WEBVTT - Netflix Tops Earnings Estimates, as Market Takes a Pause 0:00:02.759 --> 0:00:10.600 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.640 --> 0:00:14.600 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.640 --> 0:00:17.880 Eastern on Apple, Cocklay and Android Auto with the Bloomberg 0:00:17.960 --> 0:00:21.080 Business App. Listen on demand wherever you get your podcasts, 0:00:21.400 --> 0:00:23.120 or watch us live on YouTube. 0:00:23.600 --> 0:00:26.800 Netflix came out with their earnings. Are you big Netflix watcher? 0:00:27.600 --> 0:00:28.320 What are you like? You know? 0:00:28.400 --> 0:00:31.680 I dabble in Netflix? Okay, I do. 0:00:31.840 --> 0:00:35.519 I have the like the cheapest version of Netflix, like 0:00:36.400 --> 0:00:38.159 get the EDG. Yeah, I get the ads, which I 0:00:38.200 --> 0:00:40.400 probably should just pay up because I think it's like 0:00:40.440 --> 0:00:43.320 a two dollars a month difference. But like I'm a 0:00:43.320 --> 0:00:46.760 little chinsey on that. But I do watch the Dallas 0:00:46.760 --> 0:00:49.000 Cowboy Cheerleaders Netflix show. 0:00:49.400 --> 0:00:49.600 Wow. 0:00:49.640 --> 0:00:51.559 I think it's really what, it's really well done. So 0:00:51.560 --> 0:00:53.199 I don't watch a ton of Netflix, but I do. 0:00:53.880 --> 0:00:56.880 I think I bought the Netflix subscription to specifically watch 0:00:56.920 --> 0:00:57.440 to watch that. 0:00:57.880 --> 0:00:58.720 Well, that's what a lot of people. 0:00:58.720 --> 0:00:59.480 I mean, I don't know. 0:00:59.480 --> 0:01:01.959 I haven't gott into the Squad Games that's huge for them, 0:01:02.120 --> 0:01:06.080 Stranger Things A little bit dabbled in. But the thing is, 0:01:06.200 --> 0:01:09.600 overall they had some impressive results, right, But the problem 0:01:09.640 --> 0:01:11.200 I'm having this morning is shares are long. We have 0:01:11.240 --> 0:01:14.400 Netflix down nearly five percent. What is going on here? 0:01:14.400 --> 0:01:18.039 To explain it all for us is Getha Ranganaglan Ranganathan. 0:01:18.040 --> 0:01:20.560 She's Bloomberg Intelligence analyst on us media. 0:01:20.959 --> 0:01:21.319 Getha. 0:01:21.480 --> 0:01:23.800 Thanks, always a pleasure having you here because you break 0:01:23.840 --> 0:01:26.959 it down like nobody else does. So talk to us 0:01:27.040 --> 0:01:29.360 why those Netflix shares are lower this morning? 0:01:30.600 --> 0:01:33.720 Yeah, So what I would say, Liza Emily is results. 0:01:33.760 --> 0:01:36.480 We're definitely solid. I mean, we had a solid second 0:01:36.560 --> 0:01:40.080 quarter print, whether it was second quarter results, whether it 0:01:40.240 --> 0:01:43.960 was you know, third quarter guidance. Everything came in above expectations. 0:01:44.319 --> 0:01:47.880 They even raised guidance for the full year, both for revenue, 0:01:47.960 --> 0:01:52.200 say revenue growth, as well as for operating margin. But 0:01:52.240 --> 0:01:54.880 I think what we're really seeing, you know, and kind 0:01:54.920 --> 0:01:57.880 of the muted reaction in the shares today is really 0:01:57.920 --> 0:02:02.960 because expectations going into the quarter were extremely elevated. And 0:02:03.000 --> 0:02:05.840 while I say that the quarter was solid, it probably 0:02:05.920 --> 0:02:08.880 was not exceptional. And I think that is what investors 0:02:09.160 --> 0:02:13.000 were really hoping for and you really needed for you know, 0:02:13.360 --> 0:02:16.320 the stock price to go even higher. So at this point, 0:02:16.639 --> 0:02:20.160 you know, valuations really really high for Netflix trading at 0:02:20.160 --> 0:02:24.680 about forty five to fifty times forward earnings. So obviously 0:02:24.840 --> 0:02:27.920 you needed some huge catalysts, which they you know, we 0:02:27.960 --> 0:02:30.800 have fundamentals that are really really strong, but if you 0:02:30.880 --> 0:02:35.600 have that one big thing will Netflix didn't necessarily have 0:02:35.680 --> 0:02:38.120 that this latest earnings report. 