Speaker 1: Bloomberg Audio, Studios, podcasts, radio news. This is Bloomberg Intelligence
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Speaker 1: Bloomberg Intelligence with Scarletfoo and Paul Sweeney on Bloomberg Radio,
Speaker 1: YouTube and Bloomberg Originals.
Speaker 2: On today's Bloomberg Intelligence Show, we tag inside the big
Speaker 2: business story is impacting Wall Street and the global markets.
Speaker 3: Each and every week we provide in depth research and
Speaker 3: data on some of the two thousand companies and one
Speaker 3: hundred and thirty industries are analysts cover worldwide.
Speaker 2: Today, we'll look at why the energy company exon Mobil
Speaker 2: is cutting three to four percent of its global workforce,
Speaker 2: us a.
Speaker 3: Look at why the AI cloud computing startup core Weave
Speaker 3: is signing a deal with tech giant Meta platforms.
Speaker 2: But first we begin with the news from the athletic
Speaker 2: footwear company Nike.
Speaker 3: This week, the company said that efforts to roll out
Speaker 3: new products, boost marketing efforts, and clear out old inventory
Speaker 3: helped ease a long time sales slump.
Speaker 2: Nick You said it's sales fell one percent on a
Speaker 2: currency neutral basis in its most recent quarter, and that
Speaker 2: was a smaller job that investors anticipated.
Speaker 3: For the analysis, we were joined by Punam Goyel, senior
Speaker 3: US e Commerce and retail analysts at Bloomberg Intelligence.
Speaker 2: We first ask Poonam if Nike's turnaround plant is working.
Speaker 4: It's working, Nike is able to pick up momentum. Sales
Speaker 4: on a reported basis were up a one percent, Inventories
Speaker 4: were down two percent. This is exactly what we wanted
Speaker 4: to see. We wanted to see inventories aligned with sales.
Speaker 4: So while the work isn't done and it's not over
Speaker 4: and it's not a straight lineup, we do see momentum building.
Speaker 4: What they're doing is working, the new products, the innovation,
Speaker 4: the focus on wholesale, it's all coming together. There are
Speaker 4: still some pitfalls. China is still sluggish and we'll need
Speaker 4: to wait and see what happens there as well as
Speaker 4: with its Converse brand.
Speaker 3: Okay, so China's definitely an issue. Converse is work in progress.
Speaker 3: When I look at the revenue line, the top line,
Speaker 3: what I see is direct revenue fell four percent, wholesale
Speaker 3: revenue rows seven percent. Just break that down for us
Speaker 3: in terms of what that means direct revenue versus wholesale revenue.
Speaker 4: Sure, so direct revenue composers of stores, which were actually
Speaker 4: up one percent. So that shows us that the innovation
Speaker 4: and the new products which are flowing through their own
Speaker 4: stores is working. What made the DTC revenue go down
Speaker 4: four percent was that digital was down twelve percent. No
Speaker 4: surprise here if this is where they're clearing all that
Speaker 4: access inventory, so this channel will be pressured for a
Speaker 4: couple of quarters. Still, wholesale up seven percent a great,
Speaker 4: great number. I mean, it just shows that coming back
Speaker 4: into partnerships with folt Locker in a more meaningful way,
Speaker 4: getting on Amazon dot Com, all these efforts are paying off,
Speaker 4: and they're where the customer is. They're gaining their shelf
Speaker 4: space back and the customers that are responding favorably.
Speaker 2: You know, the Nike brand is such a powerful brand.
Speaker 2: I think of it like Coca Cola or Apple. It's
Speaker 2: so powerful. Yet some of those American brands in China
Speaker 2: under pressure. And I'm wondering, just with the geopolitics, is
Speaker 2: Nike a brand where that might be feeling some anti
Speaker 2: American sentiment from consumers.
Speaker 4: Well, that has happened in the past, there have been
Speaker 4: boycotts against you know, US American brands. We don't think
Speaker 4: that's the issue yet from what we're hearing, but we
Speaker 4: do think that the issue is more product at Nike
Speaker 4: in China, So they do need to ramp a product
Speaker 4: and they do have a lot of access inventory there,
Speaker 4: more so than they do in the US today, So
Speaker 4: that's also a work in progress that they need to
Speaker 4: get through.
Speaker 5: Let's talk about profitability.
Speaker 3: Margins declined due to higher discounts and then also the
Speaker 3: higher tariffs in North America. I look at gross margin
Speaker 3: forty two point two percent last year. At this time
Speaker 3: it was more than forty five percent. Now the forty
Speaker 3: two point two percent was better than estimated. How How
Speaker 3: long is it going to take for Nike to turn
Speaker 3: that around.
Speaker 4: I think we have quite some time. They said that
Speaker 4: they do still aspire to reach double digit EBIT margin
Speaker 4: EBIT margins in the quarter that they just reported was
Speaker 4: only at seven point one percent, So that's a long runway.
Speaker 4: We don't think it's any time soon. And the hit
Speaker 4: from tariffs is building, not reducing. They had expected a
Speaker 4: billion dollars the last time they spoke to us, and
Speaker 4: that one to one point five billion dollars and access
Speaker 4: costs from teriffs.
Speaker 2: How much are they passing along to the retailer versus
Speaker 2: taking it in their margin, because I mean, Nike's probably
Speaker 2: just a great example of how companies are trying to
Speaker 2: deal with the tariffs.
