WEBVTT - SpaceX’s $101 Billion Unlock Heaps Pressure on Battered Shares 0:00:02.720 --> 0:00:10.559 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.600 --> 0:00:14.560 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.600 --> 0:00:17.840 Eastern on Apple, Cocklay and Android Auto with the Bloomberg 0:00:17.920 --> 0:00:21.040 Business App. Listen on demand wherever you get your podcasts, 0:00:21.360 --> 0:00:23.080 or watch us live on YouTube. 0:00:24.000 --> 0:00:26.200 SpaceX the stock down about eight and a half percent 0:00:26.280 --> 0:00:29.560 right now, but at its low it was down about 0:00:29.560 --> 0:00:32.440 twelve and a half percent, and that raises a lot 0:00:32.440 --> 0:00:36.080 of questions about the results and what we learned. Alexis 0:00:36.120 --> 0:00:39.120 mentioned a lot of AI spending. Let's bring in George Ferguson. 0:00:39.159 --> 0:00:42.559 He's our senior aerospace, defense and airlines analysts joining us 0:00:42.600 --> 0:00:45.960 from Princeton and George, it's tempting to chalk this up 0:00:46.000 --> 0:00:48.680 to investors. We're not in the mood to hear of 0:00:48.880 --> 0:00:52.440 plans for more spending when they're not seeing how the 0:00:52.479 --> 0:00:54.960 spending is paying off trust yet. But is this kind 0:00:55.000 --> 0:00:57.720 of decline that we're seeing in overreaction given the set 0:00:57.720 --> 0:00:59.480 of results that SpaceX published. 0:01:00.480 --> 0:01:01.680 Well, you know, we put. 0:01:01.560 --> 0:01:05.120 Out a report right around the IPO time talking about 0:01:05.640 --> 0:01:09.600 valuations for SpaceX right and we we don't tell people 0:01:09.600 --> 0:01:12.399 to buy or sell, but we said was look you 0:01:12.480 --> 0:01:15.560 had to get out to like twenty twenty nine and 0:01:15.640 --> 0:01:18.440 projections for a lot of growth and revenue and then 0:01:18.480 --> 0:01:21.640 turning profitable in twenty twenty eight just to start to 0:01:21.640 --> 0:01:25.480 be able to compare to the other hyperscalers like Microsoft. 0:01:26.000 --> 0:01:29.920 So look, I think that you know, the challenge here 0:01:30.040 --> 0:01:34.560 is valuations are are living, you know, in the stratosphere 0:01:34.640 --> 0:01:38.120 compared to some of their peers, and so you're challenge 0:01:38.160 --> 0:01:40.960 to kind of see, you know, what's the advantage of 0:01:41.040 --> 0:01:43.479 SpaceX over some of those other companies. Right, And so 0:01:43.760 --> 0:01:46.279 I think there was selling going on in the stock 0:01:46.360 --> 0:01:51.160 prior to earnings call yesterday, so you know, for days 0:01:51.200 --> 0:01:54.560 and weeks before that, yesterday was a bit of a 0:01:54.640 --> 0:01:56.240 you know, a turnaround where there was a bit of 0:01:56.240 --> 0:01:58.240 a rally. But I think you're back to a sale. 0:01:58.280 --> 0:02:01.360 It's still I think the same story they re sold us, 0:02:01.400 --> 0:02:03.920 the story that we heard at the IPO. 0:02:04.920 --> 0:02:07.720 So what I mean in terms of the actual revenues 0:02:07.760 --> 0:02:10.519 and cash flows and so on from from the court 0:02:10.520 --> 0:02:13.120 of the just reported they came in better than expected here, 0:02:13.160 --> 0:02:16.280 So I mean they are delivering on kind of what 0:02:16.320 --> 0:02:18.400 they're talking about. It's just a question of you so 0:02:18.480 --> 0:02:22.200 much of evaluation hinges on. I guess Elon's vision longer term. 0:02:22.800 --> 0:02:25.760 Yeah, I mean, you know again, it's on this AI vision. 