0:02:39.080 --> 0:02:42.360 What did we learn in the earnings just about what 0:02:42.520 --> 0:02:45.520 at least Netflix is thinking about for the next leg 0:02:45.600 --> 0:02:48.480 of growth is are they planning more content? Is it 0:02:48.520 --> 0:02:51.120 more about focusing on live events. 0:02:52.680 --> 0:02:55.320 Yeah, it's a little bit of everything. Actually, So just 0:02:55.400 --> 0:02:57.519 if you look for the near term in terms of 0:02:57.560 --> 0:02:59.240 the next leg of growth, so we're just looking at 0:02:59.240 --> 0:03:02.799 the next six months or so. They actually have a massive, 0:03:03.120 --> 0:03:06.600 monster slate and they characterize this as one of their 0:03:06.720 --> 0:03:10.680 best six month periods ever. You know, you mentioned stranger things, 0:03:11.240 --> 0:03:14.680 you talked about squid Game, you know, you have Wednesday, 0:03:14.760 --> 0:03:17.919 you have a whole bunch of other you know, live events, 0:03:17.919 --> 0:03:21.640 including the NFL. You have some boxing matches, you know, 0:03:21.680 --> 0:03:25.080 so they really have it all coming up, not just 0:03:25.440 --> 0:03:27.720 the six month period. The upcoming six month period is 0:03:27.720 --> 0:03:30.560 of course going to be extraordinarily strong, but then even 0:03:30.600 --> 0:03:32.880 into twenty twenty six, I mean, management was talking about 0:03:32.919 --> 0:03:36.920 how they have really this excellent standout content lineup. So 0:03:36.960 --> 0:03:39.680 content is obviously going to be a very, very big 0:03:39.680 --> 0:03:41.920 thing for them. But as we kind of look out, 0:03:42.080 --> 0:03:46.280 you know, every year has its own special you know catalyst. 0:03:46.400 --> 0:03:49.920 So in twenty twenty four, for instance, it was subscriber growth. 0:03:49.960 --> 0:03:52.560 It was all about subscriber growth, and you had you know, 0:03:52.640 --> 0:03:55.600 this password crackdown initiative. You had the new advertising tier 0:03:55.720 --> 0:03:58.520 that pulled in over forty million new subscribers just in 0:03:58.520 --> 0:04:01.120 that one year. Then for this year, twenty twenty five, 0:04:01.160 --> 0:04:03.600 it's really all about price increases, right, So they already 0:04:03.680 --> 0:04:07.640 raised prices. We're talking about sixteen to twenty percent price 0:04:07.640 --> 0:04:10.400 increases across most markets, and they're going to continue to 0:04:10.480 --> 0:04:12.960 raise prices, a lot of it on the back of 0:04:13.080 --> 0:04:16.520 that content slate, that that monster content slate. But then 0:04:16.600 --> 0:04:19.200 really as we kind of look forward to twenty twenty six, 0:04:19.720 --> 0:04:22.320 the big catalyst, and I think the big market mover 0:04:22.440 --> 0:04:24.960 for Netflix will be its advertising business. So we've kind 0:04:25.000 --> 0:04:28.080 of seen them, you know, dabble a little bit in advertising. 0:04:28.080 --> 0:04:29.760 They've been a little bit late to the game, I 0:04:29.760 --> 0:04:33.479 would say in advertising. This was a pure subscription service. 0:04:34.040 --> 0:04:37.080 But they've gotten i think most of the pieces ready 0:04:38.160 --> 0:04:40.000 for that business to take off in a big way. 0:04:40.760 --> 0:04:43.360 They said that, you know, they're upfront sales so far 0:04:43.400 --> 0:04:46.640 has been pretty pretty encouraging. And you're absolutely right in 0:04:46.680 --> 0:04:49.760 terms of the live piece of the puzzle there, because 0:04:49.920 --> 0:04:52.080 they really need to have a very good live event 0:04:52.160 --> 0:04:55.359 strategy in order to attract all of those top global 0:04:55.360 --> 0:04:58.000 brands and top advertisers. And I think they're doing exactly that. 0:04:58.040 --> 0:05:00.000 And so next year we're going to see advertising. I mean, 0:05:00.080 --> 0:05:03.599 it's so far it's doing still pretty well. They've said 0:05:03.600 --> 0:05:06.880 that they're on track to double their advertising revenue for 0:05:07.040 --> 0:05:08.560 twenty twenty five. But I think it's going to take 0:05:08.560 --> 0:05:11.479 off in a really really big way next year and 0:05:11.520 --> 0:05:13.920 then my twenty twenty you know, in another few years time. 0:05:13.920 --> 0:05:16.120 I mean expect this to be about ten to fifteen 0:05:16.160 --> 0:05:18.240 percent of their total revenue. So it is going to 0:05:18.279 --> 0:05:21.839 become a big portion of their growth story going forward. 