Speaker 4: Yes, I think they're doing this actually very smartly. They're
Speaker 4: not increasing prices on products that are under one hundred dollars,
Speaker 4: but they are taking prices up on sneakers that are
Speaker 4: above that price point. So if you think about moving
Speaker 4: prices up, it's very easy to say the price of
Speaker 4: milk went up from three dollars to three point fifty.
Speaker 4: But when you're looking at a pair of sneakers actually
Speaker 4: a new launch, you have no comparison, So you can
Speaker 4: go ahead and price up your new innovation and the
Speaker 4: customer may not even recognize that there was a material
Speaker 4: price increase, and that customer has a little bit more
Speaker 4: flexibility to stretch their wallets at that price point.
Speaker 3: Pam, if you are heading up on Holdings or Adidas
Speaker 3: or Sketchers or you know, any of the Hoka, what
Speaker 3: would you be thinking looking at this set of results.
Speaker 4: So Sketchers, I think is in a different league than Nike.
Speaker 4: It's a little bit different. It's a value play, and
Speaker 4: I think they don't compete directly like an Adidas or
Speaker 4: an On or a Hoka would with them. Adidas is
Speaker 4: doing really well on its franchise lifestyle shoes, and I
Speaker 4: think Nike, what you've heard, was doing well in performance.
Speaker 4: So two still very distinct categories. Though for On and Hoka,
Speaker 4: I think it's a little bit of a different story
Speaker 4: because Running was back on It's doing phenomenally well and
Speaker 4: that is where hogaing On both took share from Nike.
Speaker 4: So I would be just, you know, a little concerned
Speaker 4: and just make sure that I keep my game on
Speaker 4: when it comes to innovation, because at the end of
Speaker 4: the day, product is what's going to drive how sales
Speaker 4: momentum will go moving forward.
Speaker 3: Our thanks to Punam goy Alva, senior US e Commerce
Speaker 3: and retail analysts at Bloomberg Intelligence.
Speaker 2: We move next to some news in the media and
Speaker 2: entertainment space. This week, we heard that Spotify CEO Daniel
Speaker 2: Eck is stepping down after two decades at the company.
Speaker 3: Spotify will leave the leadership of the music streaming company
Speaker 3: in the hands of two trusted executives, their Gustaf Soderstrom,
Speaker 3: Chief Product and Technology Officer and Alex Norstrom, chief business Officer.
Speaker 3: This move will go into effect on January first.
Speaker 2: For more, we were joined by Githa Rang and Athen,
Speaker 2: Bloomberg Intelligence analyst on US Media. Well first asked Githa
Speaker 2: to explain why CEO Daniel Ck stepping down.
Speaker 6: Now, this is, you know, one of your classic cases
Speaker 6: of the founder finally kind of establishing a really good
Speaker 6: transition plan and handing it off to his you know,
Speaker 6: to lieutenants here. So we're having a co CEO structure.
Speaker 6: And really, I mean the first when I heard this,
Speaker 6: I mean, this really kind of hearkens back to what
Speaker 6: Reed Hastings did with Netflix, you know, kind of left
Speaker 6: right at the peak, right when the companies, you know,
Speaker 6: everything was kind of you know, all cylinders were firing
Speaker 6: away and left it to Greg Peters and Ted Sorrandos
Speaker 6: to kind of take charge, and it seems like Spotify
Speaker 6: is in a very similar position. So they had a
Speaker 6: couple of things that had to get done this year,
Speaker 6: which was new contracts with all of the music labels.
Speaker 6: It looks like Daniel Eck has you know, accomplished all
Speaker 6: of that, and I think he's really kind of left
Speaker 6: the company in a good position for for its next
Speaker 6: phase of growth. And this is really, you know, a
Speaker 6: huge story in the internet space, the possibility to get
Speaker 6: to a billion users very very quickly. They already have
Speaker 6: about seven hundred million.
Speaker 3: Okay, so there are almost three quarters of the way there.
Speaker 3: He's leaving on top as George Costanza wood in Seinfeld.
Speaker 3: But my question, Keita is you talk about the new
Speaker 3: phase of growth, how much of that will rely on
Speaker 3: continued price increases. Unlike Paul, I do subscribe, and it's
Speaker 3: alarming how frequently the price changes come.
Speaker 6: Yeah, and it is going to keep coming, Scariot, There's
Speaker 6: absolutely no doubt about it. I mean, this whole story
Speaker 6: is kind of predicated on those price increases. Remember though,
Speaker 6: that they never took up prices for the first ten
Speaker 6: to twelve years, and then it started coming fast and furious.
Speaker 7: Right.
Speaker 6: We had one price increase in twenty twenty three, another
Speaker 6: in twenty twenty four, We're going to have probably another
Speaker 6: one in twenty twenty six. But if you kind of
Speaker 6: look at all of the streaming services out there, you know,
Speaker 6: Spotify is of course the leader in audio streaming. They
Speaker 6: have a thirty five percent global market share in terms
Speaker 6: of subscribers. You kind of look at their price, Let's
Speaker 6: say in the US, it's twelve dollars for an individual plan.
Speaker 6: You compare that to let's say the video leader Netflix. Again,
Speaker 6: I go back to the Netflix example, They're priced at
Speaker 6: eighteen dollars. So I think Spotify still has quite a
Speaker 6: lot of runway when you kind of compare it to
Speaker 6: the rest of the field. And the other thing that
Speaker 6: I like to point out here is when you're kind
Speaker 6: of subscribing to an audio service, it's typically only one
Speaker 6: service that you're subscribing to, as opposed to a video service.