0:02:25.800 --> 0:02:28.320 But you know, when I looked at the numbers yesterday, 0:02:29.040 --> 0:02:33.359 they were a bit better than consensus. Uh frankly, they 0:02:33.360 --> 0:02:36.600 were on top of Bi's numbers, to be honest with you, 0:02:36.680 --> 0:02:39.639 which so I'll blow our horn here for this. Maybe 0:02:39.680 --> 0:02:42.720 we're better seers. I don't know, but you know again 0:02:42.800 --> 0:02:44.680 we're you know, what we're talking about is, you know, 0:02:45.120 --> 0:02:48.839 really strong revenue growth. And I think Elon Musk laid 0:02:48.880 --> 0:02:53.399 out all the revenue opportunities in the call. But look, 0:02:53.440 --> 0:02:56.240 I'm an old you know, industrial aerospace defense analyst. At 0:02:56.240 --> 0:02:58.800 some point you got to give me profit, right you gotta. 0:02:59.400 --> 0:03:02.639 And you know, you spend sixty billion dollars on these 0:03:02.639 --> 0:03:04.799 companies that you've got ninety three billion dollars of cash 0:03:04.840 --> 0:03:08.520 in your balance sheet, The spend is is large. They 0:03:08.560 --> 0:03:13.239 doubled capex inside the AI business and that's still very 0:03:13.280 --> 0:03:16.120 loss making. At some point you got to turn this 0:03:16.200 --> 0:03:20.440 into a profitable enterprise. And right now the vision looks 0:03:20.480 --> 0:03:24.079 like a lot of AI for you know, and and 0:03:24.360 --> 0:03:27.240 capex for as far as the eye can see. And 0:03:27.320 --> 0:03:29.080 I think that's it's hard for people to put their 0:03:29.160 --> 0:03:31.600 arms on. Plus there is no guidance, right So yeah, 0:03:32.360 --> 0:03:34.840 you know, so I don't even no one even gave 0:03:34.920 --> 0:03:37.400 us a handle to try to hold on to right 0:03:37.440 --> 0:03:41.880 now when we would start to see profits or you know, 0:03:42.040 --> 0:03:43.680 at least losses starting to improve. 0:03:44.000 --> 0:03:45.440 So this is something that you say, you. 0:03:45.440 --> 0:03:47.720 As a kind of an old school analyst, would be 0:03:47.760 --> 0:03:51.080 looking for. And I suspect many investors in industrial companies 0:03:51.440 --> 0:03:52.920 are looking for something similar. 0:03:53.000 --> 0:03:55.000 But Elon Musk is trying to turn. 0:03:54.800 --> 0:04:00.320 SpaceX into this next gen tech AI behemoth, and you know, 0:04:00.400 --> 0:04:04.600 he casts his own spell over his shareholders. I just 0:04:04.640 --> 0:04:08.520 wonder how much overlap is there between SpaceX's investor base 0:04:08.720 --> 0:04:11.520 and Tesla's investor base, where he usually goes through this 0:04:11.560 --> 0:04:14.000 playbook and does very well because they want to hear 0:04:14.000 --> 0:04:16.640 about the hopes and dreams, and they're less concerned perhaps 0:04:16.640 --> 0:04:19.680 with the immediate payoff the way that old school analysts 0:04:19.680 --> 0:04:21.240 and industrial investors might be. 0:04:22.200 --> 0:04:26.680 Yeah, like again, I you know, old school payoff. I 0:04:26.720 --> 0:04:28.760 get it. This is not an old school payoff kind 0:04:28.760 --> 0:04:33.120 of company, right, but give us again some guardrails, I think, 0:04:33.240 --> 0:04:35.840 you know, or some you know, give us a middle 0:04:35.880 --> 0:04:37.520 line to the road and let us know kind of 0:04:38.080 --> 0:04:41.360 where we are in the trajectory where those those profits come. 0:04:41.920 --> 0:04:43.560 And I think you saw it on the call, right, 0:04:43.680 --> 0:04:47.480 Elon Musk showed up in the beginning to discuss his 0:04:47.720 --> 0:04:52.080 version of the world and the company and look at 0:04:52.520 --> 0:04:55.440 the tech is amazing, it's outstanding, right, and the vision 0:04:55.480 --> 0:04:56.280 is grand. Right. 