a super pac that's going to support Donald Trump.

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Speaker 3: But then yesterday it seemed like when he was speaking,

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Speaker 3: he was like, subsidies for EV's bye bye.

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Speaker 2: Yeah.

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Speaker 7: You know, I got that question from a client just

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Speaker 7: this morning. You know, you know, President Trump last night

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Speaker 7: essentially in a paraphrasing here said I dislike electric vehicles,

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Speaker 7: and you know, we're going to do away with the

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Speaker 7: electric vehicle tax credit that's part of the Inflation Reduction Act. Now,

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Speaker 7: they could certainly do this as part of that tax

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Speaker 7: reform debate that I mentioned to, and President Trump could

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Speaker 7: use executive orders to adjust that EV mandate if he

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Speaker 7: so chooses. But then he got Elon Musk saying I'm

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Speaker 7: going to spend forty five million dollars a month to

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Speaker 7: support President Trump in his presidency. So I think what

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Speaker 7: I would happen here, what the EV tax credit is

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Speaker 7: probably this is not going to be a day one issue.

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Speaker 7: If President Trump were to win, let the issue fester

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Speaker 7: for a little bit. Let's see if Elon Musk tries

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Speaker 7: to get into the White House and starts whispering the

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Speaker 7: President's ear, and then we'll see in maybe in the

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Speaker 7: second quarter, how.

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Speaker 1: Ultimately they want to move forward with this. So it's

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Speaker 1: certainly keep in mind.

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Speaker 7: But also I think the ev automakers also are just

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Speaker 7: saying there's a lot of demand here, whether that tax

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Speaker 7: credits with us or not, right, and.

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Speaker 3: Really we're still revolving around tariffs and taxes, So there

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Speaker 3: is that the priority all right here, Nathan, we really

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Speaker 3: appreciate it. Nathan Dean joins us from Bloomberg Intelligence, a

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Speaker 3: senior policy analysts. Let's go right to Milwaukee here with

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Speaker 3: Emory Hordern, a chief political correspondent to anchor of a

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Speaker 3: Bloomberg surveillance Henry. Last night I felt like a very

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Speaker 3: historic event. I mean, ninety three minute speech, sweeping speech.

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Speaker 3: Can you just give me some on the ground color

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Speaker 3: as to what it's like having been there and being

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Speaker 3: in Milwaukee.

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Speaker 6: It was a ninety three minute speech. A lot of

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Speaker 6: attendees were feeling it at some point in the end.

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Speaker 6: Some of them may want to beat the traffic, but

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Speaker 6: they were leaving towards the end.

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Speaker 5: There. It was really the beginning part of the speech.

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Speaker 6: That you felt it in the room, very silent, very somber.

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Speaker 6: Foreign President United States explaining in detail what he experienced

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Speaker 6: Saturday evening.

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Speaker 5: When there was attempt on his life, and he.

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Speaker 6: Said, it's too painful to talk about, so he's never

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Speaker 6: going to talk about this again. And he was saying

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Speaker 6: how he's thanks to God that he's still alive, and

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Speaker 6: that was really the tone he was trying to set.

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Speaker 6: And then he talked about uniting the country, not the

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Speaker 6: Republican Party, uniting the country. He said, what is the

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Speaker 6: point of having half the country?

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Speaker 5: I want a victory of the entire country.

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Speaker 6: But then the speech went on, you heard similar tropes

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Speaker 6: that you'd hear from a Trump rally, and he veered

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Speaker 6: off script a number of times, which basically meandered in

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Speaker 6: and out, and which is why we ended up with

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Speaker 6: a ninety three minute speech. Not sure how this would

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Speaker 6: land exactly with the individuals back home. If it's slice

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Speaker 6: and dice, obviously people are going to want to hear

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Speaker 6: about that assassination attempt and potentially see a different side

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Speaker 6: of the former president, even though he talked about a

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Speaker 6: lot of things that categorically will were false and similar

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Speaker 6: to some of the.

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Speaker 5: Rhetoric that unnerves some independence. But in the room it

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Speaker 5: was electric. These individuals.

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Speaker 6: There are ones that already are motivated to go out

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Speaker 6: and vote for Trump, but these individuals were so excited

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Speaker 6: to be there. And we should note leading up to

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Speaker 6: it was a really a event, a machismo event. You

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Speaker 6: had Hull Colgan come out ripping his shirt open, calling

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Speaker 6: Trump his hero, and you also had Kid Rock. It

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Speaker 6: was the nostalgia of the eighties and the nineties really

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Speaker 6: leading up to the former president to make this historic

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Speaker 6: speech third third time he has been nominated by this

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Speaker 6: Republican Party.

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Speaker 3: Whole Colgan, I feel like at the end of the

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Speaker 3: shirt ripping it kind of got caught there. But your

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Speaker 3: point is well taken in terms of the unity theme.

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Speaker 3: I appreciate that the beginning of the speech was very

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Speaker 3: much focused on that. How did that evolve throughout those

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Speaker 3: ninety three minutes?

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Speaker 6: Well went back to the same president Chump that we

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Speaker 6: know and we see and hear on in campaign rallies.

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Speaker 6: He mentioned Biden only once. He did want to talk

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Speaker 6: about the current administration. Potentially that was strategic because of

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Speaker 6: course those news as you were just discussing that President

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Speaker 6: Biden might step aside and his family is discussing this

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Speaker 6: with him, what an exit plan could look like. According

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Speaker 6: to NBC News, we do see a lot of pressure

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Speaker 6: mounching on the sitting president going into the weekend.

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Speaker 5: So he said the current administration.

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Speaker 6: He's mentioned Biden's names once and said, oops, I'm not

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Speaker 6: going to do that again. But he went after what

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Speaker 6: he called he called it crazy Nancy Pelosi. So he

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Speaker 6: had some of these similar attacks that we've seen, false

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Speaker 6: falsehoods about a stolen election.

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Speaker 5: He mentioned had an elector somebody's been quite fixated on

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Speaker 5: for a number of weeks now in some of his rallies.

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Speaker 5: So in the beginning, there was.

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Speaker 6: This show of he I wanted to project unity, he

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Speaker 6: wanted to talk about this life threatening event. He literally

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Speaker 6: dodged a bullet, But then he quickly moved into the

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Speaker 6: Trump that we've known over the course of his political career.

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Speaker 3: All right, Emory, we really appreciate it. Thank you so much.

