Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Intelligence
Speaker 1: with Alex Steel and Paul'sweeny.
Speaker 2: The real app performance has been the US corporate high yield.
Speaker 3: Are the companies lean enough? Have they trimmed all the fats?
Speaker 2: The semiconductor business is a really cyclical business.
Speaker 1: Breaking market headlines and corporate news from across the globe.
Speaker 3: Do investors like the M and A that we've seen?
Speaker 4: These are two.
Speaker 2: Big time blue chip companies.
Speaker 3: The window between the peak and cut changing super fast.
Speaker 1: Bloomberg Intelligence with Alex Steel and Paul'sweeny on Bloomberg Radio.
Speaker 2: On Today's Boomberg Intelligence Show, we dig inside the big
Speaker 2: business stories impacting Wall Street and the global markets. Each
Speaker 2: and every week we provide in depth research and data
Speaker 2: on some of the two thousand companies and one hundred
Speaker 2: and thirty industries our analysts cover worldwide. Today, well look
Speaker 2: at why sales at the sportswork company Nike are declining.
Speaker 2: Plus we'll discuss how the Inflation Reduction Act is impacting
Speaker 2: the energy sector. But first we begin in the M
Speaker 2: and A space. DirecTV and Dish have agreed to combine
Speaker 2: in a deal that would create the biggest PayTV provider
Speaker 2: in the US. That one included about eighteen million subscribers.
Speaker 2: Under the terms of the transaction, DirecTV will acquire Dish
Speaker 2: TV and Sling TV from EchoStar, and DirecTV would assume
Speaker 2: about nine point seventy five billion dollars of Dish's debt.
Speaker 2: The deal is contingent upon regulatory approvals and bondholders writing
Speaker 2: off nearly one point six billion dollars in debt related
Speaker 2: to Dish. Co host Alex Steel and I were joined
Speaker 2: by Githa Rong Andathan Bloomberg, intelligence analyst on the US
Speaker 2: media space. We first asked, getha, what's driving this deal?
Speaker 4: What's really driving this deal is desperate times kind of
Speaker 4: call for desperate measures, Paul, So, satellite TV has steadily
Speaker 4: seen an erosion of its subscriber base. I mean, at
Speaker 4: one point it was the only other game in town,
Speaker 4: along with cable TV, for people to get access to
Speaker 4: different PATV packages. Today the world is a completely different place.
Speaker 4: I mean, you have cable, you have satellite, which is
Speaker 4: of course the traditional facilities based operators, but then you
Speaker 4: also have a whole slew of new Internet based options.
Speaker 4: Whether you know it's a YouTube TV, which gives you
Speaker 4: all of the linear TV options, or whether it's like
Speaker 4: completely different what are known as sphalts services subscription video
Speaker 4: on demand services like an Amazon Prime or Netflix, and
Speaker 4: so the world today is completely different. And because of this,
Speaker 4: satellite TV has has seen a huge, huge erosion of
Speaker 4: its subscriber based dish and direct TV. Once upon a time,
Speaker 4: you know, they were some of the largest PATV operators.
Speaker 4: They've lost about sixty three percent of their satellite subscriber
Speaker 4: base just over the past seven years.
Speaker 3: That's unbelievable. Did two wrongs then make a right slash?
Speaker 3: Will regulators like it?
Speaker 4: So regulators of course squashed this deal back you know,
Speaker 4: about twenty years ago, but then again, it was a
Speaker 4: completely different landscape. They have to kind of understand that
Speaker 4: things have completely each change today. One of the main
Speaker 4: appealing points of satellite TV, why people even taken in
Speaker 4: the first place, is because in a lot of areas
Speaker 4: in rural America, this is the only way that you
Speaker 4: can get access to PATV. But things have been changing
Speaker 4: because you know, we've had this whole initiative to narrow
Speaker 4: the digital divide, So more and more houses in rural
Speaker 4: America are getting wired up and with that they now
Speaker 4: have the option to switch to Internet based TV, which
Speaker 4: is you know, exactly what Distion direct Tv are saying.
Speaker 4: This is the reason why they've lost subscribers. So this
Speaker 4: is the reason why there is more competition, and therefore
Speaker 4: regulators should allow the deal to pass.
Speaker 2: And I guess a parallel announcement here is that TPG Group,
Speaker 2: the private equity company, is going to acquire AT and
Speaker 2: t's seventy percent stake in direct TV that TBG doesn't
Speaker 2: already own. So in effect, a private equity owner is
Speaker 2: now going to own the entire US satellite television business.
Speaker 2: What's going on there?
Speaker 1: Why?
Speaker 2: Why is this happening?
Speaker 4: Yeah, exactly, Paul. So it's you know, Charlie ergan walking
Speaker 4: away from the PATV business, and in many ways again
Speaker 4: AT and T also walking away from the PATV business.
Speaker 4: And as you well know, AT and T had invested
Speaker 4: heavily in the media businesses. They had bought the whole
Speaker 4: Warner Brothers operation, which they kind of got rid of,
Speaker 4: selling that to Discovery, and then of course they had
Speaker 4: also bought the Direct TV operations, which they sold a
Speaker 4: thirty percent stake to TPG. They still retained a seventy
Speaker 4: percent stake, and of course with that deal with TPG,
Speaker 4: they are completely exiting that business. And for both of them,
Speaker 4: if you kind of look at what you know is
Speaker 4: the final endgame here for both AT and T and
Speaker 4: EchoStar or the other part of the dish business, they
Speaker 4: really want to kind of focus on their core business,
Speaker 4: which is the wireless business for AT and T. Of
Speaker 4: course it's the wireless business for EchoStar. They have, you know, built,
Speaker 4: they've mastered a huge amount of spectrum, and they ultimately
Speaker 4: want to become the fourth largest wireless player in the
Speaker 4: United States, and this deal really helps them do that
Speaker 4: and kind of focus their resources, investments, time, and energy
Speaker 4: on just that part of the operation.