0:04:56.560 --> 0:04:58.120 I love all of that. 0:04:58.640 --> 0:05:02.240 The question always comes down to me, and I think 0:05:02.320 --> 0:05:06.160 clearly to people in the markets. At what price? How 0:05:06.160 --> 0:05:10.000 do we put a price on this opportunity? And there's 0:05:10.040 --> 0:05:12.320 going to be a fight in the marketplace, like you said, 0:05:12.360 --> 0:05:16.200 between the people that just love the vision and you know, 0:05:16.320 --> 0:05:19.839 love the tech and others that say, when can you 0:05:19.839 --> 0:05:22.320 bring some cash because you've got heavy investments coming on here. 0:05:22.400 --> 0:05:27.080 Right, we also have a big lockup expiring tomorrow. 0:05:27.680 --> 0:05:29.480 How do you think that's kind of weighing on the shore. 0:05:29.520 --> 0:05:33.200 It's got a lot of stock out there potentially potentially 0:05:33.200 --> 0:05:34.320 coming on the market tomorrow. 0:05:35.040 --> 0:05:37.360 Yeah, yeah, I mean, look, you know, I think about 0:05:37.400 --> 0:05:40.560 this sort of maybe, you know, through my own sort 0:05:40.560 --> 0:05:46.480 of thought processes. I guess if I was internal, you know, 0:05:46.520 --> 0:05:47.960 I don't know, you know, it depends how much of 0:05:47.960 --> 0:05:50.080 your cop is wrapped in this? Would you start to 0:05:50.120 --> 0:05:53.080 sell out? Do you feel bad because it's well below 0:05:53.120 --> 0:05:55.720 the IPO price? Do you weigh out things? But the 0:05:55.720 --> 0:05:58.919 trend definitely has been down. So that's I think a 0:05:58.960 --> 0:06:01.320 really hard calculus people that have been locked up in this. 0:06:02.200 --> 0:06:04.559 So how important do you think it is for Elon 0:06:04.640 --> 0:06:07.080 Musk and his management team to get the stock back 0:06:07.120 --> 0:06:09.320 above that one point thirty five IPO price? Do you 0:06:09.320 --> 0:06:11.440 think that's something that they're concerned with? 0:06:13.320 --> 0:06:16.200 Look, so, I think if I'm Elon Musk, I want 0:06:16.240 --> 0:06:19.800 to be able to attract more investors to my shares, 0:06:19.839 --> 0:06:23.279 and losing money isn't a great way to attract investors. 0:06:23.279 --> 0:06:25.440 So I think they I think they absolutely want to. 0:06:26.760 --> 0:06:29.039 I don't know that they have a window here to 0:06:29.200 --> 0:06:32.000 influence that, you know, for another quarter until they have 0:06:32.040 --> 0:06:34.240 another sort of earnings called So I don't necessarily what 0:06:34.240 --> 0:06:36.800 they do. I know there's rumors in the marketplace about 0:06:36.839 --> 0:06:39.680 merging with Tesla. I can't say that I totally understand 0:06:39.680 --> 0:06:43.280 all the logic there. I think they want to get it, 0:06:43.560 --> 0:06:44.960 get it up. I think they want to be able 0:06:45.000 --> 0:06:47.279 to come back to the markets, the equity markets and 0:06:47.440 --> 0:06:50.240 issue Again, I'm not sure in the near term, though, 0:06:50.760 --> 0:06:53.160 what you do to change some of the trajectory here. 0:06:53.440 --> 0:06:55.200 George, you mentioned they've got you know, one hundred billion 0:06:55.200 --> 0:06:57.080 dollars of cash on the bound sheet. How long is 0:06:57.120 --> 0:06:58.880 that lasts you think before they do. 0:06:58.839 --> 0:06:59.920 Have to tell a lot of markets. 