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Speaker 3: I know it's been a terribly long week, but thank

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Speaker 3: you so much for joining US Amrie Hardern, a chief

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Speaker 3: political correspondent and co anker of Bloomberg Surveillance.

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Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch US Live

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Speaker 2: weekdays at ten am Eastern on AFO, Cardplay and broud

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Speaker 2: Otto with the Bloomberg Business app. Listen on demand wherever

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Speaker 3: So Netflix stock is now up by about six tens

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Speaker 3: of one percent. The highlights that added over eight million

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Speaker 3: customers in the second quarter. I had topped expectations in

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Speaker 3: every region around the world, and that included two point

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Speaker 3: eight million new customers in the Asia Pacific region. Plus

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Speaker 3: They're less expensive plan with ads accounted for almost half

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Speaker 3: of new sign ups last quarter. The one quest question, though,

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Speaker 3: was a cautious forecast. What was up with the third

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Speaker 3: quarter outlook? Keetheramanganathan is Boomberg Intelligence analyst on US media

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Speaker 3: and she joined US now from Princeton, New Jersey. Git

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Speaker 3: what happened for them Q three outlook?

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Speaker 8: Yes, so thanks alex So. The revenue guidance obviously came

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Speaker 8: in a little bit softer than what the street was expecting.

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Speaker 8: Street was looking at about fifteen percent revenue growth in

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Speaker 8: third quarter, they're guiding to about you know, thirteen point

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Speaker 8: nine percent. And I think really what investors are grappling

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Speaker 8: with at this point we've seen kind of the stock

437
00:21:33,040 --> 00:21:36,679
Speaker 8: bounce around a lot post earnings is because we're not

438
00:21:36,720 --> 00:21:39,720
Speaker 8: sure whether the three Q guidance. Obviously they did guide

439
00:21:39,720 --> 00:21:42,760
Speaker 8: to a moderation of subscriber growth. So just remember in

440
00:21:42,800 --> 00:21:45,919
Speaker 8: the past four quarters. Obviously they crushed it in the

441
00:21:45,920 --> 00:21:48,119
Speaker 8: second quarter with eight million subscriber ads, but in the

442
00:21:48,119 --> 00:21:51,679
Speaker 8: past four quarters alone, Netflix has gained something like forty

443
00:21:51,800 --> 00:21:56,320
Speaker 8: million subscribers. Wow, that is absolutely massive, And so I

444
00:21:56,320 --> 00:21:58,359
Speaker 8: guess the question now is, of course we're going to

445
00:21:58,400 --> 00:22:02,040
Speaker 8: see a moderation in subs but for the third quarter.

446
00:22:02,119 --> 00:22:04,840
Speaker 8: I mean, is this just kind of them being conservative

447
00:22:05,080 --> 00:22:08,600
Speaker 8: from a guidance standpoint, or is this, you know, kind

448
00:22:08,600 --> 00:22:13,040
Speaker 8: of an inflection to a much more slower, mature growth profile.

449
00:22:13,080 --> 00:22:15,360
Speaker 8: And I think that's what you know, investors are trying

450
00:22:15,400 --> 00:22:17,120
Speaker 8: to parse out and digest.

451
00:22:16,840 --> 00:22:19,240
Speaker 3: Right, So, like the law of large numbers, when are

452
00:22:19,240 --> 00:22:21,240
Speaker 3: we going to learn the answer to that question?

453
00:22:22,840 --> 00:22:25,919
Speaker 8: So you know, there are obviously a lot of different

454
00:22:25,960 --> 00:22:30,080
Speaker 8: data points that investors track, search trends, you know, third

455
00:22:30,160 --> 00:22:34,520
Speaker 8: party data, downloads, as it looks right now, it seems that,

456
00:22:35,000 --> 00:22:37,040
Speaker 8: you know, all of the trends are still pointing to

457
00:22:37,480 --> 00:22:41,480
Speaker 8: pretty good subscriber momentum. One of the things that you know,

458
00:22:41,520 --> 00:22:44,960
Speaker 8: we typically look at is how is the content pipeline

459
00:22:45,000 --> 00:22:47,880
Speaker 8: shaping up? And the content pipeline seems stronger than ever.

460
00:22:47,960 --> 00:22:50,960
Speaker 8: You know, you have multiple hit shows that are coming

461
00:22:51,000 --> 00:22:53,960
Speaker 8: to the platform in the third quarter, you know, whether

462
00:22:54,000 --> 00:22:57,639
Speaker 8: that's Cobra Kai this week or you know, Umbrella Academy

463
00:22:57,720 --> 00:23:00,840
Speaker 8: or Night Agent or Emily Embarrass So you know, they

464
00:23:00,880 --> 00:23:02,919
Speaker 8: have all of their hit shows kind of coming in.

465
00:23:03,000 --> 00:23:05,640
Speaker 8: They have a steady cadence of all of those titles

466
00:23:05,720 --> 00:23:08,959
Speaker 8: kind of releasing, so content should do pretty well for them.

467
00:23:09,000 --> 00:23:13,200
Speaker 8: And then remember they're also licensing a whole bunch of

468
00:23:13,400 --> 00:23:17,439
Speaker 8: different content programs from you know, so many of the

469
00:23:17,440 --> 00:23:19,800
Speaker 8: other media companies. So I don't think content will be

470
00:23:19,840 --> 00:23:22,000
Speaker 8: a problem. The only issue that we need to kind

471
00:23:22,000 --> 00:23:25,320
Speaker 8: of factor in alex is that it was third quarter

472
00:23:25,359 --> 00:23:28,199
Speaker 8: of last year when they kind of kicked both the

473
00:23:28,280 --> 00:23:31,280
Speaker 8: password sharing crackdown as well as the ad tier into

474
00:23:31,320 --> 00:23:34,000
Speaker 8: high gear. And so we're kind of lapping that when

475
00:23:34,040 --> 00:23:36,320
Speaker 8: we you know, come to this third quarter, and so

476
00:23:36,640 --> 00:23:38,919
Speaker 8: that's kind of I think what they're saying, you know,

477
00:23:39,000 --> 00:23:44,800
Speaker 8: please expect kind of that moderation and subscriber ads because

478
00:23:44,840 --> 00:23:48,240
Speaker 8: most of that low hanging fruit has been already taken.

479
00:23:48,200 --> 00:23:49,840
Speaker 3: Right, So then you're also coming up against a little

480
00:23:49,840 --> 00:23:52,760
Speaker 3: bit of tough comps in terms of the adzel part.