Speaker 3: This might be a dumb question, but do they grow
Speaker 3: their customer base at this point? Is they're a customer
Speaker 3: base to grow, or as you said, do they just
Speaker 3: become better at execution and they kind of cut with
Speaker 3: synergis and that's how they become successful.
Speaker 4: Yes, they outline about a billion dollars in synergies. A
Speaker 4: lot of those will of course be programming costs. They
Speaker 4: still will be with the combination, they still will be
Speaker 4: the largest PATV operator. They will have about nineteen to
Speaker 4: twenty million subscribers, but there's not a whole lot to
Speaker 4: really grow ALEX, So it's really more kind of stemming
Speaker 4: the declines, if you will, just reducing the bleeding and
Speaker 4: becoming much much more efficient in kind of delivering customized,
Speaker 4: tailor made packages for the PayTV market.
Speaker 2: And Keith, you're about thirty seconds left. What's your forecast
Speaker 2: for just the overall pay TV business? Are paying subscribers
Speaker 2: going to go to zero? Is where we're going to
Speaker 2: be all streaming stuff soon?
Speaker 4: I hope not, but we're definitely seeing that. You know,
Speaker 4: YouTube tv is becoming a major major player in the
Speaker 4: market again. They are delivering linear TV channels. They right
Speaker 4: now are you know, about the third or the fourth
Speaker 4: largest operator eight million subscribers, so they actually have more
Speaker 4: subscribers than Dish has on its satellite business. But we
Speaker 4: eventually in the next two to three years see them
Speaker 4: becoming the largest player and then that of course changes
Speaker 4: the whole dynamics off the whole PATV market because then
Speaker 4: you have a streaming based operator that's the largest operator
Speaker 4: of you know, the PATV market.
Speaker 2: Our thanks to Geitha Ranganathan Bloomberg Intelligence media analyst. We
Speaker 2: move now to the tech space. Open Ai is bolstering
Speaker 2: its efforts to build the world's leading generative artificial intelligence technology.
Speaker 2: The company has completed a deal to raise six point
Speaker 2: six billion dollars in new funding, giving it a one
Speaker 2: hundred and fifty seven billion dollar valuation. The funding round
Speaker 2: was led by Thrive Capital and Microsoft. Other investors included
Speaker 2: Costla Ventures, Fidelity Management, and Nvidia. Open Ai also tapped
Speaker 2: Global Banks for a four billion dollar revolving line of
Speaker 2: credit on top of its recent fundraising. For more and
Speaker 2: all this. Guest hosts Bailey Lipscholtz and I were joined
Speaker 2: by anaag Rana, Bloomberg Intelligence technology analyst. I first asked
Speaker 2: anarrog what else he knows about what's going on with
Speaker 2: open Ai.
Speaker 5: Yeah, Openea is really taking going to lead over the
Speaker 5: last three years because of the launch of chat GPT
Speaker 5: and after that it has become the go to things,
Speaker 5: even for enterprises. We recently did a CIO survey and
Speaker 5: open Ai Microsoft combination was far ahead than all the
Speaker 5: other large language models that was out there. So that's
Speaker 5: on the enterprise side and consumer side. We already know
Speaker 5: how well they are doing both on the app that
Speaker 5: they're selling along with the distribution that the the what
Speaker 5: they won with Apple being part of CD when the
Speaker 5: software upgrade is going to come. So open AI in
Speaker 5: the world of large language models really at the top
Speaker 5: of the top of the mountain at this point, and
Speaker 5: this is one of the reasons you're getting these high valuations.
Speaker 6: Yeah, I just want to put into perspective. At one
Speaker 6: hundred and fifty seven billion dollars, open ai would be
Speaker 6: larger than uber and at that six point six billion
Speaker 6: dollars in funding relative to IPOs, it would be the
Speaker 6: twelfth largest global IPO since twenty eighteen. So anak are
Speaker 6: we in a AI bubble as it relates to private markets?
Speaker 5: I think, to be very frank with you, I can
Speaker 5: only answer that five years from now. But we just
Speaker 5: you know, updated our numbers looking at capital expenditures for
Speaker 5: the top five six companies. These companies, which includes Amazon, Microsoft, Meta, Oracle,
Speaker 5: et cetera. In twenty twenty three, they spent about one
Speaker 5: hundred and ten billion dollars in all the things what
Speaker 5: we call capital expenditures. In twenty twenty five, they're going
Speaker 5: to spend about two hundred billion dollars so that's a
Speaker 5: massive increase of ninety billion over a two year period.
Speaker 5: You know, where is that money going to? Expansion of
Speaker 5: data center, buying more GPUs, buying more hardware, expanding their
Speaker 5: own large language models.
Speaker 7: So it really feels.
Speaker 5: Real, frankly as to the amount of money that the
Speaker 5: big guys are spending it over here, and they won't
Speaker 5: be doing it if they didn't see the demand on
Speaker 5: the other side of the equation.
Speaker 2: This has been a turbulent year for the company here.
Speaker 2: I know, lass November the company's board fired and then
Speaker 2: quickly we hired the CEO, Sam Altman. Following months had
Speaker 2: a lot of key leaders leave, including the co founder,
Speaker 2: the chief technology officer. It seems like the market's kind
Speaker 2: of forgotten all about that, or maybe it's not a
Speaker 2: problem anymore. How's the market dealing with some of that
Speaker 2: turmoil we've seen over the last year.