Speaker 6: I think people really like their you know, if they
Speaker 6: like Spotify, they're absolutely going to hold on to it
Speaker 6: at any cost. And the other thing is, you know,
Speaker 6: Spotify is adding new features all the time, so they
Speaker 6: are like really getting down on you know, monetizing more
Speaker 6: and more, but it's not They are innovating also constantly,
Speaker 6: so I think I think people don't mind paying for it.
Speaker 2: What's the biggest challenge to them on the cost side
Speaker 2: of the business.
Speaker 6: KEITHA music royalty is all. I mean, that's you know,
Speaker 6: for every dollar that they make, they're paying out about
Speaker 6: seventy cents in terms of musical royalties back to the labels.
Speaker 6: So it is definitely a very you know, from that perspective,
Speaker 6: the model is hard. But one of the things that
Speaker 6: they've done very well is, you know, they've obviously renegotiated
Speaker 6: a lot of the deals kind of try to provide
Speaker 6: investors with a lot more visibility into the cost space.
Speaker 6: But more importantly for them, they're really trying to go
Speaker 6: away from you know, licensed content to more owned content,
Speaker 6: so kind of going into you know, podcasts, going to
Speaker 6: more non music content, where again they have a lot
Speaker 6: more leverage, you know, whether it's audiobooks, whether it's video podcasts,
Speaker 6: getting away from you know, just being a core music
Speaker 6: service to more of kind of an global kind of
Speaker 6: an audio service, and they're doing that really well, and
Speaker 6: that's going to help them with their margin expansion story
Speaker 6: as they get better unit economics right.
Speaker 3: And introducing premium tiers on top of that you have
Speaker 3: to unlock in order to unlock some of the more
Speaker 3: I don't know, high profile podcasts, you then have to
Speaker 3: pay extra. Keith talk a little bit about AI because
Speaker 3: I keep reading about how AI generated music is a challenge,
Speaker 3: but in what way? And could it actually become an
Speaker 3: opportunity as well for Spotify?
Speaker 6: I think so. I think it is going to become,
Speaker 6: you know, an opportunity as we go. They're already actually
Speaker 6: using you know, a lot of AI features when it
Speaker 6: comes to curation, you know, when it comes to music discovery,
Speaker 6: when it comes to providing better features, and they're already
Speaker 6: and you just brought up the super premium tier and
Speaker 6: a lot of that is actually going to be having
Speaker 6: like an AIDJ type of a feature there, you know,
Speaker 6: for both listeners as well as music creators. So I
Speaker 6: think it is definitely going to be you know, a
Speaker 6: good opportunity for them to present a much better product.
Speaker 6: I mean, we've already seen AI being used by a
Speaker 6: lot of the other platforms. Again, I go back to
Speaker 6: Netflix because they've done this really well in terms of
Speaker 6: you know, having a much better algorithm now to serve
Speaker 6: up better content. And I think that's exactly what Spotify
Speaker 6: is doing in terms of its playlists as well.
Speaker 2: Where's Apple in this audio game?
Speaker 6: So just in terms of subscribers share, Paul, I mean Spotify,
Speaker 6: as I said, leads with about thirty five percent share
Speaker 6: of the market. Apple is really far behind. They have
Speaker 6: about a ten percent share, so very very hard for
Speaker 6: them to catch up in terms of in terms of
Speaker 6: subscribers at least.
Speaker 3: Are Thanks to Getha Rong and Aathan, Bloomberg Intelligence analysts
Speaker 3: on US Media coming up a look at why the
Speaker 3: video game maker Electronic Arts has agreed to sell itself
Speaker 3: to a group of investors.
Speaker 2: You're listening to Bloomberg and Intelligence on Bloomberg Radio, providing
Speaker 2: in depth research and data on two thousand companies and
Speaker 2: one hundred and thirty industries.
Speaker 3: You can access Bloomberg Intelligence via Bigo on the terminal.
Speaker 3: I'm Scarlet Foo and.
Speaker 2: I'm Paul Sweeney. This is Bloomberg.
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
Speaker 1: on Bloomberg Radio.
Speaker 2: We move next to the electronic gaming space.
Speaker 3: This week, the video game maker Electronic Arts or, EA
Speaker 3: agreed to sell itself to a group of investors. They
Speaker 3: include a firm managed by Jared Kushner and Saudi Arabia's
Speaker 3: Sovereign Wealth Fund.
Speaker 2: The deal values EA at about fifty five billion dollars,
Speaker 2: with the investors agreeing to pay two hundred and ten
Speaker 2: dollars per share in cash. This makes it the largest
Speaker 2: leverage buyout on record.
Speaker 3: For more, we were joined by Nathan Natu Bloomberg Intelligence
Speaker 3: Technology Research Analysts.
Speaker 2: We first asked Nathan to break down the EA's recent valuation.
Speaker 7: The valuation is at a twenty to thirty percent premium
Speaker 7: versus the last three quorder market cab before this deal
Speaker 7: was now and it seems like, you know, it is
Speaker 7: a premium deal, but actually, you know, EA has a
Speaker 7: lot going for it. It is actually launching a new
Speaker 7: batterfield game, and there's a strong prospect for this game.
Speaker 7: And actually the game is now in prely release, and
Speaker 7: even then, he has already smashed all prior records set
Speaker 7: by the biggest game in that genre, and that genre
Speaker 7: is first person should and that game that's dominated that
Speaker 7: genre is called Duty from Microsoft. So Betterview six is
Speaker 7: looking to be a successful launch. And next year we
Speaker 7: have FIFA and obviously we know that EA has the
Speaker 7: biggest soccer game in the industry, and that's FIFA. What
Speaker 7: was called FIFA but now it's called EA Sports FC.