481
00:23:52,920 --> 00:23:56,480
Speaker 3: I mean that accounted for almost half of the new

482
00:23:56,520 --> 00:24:00,239
Speaker 3: signups last quarter. Are advertisers paying up for that kind

483
00:24:00,280 --> 00:24:02,320
Speaker 3: of exposure or not quite yet?

484
00:24:03,560 --> 00:24:06,200
Speaker 8: Not quite yet. So one thing that they did point

485
00:24:06,240 --> 00:24:11,159
Speaker 8: to was obviously the advertising portion of the business is

486
00:24:11,200 --> 00:24:13,919
Speaker 8: I think going to be the biggest growth driver in

487
00:24:13,960 --> 00:24:17,720
Speaker 8: the long term, but there is some short term pain

488
00:24:18,240 --> 00:24:20,280
Speaker 8: to be experienced before we kind of see those long

489
00:24:20,359 --> 00:24:22,080
Speaker 8: term gains. And the short term pain is that they

490
00:24:22,119 --> 00:24:24,760
Speaker 8: need to invest in their technology. So they need to

491
00:24:24,800 --> 00:24:27,240
Speaker 8: invest both in their programming and their technology. On the

492
00:24:27,280 --> 00:24:30,480
Speaker 8: programming side, we've seen them make multiple investments, and those

493
00:24:30,480 --> 00:24:34,119
Speaker 8: investments are really in different kind of genres, genres that

494
00:24:34,200 --> 00:24:37,480
Speaker 8: appeal to live that kind of cater to that live

495
00:24:37,600 --> 00:24:40,080
Speaker 8: audience aspect. So you know, whether it's the hot dog

496
00:24:40,119 --> 00:24:42,440
Speaker 8: eating contest or whether it was you know, the roast

497
00:24:42,440 --> 00:24:45,160
Speaker 8: of Tom Brady, or you know, a boxing match that's

498
00:24:45,200 --> 00:24:48,479
Speaker 8: coming up with Mike Tyson or even the NFL Christmas Games.

499
00:24:48,840 --> 00:24:51,400
Speaker 8: All of that are you know, content investments, and all

500
00:24:51,440 --> 00:24:54,239
Speaker 8: of those makes sense from an advertising perspective, but they

501
00:24:54,280 --> 00:24:57,480
Speaker 8: also need to make tech investments. Remember, they are that

502
00:24:57,520 --> 00:25:00,600
Speaker 8: they are the first to the game in streaming, but

503
00:25:00,640 --> 00:25:04,080
Speaker 8: they are the last to the game and advertising, and

504
00:25:04,119 --> 00:25:06,480
Speaker 8: so it's obviously going to take some time for them

505
00:25:06,520 --> 00:25:08,359
Speaker 8: to kind of play catch up. So it's only been

506
00:25:08,400 --> 00:25:11,040
Speaker 8: about fifteen to eighteen months since they kind of have

507
00:25:11,200 --> 00:25:15,640
Speaker 8: this advertising business started up, and it's you know, it's

508
00:25:15,680 --> 00:25:18,520
Speaker 8: taking longer than expected because they don't necessarily have the technology.

509
00:25:18,560 --> 00:25:22,240
Speaker 8: Technology that you know, Disney and Amazon and everybody else

510
00:25:22,240 --> 00:25:25,440
Speaker 8: has taken tens of years to build and already have

511
00:25:25,600 --> 00:25:27,360
Speaker 8: like a huge advantage over Netflix.

512
00:25:27,440 --> 00:25:29,920
Speaker 3: So right, but the Netflix has their content. So it's

513
00:25:30,000 --> 00:25:34,840
Speaker 3: like exactly chicken or an egg situation. A good point there, though,

514
00:25:35,600 --> 00:25:39,840
Speaker 3: Can anyone catch Netflix in terms of content at this point?

515
00:25:40,960 --> 00:25:43,240
Speaker 8: Not really? And you know this is where kind of

516
00:25:43,280 --> 00:25:46,560
Speaker 8: the whole content flywheel and everything, you know, the brand,

517
00:25:46,720 --> 00:25:49,760
Speaker 8: the subscriber base, I mean, it's success breeds success at

518
00:25:49,760 --> 00:25:52,719
Speaker 8: this point because you have a subscriber base of two

519
00:25:52,840 --> 00:25:56,240
Speaker 8: hundred and eighty million. Netflix has very much become the

520
00:25:56,560 --> 00:26:00,119
Speaker 8: default option when it comes to you know, entertainment or

521
00:26:00,119 --> 00:26:03,240
Speaker 8: when it comes to video entertainment programming, and so all

522
00:26:03,280 --> 00:26:05,640
Speaker 8: of these other media companies, I mean, they're already struggling.

523
00:26:05,640 --> 00:26:08,040
Speaker 8: They have a host of their own problems. They're finding

524
00:26:08,080 --> 00:26:10,159
Speaker 8: out that one way to kind of alleviate some of

525
00:26:10,320 --> 00:26:13,560
Speaker 8: their pressures is to actually sell programming to Netflix, and

526
00:26:13,600 --> 00:26:16,480
Speaker 8: so they're kind of almost feeding the beast here, you know,

527
00:26:16,520 --> 00:26:19,680
Speaker 8: the whole Netflix content flywheel. And so Netflix is really,

528
00:26:19,760 --> 00:26:23,920
Speaker 8: I think in that is consolidating. It's kind of streaming dominance.

529
00:26:24,280 --> 00:26:28,200
Speaker 8: So content absolutely they lead by a wide, wide margin.

530
00:26:28,840 --> 00:26:32,080
Speaker 3: Before we let you go Warner Brothers Discovery, there's some

531
00:26:32,200 --> 00:26:35,639
Speaker 3: rumors here of a potential split between the studio and

532
00:26:35,760 --> 00:26:40,280
Speaker 3: streaming assets away from its linear TV assets. Is that real?

533
00:26:40,480 --> 00:26:42,240
Speaker 3: What would that look like? What do you think?