Speaker 5: I think people tend to forget that who's really behind
Speaker 5: a lot of backing off this particular company, and that's Microsoft,
Speaker 5: and you know they have the biggest distribution and among enterprises.
Speaker 5: So if they are basically telling people if you want
Speaker 5: to create an enterprise application using some AI large language model,
Speaker 5: here is OpenAI model and you can host it on
Speaker 5: our cloud platform. I think that is resonating very well
Speaker 5: with customers. So as long as that continues for the
Speaker 5: next several years, open AI's revenue will continue to go up.
Speaker 5: And you know, then you can you know, argue whether
Speaker 5: the valuations is high or not.
Speaker 6: And just from the bloom we're reporting Tiger Global put
Speaker 6: in three hundred and fifty million dollars, Ultimeter putting in
Speaker 6: at least two hundred and fifty million dollars. But to
Speaker 6: your point, if Microsoft is able to write such large checks,
Speaker 6: how does that impact the funding environment for AI companies.
Speaker 6: I'm just thinking about the biggest competitors for open ai
Speaker 6: in Anthropic and XAI.
Speaker 5: Yeah, I mean Anthropic is backed by you know, Amazon
Speaker 5: Web Services at this point primarily, and almost all the others.
Speaker 5: The one thing we heard, you know, from reporting from
Speaker 5: Bloomberg News is that open aye is asking them not
Speaker 5: to back up you know, Elon's xai or others. And
Speaker 5: I think that's partially the reason you see all the
Speaker 5: other plays coming in because and by the way, there's
Speaker 5: not going to be one winner, They're going to be
Speaker 5: multiple models. They're going to be multiple companies doing well here,
Speaker 5: and there is no reason Anthropic can't thrive in this
Speaker 5: way or Mistral or all the other large language model companies.
Speaker 2: What do we know about open AI's financials if anything.
Speaker 5: It's I mean, I don't have a clear picture on it.
Speaker 5: I've I've read as much as you have, and you know,
Speaker 5: we have seen projections out there for the next several
Speaker 5: years they can get to I don't know, five billion,
Speaker 5: ten billion or so forth. So I mean it's it's
Speaker 5: unless we see the s one when they go public,
Speaker 5: you know, up till at that point, you know, it's
Speaker 5: it's it's purely a guess work.
Speaker 2: Do we have any sense of do they have an
Speaker 2: appetite to go public? Is it a sense of timing?
Speaker 2: What are their plans for going public? If any?
Speaker 6: See?
Speaker 5: My personal view is they don't need to go public
Speaker 5: at all. They don't need the funding they will you know,
Speaker 5: the whoever is part of this particular ecosystem is getting
Speaker 5: rich every day. I think they should figure out how
Speaker 5: to grab as much enterprise workloads as possible before they
Speaker 5: think about it, because one thing is for sure, even
Speaker 5: as they are doing this land grabbing right now, they're
Speaker 5: at a loss, and they will be at a loss
Speaker 5: for several years out because the cost of running these
Speaker 5: workloads is very high and it's going to you know,
Speaker 5: you're not going to see any free cash flow. You're
Speaker 5: not going to see any But once you've got public,
Speaker 5: you know, you really go under the lens when it's
Speaker 5: about profitability and your margins.
Speaker 6: Wellly have about thirty seconds. But going back to a
Speaker 6: story that has been reported out recently in terms of
Speaker 6: giving all in a stake in the company that could
Speaker 6: be worth more than ten billion dollars, what do you
Speaker 6: make of those conversations and what that could mean for
Speaker 6: the company and its ambitions.
Speaker 5: Yeah, I mean it's always talked about how he is
Speaker 5: doing for the greater good of the world. But I
Speaker 5: bet I guess when you get this much options you
Speaker 5: change your mind on that. But it's it is what
Speaker 5: it is.
Speaker 2: Our thanks to anaag Rana, Bloomberg Intelligence technology analyst, coming
Speaker 2: up or break down why investors are disappointed in Tesla
Speaker 2: despite its first quarterly sales gain this year. You're listening
Speaker 2: to Bloomberg Intelligence on Bloomberg Radio, providing in depth research
Speaker 2: and data on two thousand companies and one hundred and
Speaker 2: thirty industries. You can ask us Bloomberg Intelligence if via
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Speaker 2: We move now to earnings from the sportswear company Nike,
Speaker 2: and they you reported first quarter sales that fell ten
Speaker 2: percent and we're short of analyst expectations. Thank He Also,
Speaker 2: it drew it's for year sales guidance, citing a transition
Speaker 2: to its new CEO, Elliott Hill, who will arrive later
Speaker 2: this month. The company also said it'll postpone its investor Day,
Speaker 2: which had been scheduled for November for more. Co hosts.
Speaker 2: Alex Steel and I were joined by Punam Goyle, senior
Speaker 2: US e Commerce and retail analyst at Bloomberg Intelligence. We
Speaker 2: first asked Poonam for her take on Nike's latest quarterly results.
Speaker 8: It was weak, right. Their sales continue to drop and
Speaker 8: there's no signs of a recovery at least yet until
Speaker 8: they have a better planning place. I'd say this year
Speaker 8: for them, their fiscal year is going to be the
Speaker 8: year of a reset. Once the new CEO comes into
Speaker 8: play in just a few weeks, he will have a
Speaker 8: new playbook and that playbook will drive Nike's turnaround in
Speaker 8: the fiscal twenty twenty six.