0:05:21.920 --> 0:05:23.920 Yeah. I love the live events like the boxing match 0:05:23.920 --> 0:05:26.080 Amanda Serrano. I was all over then. 0:05:26.120 --> 0:05:27.080 It was a good one. 0:05:27.560 --> 0:05:30.920 So you mentioned these prices, So how much can Netflix 0:05:30.960 --> 0:05:35.200 continue to raise their prices for subscribers, I mean before 0:05:35.200 --> 0:05:37.760 they start to tune now, before Emily Grafeo shuts it off. 0:05:39.560 --> 0:05:42.359 I actually think they have very good pricing power and 0:05:42.400 --> 0:05:44.120 a lot of that, of course, is going to be 0:05:44.160 --> 0:05:47.560 based off of the content. And they're obviously continuously investing 0:05:47.600 --> 0:05:50.640 in the content, you know, in a discipline way, but 0:05:50.880 --> 0:05:54.480 they're definitely broadening it, they're deepening it, and the content 0:05:54.600 --> 0:05:57.599 definitely has huge appeal. I mean we've seen this, you know, 0:05:57.720 --> 0:05:59.240 time and time again when they put out all of 0:05:59.240 --> 0:06:02.960 their engagement. You have every Netflix subscriber watching you know, 0:06:03.200 --> 0:06:06.000 the Netflix content for an average of about at least 0:06:06.000 --> 0:06:09.520 two hours a day. So that's definitely pretty strong, you know. 0:06:09.560 --> 0:06:12.200 So they're going to continue to keep adding to that 0:06:12.680 --> 0:06:14.960 content in terms of you know, live events, in terms 0:06:14.960 --> 0:06:17.800 of other things, and you know, it's I think that 0:06:17.920 --> 0:06:21.080 is definitely going to be a big growth catalyst for them. 0:06:21.440 --> 0:06:23.880 Just very quickly in the last thirty seconds here Githa 0:06:24.720 --> 0:06:29.000 talk about their their competition right now, because there are 0:06:29.040 --> 0:06:32.440 a ton of streaming services. But obviously, i mean Netflix 0:06:32.480 --> 0:06:35.839 is up about ninety percent over the last year. Did 0:06:35.839 --> 0:06:38.720 this earnings result show us that they're still the clear 0:06:38.839 --> 0:06:39.920 leader in streaming? 0:06:41.000 --> 0:06:43.440 Yeah, they are the undisputed leader. I mean, there's there's 0:06:43.600 --> 0:06:46.640 absolutely no doubt about this. They've won the streaming wars. 0:06:46.920 --> 0:06:49.120 The only one other name that kind of keeps coming 0:06:49.200 --> 0:06:53.520 up in terms of you know, viewing time would be YouTube, 0:06:54.120 --> 0:06:56.960 But I think both of those platforms are very different. 0:06:57.080 --> 0:07:00.680 So Netflix really kind of specializes in premium content and 0:07:00.800 --> 0:07:04.279 scripted content and prestige dramas. YouTube is really more for 0:07:04.440 --> 0:07:08.400 kind of casual user generated content. But again, you know 0:07:08.440 --> 0:07:10.960 the way that Netflix management has kind of framed this 0:07:11.080 --> 0:07:15.559 whole question about competition is that you know, they still 0:07:15.600 --> 0:07:18.040 have If you kind of just look at the whole 0:07:18.520 --> 0:07:21.280 viewing time, Netflix and YouTube combined only have about a 0:07:21.320 --> 0:07:25.000 twenty percent share, so they're really really eighty percent is 0:07:25.040 --> 0:07:27.800 still up for grabs. And the way that you know, 0:07:27.880 --> 0:07:31.000 Netflix is kind of characterizing that there's still plenty of 0:07:31.080 --> 0:07:34.960 upside in terms of them kind of capturing more share. 