534
00:26:43,880 --> 00:26:47,600
Speaker 8: Well, there are rumors, you know, I think they could

535
00:26:47,640 --> 00:26:51,000
Speaker 8: be real, just because I think management is extremely frustrated

536
00:26:51,000 --> 00:26:53,120
Speaker 8: with the way that the stock has performed. It's been

537
00:26:53,200 --> 00:26:57,720
Speaker 8: two years since the Warner Brothers merger happened with Discovery Communications,

538
00:26:57,920 --> 00:27:00,639
Speaker 8: and this was really all about scale and kind of

539
00:27:00,640 --> 00:27:03,240
Speaker 8: piecing together these businesses, both of which are were in

540
00:27:03,280 --> 00:27:07,760
Speaker 8: secular decline, but obviously that merger has not done well

541
00:27:07,800 --> 00:27:09,159
Speaker 8: at all, and I think this is kind of an

542
00:27:09,200 --> 00:27:11,719
Speaker 8: admission of that. Part of it is because they have

543
00:27:11,840 --> 00:27:14,000
Speaker 8: over forty billion dollars in debt. Part of it is

544
00:27:14,040 --> 00:27:16,840
Speaker 8: because Ebita has been constantly declining. You know, when the

545
00:27:16,880 --> 00:27:20,000
Speaker 8: merger happened, they promised fourteen billion dollars. This year, we're

546
00:27:20,040 --> 00:27:22,080
Speaker 8: going to be at probably nine point seven billion. So

547
00:27:22,119 --> 00:27:26,280
Speaker 8: obviously the Star price has kind of reflected that seventy

548
00:27:26,320 --> 00:27:29,720
Speaker 8: percent down since the merger was first announced, so you know,

549
00:27:29,760 --> 00:27:31,919
Speaker 8: they are obviously looking to some ways to kind of

550
00:27:31,960 --> 00:27:35,359
Speaker 8: boost that. I don't think it's feasible though, And I

551
00:27:35,400 --> 00:27:38,560
Speaker 8: say that because eighty five percent of the cash flow

552
00:27:39,160 --> 00:27:41,679
Speaker 8: is actually tied to the linear network business. So you

553
00:27:41,760 --> 00:27:44,400
Speaker 8: have the linear network business, which isn't decline but which

554
00:27:44,480 --> 00:27:47,680
Speaker 8: is producing majority of the cash. You have the studio

555
00:27:47,800 --> 00:27:50,200
Speaker 8: and the streaming assets, which are you know, the kind

556
00:27:50,240 --> 00:27:52,560
Speaker 8: of the future and you know, the sexy assets, but

557
00:27:52,600 --> 00:27:55,200
Speaker 8: they produce no cash at all. They are completely dependent

558
00:27:55,840 --> 00:27:58,879
Speaker 8: on the linear TV network business to sustain them. So

559
00:27:58,920 --> 00:28:00,400
Speaker 8: I don't know, it's going to be a little hard

560
00:28:00,480 --> 00:28:03,359
Speaker 8: to execute, but we'll have to wait and watch this.

561
00:28:03,520 --> 00:28:06,120
Speaker 8: Just a lot of noise right now with Warner Brothers

562
00:28:06,160 --> 00:28:08,239
Speaker 8: and kind of the NBA talks and whether they're going

563
00:28:08,280 --> 00:28:11,280
Speaker 8: to match Amazon's NBA deal. So a lot going on

564
00:28:11,320 --> 00:28:12,399
Speaker 8: for that company.

565
00:28:12,240 --> 00:28:14,640
Speaker 3: Right and there's still sort of we're recovering still from

566
00:28:14,640 --> 00:28:17,800
Speaker 3: the Hollywood strikes from last year, and that's still kind

567
00:28:17,800 --> 00:28:20,080
Speaker 3: of filtering through as well. Gita, thank you so much,

568
00:28:20,240 --> 00:28:24,680
Speaker 3: Really appreciate the analysis. Eether Manganathan, Bloomberg Intelligence joining us

569
00:28:25,200 --> 00:28:28,399
Speaker 3: on Netflix as well as that potential breakup for Warner

570
00:28:28,440 --> 00:28:31,280
Speaker 3: Brothers Discovery.

571
00:28:31,560 --> 00:28:35,440
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live

572
00:28:35,520 --> 00:28:38,560
Speaker 2: weekdays at ten am Eastern on Apple car Play and

573
00:28:38,560 --> 00:28:41,440
Speaker 2: Android Auto with the Bloomberg Business app. You can also

574
00:28:41,560 --> 00:28:45,080
Speaker 2: listen live on Amazon Alexa from our flagship New York station.

575
00:28:45,440 --> 00:28:48,200
Speaker 2: Just say Alexa play Bloomberg eleven thirty.

576
00:28:49,920 --> 00:28:52,680
Speaker 3: Let's go to some earnings here, because America Express came

577
00:28:52,680 --> 00:28:55,560
Speaker 3: out with earnings earlier. That stock is down almost four percent,

578
00:28:55,600 --> 00:28:57,960
Speaker 3: the company is saying, and it's planning to increase spending

579
00:28:58,280 --> 00:29:01,720
Speaker 3: on marketing, even as billing growth on companies credit cards

580
00:29:01,760 --> 00:29:04,760
Speaker 3: slowed in the second quarter. Ben Elliott is Boomberg Intelligence,

581
00:29:04,760 --> 00:29:07,680
Speaker 3: Consumer Finance analyst is joining us for this What was

582
00:29:07,720 --> 00:29:09,200
Speaker 3: your takeaway on Amex's quarter.

583
00:29:10,440 --> 00:29:12,720
Speaker 1: Yes, I think that the price action you're seeing today

584
00:29:12,760 --> 00:29:15,080
Speaker 1: is because just the bar was set pretty high going

585
00:29:15,080 --> 00:29:18,200
Speaker 1: into this quarter, and they didn't necessarily outperform. But I

586
00:29:18,240 --> 00:29:20,040
Speaker 1: think a lot of the metrics are moving in a

587
00:29:20,080 --> 00:29:23,120
Speaker 1: big good direction. They're still spending, still growing twice the

588
00:29:23,160 --> 00:29:26,120
Speaker 1: rate of GDP, and AMX is still the envy of

589
00:29:26,680 --> 00:29:29,200
Speaker 1: the industry. They have the best customers and they're the

590
00:29:29,240 --> 00:29:32,200
Speaker 1: most likely to sort of outperform in any kind of downturn.

591
00:29:32,360 --> 00:29:34,840
Speaker 1: So I think the outlook still looks good. I think

592
00:29:34,840 --> 00:29:37,920
Speaker 1: people might have been a little upset that guidance was

593
00:29:38,720 --> 00:29:40,640
Speaker 1: re rated higher, but it's really just for a one

594
00:29:40,640 --> 00:29:45,040
Speaker 1: time charged our one time game, and so you know,

595
00:29:45,680 --> 00:29:48,840
Speaker 1: there was no great outperformance, but the core business is

596
00:29:48,880 --> 00:29:49,640
Speaker 1: still very solid.