Speaker 7: And next year FIFA World Cup will be a special
Speaker 7: one because it will be hosted across three cities, including
Speaker 7: the US, and if people don't know, US is actually
Speaker 7: the biggest market in terms of revenue for all kinds
Speaker 7: of sports games. So that's the second thing going for
Speaker 7: EA that I think it's going to lead to at
Speaker 7: least two round circumstensus beat on EPs share. So I
Speaker 7: think for e A, this is a this is actually
Speaker 7: a good deal, and we can talk about the common
Speaker 7: struggles faced by you know, game publishers and how these
Speaker 7: deals would make sense for e A as well as
Speaker 7: the the investors in this context.
Speaker 3: So yeah, let's do that because you mentioned a bunch
Speaker 3: of the titles and these are you know, very valuable franchises.
Speaker 3: These this is a top quality ip, whether it's E
Speaker 3: Sports FC, madd in NFL, the SIMS battlefield. What does
Speaker 3: ownership by private equity, by private investors allow e A
Speaker 3: to do that it can't do as a publicly traded company.
Speaker 7: I think it's all down to funds. So publishers. Game
Speaker 7: publishers in general have been have been facing two struggles.
Speaker 7: First one is gamers attention spend and playtime are increasingly
Speaker 7: getting limited. The reason is people are sticking to brands
Speaker 7: or franchises that they have played for a long time.
Speaker 7: And in fact, new Zoo published data saying that a
Speaker 7: percent of playtime tend to go back to the sixty
Speaker 7: or so titles, leaving only eight percent of playtime for
Speaker 7: brand new IP. And this is actually in favor of
Speaker 7: EA because we mentioned those valuable IP. In fact, if
Speaker 7: we look at global unit sales, EA has topped twenty
Speaker 7: has four of those top twenty selling IP globally, he
Speaker 7: has four out of the twenty. So that is actually
Speaker 7: a pretty enticing deal thing for companies like private equity
Speaker 7: because you know, profit generation is key, and what this
Speaker 7: means that is that EA has franchises that can bring
Speaker 7: in recurring revenue. We talked about EA Sports FC, we
Speaker 7: talk about MED and MFL and they actually revived a
Speaker 7: new franchise, College Football, and you know, it was one
Speaker 7: of the best selling titles in the US last year.
Speaker 7: So recurring revenue is key here. And the second struggle
Speaker 7: that I was going to go into is development cost
Speaker 7: is really high, especially in the US, So that means
Speaker 7: that we publishers actually have a cost is advantage when
Speaker 7: compared to Eastern developers. For example, you know, salaries for
Speaker 7: game engineers in China is more than half the level
Speaker 7: in California, and personnel cost game engineers is a huge
Speaker 7: part of developing a game. So you know, tens and
Speaker 7: actually launched a new game in the same genre as
Speaker 7: Better Few six and that's Deltalk Force is doing really well.
Speaker 7: And what that costs disadvantage is stopping EA from is
Speaker 7: continuously to push out a stronghalence of content to essentially
Speaker 7: extending the shelf life of any game, and Eastern developers
Speaker 7: can do that better because of that cost edge.
Speaker 3: Our thanks to Nathan Native, Bloomberg Intelligence technology research analyst.
Speaker 2: We move next to some news in the energy industry.
Speaker 3: This week, the energy company Exon Mobile said it plans
Speaker 3: to cut about two thousand jobs globally as part of
Speaker 3: its long term restructuring plan.
Speaker 2: The reductions represent about three to four percent of Xcellon's
Speaker 2: global workforce and are part of the company's ongoing efficiency drive.
Speaker 3: For the analysis, we're joined by Vincent Pas, Bloomberg Intelligence,
Speaker 3: senior equity research analyst of oil and gas.
Speaker 2: First ask Vincent for his take on this Exon news.
Speaker 8: Well, I think it's part of managing through the cycle.
Speaker 8: Right in prior cycles, the sector was exposed to more
Speaker 8: extreme volatility, higher highs, lower lows. The industry is trying
Speaker 8: to manage through what seems to be a rather clouded
Speaker 8: backdrop right now. So we're sitting here and you got
Speaker 8: NAT gas somewhere around three point thirty Henry Hubb. You
Speaker 8: got WTI in the low sixties. You have OPEC bringing
Speaker 8: back on capacity and maybe even speeding up that capacity.
Speaker 6: Ads.
Speaker 8: You have a more clouded, broader economic backdrop across the globe.
Speaker 8: You have geopolitical issues, so lots of uncertainty, and not
Speaker 8: only Exon. Exon's probably going to cut somewhere about two
Speaker 8: three four percent of its global workforce, its affiliate a
Speaker 8: much more substantial cut, roughly about twenty percent over the
Speaker 8: next two years or so. You're seeing it at Conico Phillips,
Speaker 8: You're seeing it at Chevron, even BP, the major European
Speaker 8: energy conglomerate. You're seeing it across the board. And so Paul,
Speaker 8: as you know, when you're not growing revenue, right, you're
Speaker 8: not getting the revenue increase on price, you're not growing
Speaker 8: production because your investor base does not want to see
Speaker 8: that production growth. You are looking at very steady revenue,
Speaker 8: maybe even declining revenue. You have to manage that netback
Speaker 8: from the cost perspective, and you have to support that
Speaker 8: cash flow stream. And so you're doing it via these
Speaker 8: cost cuts over a number of years too, maybe even
Speaker 8: three years, to sort of bring that cost structure in
Speaker 8: line with a new reality of uncertainty in the marketplace,
Speaker 8: to reduce that volatility.