0:07:00.400 --> 0:07:02.000 Yeah, Look, I mean I think you got it was 0:07:02.080 --> 0:07:05.000 like ninety three billion when I looked yesterday they got 0:07:05.000 --> 0:07:07.800 this buy of sixty billion out there. I got to 0:07:07.800 --> 0:07:10.240 figure out how they're going to fund that. You know, 0:07:10.280 --> 0:07:13.960 there was I think it was fifteen billion in capex 0:07:14.040 --> 0:07:17.360 during the quarter, you know, out to the AI businesses. 0:07:19.160 --> 0:07:21.680 I think this is not a technical answer. It doesn't 0:07:21.720 --> 0:07:22.920 seem like it's going to last long. 0:07:23.400 --> 0:07:25.200 Yeah, And it's just I mean, it's a lot of cash, 0:07:25.240 --> 0:07:27.080 but they have a lot of needs. 0:07:27.160 --> 0:07:27.880 They have a lot of needs. 0:07:27.920 --> 0:07:29.920 Are they going to go dip back into the bond 0:07:29.960 --> 0:07:31.600 mark again, do you think, George? 0:07:32.440 --> 0:07:34.320 Well, look, I think that's that's really going to get 0:07:34.360 --> 0:07:37.400 predicated on whether or not they can maintain their investment 0:07:37.440 --> 0:07:39.120 grade rating, right, because I think you want you don't 0:07:39.120 --> 0:07:42.160 want to let that slip too much. And everyone I 0:07:42.200 --> 0:07:44.680 talked to about the investment grade rating tells me it's 0:07:44.720 --> 0:07:46.440 a function of the cash on the balance sheet, right, 0:07:46.480 --> 0:07:48.400 because you don't have a company here that's sort of 0:07:48.640 --> 0:07:53.520 a heavy cash generator. Yeah, and maybe the ability to 0:07:53.600 --> 0:07:57.600 tap markets again. Yeah, I think Sara Wo'd rather go 0:07:57.640 --> 0:08:00.840 to the debt market, but again, I don't know how 0:08:00.880 --> 0:08:02.920 long that that remains open. 0:08:02.960 --> 0:08:04.440 As your spending cat, I think the big thing is 0:08:04.480 --> 0:08:07.600 going to be the farmer creditor. It's the it's actual 0:08:07.680 --> 0:08:10.200 equity value that's underneath me supporting me. That's the only 0:08:10.240 --> 0:08:12.000 thing that's the same thing it was with Tesla. 0:08:12.200 --> 0:08:14.040 Yeah, and now you're looking to stalk again, We'll blow 0:08:14.080 --> 0:08:15.480 that one thirty five IPO price. 0:08:15.560 --> 0:08:16.080 Yep, yep. 0:08:17.080 --> 0:08:20.040 Stay with us. More from Bloomberg Intelligence coming up after this. 0:08:24.160 --> 0:08:27.840 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:08:27.920 --> 0:08:31.040 weekdays at ten am Eastern on Apple, Cocklay and Android 0:08:31.040 --> 0:08:34.360 Auto with the Bloomberg Business app. Listen on demand wherever 0:08:34.400 --> 0:08:37.720 you get your podcasts, or watch us live on YouTube. 0:08:38.200 --> 0:08:39.240 Man, you've seen joints us here. 0:08:39.240 --> 0:08:43.559 Glottal Tech, research head for Bloomberg Intelligence Advanced micro Devices 0:08:43.640 --> 0:08:48.240 A M. D. I thought the sales was good, but 0:08:49.280 --> 0:08:51.720 people are calling in an underwhelming sales ATLEC. How can 0:08:51.760 --> 0:08:53.080 a chip maker have an underwemer. 