0:07:35.040 --> 0:07:37.280 But you're absolutely right, they are way ahead of their 0:07:37.280 --> 0:07:39.280 competitors in terms of viewing share right now. 0:07:39.640 --> 0:07:41.720 All right, Thank you very much, Githa. Always glad to 0:07:41.760 --> 0:07:44.880 have your inside. That's Keitha Ranganath and Bloomberg Intelligence analyst 0:07:45.280 --> 0:07:47.920 on the US media, keeping us all on top of 0:07:47.960 --> 0:07:48.720 Netflix learning. 0:07:50.520 --> 0:07:54.200 You're listening to the Bloomberg Intelligence podcast Catch us Live 0:07:54.320 --> 0:07:57.400 weekdays at ten am Eastern on Apple, Cocklay and Android 0:07:57.400 --> 0:08:00.080 Auto with the Bloomberg Business App. Listen on the and 0:08:00.320 --> 0:08:04.680 wherever you get your podcasts, or watch us live on YouTube. 0:08:05.000 --> 0:08:07.800 All right, welcome back to Bloomberg Intelligence Radio. I'm Emily 0:08:07.840 --> 0:08:11.680 Graffeo with Lisa Matteo. Paul Sweeney is out. We had 0:08:11.840 --> 0:08:15.040 a slew of earnings today and a good read on 0:08:15.120 --> 0:08:19.480 the consumer coming out of American Express shares. We're falling, 0:08:19.520 --> 0:08:23.080 but the credit card company's expenses were higher than expected. 0:08:23.440 --> 0:08:26.680 Tdcowan called the results neutral overall, noted that the earnings 0:08:26.720 --> 0:08:30.120 upside was driven by a lower than expected tax rate. 0:08:30.160 --> 0:08:32.960 We're going to have Paige Smith, Bloomberg Consumer Finance reporter, 0:08:33.280 --> 0:08:36.240 break all of this down. Maybe we could start with 0:08:36.360 --> 0:08:40.200 how Amex is standing out from competitors right now and 0:08:40.240 --> 0:08:42.160 what did the earnings overall show us. 0:08:42.120 --> 0:08:44.760 Because it does really feel like this is a crowded. 0:08:44.360 --> 0:08:48.960 Space here for like premium credit cards and premium consumer 0:08:49.000 --> 0:08:49.920 finance companies. 0:08:50.320 --> 0:08:51.560 Certainly, thanks for having me. 0:08:51.800 --> 0:08:53.760 I think the one thing that I would note that 0:08:53.800 --> 0:08:57.000 the Steve Squerrey, who's the CEO of Amex, got a 0:08:57.080 --> 0:08:59.959 lot of questions on this this morning on the analy 0:09:00.320 --> 0:09:02.560 call just the idea that you know, of course, the 0:09:02.600 --> 0:09:07.800 premium space folks who really love rewards on their credit cards, travel, hospitality, 0:09:08.280 --> 0:09:11.200 airport lounges, all of those nice things. It's a very 0:09:11.240 --> 0:09:14.960 crowded space and it's getting more crowded. Actually, City just 0:09:15.000 --> 0:09:17.840 announced earlier this week, for example, that they were actually 0:09:17.880 --> 0:09:20.160 re entering the space after sort of taking a bit 0:09:20.200 --> 0:09:24.800 of hiatus there. So it's it's certainly an area to watch. 0:09:24.840 --> 0:09:29.240 But AMEX really asserted itself during this batch of earnings 0:09:29.280 --> 0:09:33.960 to basically say, listen, we are sort of the original 0:09:34.160 --> 0:09:40.240 premium premium card offer company here and we're going to 0:09:40.400 --> 0:09:44.080 continue being the premium card offering for consumers in the US. 0:09:44.559 --> 0:09:47.400 Now, they had record card members spending, So what does 0:09:47.440 --> 0:09:50.320 that say about the state of the consumer they're continuing 0:09:50.360 --> 0:09:51.040 to swipe away. 0:09:51.480 --> 0:09:54.720 Yes, that was another question that Steve fielded a couple 0:09:54.760 --> 0:09:57.680 of times on the earnings call. It essentially does say 0:09:57.720 --> 0:10:00.400 that folks in the premium space are continuing to swipe, 0:10:00.480 --> 0:10:01.760 tap and spend. 