597
00:29:50,080 --> 00:29:52,360
Speaker 3: Talk about their premium card business, like, are people still

598
00:29:52,360 --> 00:29:54,160
Speaker 3: willing to fork over a boatload of money per year

599
00:29:54,200 --> 00:29:55,520
Speaker 3: for these premium fancy cards.

600
00:29:56,120 --> 00:29:58,840
Speaker 1: Yeah, it's actually incredible. For twenty four quarters now they

601
00:29:58,840 --> 00:30:01,880
Speaker 1: are a double digit gain in their card fees, right,

602
00:30:01,920 --> 00:30:05,920
Speaker 1: so people are clamoring to pay Amex for the privilege

603
00:30:05,920 --> 00:30:08,000
Speaker 1: of being the best customer out there. On the market.

604
00:30:08,360 --> 00:30:10,160
Speaker 1: It's really kind of an incredible place for them to be.

605
00:30:10,960 --> 00:30:13,600
Speaker 3: Who, like, who was doing it? Is it older people?

606
00:30:13,680 --> 00:30:14,480
Speaker 3: Is it the young kids?

607
00:30:14,520 --> 00:30:14,560
Speaker 1: Like?

608
00:30:14,600 --> 00:30:15,240
Speaker 3: Who's doing it?

609
00:30:15,800 --> 00:30:18,280
Speaker 1: You know, it's the young kids. Most of the growth

610
00:30:18,320 --> 00:30:21,200
Speaker 1: is in gen Z and millennial sort of a middle

611
00:30:21,200 --> 00:30:25,120
Speaker 1: growth tiers is in gen X and growth in the

612
00:30:25,200 --> 00:30:27,040
Speaker 1: plus the demo is slowing down.

613
00:30:27,760 --> 00:30:30,800
Speaker 3: So what happens in a slowdown then? So that's kind

614
00:30:30,800 --> 00:30:33,360
Speaker 3: of the setup for AMX. If we do get a

615
00:30:33,400 --> 00:30:36,880
Speaker 3: slow down, where does it leave AMEX If they're exposed

616
00:30:36,880 --> 00:30:38,440
Speaker 3: to people that have more money? Is it okay?

617
00:30:39,920 --> 00:30:42,480
Speaker 1: Yeah? So, as we saw in the FED stress test

618
00:30:42,520 --> 00:30:46,440
Speaker 1: the past month, in a severe downturn, MX is one

619
00:30:46,480 --> 00:30:48,520
Speaker 1: of the few banks that's still going to turn a profit.

620
00:30:49,480 --> 00:30:52,680
Speaker 1: They have an incredibly low loss rate and their customers

621
00:30:53,000 --> 00:30:55,440
Speaker 1: is extremely resilient, and you know, you have to think

622
00:30:55,480 --> 00:30:58,160
Speaker 1: back to AMEX is driven primarily by spending. Eighty percent

623
00:30:58,160 --> 00:31:00,600
Speaker 1: of their revenue is from people swiping the car and

624
00:31:00,640 --> 00:31:03,720
Speaker 1: paying the gigantic seven hundred dollars fee for their platinum

625
00:31:03,720 --> 00:31:05,840
Speaker 1: every year, and so they're not as relying on loans,

626
00:31:05,920 --> 00:31:08,640
Speaker 1: and the loans that they do make are incredibly high quality.

627
00:31:09,360 --> 00:31:12,240
Speaker 3: Okay, so fair enough so they do more tight underwriting,

628
00:31:12,320 --> 00:31:15,200
Speaker 3: et cetera. To your point, the best of their peers

629
00:31:15,240 --> 00:31:18,240
Speaker 3: in the Federal Reserves annual stress test. What is this

630
00:31:18,360 --> 00:31:20,960
Speaker 3: bode then for the other guys like a Visa.

631
00:31:22,480 --> 00:31:24,840
Speaker 1: Yeah, so Visa doesn't take credit risk, right, so they're

632
00:31:24,880 --> 00:31:27,640
Speaker 1: more driven by just the total sort of retail spending

633
00:31:27,720 --> 00:31:31,200
Speaker 1: volume out there. So they're a little bit I think

634
00:31:31,960 --> 00:31:35,160
Speaker 1: more GDP plus growth, and Amex is rated just a

635
00:31:35,200 --> 00:31:37,760
Speaker 1: little bit above GDP right now because they're relying on

636
00:31:37,760 --> 00:31:41,400
Speaker 1: sort of one tranch whereas Visa and MasterCard are kind

637
00:31:41,400 --> 00:31:42,800
Speaker 1: of exposed more to the aggregate.

638
00:31:43,800 --> 00:31:46,160
Speaker 3: Then why is amex a stock down four percent? Is

639
00:31:46,240 --> 00:31:48,040
Speaker 3: this just straight up like an expectations game.

640
00:31:49,280 --> 00:31:50,720
Speaker 1: Yeah, so I think they missed a little bit on

641
00:31:50,960 --> 00:31:53,320
Speaker 1: the top line number. But if you if you think

642
00:31:53,360 --> 00:31:57,040
Speaker 1: about it from an operating leverage perspective, their expenses were

643
00:31:57,040 --> 00:31:59,120
Speaker 1: down a little bit more than that, so they still

644
00:31:59,160 --> 00:32:02,520
Speaker 1: have positive operating leverage. They're trading at a huge premium

645
00:32:02,520 --> 00:32:05,160
Speaker 1: to peers, like a fifty to sixty percent premium. I

646
00:32:05,160 --> 00:32:08,080
Speaker 1: think they're they're pushing twenty times earnings, whereas most of

647
00:32:08,120 --> 00:32:10,480
Speaker 1: their peers are a ten x. So everybody has been

648
00:32:10,520 --> 00:32:13,240
Speaker 1: the you know, MX has been the pre recession play

649
00:32:14,000 --> 00:32:16,680
Speaker 1: for several quarters now, and so we get the soft landing,

650
00:32:16,680 --> 00:32:20,000
Speaker 1: the recession doesn't happen, then maybe that valuation is maybe

651
00:32:20,000 --> 00:32:21,120
Speaker 1: a little two premium.

652
00:32:21,240 --> 00:32:24,920
Speaker 3: Interesting Also, the company in the quarter pursued like its

653
00:32:24,960 --> 00:32:28,880
Speaker 3: consumer focus on travel and leisure. They it bought Talk

654
00:32:29,000 --> 00:32:32,400
Speaker 3: for four hundred million dollars from squarespace. What does Talk

655
00:32:32,560 --> 00:32:33,520
Speaker 3: do for AMX?