0:08:54.520 --> 0:08:57.000 Well, I guess partly that has to do with the 0:08:57.120 --> 0:09:00.960 valuation and where I think this has run up. But 0:09:02.040 --> 0:09:05.960 you know, you're being compared against Nvidia, and that's where 0:09:06.200 --> 0:09:09.960 Nvidia's data center sales is probably at this point, you know, 0:09:10.120 --> 0:09:14.600 twelve thirteen times bigger than AMD's, even though AMD grew 0:09:14.720 --> 0:09:17.360 you know, over one hundred percent and they guided to 0:09:17.480 --> 0:09:21.360 triple digit growth going forward. But the fact that Nvidia 0:09:21.800 --> 0:09:25.800 is still growing you know, seventy five percent at their rate, 0:09:25.880 --> 0:09:28.959 which is twelve times bigger, it just goes to show 0:09:28.960 --> 0:09:32.680 that right now, AMD is just holding share, it's not 0:09:33.040 --> 0:09:35.800 you know, in any ways gaining share, and this market 0:09:35.920 --> 0:09:39.000 is lifting all both, so AMD does have a role. 0:09:39.160 --> 0:09:41.640 And the other thing that I noted last night is 0:09:42.600 --> 0:09:45.560 so they have this new architecture coming up in the 0:09:45.600 --> 0:09:49.520 second half, everyone seems to be holding off for that, 0:09:49.720 --> 0:09:53.240 Like why would they buy something that's going to be 0:09:53.320 --> 0:09:56.559 older generation three months from now. So that's the other thing. 0:09:56.600 --> 0:09:59.959 When you announce a new architecture. That doesn't happen with Nvidia, 0:10:00.080 --> 0:10:03.000 by the way, because everyone feels their supply constraint within 0:10:03.080 --> 0:10:07.080 Vidia gear. But for someone like AMD, you've said, you know, 0:10:07.160 --> 0:10:10.679 you've got a much better chip coming three months down 0:10:10.720 --> 0:10:13.880 the line. So I feel there is some hold up 0:10:14.000 --> 0:10:17.160 in that aspect, Like no one wants to commit big 0:10:17.280 --> 0:10:20.280 when they know there's another something better coming through. 0:10:20.320 --> 0:10:22.560 So that strategy only works if you're the market leader, 0:10:22.640 --> 0:10:25.120 not if you're the number two. And it feels like 0:10:25.200 --> 0:10:27.560 Intel has intell It feels like AMD has been number 0:10:27.559 --> 0:10:29.760 two for a long time. It's the number two to Intel, 0:10:29.800 --> 0:10:31.719 it's now bigger than Intel. It's now the number two 0:10:31.760 --> 0:10:34.720 to Invidia. But as we've said, there's not enough supply 0:10:34.800 --> 0:10:37.560 to meet all this demand. So AMD should be in 0:10:37.559 --> 0:10:40.600 a good position. Is it because all the other companies 0:10:40.640 --> 0:10:42.440 have come out and decide to make their own ships 0:10:42.520 --> 0:10:45.520 go proprietary, that AMD's kind of left on the outside. 0:10:45.720 --> 0:10:49.280 I think that's also a long term factor when it 0:10:49.320 --> 0:10:53.319 comes to AMD's prospects, you know, three years, five years 0:10:53.320 --> 0:10:57.640 from now. I mean every hyperscaler has ambitions to make 0:10:57.679 --> 0:11:01.000 their own chip. Google has done that success, others wanted 0:11:01.000 --> 0:11:04.520 to do the same. So from that perspective, I mean, yes, 0:11:04.640 --> 0:11:08.280 AMD has a deal with open Ai and Tropic. They 0:11:08.280 --> 0:11:10.800 have committed to Meta as well. In fact, they ended 0:11:10.880 --> 0:11:14.640 up giving some equity to Meta for that six gigawatt commitment. 