0:10:01.440 --> 0:10:03.480 In every preferred way. 0:10:04.520 --> 0:10:07.880 And yes, it's it's sort of all's well for the 0:10:08.000 --> 0:10:11.000 MX consumer at this moment in time. 0:10:11.120 --> 0:10:16.640 Certainly, did we learn anything about any specific updates to 0:10:17.040 --> 0:10:20.760 the Platinum Card because people get so obsessed with the 0:10:20.800 --> 0:10:22.439 people love the updates. 0:10:22.600 --> 0:10:27.040 And again, yes, it was certainly asked, and no, we 0:10:27.080 --> 0:10:27.559 do not have. 0:10:27.520 --> 0:10:29.600 Any more updates for you just yet. 0:10:29.920 --> 0:10:32.400 We know again that the updates are coming in the fall, 0:10:33.160 --> 0:10:35.520 and we know the competitive landscape is tight. 0:10:36.440 --> 0:10:37.680 But are they going to raise the price? 0:10:38.280 --> 0:10:40.080 I think it's safe to say that they're going to 0:10:40.280 --> 0:10:43.600 raise the price. That's me putting my spin on things. 0:10:43.640 --> 0:10:45.839 But if they didn't raise the price, it would be 0:10:45.880 --> 0:10:49.160 a pretty a pretty great deal, I'll put it that way. 0:10:49.280 --> 0:10:52.199 And I don't think the economics would really make sense 0:10:52.240 --> 0:10:54.240 for the card if they did not raise the price. 0:10:54.800 --> 0:10:57.120 But I'm thinking, so if more people are taking advantage 0:10:57.160 --> 0:10:59.600 of all these perks, right, because I know I do, 0:10:59.720 --> 0:11:02.760 like if I'm tracking my points like crazy, So does 0:11:02.760 --> 0:11:04.560 that kind of mean that, you know what, the consumer 0:11:04.640 --> 0:11:07.000 is kind of cautious at the same time because we 0:11:07.160 --> 0:11:08.559 want to go for those deals. 0:11:09.240 --> 0:11:11.600 I you know, that's a really good question. I don't 0:11:11.679 --> 0:11:12.720 know if that's the case. 0:11:12.840 --> 0:11:15.240 I think that there are a lot of deals in 0:11:15.360 --> 0:11:19.160 rewards hounds out there, like yourself, who really just track 0:11:19.240 --> 0:11:21.600 it very closely. And there was a comment made on 0:11:21.640 --> 0:11:23.480 the call that it was something along the lines of, 0:11:23.640 --> 0:11:27.959 you know, consumers really like these rewards and they track 0:11:28.080 --> 0:11:31.680 them very closely and they pay for value. So it's 0:11:31.760 --> 0:11:34.600 I wouldn't say it's maybe a warning sign. I would 0:11:34.600 --> 0:11:36.520 say it's more of a sign of like a savvy 0:11:36.679 --> 0:11:37.880 consumer per se. 0:11:38.240 --> 0:11:42.400 Stable coins are very hot right now on Wall Street. 0:11:42.440 --> 0:11:44.480 Is that a threat to Amex's business. 0:11:44.520 --> 0:11:47.160 Well, so, it's certainly been the flavor of the week, 0:11:47.200 --> 0:11:47.720 if you will. 0:11:47.880 --> 0:11:50.320 Stable coin. The word stable. 0:11:50.000 --> 0:11:53.320 Coin has popped up in pretty much every earnings call 0:11:53.400 --> 0:11:55.679 I've tuned into over the last week, and whether it's 0:11:55.720 --> 0:11:59.679 the big Wall Street banks or even Schwab mentioned earlier. 0:12:00.080 --> 0:12:03.960 Schwab reported earnings this morning as well. And you know, 0:12:04.440 --> 0:12:07.720 when it comes to Amex, they basically said they're very 0:12:07.720 --> 0:12:12.400 closely watching the technology to see how they can either 0:12:12.840 --> 0:12:15.800 issue their own stable coin or partner on a stable 0:12:15.800 --> 0:12:18.360 coin offering of some kind. It's still they sort of 0:12:18.400 --> 0:12:22.040 hedged and said it's still early days relatively, but one 0:12:22.120 --> 0:12:25.280 thing was very clear, which is Steve Squery came right 0:12:25.360 --> 0:12:28.680 out and said, is this a threat to existing payment rails? 0:12:29.040 --> 0:12:29.600 No, it is not. 0:12:30.000 --> 0:12:31.880 And that's kind of the same thing that we've been 0:12:31.880 --> 0:12:38.080 hearing kind of across the payments companies, whether it's from Visa, MasterCard, AMX. 0:12:37.760 --> 0:12:39.120 Kind of the same tone there. 