Speaker 3: Well, there's cost cuts, and then there's exon mobiles cost cuts.
Speaker 3: Since twenty nineteen, it's trimmed thirteen and a half billion
Speaker 3: dollars in annual cost That is more than all the
Speaker 3: other big oil companies combined. How much more room is
Speaker 3: there for Exxon to slash expenses.
Speaker 8: Well, it bought Pioneer, so it has a relatively sizable workforce.
Speaker 8: In general, it doesn't necessarily mean that those cuts are
Speaker 8: going to come there, but there are ways you cut
Speaker 8: you gain efficiency. In this technological era where we have
Speaker 8: advancements across the energy value chain. You will consistently and
Speaker 8: continually seek out ways to get efficiency, to bring down
Speaker 8: that cost structure and to bring unit costs in line
Speaker 8: with a very anemic outlook for global energy prices in general,
Speaker 8: and also a very clouded outlook for the global economy too.
Speaker 2: So Vince kind of looking out, you know, one in
Speaker 2: two years, what is the view of the companies you
Speaker 2: talk to about energy prices, oil and gas? Is it
Speaker 2: still going to be a challenge market here?
Speaker 8: It looks like it. It looks like it's going to
Speaker 8: be a very challenge market, especially for the WTI side,
Speaker 8: for the oil side of the equation. On natural gas, Paul,
Speaker 8: I know you and I have talked about this numerous times.
Speaker 8: You have a structural growth trajectory for natural gas here
Speaker 8: in the US via export LNG, whether it's seaborne energy
Speaker 8: or whether it's pipeline gas into Mexico to help fuel
Speaker 8: their economy as well.
Speaker 9: You have the AI build out, which will be a
Speaker 9: which will digest significant amounts of energy, and that's beneficial
Speaker 9: for natural gas.
Speaker 8: But on the oil side, you have very anemic growth.
Speaker 8: You have your transportation fuels having to compete with alternative
Speaker 8: and renewable fuels, so there's a greater competition there. The
Speaker 8: growth trajectory and the outlook for the demand side on
Speaker 8: the liquid fuels seems to be very clouded and seems
Speaker 8: to be somewhat less secure relative to the natural gas
Speaker 8: side of the house.
Speaker 3: Our thanks to Vincent Piazza, Bloomberg Intelligence, senior equity research
Speaker 3: analyst on oil and gas.
Speaker 2: Staying with energy, Bloomberg Intelligence recently put out a report
Speaker 2: on its outlook for nuclear power in twenty twenty six.
Speaker 3: It's titled AI driven Power Demand set to spark three
Speaker 3: hundred and fifty billion dollar build cycle. This deep dive
Speaker 3: describes why nuclear remains a favorite power source for artificial intelligence.
Speaker 2: For more, we were joined by Scott Levine, Bloomberg Intelligence
Speaker 2: senior Energy Services Analysts. I first asked Scott to talk
Speaker 2: about what the energy industry is doing to prepare for
Speaker 2: what seems to be an insatiable need for power.
Speaker 10: Nuclear really has two very big positives going for it.
Speaker 10: Number One, it's a emissions free power source, and the
Speaker 10: hyperscillers that are really behind the investments care about that deeply, right,
Speaker 10: and so they've favored, you know more renewable sources heretofore
Speaker 10: like when in solar, But what those lack are you know,
Speaker 10: twenty four by seven base load characteristics and for a
Speaker 10: data center to be up twenty four to seven, that's
Speaker 10: not going to do it right. So nuclear checks both
Speaker 10: of those boxes, and those are two very big positives
Speaker 10: and the reasons that you're seeing folks like Microsoft and
Speaker 10: Meta come out in favor of nuclear power.
Speaker 2: And yeah, so what's the how much does nuclear provide
Speaker 2: today in the US versus where you think it might
Speaker 2: be in twenty five years.
Speaker 10: Yeah, so today it's a little bit below twenty percent
Speaker 10: of the grid, which we're saying we'll return to about
Speaker 10: in our you know, base case scenario twenty percent of
Speaker 10: the grid by twenty fifty. That may not seem like
Speaker 10: much two percentage points, right, but it you know, will
Speaker 10: equate to or amount to a three hundred and fifty
Speaker 10: billion dollar investment.
Speaker 11: To get there.
Speaker 10: So those are big numbers. And in addition that, we're
Speaker 10: talking about adding sixty some odd gigawatts to the grid,
Speaker 10: and you can think about each full sized nuke being
Speaker 10: one gigawatt, so that's basically building sixty generating units as
Speaker 10: our base case. So those are big numbers to get
Speaker 10: you from eighteen to twenty percent over a twenty five
Speaker 10: period of time.
Speaker 2: I tell you, I went in this report that you
Speaker 2: and your team put together Section five Small modular reactors.
Speaker 2: That's where I wanted to go to because.
Speaker 9: I had that.
Speaker 2: We've had some people come into the studio over the
Speaker 2: last few years and just talk to us about the
Speaker 2: science and engineering and the possibilities to be small modular reactors.
Speaker 2: Tell us what they are and what role they could
Speaker 2: play going forward.