0:11:14.960 --> 0:11:17.080 That just goes to show they're not playing from a 0:11:17.120 --> 0:11:21.679 position of strength like n videos. So they really have 0:11:21.760 --> 0:11:25.360 to course this these hyperscale, especially the new ones like 0:11:25.440 --> 0:11:28.480 Open AI and Entropic, and make sure they end up 0:11:28.559 --> 0:11:32.000 using AMD chips and not just you know, other chip makers. 0:11:32.040 --> 0:11:35.960 So overall, I think the print was great. The valuation 0:11:36.160 --> 0:11:40.000 is rich, so they sort of meta expectations they didn't wow, 0:11:40.120 --> 0:11:42.080 and then that's why you see that sort of reacting. 0:11:42.080 --> 0:11:44.679 All right, we were just chatting with George Ferguson about 0:11:44.679 --> 0:11:47.720 SpaceX and he was gonna the angle from the satellite side, 0:11:47.760 --> 0:11:51.480 which is good. I know you just published something regarding 0:11:51.520 --> 0:11:53.480 the AI part of the story here because the socks 0:11:53.520 --> 0:11:56.040 down another eight percent today. Can't find a bid here. 0:11:57.400 --> 0:11:59.160 If you're buying this thing, you're buying it for the 0:11:59.200 --> 0:12:01.200 AI play you are. 0:12:01.320 --> 0:12:04.559 And it's amazing how much they have pivoted to AI. 0:12:04.600 --> 0:12:08.160 In fact, they gave a one hundred billion dollar revenue 0:12:08.240 --> 0:12:11.280 run rate number by the end of this year. So 0:12:11.360 --> 0:12:14.120 this company is going from about eighteen billion at the 0:12:14.160 --> 0:12:17.200 time of IPO to one hundred billion dollar run rate 0:12:17.480 --> 0:12:20.079 in a span of six months. And that's for the 0:12:20.360 --> 0:12:23.920 AI business all AI driven, and that's where seventy percent 0:12:24.080 --> 0:12:27.559 of that like, they could be the biggest neocloud out 0:12:27.600 --> 0:12:31.520 there by the end of the year simply because they 0:12:31.960 --> 0:12:35.000 have that ramp up in CAPEX. And that's where you know, 0:12:35.160 --> 0:12:38.040 the investors may find holes in. 0:12:38.200 --> 0:12:39.720 How are they going to raise money? 0:12:40.080 --> 0:12:42.720 If you are hyperscaler, you have the balance sheet to 0:12:42.760 --> 0:12:45.960 do two hundred billion dollars in CAPEX. I mean what 0:12:46.320 --> 0:12:48.720 SpaceX literally implied last night is they will do two 0:12:48.800 --> 0:12:53.200 hundred billion dollars in capex twenty twenty seven. But investors 0:12:53.240 --> 0:12:55.240 are not buying it because they don't have the balance 0:12:55.280 --> 0:12:58.920 sheet unlike the hyperscaler. So are you doing a debt ras, 0:12:59.320 --> 0:13:01.880 are you doing an equity raise? How are you raising 0:13:01.920 --> 0:13:05.320 the funding? Or maybe Nvidia is doing the backstop because 0:13:05.360 --> 0:13:09.400 they said we will rely solely on Nvidia chips for 0:13:09.480 --> 0:13:11.920 this buildout, and in fact that's why AMD is down 0:13:11.960 --> 0:13:13.960 because they could have said, you know, we'll give it 0:13:14.000 --> 0:13:17.160 a md A ten percent shares that didn't happen with 0:13:17.280 --> 0:13:18.880 SpaceX plans last time. 