Speaker 3: So part of that was, yes, cleaning the sleeve for him.
Speaker 3: They got rid of their investor day for all of
Speaker 3: those reasons. Can we assume that this is the drop,
Speaker 3: this is the worst it's going to get. It's only
Speaker 3: up from here.
Speaker 8: I would say fiscal twenty twenty five the year of
Speaker 8: a trough. I wouldn't necessarily say that to that physical
Speaker 8: one Q is a trough because as you probably heard,
Speaker 8: they have guided to fiscal two Q sales to be
Speaker 8: down eight to ten percent, which is roughly still in
Speaker 8: line with one queue. And with the holiday season being unpredictable,
Speaker 8: we have port strikes, we have a shorter holiday season
Speaker 8: with fewer days of shopping. You know, things are still
Speaker 8: very much up in the air from a macro perspective,
Speaker 8: and the Nike has its own troubles on top of that.
Speaker 2: All right, So from your perspective, Punum, what is the
Speaker 2: problem with Nike.
Speaker 8: The problem is that they don't have enough newness in
Speaker 8: their pipeline and they haven't been focused on merchandise. Nike
Speaker 8: has to have good merchandise, new merchandise, performance based merchandise
Speaker 8: in front of consumers on a constant basis to really
Speaker 8: drive the outperformance that they had seen a pre pandemic.
Speaker 8: They lost that under the current leadership because the focus
Speaker 8: is more on DTC and using the franchises that did
Speaker 8: well and really just adding new variations of them. For
Speaker 8: example the Air Force, Right, we have so many variations
Speaker 8: of the Air Force, saying with the dunks and saying
Speaker 8: with the Jordan's just new color waves. So we need
Speaker 8: to see more. We need to see them do more
Speaker 8: on the product front and then the marketing of it
Speaker 8: of course too.
Speaker 2: So what s Nike saying just about the consumer in
Speaker 2: general these days? Because I would think WOY with their
Speaker 2: broad product line in reach, they would have a pretty
Speaker 2: good view.
Speaker 8: They you know, the consumers uneven, they're spending in certain
Speaker 8: places and then they're not spending. For example, they talked
Speaker 8: a lot about their new product that they brought to
Speaker 8: market earlier.
Speaker 4: This year.
Speaker 8: That's actually done really well for them, and that's a
Speaker 8: good sign. But then the rest of the stuff is
Speaker 8: just status quo. They are seeing weakness in their own
Speaker 8: retail channels, and the weakness is coming from traffic, right.
Speaker 8: So this goes back to the macro a little, where
Speaker 8: traffic is down in the stores, Traffic is down on line,
Speaker 8: and traffic is what's hurting sales because the average selling
Speaker 8: price was actually up, which means they're able to sell
Speaker 8: these expensive sneakers. They're just not able to get enough
Speaker 8: people to come in and buy them.
Speaker 3: Okay, do Nikes have sneakers with those heels, because if
Speaker 3: they did, I'd feel like, Yeah, there's like a whole
Speaker 3: brand of like sneakers with a heel, so like stilettos,
Speaker 3: and they have the look of a sneaker, and I
Speaker 3: think they have I think that would be helpful.
Speaker 8: I don't think they have that, but I don't know
Speaker 8: if they actually need.
Speaker 3: That to win They probably they're not talking up fair enough.
Speaker 3: But in all seriousns though, how is China doing for Nike?
Speaker 8: China is not doing well. China has struggled for some time,
Speaker 8: and I think the China struggle will eb and flow.
Speaker 8: The highlight for China is a new stimulus that they
Speaker 8: have just gotten, and I think that can serve as
Speaker 8: a catalyst to help at least improve sales from where
Speaker 8: they are today in the near future, because that should
Speaker 8: get Nike back onto people's feet there as they have
Speaker 8: more spending pass. The thing is, though, everyone's fighting for
Speaker 8: share in China right That's the growth engine for most
Speaker 8: app leisure companies, and while Nike does have a lead
Speaker 8: still in China, it's one among many players, the locals
Speaker 8: and the nationals.
Speaker 2: Thirty seconds, Punham, what's the you know, the holiday season
Speaker 2: look like we have any growth there? For US retailers,
Speaker 2: there will be growth.
Speaker 8: We think e commerce is going to lead, Bob. We
Speaker 8: think there's a value play here. Consumers are scratched. It's
Speaker 8: a shorter season. There's going to be a lot of
Speaker 8: deals in the next few weeks of the time day
Speaker 8: kicking off, so shoppers bull shop deals and will shop early.
Speaker 2: Our thanks to Punham Goyle, senior US e Commerce and
Speaker 2: retail analyst at Bloomberg Intelligence, We look next at the
Speaker 2: ev giant Tesla. Tesla posted its first increase in quarterly
Speaker 2: vehicle sales this year, but the automaker let down investors
Speaker 2: who are expecting more of a bump from China boosting
Speaker 2: electric car subsidies for more. Co hosts Alex Steel and
Speaker 2: I were joined by Keith marton Bloomberg Auto Reporter. We
Speaker 2: first asked Keith for his take on Tessa's recent numbers.
Speaker 9: Yeah, there's a little disappointment on the vehicle sales. They
Speaker 9: came in just under analysts expectations about one thousand vehicles
Speaker 9: under They sold four hundred and sixty two thousand and
Speaker 9: four hundred and sixty three was more the It was
Speaker 9: a consensus, but more to the point, they kind of
Speaker 9: missed the whisper expectation, which was maybe as high as
Speaker 9: four seventy. Seems like there's some softness in the cyber truck.