Speaker 10: Yeah, so really these are and none of these have
Speaker 10: been built in the US yet, right, So this is
Speaker 10: very much an emerging technology play. But basically you're talking
Speaker 10: about is taking a full sized nuke. You're driving down
Speaker 10: the highway. You see a big, cool tower, a bunch
Speaker 10: of smoke coming out the top of it. These are
Speaker 10: much much smaller, right, and so the idea here would
Speaker 10: be that these are much more flexible, and so if
Speaker 10: you have more disparate data centers located throughout the country,
Speaker 10: you can power these and with these smaller units. Right,
Speaker 10: And we're talking about you know, some of these are
Speaker 10: smaller versions of what's already in operation today, which is
Speaker 10: a light water reactor. And then some of these types
Speaker 10: of units are different types of technologies. You have gas
Speaker 10: cooled reactors as opposed to water, you have molten salt
Speaker 10: cooled reactors as opposed to water, and these use different
Speaker 10: types of technologies, different types of fuels still remain to
Speaker 10: be licensed improven.
Speaker 2: So a lot of it's very.
Speaker 10: Much on the com But the technology in each of
Speaker 10: those areas holds promise, so we'll see, and each of
Speaker 10: them has pros and cons right, and so we'll see
Speaker 10: over the next five years the technology shakeout and see
Speaker 10: which ones end up being at the top of the
Speaker 10: stack for the US. But each of them have a
Speaker 10: lot of money behind them and a lot of support
Speaker 10: from a lot of depocketed players.
Speaker 3: Our thanks to Scott Levine, Bloomberg Intelligence, senior Energy Star
Speaker 3: VERSUS analyst, coming up a look at why the cruise
Speaker 3: company Carnival raised its full year earnings forecast.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: research and data on two thousand companies and one hundred
Speaker 2: and thirty industries.
Speaker 3: You can access Bloomberg Intelligence via Bigo on the terminal.
Speaker 2: I'm Scarlet Foo and I'm Paul Sweeney. This is Bloomberg.
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
Speaker 1: on Bloomberg Radio.
Speaker 2: We moved to some news in the tech space this week.
Speaker 3: We heard that the AI cloud computing startup core Weave
Speaker 3: has signed a deal to supply Meta with as much
Speaker 3: as fourteen point two billion dollars worth of computing power.
Speaker 2: As part of the deal, core Weave will provide Meta
Speaker 2: with access to Nvidia's latest GB three hundred AI chips.
Speaker 3: So for more, we were joined by Honor A. Rana,
Speaker 3: Bloomberg Intelligence tech analyst. We first asked anaog how this
Speaker 3: deal benefits core.
Speaker 11: Weave corviv is basically is a is a company that
Speaker 11: takes all these GPUs and rents it out to people
Speaker 11: for whatever they want to use. So they do get
Speaker 11: the dips on the most latest equipment that is sold
Speaker 11: by Nvidia, and then the clients can And now I
Speaker 11: did show that Meta is buying directly from Nvidia as well,
Speaker 11: but in this case they're just going and outsourcing the
Speaker 11: entire infrastructure for an amount of fourteen billion dollars, which
Speaker 11: you know may be a very small piece of it
Speaker 11: has overall capex for AI infrastructure, but it's still a
Speaker 11: start that they are now leasing capacity rather than building
Speaker 11: it in house.
Speaker 2: So how should we think about this in the overall
Speaker 2: growth of AI. I mean, this feels like incremental spending
Speaker 2: to me, but I'm not sure if it's just shifted
Speaker 2: somewhere else. Do you when you see announcements like this
Speaker 2: from core we've how do you kind of welded in
Speaker 2: or you know, kind of weave it into the larger picture.
Speaker 11: So every company, every hyperscale cloud provider right now, you know,
Speaker 11: whether that's Microsoft or whether that's Meta or any other
Speaker 11: company that's out there that is spending a lot on
Speaker 11: capital expenditures, on spending their AI capabilities. They have two options.
Speaker 11: They can either build it themselves and they can go
Speaker 11: to a specialized vendor like core Weave and rent it
Speaker 11: from them or lease it from them. Microsoft has said
Speaker 11: that they are really into expanding their leasing capacity or
Speaker 11: capabilities down the road, which is good for companies like
Speaker 11: core Weave. Their job is to build this only this
Speaker 11: infrastructure and rent it out to whoever wants it.
Speaker 3: My other question when it comes to core Weave, and
Speaker 3: you know all this, all these deals it's making with
Speaker 3: these cloud providers, is that they're also raising a lot
Speaker 3: of money. Core Weave is tapping the debt market, or
Speaker 3: there's there's there's expectations that it may tap the debt market.
Speaker 3: Is there going to be enough demand to meet, you
Speaker 3: know what, what it wants to sell.
Speaker 11: So here is the case. When it comes to a
Speaker 11: customer like Microsoft or Meta, which all of us know
Speaker 11: have a lot of cash flow coming in. If they
Speaker 11: have signed let's say a five year deal, seven a deal,
Speaker 11: you kind of know that the money is good. It's
Speaker 11: much easier to raise capital. Then then let's say from
Speaker 11: a brand new company that may not have that amount
Speaker 11: of cash flow coming in. So I would say, I mean,
Speaker 11: you would you know, one should not be concerned that
Speaker 11: Meta is not good for that money. I don't think
Speaker 11: that's going to be, you know a concern for anybody
Speaker 11: who's giving them the bonds of their debt for that Yeah.
Speaker 2: Meta raised twenty nine billion dollars in a financing package
Speaker 2: for a massive data center in Louisiana. Oracle raise eighteen
Speaker 2: billion dollars in bonds as it builds infrastructure for Open AI.
Speaker 2: So the markets are open for this kind of trade.
Speaker 5: It seems like yeah, apparently they are.