0:13:19.000 --> 0:13:20.800 Is that feasible that they're going to rely solely on 0:13:20.920 --> 0:13:21.640 Nvidia for the. 0:13:21.559 --> 0:13:25.800 Buildoutdo if Nvideo is doing the backstop and saying they 0:13:25.840 --> 0:13:29.840 need the funding. In this case of SpaceX, the biggest 0:13:29.880 --> 0:13:33.320 apprehension is how is this company going to find the 0:13:33.400 --> 0:13:36.320 funding for two hundred billion dollars in capex, which Elon 0:13:36.440 --> 0:13:39.400 must said we'll have ten gigawatt capacity by end of 0:13:39.480 --> 0:13:42.640 twenty twenty seven. That definitely amounts to two hundred billion 0:13:42.679 --> 0:13:47.000 dollars plus just in purchases of Nvidia chips and other components. 0:13:47.160 --> 0:13:49.360 How are you going to raise that funding? So that's 0:13:49.400 --> 0:13:52.640 where Nvidia comes in with you know, its balance sheet 0:13:52.679 --> 0:13:55.720 and saying we're supporting all the neo clouds, we will 0:13:55.760 --> 0:13:56.880 support SpaceX. 0:13:57.600 --> 0:13:58.959 What is neocloud again? 0:13:59.480 --> 0:14:02.559 I mean it's just you know, renting your data centers 0:14:02.600 --> 0:14:07.040 with GPUs with power. So it's not a commodity business. 0:14:07.120 --> 0:14:11.280 Don't think right now all these Eventually it may become one, 0:14:11.360 --> 0:14:15.800 but right now, sourcing the power, getting these servers online 0:14:16.080 --> 0:14:16.840 and getting it. 0:14:16.760 --> 0:14:18.880 Ready, it's there's a ton of demand. 0:14:19.000 --> 0:14:22.000 There's a ton of demand, and it's not commoditized in anyway. 0:14:22.800 --> 0:14:25.720 Stay with us. More from Bloomberg Intelligence coming up after this. 0:14:30.040 --> 0:14:33.760 You're listening to the Bloomberg Intelligence podcast. Catch us Live 0:14:33.840 --> 0:14:36.880 weekdays at ten am Eastern on Apple, Cocklay and Android 0:14:36.920 --> 0:14:40.240 Auto with the Bloomberg Business app, Listen on demand wherever 0:14:40.280 --> 0:14:43.800 you get your podcasts, or watch us live on YouTube. 0:14:44.320 --> 0:14:47.520 It's really earnings power that is driving the stock market 0:14:47.720 --> 0:14:49.920 certainly today with the S and P five hundred making 0:14:50.000 --> 0:14:51.680 yet another record high. 0:14:51.720 --> 0:14:53.080 If we close at these levels. 0:14:52.840 --> 0:14:55.920 It'll be the second straight record close, and earnings is 0:14:56.000 --> 0:14:58.160 behind all that. So let's talk to Getha Rung and 0:14:58.240 --> 0:15:01.800 Athen our analyst on US Media in Princeton, about the 0:15:01.880 --> 0:15:06.440 latest earnings from Walt Disney Company, the entertainment giant. And 0:15:06.880 --> 0:15:09.280 there's a lot to like in this earnings report. The 0:15:09.320 --> 0:15:11.520 stock is up about two and a half percent right now. 0:15:12.640 --> 0:15:15.760 Is the entertainment division which saw sixty four percent rise 0:15:15.800 --> 0:15:19.120 in profit that kind of drove everything? Or is it 0:15:19.200 --> 0:15:22.200 once again the parks and cruises the experience's arm which 0:15:22.200 --> 0:15:25.040 saw a smaller increase in profit but really has become 0:15:25.520 --> 0:15:27.800 the crown jewel of Disney's empire. 