Speaker 9: There also were high expectations for sort of a cash
Speaker 9: for Clunger's sort of promotion going on in China. They've
Speaker 9: doubled the incentive for EV sales if you turn in
Speaker 9: an older model there. That was expected to give more
Speaker 9: tailwind to Tesla, and that didn't quite materialize the way
Speaker 9: that investors expected.
Speaker 3: You know, just in terms of ubers, for example, every
Speaker 3: Uber I'm in now feels like it's a Tesla. I
Speaker 3: don't know if you guys experienced the same thing. And
Speaker 3: I feel like, is that a good or bad sign
Speaker 3: for Tesla, because yeah, okay, it's promotional, but I feel
Speaker 3: like the reason why all the Ubers are now Tesla
Speaker 3: is is because it's a promotion, like get this off
Speaker 3: my lot. Are we at the trough with that?
Speaker 9: Yeah? You know, Model three and Model Y. That is
Speaker 9: the volume of the company, which are their you know,
Speaker 9: mainstream cars, their luxury models does not sell very well anymore.
Speaker 9: It's getting pretty long on the tooth. And cyber Truck,
Speaker 9: you know, is priced sort of around one hundred thousand,
Speaker 9: and that limits its volume under twenty thousand probably for
Speaker 9: the quarter. So they are becoming a more mainstream brand,
Speaker 9: and when that happens, they become Ubers.
Speaker 2: Matt from Westchester emails in here and says, is Tesla
Speaker 2: ever gonna have a new model? We haven't had a
Speaker 2: new model like ever, really, like just an upgraded model.
Speaker 9: Yeah. This is you know, sort of a long standing
Speaker 9: issue that the product lineup, with the exception of cyber Truck,
Speaker 9: which for now is a niche vehicle, that the lineup
Speaker 9: is getting stale. But you know, Elon must is really
Speaker 9: focusing more on Tesla as an AI company. They have
Speaker 9: this event coming up next week to unveil the Robotaxi
Speaker 9: that he's really been talking up, and that's actually moved
Speaker 9: up the stock from the way he's positioning the company.
Speaker 9: So he's trying to speak less like a traditional automaker
Speaker 9: and more like an AI tech company.
Speaker 3: I feel like it's always been that. It's been like
Speaker 3: Tesla's a tech company. Nope, it's a car company. No,
Speaker 3: now it's an AI company. How does the sales though,
Speaker 3: that we're seeing for EV's, because that's still the bread
Speaker 3: and butter, How is that stacking up against its peers
Speaker 3: like a GM or Forward.
Speaker 9: Well, I mean, Tesla's still far and away leads to
Speaker 9: the market. But GM, for example, had an excellent quarter
Speaker 9: in EV sales because they've just rolled out this thirty
Speaker 9: five thousand dollars Chevy Equinox electric vehicle and that's a
Speaker 9: great price and it's below Tesla's lowest prices, so you know,
Speaker 9: new competitors are coming in. Tesla's supposed to have a
Speaker 9: lower priced EV coming next year, but Elon hasn't really
Speaker 9: talked much about that, so you know, as more competitors
Speaker 9: come in, as they come in at the lower end
Speaker 9: of the market, that's going to chip away at Tesla's share.
Speaker 2: Our thanks to Keith Thoughton, Bloomberg's Auto Reporter. We move
Speaker 2: now to earnings from Carnival Cruise Line. Carnival reported third
Speaker 2: quarter sales and profits that beat analysts expectations while raising
Speaker 2: its full year outlook for a third time this year,
Speaker 2: but the companies share slumped shortly after the report as
Speaker 2: a company delivered a softer outlook for demand next quarter.
Speaker 2: For more, co host Alex Steel and I were joined
Speaker 2: by Brian Egger, Bloomberg Intelligence Senior Gaming and Lodging analyst.
Speaker 2: We first asked Brian to break down Carnival's results.
Speaker 10: Overall, strong quarter and more of what we've been seeing
Speaker 10: in the past, which is strong onboard spending, close in
Speaker 10: booking has looked really good and overall the demand pace
Speaker 10: from the consumer's perspective is quite strong. I can't really
Speaker 10: attribute anything to the specifically to the stock price decline.
Speaker 10: I do know there was some discussion on the call
Speaker 10: about the effect of expense timing. Higher dry do costs
Speaker 10: expense timing going into the fourth quarter, but that's generally
Speaker 10: in line with what was previously expected and not at
Speaker 10: all indicative of any kind of systemic cost issues. Overall,
Speaker 10: from a demand perspective, Compared to the other sectors we follow,
Speaker 10: cruise lines have not shown any crack.
Speaker 2: Yep, Where are they in terms of deploying their fleet?
Speaker 2: Are they fully deployed?
Speaker 6: Now?
Speaker 2: Do they keep ships in port? I don't know what
Speaker 2: they do here? How does that work?
Speaker 10: Yeah, they're fully deployed. They're back to full pre pandemic
Speaker 10: levels of deployment and ocumancy. In fact, one of the
Speaker 10: pieces of good news going I think into next year
Speaker 10: is a capacity growth is quite modest, so that kind
Speaker 10: of is another favorable factor in terms of yield demand
Speaker 10: for next year.
Speaker 3: What do we think the relationship is between say, you know,
Speaker 3: US GDP and Carnival, Like, how a recession proof or
Speaker 3: not recession proof or sensitive?
Speaker 6: Are they?
Speaker 1: Yeah?