Speaker 3: And the other thing with Corewave, of course is that
Speaker 3: it has an increased commitment from open AI. It's got
Speaker 3: this big customer in Microsoft I think makes up seventy
Speaker 3: one percent of its revenue. How diversified is Corewave's customer
Speaker 3: base right now?
Speaker 11: See when you see the core piece's first biggest customer
Speaker 11: was Microsoft. Microsoft didn't have the capacity to run a
Speaker 11: lot of their AI workloads, so they went to Corewave. So,
Speaker 11: you know, frankly speaking, I understand that's seventy percent. But
Speaker 11: you know, this is an area where everybody needs capacity,
Speaker 11: so you know, for us it is an issue, but
Speaker 11: it's not like, you know, it's not a deal breaker
Speaker 11: when it comes to the quality or even you look
Speaker 11: at the fundamentals of somebody like a Corevieve. Now what's
Speaker 11: happening is other cloud providers are going to them and say,
Speaker 11: whatever access capacity that you have, you know, we will
Speaker 11: take that as well.
Speaker 2: Are there other companies that are going to come public
Speaker 2: here like core weave, these neo cloud companies.
Speaker 11: Yeah, I mean, I'm sure a lot of them are
Speaker 11: caring up for it. Coreweve is probably the biggest one
Speaker 11: that's out there, you know, We saw Microsoft signing another
Speaker 11: deal recently with the Nebius, I believe, and you know
Speaker 11: that was a very similar arrangement where Microsoft is going
Speaker 11: to them and saying, Okay, for the next several years,
Speaker 11: this is the kind of money that I or the
Speaker 11: capacity that I want from you, and this is how
Speaker 11: I'm going to give you the money to fund it.
Speaker 3: Basically, So an RAG when you look at these kinds
Speaker 3: of deals and you know, fourteen billion dollars here, ten
Speaker 3: billion dollars somewhere else, what gets your attention in terms
Speaker 3: of you know, I need to look into this a
Speaker 3: little bit more versus this is just one in a
Speaker 3: long string of deals that these companies will continue to sign.
Speaker 11: The biggest thing you want to think about is what
Speaker 11: are these companies doing these deals for. So, say somebody
Speaker 11: like a Microsoft, are they giving a lot of their
Speaker 11: inference workloads or the outcome of chart GPT running on
Speaker 11: Microsoft's cloud workloads, or are they giving model training workloads?
Speaker 11: Because there is a there is a there is a
Speaker 11: narrative out there in the market that the long tail
Speaker 11: of the AI revenue comes from people using apps, which
Speaker 11: we you know, think of this as infriance revenue. Compared
Speaker 11: to the model training revenue, which make ups and down
Speaker 11: depending on what kind of technological advancement we see in
Speaker 11: you know, software development.
Speaker 2: Our Thanks Dona rod Rana, Bloomberg Intelligence Technology Analysts.
Speaker 3: We move next to the cruise industry, the cruise company
Speaker 3: Carnival this week raising it's full year earnings forecast.
Speaker 2: Carnival cited a record pace for forward bookings and improving
Speaker 2: net yields, but shares of the company felt after the news.
Speaker 3: For more on this, we were joined by Brian Egger,
Speaker 3: Bloomberg Intelligence, Senior Gaming and Lodging Analysts.
Speaker 2: First, Brian, why investors see Carnival's earnings forecast as conservative?
Speaker 12: I think there are two ways in which maybe they're
Speaker 12: being perceived as conservative. The one is that their yield
Speaker 12: growth guidance for the fourth quarter, while it's certainly very
Speaker 12: solid in there in the mid fores, you know, with
Speaker 12: a little bit below consensus, maybe the street got a
Speaker 12: little bit heav itself. The second thing is, for all
Speaker 12: their optimism about bookings and direction of yields, they are
Speaker 12: very conservative and how they're deploying capital. They've only got
Speaker 12: about one percent annual yield growth for this year in
Speaker 12: the next two years. So they're growing very effectively, but
Speaker 12: they are also very measured in how they deploy capacity.
Speaker 12: So all this is really good, but they do mention
Speaker 12: that you know, they can afford to they can really
Speaker 12: be judicious on expense growth because they're only growing capacity
Speaker 12: at a very modest pace.
Speaker 3: Is that a bad thing to be conservative? How does
Speaker 3: Carnival compare with Norwegian or Royal Caribbean.
Speaker 12: Yeah, so if you look at Norwegian World Caribbean, they're
Speaker 12: anticipating or actually scheduling about a mid single digit, call
Speaker 12: it five percent ish level of annual capacity growth for
Speaker 12: twenty twenty six, twenty seven to twenty eight. You know,
Speaker 12: it's closer to one percent for Carnival, maybe two percent
Speaker 12: in twenty twenty eight. So they're just taking a more
Speaker 12: conservative tack. And I think they're equally long term optimistic
Speaker 12: about their ability to penetrate the vacation market, but they're
Speaker 12: going about it in a much more measured way. And
Speaker 12: then that sense it could strike people as conservative.
Speaker 2: Talk to us about capacity. I mean, if they added
Speaker 2: a couple of ships, would they sell them out?
Speaker 11: Yeah?
Speaker 12: I mean certainly, their their auquancy is back to pre
Speaker 12: pandemic levels. Their yell growth against that capacity increase is positive,
Speaker 12: and we were looking at we've seen steadily increasing yield
Speaker 12: expectations throughout twenty twenty five and they've got the free
Speaker 12: cash leot But I think they just want to build
Speaker 12: this out slowly, you know, and maybe strike people some
Speaker 12: people as being too slowly.