656
00:32:34,880 --> 00:32:37,560
Speaker 1: Yeah, so every every sort of incremental bolt on acquisition

657
00:32:38,280 --> 00:32:41,160
Speaker 1: is helpful as sustaining travel and entertainment. That's a really

658
00:32:41,200 --> 00:32:44,040
Speaker 1: sort of a high margin part of their business. They

659
00:32:44,040 --> 00:32:48,160
Speaker 1: typically negotiate swipe seas that are are really premium in

660
00:32:48,200 --> 00:32:51,280
Speaker 1: that in that segment. So for every dollar that someone

661
00:32:51,280 --> 00:32:55,240
Speaker 1: spends on you know, a premium for a legacy airline carrier,

662
00:32:55,720 --> 00:32:59,719
Speaker 1: MX is getting, you know, more than they would at

663
00:32:59,720 --> 00:33:01,960
Speaker 1: someone's like swiping out a sort of a retail point

664
00:33:02,000 --> 00:33:05,680
Speaker 1: of sale. So like, you know, any sort of incremental

665
00:33:05,720 --> 00:33:08,480
Speaker 1: gain they can make there is positive. But that's a

666
00:33:08,520 --> 00:33:11,640
Speaker 1: segment of their business that's flowing down faster than other

667
00:33:11,840 --> 00:33:14,560
Speaker 1: parts of the business. So you might see them sort

668
00:33:14,560 --> 00:33:18,280
Speaker 1: of pivot more towards dining and goods and services and

669
00:33:18,320 --> 00:33:20,720
Speaker 1: sort of some of the more, you know, the less

670
00:33:20,720 --> 00:33:23,760
Speaker 1: discretionary spending that might be more resilient in the downturn.

671
00:33:24,000 --> 00:33:25,720
Speaker 3: Fair Enough, before I let you go, I do want

672
00:33:25,720 --> 00:33:28,280
Speaker 3: to get your take on Discover Capital one. So Discover

673
00:33:28,680 --> 00:33:32,840
Speaker 3: is selling itself to Capital one. What what's your outlook

674
00:33:32,880 --> 00:33:34,160
Speaker 3: for how this acquisition goes?

675
00:33:35,480 --> 00:33:38,440
Speaker 1: Yeah, so the acquisition, you know, from a fundamental perspective,

676
00:33:38,520 --> 00:33:40,880
Speaker 1: is on track. Discovers doing everything they need to do.

677
00:33:40,920 --> 00:33:44,080
Speaker 1: They're managing well to the sale. They're they're ticking all

678
00:33:44,160 --> 00:33:46,720
Speaker 1: the boxes that regulators are asking of them. The real

679
00:33:46,800 --> 00:33:49,240
Speaker 1: question mark out there is what does a Biden DOJ

680
00:33:49,600 --> 00:33:52,200
Speaker 1: have to say about the deal? And we'll find out

681
00:33:52,240 --> 00:33:54,560
Speaker 1: later in the year. But then there's kind of a

682
00:33:54,560 --> 00:33:58,000
Speaker 1: big question mark here, which is will Biden be in

683
00:33:58,040 --> 00:34:02,120
Speaker 1: the White House come the January when the deal closes

684
00:34:02,280 --> 00:34:05,560
Speaker 1: or it's lated to close, And so Trump win could

685
00:34:05,600 --> 00:34:08,600
Speaker 1: sort of knock out any opposition that the DJ might have.

686
00:34:09,120 --> 00:34:11,560
Speaker 3: What does a Capital one look like with Discover?

687
00:34:13,040 --> 00:34:15,600
Speaker 1: Yeah, it's going to be really interesting. They plan to

688
00:34:15,760 --> 00:34:21,000
Speaker 1: transition almost two hundred billion dollars in credit card loan

689
00:34:21,080 --> 00:34:24,279
Speaker 1: volume onto the Discover network, So that still makes them

690
00:34:24,320 --> 00:34:27,839
Speaker 1: sort of a distant fourth player. But I think you're

691
00:34:27,880 --> 00:34:31,280
Speaker 1: going to find it much more competitive with their larger

692
00:34:31,320 --> 00:34:34,960
Speaker 1: peers like these a MasterCard and Amex. And I think

693
00:34:34,960 --> 00:34:37,480
Speaker 1: it's going to be it's going to be interesting. It's

694
00:34:37,480 --> 00:34:39,560
Speaker 1: going to change the competitive layout in ways that I

695
00:34:39,600 --> 00:34:42,680
Speaker 1: think are not yet really well understood, and it could

696
00:34:42,719 --> 00:34:43,960
Speaker 1: be good for consumers.

697
00:34:44,520 --> 00:34:46,800
Speaker 3: All Right, we really appreciate it, Ben Ben Elliott a

698
00:34:46,800 --> 00:34:48,920
Speaker 3: Bloomberg Intelligence consumer finance analysts.

699
00:34:50,360 --> 00:34:54,239
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

700
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Speaker 2: weekdays at ten am Eastern on applecar Play and rout

701
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00:35:04,680 --> 00:35:07,279
Speaker 2: Alexa playing Bloomberg eleven thirty.

704
00:35:08,640 --> 00:35:11,040
Speaker 3: To Alex Steel false. We needs off today. This is

705
00:35:11,080 --> 00:35:13,719
Speaker 3: Bloomberg Intelligence Radio. We are broadcasting to you live from

706
00:35:13,719 --> 00:35:16,440
Speaker 3: the Interactive Broker Studio right here in Midtown Manhattan. We

707
00:35:16,520 --> 00:35:18,560
Speaker 3: cover all the top news in business and politics and

708
00:35:18,600 --> 00:35:21,560
Speaker 3: economics and finance. There are a lens of our Bloomberg Intelligence folks.

709
00:35:21,760 --> 00:35:24,160
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710
00:35:24,200 --> 00:35:27,600
Speaker 3: industries worldwide. We also take you out of Bloomberg Intelligence

711
00:35:27,640 --> 00:35:30,360
Speaker 3: sometimes to get the read on the overall market. And

712
00:35:30,400 --> 00:35:32,279
Speaker 3: this time we go to Ken Leon. He's director of

713
00:35:32,360 --> 00:35:35,640
Speaker 3: equity research at Cfrray Research and he joins us now

714
00:35:35,680 --> 00:35:38,200
Speaker 3: for Netflix, so he can pretty much talk about anything.