Speaker 10: I've generally viewed cruises in general as being modestly cyclical,
Speaker 10: but if you go back as storically over decades, passenger
Speaker 10: growth has kept pace with supply growth even across weaker
Speaker 10: economic periods. Although this is probably a consumer cycle coal
Speaker 10: it has generally proven to be less cycle coal than
Speaker 10: other sectors because of this significant penetration expansion opportunity getting
Speaker 10: more first time cruisers.
Speaker 2: We've heard from Carnival and from the other cruise lines
Speaker 2: that demand, as you mentioned, remains very strong.
Speaker 6: Why aren't they just.
Speaker 2: Launching new ships, cranking out new ships to meet the
Speaker 2: demand and try to take the mantage of it.
Speaker 10: They're doing that, and over time you're going to see
Speaker 10: kind of this mid single digit capacity growth measure just
Speaker 10: happens to be a point in twenty twenty five where
Speaker 10: the level of capacity of growth is like zero point
Speaker 10: seven percent. So it's a more modest period of growth here,
Speaker 10: which I think probably entering some period of economic and
Speaker 10: certainty not itself a bad thing. They're also adding more
Speaker 10: amenities other than the new ships, like their private island
Speaker 10: destinations and things of that sort.
Speaker 3: Excuse me, Wait, so I take a cruise to a
Speaker 3: private island. Whose island?
Speaker 10: Yeah? So Celebration Key is one of those private island
Speaker 10: destinations that most of the cruise companies have, and that's
Speaker 10: something that they're going to be unveiling going into next year.
Speaker 10: So I think that, combined with generally strong pace of
Speaker 10: demand and the fact that on the ships themselves, the
Speaker 10: onboard spending really has not led up. Those are all
Speaker 10: very favorable factors, and we're obviously watching this closely given
Speaker 10: all the understandable concerns about what happens with the consumer,
Speaker 10: there's any kind of economic slowdown.
Speaker 2: What's the biggest cost drivers that these companies have to
Speaker 2: manage here?
Speaker 10: Yeah, I mean generally fuel has always been something we
Speaker 10: watch carefully, fuel food supplies. You know, it's kind of
Speaker 10: a different kind of labor composition than other industries, but
Speaker 10: certainly if you look at the cost growth picture, we
Speaker 10: carefully watch things like foreign currency exchange movements and fuel
Speaker 10: cost growth.
Speaker 2: All right, thanks to Brian Egger, Bloomberg Intelligence senior Gaming
Speaker 2: and lodging analysts, coming up on the program and look
Speaker 2: at how leadership and strategy changes have impacted Harvard University financially.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 2: Bigo on the terminal. I'm Paul Sweeney, This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 1: Just Say Alexa Play Bloomberg eleven thirty.
Speaker 2: Each week we look at research from Bloomberg's n EF
Speaker 2: previously known as New Energy Finance. They're the team of
Speaker 2: Bloomberg that tracks and analyzes the energy transition from commodities
Speaker 2: to power, transport, industries, buildings, and agricultural sectors. This week
Speaker 2: we looked at the Inflation Reduction Act and its impact
Speaker 2: on the energy sector. For more, co host Alex Steel
Speaker 2: and I were joined by Thomas Rowlands Reese, bnev's head
Speaker 2: of research for North America. We first asked Thomas, what
Speaker 2: has happened over the last two years in terms of
Speaker 2: deployment and project and what is left to do?
Speaker 7: I think the main thing that has happened, you know,
Speaker 7: you'll see most of the money will have flowed through
Speaker 7: into the build out of the power sect, particularly into
Speaker 7: solar and wind and storage. Now there's a question of
Speaker 7: whether that was all going to get built anyway, and
Speaker 7: what you'd say the real value of the inflation Reduction Act,
Speaker 7: there is been more of a buffer against changing commodities prices.
Speaker 7: So when the Act was passed, natural gas was pretty expensive.
Speaker 7: It's come down a whole lot since then. So at
Speaker 7: the time, you know, you might have argued that that
Speaker 7: stuff was going to get built anyway, but with the
Speaker 7: drop in prices, I think that actually maybe it wouldn't happen,
Speaker 7: So it gave that stability to that sector. Then outside
Speaker 7: of that, one of the big things we've seen is
Speaker 7: the development of supply chains. You know, where the US
Speaker 7: was really at a standing start with regards batteries and
Speaker 7: solar in particular, now we're seeing a lot of factories
Speaker 7: being announced in different states across the country. And then
Speaker 7: finally a real uptick in investment in hydrogen Electoralizer orders
Speaker 7: have have significantly ticked upwards. Those are some of the
Speaker 7: it's kind of kept the power sector on the steady
Speaker 7: path that was on, and then it's really poured fertilizer
Speaker 7: on the ground of some of these more nascent technologies
Speaker 7: in your world of you know, kind of managing this
Speaker 7: transition to a cleaner energy.
Speaker 2: What is the political risk that for this market, for
Speaker 2: this part of the world. If we were to get
Speaker 2: a reelection of former President Trump, what would that mean.
Speaker 7: It's something we get asked about a lot, and actually
Speaker 7: we're producing some research right now to really answer that question.
Speaker 7: I think one of the things that we have concluded
Speaker 7: is that actually the main provisions of the Inflation Reduction
Speaker 7: Act are probably safe for a couple of reasons. One
Speaker 7: is that in the US it's so hard to change legislation,
Speaker 7: you know, with you don't have a trifector, and you know,
Speaker 7: whatever the result of the election, a trifector is somewhat unlikely.
Speaker 7: And even if there was a Republican trifector, a lot
Speaker 7: of the investment from the Inflation Reduction Act is going
Speaker 7: into states and into districts represented by Republicans, so there's
Speaker 7: they would have to have a really big majority in
Speaker 7: both chambers of the House. So I think there are
Speaker 7: certain aspects of the Inflation Reduction Act that could change.