Speaker 2: Hey, not for nothing. The CEO get paid a lot
Speaker 2: of money here, Josh Weinstein. Fourteen million in cash vitation
Speaker 2: for Countary. You're twenty four to fourteen million in stock
Speaker 2: twenty eight million to drive a cruise ship round. That's
Speaker 2: not too bad.
Speaker 5: Nice job if you can get it right.
Speaker 3: So here's my question to you, Brian, how do Royal
Speaker 3: Caribbean or arrange and cruise and Carnival?
Speaker 5: How do they grow their market?
Speaker 3: Are they stealing from each other or is there still
Speaker 3: a big base from which to grow.
Speaker 12: There's definitely a penetration oportunity. I mean, just back up
Speaker 12: for a second on Carnival. You know their goal is
Speaker 12: to become investment grade. So part of the conservativism I
Speaker 12: think you're seeing, which may be a headscratch, want to
Speaker 12: get an investment grade, and I think that's probably priority one.
Speaker 12: Shifting some of the enterprise value from bondholders to equity holders.
Speaker 12: That being said, yes, they see opportunity to grow a
Speaker 12: relatively underpenetrated overall vacation market, but they're going about it
Speaker 12: with kind of balance sheet being front center if that
Speaker 12: helps it all.
Speaker 2: The only thing I know about the cruise business is
Speaker 2: what I learned from Disney, who got into the business
Speaker 2: fifteen twenty years ago, and it's been a great business
Speaker 2: for them. How do you stratify the cruise market? Now,
Speaker 2: I'm going to be the very very top, but how
Speaker 2: does the cruise industry kind of stratify itself?
Speaker 12: Yeah, I mean I think they, I think convincingly argue
Speaker 12: that they are relatively affordable form of vacations, the package product.
Speaker 12: The value is very good for the consumer, but it
Speaker 12: runs across different tiers from luxury side you know, Seaborn,
Speaker 12: wind Star Oceania Region seven Seas to the more mass
Speaker 12: market like Carnival Cruise Line, So they run the gamut,
Speaker 12: but the overall spectrum tends to be generally, you know,
Speaker 12: relatively affordable and part of that package vacation product people
Speaker 12: buying cruises beforehand, buying stuff on the cruise. With a
Speaker 12: good share of wallet left over that works to their favor.
Speaker 5: How brand loyal are cruising fans?
Speaker 3: I mean, if you are a Carnival person, are you
Speaker 3: a Carnival person for life?
Speaker 12: Yeah, there's certainly some brand loyalty. And remember they've they've
Speaker 12: got kind of as an industry. They've companies got two goals.
Speaker 12: One is to drive bookings for their particular brand, and
Speaker 12: they do that through new hardware with all the bells
Speaker 12: and whistles. The other is to drive the overall awareness
Speaker 12: of the value of cruising relative to other forms of vacationing.
Speaker 12: And so you know, they've kind of got that dual mandate.
Speaker 2: So you're sitting on the Jersey Shore Sunday after in
Speaker 2: around five.
Speaker 5: So you're Sweeney's sitting on there. Okay, go ahead, all this.
Speaker 2: Every Sunday during the summer, you'd see this massive cruise
Speaker 2: ship coming out of New York Harbor. I think it's
Speaker 2: the Star of the Seas.
Speaker 12: Yeah, that's a new one.
Speaker 2: Yeah, I mean, things massive, and they filled that thing up.
Speaker 12: Oh just remember and that's a that's a Royal Caribbean ship.
Speaker 12: But I will point out that one of the things
Speaker 12: Carnival's pointing to is, you know they've reached the thirteen
Speaker 12: percent return on invested capital this year, so they're kind
Speaker 12: of getting to that double digit return base that they targeted.
Speaker 12: So there are Their argument would be that they fill
Speaker 12: it up, they get good pricing and relative that their
Speaker 12: investments are getting you know, solid low teens or turns
Speaker 12: on incremental invested capital with an opportunity to take that higher.
Speaker 12: So as long as they can get that return, I
Speaker 12: think they can convincingly say we're getting there. But obviously,
Speaker 12: in the case of Carnival through relatively conservative capital to
Speaker 12: point I.
Speaker 2: Mean Star of the Sea, Icon of the Seas, they
Speaker 2: have a massive passenger capacity with the ability to hold
Speaker 2: over seventy six hundred passengers and a large crew. And
Speaker 2: for somebody who doesn't like people like me.
Speaker 12: That that's a tough it's not the miss anthrop's favorite
Speaker 12: vacation activity. But you know, they do get good economies
Speaker 12: by field peoples and.
Speaker 2: How big things.
Speaker 3: Well, I'm always talking with my friend who suggests that
Speaker 3: instead of retiring to a nursing home or retirement community,
Speaker 3: just go on a cruise trip.
Speaker 8: I've heard that.
Speaker 2: I've heard that too, you know, you know, it's a
Speaker 2: big cruises Charlie Pellett and he doesn't like cruise the Caribbean.
Speaker 5: Hers cruises like adventurous places.
Speaker 2: Yeah, like I'm going to I'm cruising to Turkey and
Speaker 2: I don't know Antarctica. Yes, that's what Charlie.
Speaker 12: People pair a premium for those. Yeah.
Speaker 3: Thanks sreic to Brian Egger, Bloomberg Intelligence senior Gaming and
Speaker 3: Lodging analysts.
Speaker 2: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio,
Speaker 2: providing in research and data on two thousand companies in
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