0:12:39.640 --> 0:12:41.960 So are people paying off their MX bill? I mean, 0:12:42.040 --> 0:12:43.199 how credit card debt? 0:12:43.400 --> 0:12:46.840 So an interesting stat actually that they highlighted in this 0:12:47.160 --> 0:12:50.920 round of earnings was that gen Z so AMEX is 0:12:50.960 --> 0:12:54.040 making a pretty concerted push in the younger consumer space 0:12:54.080 --> 0:12:54.559 at the moment. 0:12:55.080 --> 0:12:57.360 And they highlighted that gen Z and. 0:12:59.080 --> 0:13:02.280 Gen Z and MILLENNI ill spenders were paying, they were 0:13:02.440 --> 0:13:05.360 their delinquency rates were kind of being like thirty plus 0:13:05.480 --> 0:13:10.640 days past, you past. Their bills were actually lower than 0:13:10.960 --> 0:13:15.880 industry industry trends for older consumers. So you would think, 0:13:15.920 --> 0:13:18.240 you know, younger people are just getting used to paying 0:13:18.679 --> 0:13:21.360 off credit cards and sort of learning about how to 0:13:21.400 --> 0:13:23.960 handle their debt. And there was kind of some question 0:13:24.040 --> 0:13:27.880 about AMEX targeting these younger consumers with this like premium 0:13:27.920 --> 0:13:31.959 credit card that comes with PES, but they've basically countered 0:13:32.000 --> 0:13:35.440 and said, hey, so far, so good. They're actually paying 0:13:35.440 --> 0:13:38.160 them off. You know, the delinquency rates are quite low 0:13:38.200 --> 0:13:42.319 compared with the industry, definitely lower compared with the industry 0:13:42.600 --> 0:13:46.320 in their peer group, but even lower among older consumers. 0:13:46.320 --> 0:13:48.720 So kind of an interesting metric. I thought that they 0:13:48.800 --> 0:13:49.800 highlighted this morning. 0:13:49.840 --> 0:13:52.560 Well that's some good news. There's a bill you have 0:13:52.600 --> 0:13:54.960 to Paige my thank you so much for joining us 0:13:54.960 --> 0:13:58.520 here in the studio. She's Bloomberg Consumer finance reporter talking 0:13:58.559 --> 0:14:01.400 about AMEX and credit card debt and all of that. 0:14:03.360 --> 0:14:07.040 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:14:07.120 --> 0:14:10.520 weekdays at ten am Eastern on Applecarplay and Android Auto 0:14:10.600 --> 0:14:13.680 with the Bloomberg Business app. Listen on demand wherever you 0:14:13.720 --> 0:14:16.720 get your podcasts, or watch us live on YouTube. 0:14:17.400 --> 0:14:20.200 Then Li smitheo alongside Emily GRIFFEO. You were listening to 0:14:20.680 --> 0:14:24.440 Bloomberg Intelligence. Paul Sweeney does have the day off. Okay, 0:14:24.480 --> 0:14:27.960 So twenty five year old trading powerhouse Jane Street in 0:14:28.000 --> 0:14:30.520 the glare of a global spotlight. At least that's according 0:14:30.560 --> 0:14:34.480 to Katherine Doherty. She's Bloomberg Finance reporter. Her latest big 0:14:34.520 --> 0:14:37.000 take story. This one a lot to dive into, but 0:14:37.040 --> 0:14:39.440 I want to start by setting the table, like who 0:14:39.680 --> 0:14:43.240 is Jane Street and what's that apart from other firms 0:14:43.280 --> 0:14:43.680 out there. 0:14:43.840 --> 0:14:47.360 So, Jane Street has become one of the largest trading 0:14:47.440 --> 0:14:51.240 firms in the US and really across the globe. They 0:14:51.280 --> 0:14:55.320 started out. Their founders are from Susquehanna. That's another trading 0:14:55.360 --> 0:14:59.120 firm that they compete with today. But over the years 0:14:59.400 --> 0:15:03.720 they have really developed their technology and their people to 0:15:03.840 --> 0:15:07.680 generate billions of dollars in revenue. They've grown so large 0:15:07.720 --> 0:15:10.600 that their trading revenue has surpassed some of the biggest 0:15:10.720 --> 0:15:14.440 US banks. They're now larger in scale at least the 0:15:14.440 --> 0:15:17.480 money that they're making than Bank of America and City Group. 