Speaker 7: There's how the laws are implemented. There's a lot of
Speaker 7: regulations still being written around some of the tax credits,
Speaker 7: and that could be written differently because that happens in
Speaker 7: government agencies which report up to the executive branch. But
Speaker 7: I think there's less risk than maybe one might assume.
Speaker 3: How much money still needs to get deployed. I just
Speaker 3: was really struck by Sarah Week for example. It's where
Speaker 3: all the energy people go and talk about stuff. It's
Speaker 3: a big conference, happens in Houston every year, happens in March,
Speaker 3: and Secretary Granholm is really like, guys, come and get money,
Speaker 3: like we have it, we will give it to you.
Speaker 3: Come to us to let's give us money. And some
Speaker 3: people don't like that. Some people are like that just
Speaker 3: shows that we're spending money on stuff that we don't
Speaker 3: necessarily need to spend money on.
Speaker 7: Yeah, I mean, it's an interesting one because for the
Speaker 7: most part, the Inflation Reduction Act is not a pot
Speaker 7: of money, in that the majority of the investment would
Speaker 7: come through tax credits, which are really just dependent on
Speaker 7: how much stuff gets built. Where there is a pot
Speaker 7: of money, and I should have come in with the
Speaker 7: actual figure is the amount that's been authorized for the
Speaker 7: Loan Program's office. So and that is the one that
Speaker 7: is really politically under threat because that you know, that
Speaker 7: was the the program in the past that was associated
Speaker 7: with Cylindra. So there is this perception that this is
Speaker 7: money being allocated to companies that may fail, and there's
Speaker 7: a lot of that money still yet to be spent currently,
Speaker 7: and it's it's an ongoing process.
Speaker 2: What industries are doing relatively well versus their benchmarks, versus
Speaker 2: maybe some industries that aren't. We were talking to Brian
Speaker 2: Egger from Bloomberg Intelligence about the cruise industry and their
Speaker 2: carbon footprint and trying to manage that. Which industries are
Speaker 2: doing well, which maybe you're struggling.
Speaker 7: I suppose on I think of things on a really
Speaker 7: macro level, so you know, I divide the world into
Speaker 7: power and transport and industry, which obviously is a real
Speaker 7: simplification most of them. Momentum in decarbonization to date in
Speaker 7: the US has been in the power sector, okay, and
Speaker 7: most of that has been because of gas plants replacing
Speaker 7: coal plants, which doesn't get you to zero, It just
Speaker 7: brings emissions down in the near term. So wind and
Speaker 7: solar is then the next wave, and that's really starting
Speaker 7: to kick in now. So there is good progress in power.
Speaker 7: Then transport historically hasn't had great success in reducing its emissions.
Speaker 7: But I think we're just at the start of the
Speaker 7: electric vehicle wave, which is gonna I think be a
Speaker 7: slow burn over a couple of decades, because even if
Speaker 7: electric vehicle sales increase quickly, it takes time for the
Speaker 7: whole vehicle fleet to turnover. But there is a downward
Speaker 7: trajectory in transport. So it's really industry where what we
Speaker 7: call the hard to abate sectors, where there's.
Speaker 3: More work to be done, like some men steel that
Speaker 3: kind of fun stuff before I let you go. What
Speaker 3: I've also noticed when it comes to the IRA specifically,
Speaker 3: it really helped ignite the supply side of it with
Speaker 3: tax credits, but now the demand side. So the gap
Speaker 3: between here's my cool hydrogen thing that I just built
Speaker 3: and then here's this company buying that cool hydrogen thing
Speaker 3: that I just built is wide.
Speaker 2: Yes, how do we solve that?
Speaker 7: I mean, that's very especially true for hydrogen, and that
Speaker 7: is fundamentally the issue around the policy support that hydrogen
Speaker 7: receives is it's so much has been focused on supply,
Speaker 7: but I think it speaks to a deeper issue of
Speaker 7: what policy has to come next, because I think the
Speaker 7: nature of the Inflation Reduction Act was really throwing a
Speaker 7: lot at all these different industries to get things kickstarted.
Speaker 7: It's a bit like putting petrol in the engine. Maybe
Speaker 7: not the best analogies such, but it put petrol in
Speaker 7: the engine of the energy transition in the US. But
Speaker 7: whatever comes next needs to be more like a steering
Speaker 7: wheel because it's established this momentum. But there are all
Speaker 7: these questions now that are you know, we never knew
Speaker 7: we'd have this problem of oh, there's too much supply,
Speaker 7: where's the demand, because at the time there was no
Speaker 7: supply and no demand. Yeah, so the next wave of
Speaker 7: a legislation has to.
Speaker 2: Our Thanks to Thomas Rowlands Reese, bnaf's head of research
Speaker 2: for North America, we turned out to a Bloomberg Big
Speaker 2: Take story we focused on this week, titled Harvard Endowment
Speaker 2: paid out a fortune and Lost its investing edge. The
Speaker 2: story talks about how Harvard's money managers underperformed after changing
Speaker 2: personnel and strategies at the worst times. Co host Alex
Speaker 2: Steel and I were joined by the story's author, Janet Lauren,
Speaker 2: Bloomberg Higher Education finance reporter. We first asked Janet to
Speaker 2: discuss her findings and what she learned well.