715
00:35:38,200 --> 00:35:40,360
Speaker 3: But this time we're talking about Netflix. You know, I

716
00:35:40,400 --> 00:35:42,839
Speaker 3: look at a chart on the last kind of twenty

717
00:35:42,880 --> 00:35:45,719
Speaker 3: four hours in Netflix, investors cannot make up their mind

718
00:35:45,719 --> 00:35:47,200
Speaker 3: what they want to do with the stock, Like now

719
00:35:47,239 --> 00:35:48,360
Speaker 3: it's down by one percent?

720
00:35:48,800 --> 00:35:54,560
Speaker 9: Why so this is great to be here Netflix. We

721
00:35:54,640 --> 00:35:57,040
Speaker 9: have a buy in a seven hundred and twenty five target.

722
00:35:57,400 --> 00:36:01,280
Speaker 9: Reiterated that with our published note last night after the call.

723
00:36:01,960 --> 00:36:06,080
Speaker 9: So for Netflix, it's the second time two quarters in

724
00:36:06,080 --> 00:36:10,000
Speaker 9: a row where there's always a little blemish here. And

725
00:36:10,080 --> 00:36:13,840
Speaker 9: it was really the guidance for Q three for revenue

726
00:36:14,320 --> 00:36:18,319
Speaker 9: just very right below the consensus target. But when you

727
00:36:18,360 --> 00:36:21,640
Speaker 9: look at the full year outlook for Netflix and twenty

728
00:36:21,719 --> 00:36:25,960
Speaker 9: twenty five, but for even twenty four, they reiterated a

729
00:36:26,040 --> 00:36:29,560
Speaker 9: target of six billion of free cash flow and fourteen

730
00:36:29,680 --> 00:36:35,839
Speaker 9: to sixteen percent revenue growth that underscores along with operating

731
00:36:35,920 --> 00:36:39,839
Speaker 9: margins in the second quarter that widened from twenty two

732
00:36:39,920 --> 00:36:44,239
Speaker 9: percent a year ago to twenty seven percent, showing we

733
00:36:44,360 --> 00:36:48,680
Speaker 9: believe a growth stock with solid top line growth and

734
00:36:48,840 --> 00:36:52,560
Speaker 9: increased profitability, unlike all its peers.

735
00:36:52,760 --> 00:36:55,040
Speaker 3: Yeah. So is it just like either they're going to

736
00:36:55,040 --> 00:36:57,640
Speaker 3: come into tough comps in the third quarter because that's

737
00:36:57,680 --> 00:36:59,840
Speaker 3: when they sort of cracked on a password sharing or

738
00:36:59,880 --> 00:37:01,840
Speaker 3: is just a law of large numbers.

739
00:37:03,719 --> 00:37:03,799
Speaker 7: No.

740
00:37:04,440 --> 00:37:07,640
Speaker 9: I think this is a solid, high quality growth company.

741
00:37:08,080 --> 00:37:09,640
Speaker 9: You know, there was a lot of sell off this

742
00:37:09,800 --> 00:37:13,960
Speaker 9: week with the Max seven and other issues. Netflix is

743
00:37:14,000 --> 00:37:20,080
Speaker 9: a high valuation metric that we still think supports the

744
00:37:20,120 --> 00:37:23,280
Speaker 9: outlook in a seven twenty five target twelve months out.

745
00:37:23,560 --> 00:37:27,680
Speaker 9: So I think particularly portfolio managers are thinking is the

746
00:37:27,760 --> 00:37:31,560
Speaker 9: fundamentals there to support the high valuation. We think the

747
00:37:31,640 --> 00:37:36,120
Speaker 9: answer is yes. In my career over four decades, I

748
00:37:36,160 --> 00:37:40,000
Speaker 9: have never seen an industry so disruptive, which is movies

749
00:37:40,040 --> 00:37:43,279
Speaker 9: and entertainment where you have a dominant get it right

750
00:37:43,360 --> 00:37:47,440
Speaker 9: business model with Netflix and everyone else is losing money

751
00:37:47,719 --> 00:37:51,080
Speaker 9: and trying to figure out what is their future in

752
00:37:51,160 --> 00:37:52,799
Speaker 9: the new world of technology.

753
00:37:53,640 --> 00:37:57,200
Speaker 3: Why is it so hard for Disney Warner Brothers Discovery

754
00:37:57,280 --> 00:38:00,680
Speaker 3: Paramount to make a dent when it comes to Netflix.

755
00:38:01,760 --> 00:38:03,799
Speaker 9: It's a great question, you know. Part of it is

756
00:38:04,239 --> 00:38:08,839
Speaker 9: it's always difficult to transition from legacy to new platforms

757
00:38:08,920 --> 00:38:12,880
Speaker 9: such as streaming. Second, it requires having talent on board

758
00:38:13,560 --> 00:38:17,120
Speaker 9: to do all the hard, dirty work day by day

759
00:38:17,520 --> 00:38:22,000
Speaker 9: of building an intelligent platform that gets the opportunity for

760
00:38:22,120 --> 00:38:24,920
Speaker 9: global reach and customer personalization.

761
00:38:27,400 --> 00:38:29,719
Speaker 3: Do you think that the streamer I mean, like the

762
00:38:29,760 --> 00:38:33,080
Speaker 3: Warner Brothers and Disney and everything, at some point do

763
00:38:33,160 --> 00:38:36,080
Speaker 3: they wind up becoming more solid enemies or will they

764
00:38:36,120 --> 00:38:39,000
Speaker 3: always be frenemies either? Running out in a Boomberg Intelligence

765
00:38:39,000 --> 00:38:42,640
Speaker 3: pointed out that now they're they're getting their content on Netflix,

766
00:38:42,719 --> 00:38:45,440
Speaker 3: so they're kind of you know, I mean, like our

767
00:38:45,480 --> 00:38:47,080
Speaker 3: streaming network isn't going to be as good, but we

768
00:38:47,120 --> 00:38:49,160
Speaker 3: want our content out there. Now we're going to go

769
00:38:49,600 --> 00:38:51,880
Speaker 3: and give it to Netflix. That just seems very odd.

770
00:38:53,440 --> 00:38:56,680
Speaker 9: Yeah, So the world has changed, and it's really two

771
00:38:56,760 --> 00:39:01,600
Speaker 9: tiers of players, the new big players or YouTube or

772
00:39:04,480 --> 00:39:09,960
Speaker 9: Amazon Prime Video, Netflix and everyone else is trying to

773
00:39:09,960 --> 00:39:16,960
Speaker 9: figure out, particularly on streaming, how can we play possibly partnering, bundling.