0:15:17.800 --> 0:15:21.080 So we're talking a lot of money. And they are 0:15:21.120 --> 0:15:24.360 really behind the scenes. So I like to think about 0:15:24.360 --> 0:15:29.160 them as they are responsible for the plumbing of the 0:15:29.160 --> 0:15:32.280 market and making sure that all of the trading is 0:15:32.320 --> 0:15:37.640 actually just moving through the system. They're handling orders from customers, 0:15:38.040 --> 0:15:40.440 not directly, some of it is indirectly. If you have 0:15:40.520 --> 0:15:43.360 a retail broker, they're the ones that are receiving the 0:15:43.480 --> 0:15:48.680 order from their clients. That order gets sent to a 0:15:48.840 --> 0:15:51.840 firm like Jane Street, and Jane Street handles the actual 0:15:51.960 --> 0:15:54.680 execution to make sure that they're matching the buyer and 0:15:54.720 --> 0:15:57.440 the seller. They might take the order and then eventually 0:15:57.440 --> 0:16:02.040 they sell it off. But the man player, that's Jane Street. 0:16:02.080 --> 0:16:05.680 They're the reason that trading can continue. Them and their 0:16:05.720 --> 0:16:10.240 peers play a very important role in the market structure overall. 0:16:10.720 --> 0:16:15.240 There is some regulatory scrutiny right now in India when 0:16:15.240 --> 0:16:16.760 it comes to Jane Street, which we're going to get 0:16:16.760 --> 0:16:19.160 to in a second. But you write in this big 0:16:19.200 --> 0:16:21.880 take that you wrote along with Bernard Goid that they're 0:16:22.280 --> 0:16:23.640 famously secretive. 0:16:24.160 --> 0:16:27.200 Why are they so secretive on Wall Street? 0:16:27.360 --> 0:16:30.320 Well, number one, they don't really have to say a lot. 0:16:30.400 --> 0:16:33.880 This is a private company. What they do doesn't require 0:16:34.360 --> 0:16:38.680 public interface at all. They're providing a service and they 0:16:38.680 --> 0:16:43.200 don't have to answer to shareholders. So many times they 0:16:43.280 --> 0:16:46.000 would they would like to operate. 0:16:45.800 --> 0:16:47.360 In the dark in many ways. 0:16:47.360 --> 0:16:50.280 It doesn't necessarily mean what's going on behind the scenes 0:16:50.320 --> 0:16:52.760 and what's happening in the dark is nefarious at all. 0:16:53.520 --> 0:16:57.040 There's just not really a reason to say anything. But 0:16:57.560 --> 0:17:00.720 what they do is so And who who works for 0:17:00.880 --> 0:17:03.760 Jane Street is a is a very particular type of person. 0:17:04.080 --> 0:17:08.600 They have quants, they have mathematicians, and this is not 0:17:08.920 --> 0:17:10.399 unique to to Jane Street. 0:17:10.440 --> 0:17:11.600 Other peers like. 0:17:11.560 --> 0:17:17.080 Citadel Securities and Hudson River Trading. They also attract those 0:17:17.160 --> 0:17:20.520 types of people that go to these firms but those 0:17:20.520 --> 0:17:22.399 are not the type of people that are in the 0:17:22.440 --> 0:17:26.359 business to speak out and and they're just doing their 0:17:26.440 --> 0:17:30.399 job because they're providing a service and that service doesn't 0:17:30.440 --> 0:17:34.040 necessarily need words. It's it's it's a lot of really 0:17:34.160 --> 0:17:39.840 intricate again, it's it's the uh, it's the analysis of 0:17:39.920 --> 0:17:43.080 just how the markets are are moving and and they're 0:17:43.119 --> 0:17:48.320 trying to just be faster and better than their peers. 0:17:48.320 --> 0:17:49.440 It's all about competition. 0:17:49.560 --> 0:17:52.720 And they say all of the market makers, like a 0:17:52.800 --> 0:17:56.000 Jane Street and a Citadel Securities would say that competition 0:17:56.119 --> 0:17:58.760 is a good thing because if you are trying to 0:17:58.840 --> 0:18:01.520 be faster, that of going to be a good thing 0:18:01.600 --> 0:18:05.560 for their customers because orders are going to be priced tighter, 0:18:05.800 --> 0:18:07.480 you're not going to lose as much money. 0:18:08.400 --> 0:18:11.360 And really, the reason that the market has. 0:18:11.240 --> 0:18:14.879 Evolved in the age of electronic trading in the way 0:18:14.920 --> 0:18:16.840 that it has is because of these firms. 