Speaker 11: I went and read through a lot of anal reports
Speaker 11: of the Harvard Management Company, which has managed Harvard's endowment
Speaker 11: for fifty years this year. And one issue that came up,
Speaker 11: which is no surprise to our listeners and readers, is
Speaker 11: there's been a lot of turnover there. Since two thousand
Speaker 11: and five, a guy by the name of Jack Mayer
Speaker 11: had extraordinary returns. The team he built, they paid their
Speaker 11: managers a lot of money for really outstanding returns. They
Speaker 11: got a lot of complaints that system was dismantled, and
Speaker 11: since then they've had seven people running the fund, including
Speaker 11: some interims, but two people who stayed less than two years.
Speaker 11: Lots of turnover, lots of strategy changes. And you know,
Speaker 11: Harvard was the envy of the world, and if you
Speaker 11: look at their ten year return, you know they were
Speaker 11: in the bottom twenty percent.
Speaker 2: Why the turnover, It seemed like a pretty good seat
Speaker 2: to me.
Speaker 11: Yeah, Well, there's a lot of scrutiny. And one issue is,
Speaker 11: you know, if you're a top performer there, you're getting paid.
Speaker 11: You show up on the tax forms and everybody knows
Speaker 11: how much you are being paid, and there's a lot
Speaker 11: of scrutiny.
Speaker 3: So who, like what universities are doing well if we
Speaker 3: rank them in terms of return and all.
Speaker 11: That, Well, if you look at their big rival Yale.
Speaker 11: They are in the top ten percent of returns for
Speaker 11: a ten year annualized return in the twenty year annualized return.
Speaker 11: They've had largely one person, the legendary David Swinson, who
Speaker 11: managed their fund from nineteen eighty six, a Yale trained
Speaker 11: economist until he died in twenty twenty one, and one
Speaker 11: of his trusted lieutenants has picked up where he left off.
Speaker 11: They have a very different structure. They've unlike Harvard, which
Speaker 11: used to employ, you know, more than two hundred people traders,
Speaker 11: They've always sought to work with outside managers, and they
Speaker 11: sort of were there at the beginning of private equity
Speaker 11: when there wasn't as much capital, and they seated a
Speaker 11: lot of these managers who've had excellent returns. And you
Speaker 11: know how private equity works, You're not going to get
Speaker 11: a big return in year one or year two. There's
Speaker 11: this thing called the j curb, so it takes time.
Speaker 11: And you know, schools like Yale and Princeton and MIT
Speaker 11: whose CIOs have worked for Yale in the past, they
Speaker 11: all invest together and they've they've all done much better
Speaker 11: than Harvard.
Speaker 2: So I mean that Yale I called it's referred to
Speaker 2: as the Yale model. It used to be, you know,
Speaker 2: back in the day, a sixty forty portfolio. Then Yelle said, no,
Speaker 2: we're going to allocate a lot two alternatives. I think
Speaker 2: in the simplest form, that's kind of the Yale model.
Speaker 2: Hasn't everybody replicated that.
Speaker 11: Well, everybody's tried to, But can you get into the
Speaker 11: funds that Yale us in no way?
Speaker 2: So they're still reaping the benefits of being early.
Speaker 11: Absolutely, but now this year and last year we're not
Speaker 11: great years of returns for the biggest endowments. Private equity
Speaker 11: has really lagged in public equities this year, what was it,
Speaker 11: twenty two twenty three percent return? The college endowments are
Speaker 11: going to be nowhere near that. I mean, to be
Speaker 11: fully in the S and P would be too much
Speaker 11: risk for them. But you know, we've seen a few
Speaker 11: schools report returns high single digits. You know, they need
Speaker 11: to get seven eight percent to get to pay their
Speaker 11: salaries plus inflation.
Speaker 3: When we talk about what they're not investing in. There's
Speaker 3: been a huge social pushback we've seen at universities like
Speaker 3: Columbia when it comes to the war in Gaza. There's
Speaker 3: obviously been a big push against fossil fuel investments. How
Speaker 3: quick or how nimble are these endowments to respond to those.
Speaker 11: Well, first of all, nobody is divesting from things related
Speaker 11: to Israel. But that's pretty clear, So that's not really
Speaker 11: a factor of what these colleges are doing. And Harvard
Speaker 11: did not divest from fossil fuels. They're rolling things off,
Speaker 11: and they had a loss in twenty twenty two, and
Speaker 11: they said a small portion of that was not being
Speaker 11: in the funds that you know, did very well on
Speaker 11: energy in twenty twenty two. Divesting is really is not
Speaker 11: an investing strategy. It's going you know, what does Warren
Speaker 11: Buffett say, don't do anything with emotion and colleges, you know,
Speaker 11: if that's what they're looking for. You saw meddling with
Speaker 11: the change in pay structure, meddling with energy, meddling not
Speaker 11: such a good investment policy. And Harvard has also been
Speaker 11: pretty steadfast that they're not doing anything related to the
Speaker 11: BDS movement for twenty years.
Speaker 2: They have been, so, I mean, they still have fifty
Speaker 2: billion dollar endowment, they're still the biggest they are, so
Speaker 2: I mean, I'm not going to cry for these guys.
Speaker 4: Right now.
Speaker 11: But also, you know who's nipping at their toes is
Speaker 11: the University of Texas. And the reason is they have
Speaker 11: an asset that's completely uncorrelated to anything. They have oil
Speaker 11: and they have two point one million acres of land
Speaker 11: in West Texas that they were just given in the
Speaker 11: eighteen hundred by the State of Texas, and a couple
Speaker 11: years ago they had an extra two billion dollar gains
Speaker 11: that had nothing to do with anything they did investing.
Speaker 2: Wise, all right, Thanks to Janet Lauren Bloomberg Higher Education
Speaker 2: at Finance Reporter.
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