774
00:39:17,040 --> 00:39:20,480
Speaker 9: But it's a position of weakness, you know, it's you know,

775
00:39:20,680 --> 00:39:23,720
Speaker 9: very hard for these companies for content to keep subscribers.

776
00:39:23,840 --> 00:39:28,440
Speaker 9: Think about this that if you're investing or thinking about

777
00:39:28,480 --> 00:39:32,600
Speaker 9: wireless or cable TV and it's good days. You had

778
00:39:32,760 --> 00:39:37,080
Speaker 9: very low customer churn. None of these companies published monthly

779
00:39:37,480 --> 00:39:39,360
Speaker 9: or annualized customer churns.

780
00:39:42,080 --> 00:39:44,239
Speaker 3: Yeah, so what does that? So what does that tell you?

781
00:39:45,160 --> 00:39:47,600
Speaker 9: It tells you it's a very vulnerable business. You have

782
00:39:47,680 --> 00:39:50,279
Speaker 9: to have engaging content, you have to have a lot

783
00:39:50,320 --> 00:39:53,760
Speaker 9: of it. You need an intelligent platform in each country

784
00:39:53,920 --> 00:39:59,040
Speaker 9: because cultures are different for personalization. So do we think that, yeah,

785
00:39:59,239 --> 00:40:03,520
Speaker 9: Bobeiger Disney Reports will talk about getting to what I

786
00:40:03,719 --> 00:40:08,160
Speaker 9: just said. You know, so you know Netflix is there

787
00:40:08,200 --> 00:40:10,359
Speaker 9: and you know Disney's trying to catch up.

788
00:40:10,800 --> 00:40:12,880
Speaker 3: So at some point do the likes of Disney like

789
00:40:12,960 --> 00:40:17,520
Speaker 3: pull back capital? Does Warner brother Paramount pull back capital?

790
00:40:19,160 --> 00:40:19,399
Speaker 7: Yeah?

791
00:40:19,440 --> 00:40:23,200
Speaker 9: So the area that there's always this yan yang between

792
00:40:23,320 --> 00:40:27,280
Speaker 9: content and distribution and where you have the more durable,

793
00:40:27,680 --> 00:40:31,840
Speaker 9: recurring growth areas for many of these companies is in

794
00:40:31,960 --> 00:40:37,800
Speaker 9: content for film or TV general entertainment. And what's stacked

795
00:40:37,880 --> 00:40:42,360
Speaker 9: right above that is live sporting events. It's not distribution

796
00:40:42,520 --> 00:40:43,400
Speaker 9: for these companies.

797
00:40:44,040 --> 00:40:47,799
Speaker 3: Do when you pivot from live sporting events and they're

798
00:40:47,840 --> 00:40:52,319
Speaker 3: on Netflix or Amazon Prime instead of say CBS, do

799
00:40:52,360 --> 00:40:54,920
Speaker 3: they do advertisers pay the same Are they making the

800
00:40:54,920 --> 00:40:56,440
Speaker 3: same amount of money or is it still sort of

801
00:40:56,440 --> 00:40:57,720
Speaker 3: a model that needs to be proven.

802
00:40:58,600 --> 00:41:02,000
Speaker 9: Well, advertisers have done two things in the last ten years.

803
00:41:02,040 --> 00:41:05,920
Speaker 9: They've shifted enormous money for social media, whether it be Meta,

804
00:41:06,200 --> 00:41:10,680
Speaker 9: whether it be Google with YouTube, et cetera. So what's

805
00:41:10,800 --> 00:41:15,600
Speaker 9: left for traditional advertising on TV? It's smaller and it's

806
00:41:15,680 --> 00:41:18,879
Speaker 9: being shifted to live sports the only one. It's kind

807
00:41:18,880 --> 00:41:21,400
Speaker 9: of interesting here we have a whole and the stock

808
00:41:21,480 --> 00:41:23,239
Speaker 9: is up from like thirty two to thirty seven. In

809
00:41:23,320 --> 00:41:27,879
Speaker 9: Spox they're only live sports and news.

810
00:41:28,080 --> 00:41:30,560
Speaker 3: What do you think we're going to hear when we

811
00:41:30,600 --> 00:41:34,000
Speaker 3: move forward? In terms of Netflix talking about that ad

812
00:41:34,040 --> 00:41:35,160
Speaker 3: supported tier.

813
00:41:35,000 --> 00:41:40,120
Speaker 9: Though, well, what they're releasing they said, sequentially Q one,

814
00:41:40,160 --> 00:41:43,000
Speaker 9: the Q one they had thirty percent growth in the

815
00:41:43,040 --> 00:41:46,920
Speaker 9: ad pay plans. It's a lower rate and advertising revenue

816
00:41:47,520 --> 00:41:53,000
Speaker 9: directly from the advertising sponsors. No one, Nope, they're not

817
00:41:53,120 --> 00:41:57,000
Speaker 9: reporting it. It is reported by the other legacy media

818
00:41:57,080 --> 00:41:59,240
Speaker 9: companies though, good question, gotcha?

819
00:41:59,280 --> 00:42:03,440
Speaker 3: All right? So Netflix still by seven twenty five?

820
00:42:04,800 --> 00:42:07,480
Speaker 9: Netflix is Netflix still winner and they're going to continue

821
00:42:07,480 --> 00:42:09,360
Speaker 9: to gain share there we go.

822
00:42:09,600 --> 00:42:12,480
Speaker 3: As long as they keep doing Bridgerton, We're good. Hey, Ken,

823
00:42:12,480 --> 00:42:14,640
Speaker 3: thanks lot, really appreciate it. Have a great weekend. Thanks

824
00:42:14,680 --> 00:42:17,240
Speaker 3: for joining Kenley on, Director of Equity Research at CFRA.

825
00:42:17,960 --> 00:42:19,800
Speaker 3: Joining us on Netflix.

826
00:42:20,120 --> 00:42:24,640
Speaker 2: This is the Bloomberg Intelligence Podcast, available on apples, Spotify,

827
00:42:24,840 --> 00:42:28,520
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828
00:42:28,640 --> 00:42:31,600
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829
00:42:31,719 --> 00:42:35,160
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830
00:42:35,200 --> 00:42:38,360
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831
00:42:38,520 --> 00:42:40,160
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