0:18:17.119 --> 0:18:19.399 Now, Catherine, you're a pro, so is there anything that 0:18:19.480 --> 0:18:21.720 surprised you when you were when you were doing this 0:18:21.760 --> 0:18:22.720 research for this story. 0:18:22.800 --> 0:18:24.159 I would not say I'm a pro at all. 0:18:24.280 --> 0:18:27.359 Actually, I mean the reason I enjoy, the reason I 0:18:27.440 --> 0:18:30.119 enjoy reporting on firms like this is I'm learning so 0:18:30.400 --> 0:18:34.399 much and the people that work in the markets covering 0:18:34.400 --> 0:18:39.199 market structure here at Bloomberg, I am fascinated by just 0:18:39.240 --> 0:18:43.120 how niche and how nerdy it goes. So I mean, 0:18:43.160 --> 0:18:47.280 I would say what surprised me in this reporting, what 0:18:47.440 --> 0:18:50.200 surprised everyone on Wall Street was when the numbers were 0:18:50.240 --> 0:18:53.720 starting to come out of how much money firms like 0:18:53.840 --> 0:18:58.480 Jane Street were making. It was to surpass the big 0:18:58.720 --> 0:19:02.119 US banks in terms of creating revenue. That was incredibly 0:19:02.160 --> 0:19:07.880 surprising and something that even competitors to Jane Would would 0:19:07.920 --> 0:19:11.000 look and say, how are they doing what they do 0:19:11.400 --> 0:19:15.520 on the scale that they do? And the answer to 0:19:15.560 --> 0:19:17.240 that in my reporting and a lot of what this 0:19:17.359 --> 0:19:20.760 story is about is the amount of risk that this 0:19:20.880 --> 0:19:22.199 firm is taking. 0:19:22.280 --> 0:19:22.520 Now. 0:19:23.200 --> 0:19:25.440 The reason that they can take so much risk, that's 0:19:25.480 --> 0:19:27.520 another element to it. It's not as if they're just 0:19:28.160 --> 0:19:30.879 throwing caution to the wind. They they're doing this and 0:19:30.920 --> 0:19:33.920 they know exactly how much risk they're able to take. 0:19:34.240 --> 0:19:36.359 The reason they can stomach the risk is because of 0:19:36.400 --> 0:19:39.959 the capital that they're working with. That capital, the money 0:19:40.200 --> 0:19:43.520 that they are putting out there and they're for lack 0:19:43.560 --> 0:19:47.159 of a better word, playing with it's so large and 0:19:47.200 --> 0:19:50.920 it's all theirs. So if you are a hedge fund 0:19:51.080 --> 0:19:54.240 as comparison that money, you have to answer to shareholders. 0:19:54.280 --> 0:19:57.160 So if you're taking big risks and it doesn't work out, well, 0:19:57.640 --> 0:20:00.480 it's not just oh sucks for us, that's really bad 0:20:00.520 --> 0:20:02.360 for your clients and your customers. 0:20:02.440 --> 0:20:04.160 Jane Street, that's their capital. 0:20:04.280 --> 0:20:07.040 So they might take bigger risk because they think there's 0:20:07.080 --> 0:20:09.400 going to be a bigger reward on the other side, 0:20:09.520 --> 0:20:11.680 and if it doesn't work out, it's not as if 0:20:11.760 --> 0:20:16.439 they have to go explain that or their profit and 0:20:16.520 --> 0:20:20.000 loss is all their own money. So it's much different 0:20:20.359 --> 0:20:24.240 than the approaches that the banks and hedge funds take 0:20:24.720 --> 0:20:26.240 on potentially the other side. 0:20:26.440 --> 0:20:28.399 We have about a minute left and this is definitely 0:20:28.400 --> 0:20:29.800 a story that I know we're going to be hearing 0:20:29.800 --> 0:20:34.000 more reporting on from you. But regulators are watching Jane 0:20:34.040 --> 0:20:36.879 Street specifically in India. Just give us the high level 0:20:37.359 --> 0:20:40.960 what the Securities in Exchange Board of India SEB is 0:20:41.040 --> 0:20:41.600 looking at. 0:20:41.880 --> 0:20:45.800 So they're looking at Jane Street's trading behavior specifically in 0:20:45.880 --> 0:20:51.160 the options market. The regulator came out over July fourth 0:20:51.280 --> 0:20:55.200 weekend within one hundred and five page order outlining what 0:20:55.720 --> 0:21:00.800