0:15:28.840 --> 0:15:31.880 Yeah, absolutely, Scarlett, And it's actually a bit of both. 0:15:32.000 --> 0:15:35.440 So you know, the experiences division of the theme parks division, 0:15:35.440 --> 0:15:37.760 as you just pointed out, makes up less than forty 0:15:37.800 --> 0:15:41.960 percent of total company revenue, but almost sixty percent of profit. 0:15:42.080 --> 0:15:45.040 So really it is the crown jewel, as you rightly 0:15:45.320 --> 0:15:48.680 alluded to it. And you know, again the profit there 0:15:48.760 --> 0:15:51.720 was really strong, and I think coming in investor expectations 0:15:51.720 --> 0:15:56.080 were really really low. Profits were up twenty percent. Remember 0:15:56.160 --> 0:15:58.800 consensus was at about ten and a half percent increase. 0:15:58.840 --> 0:16:02.520 So again, really strong number, and what it really did 0:16:02.640 --> 0:16:05.840 was elaid fears because Comcast, which just reported a few 0:16:05.840 --> 0:16:08.680 weeks ago, talked about weakness and a slowdown, a demand 0:16:08.680 --> 0:16:12.200 slow down in their Universal theme parks, especially in Orlando, 0:16:12.760 --> 0:16:15.560 and now seeing Disney come out with such strong numbers 0:16:15.920 --> 0:16:18.880 really shows that, you know, they're executing really well and 0:16:19.160 --> 0:16:21.480 demand continues to be strong as they head into fiscal 0:16:22.080 --> 0:16:24.920 the fiscal fourth quarter as well. But then, as you 0:16:24.920 --> 0:16:27.720 you know again said, streaming, which is part of that 0:16:27.920 --> 0:16:32.080 entertainment division, is really the growth catalyst for this company, 0:16:32.120 --> 0:16:35.720 and it's all about streaming profitability and how far and 0:16:35.800 --> 0:16:38.880 how far ahead they can get on operating margin for 0:16:39.000 --> 0:16:41.520 the streaming business. And they prove that they did a 0:16:41.520 --> 0:16:45.040 really good job of this quarter, and there's there's obviously 0:16:45.040 --> 0:16:46.800 a lot more growth levers going forward. 0:16:47.480 --> 0:16:47.800 KEITHA. 0:16:47.880 --> 0:16:50.480 This is the second straight quarter of better than expected 0:16:50.520 --> 0:16:55.920 profitability for the CEO, Josh Tomorrow, who succeeded Bob Ayger 0:16:55.960 --> 0:16:58.200 in that role in March. Talk about big shoes to Phil. 0:16:58.280 --> 0:17:01.840 What's the early read from investors on mister Tomorrow. 0:17:02.880 --> 0:17:06.439 I think they're really liking all what they see. You know, 0:17:06.800 --> 0:17:10.040 Josh obviously has a very clear strategy. He's He's made 0:17:10.040 --> 0:17:13.080 some pretty big changes. So just today, for instance, they 0:17:13.160 --> 0:17:15.680 announced that they got rid of their fifty percent stake 0:17:15.720 --> 0:17:17.679 in A and E Global Media. They got about one 0:17:17.720 --> 0:17:19.879 point two billion dollars in cash and they're going to 0:17:19.920 --> 0:17:24.040 deploy that towards share repurchases. Then again, you have this 0:17:24.480 --> 0:17:26.120 new deal. They had to get out of their Sora 0:17:26.240 --> 0:17:29.280 deal after obviously soa shut down, but now they have 0:17:29.359 --> 0:17:32.000 today they announced this new deal with TikTok So. Again, 0:17:32.080 --> 0:17:34.360 Josh is I think, really kind of taking a hard 0:17:34.400 --> 0:17:37.000 look at all of the different businesses. He obviously knows 0:17:37.040 --> 0:17:42.160 that they need to reduce their exposure to you, linear TV, 0:17:42.760 --> 0:17:45.280 but you know, they're doing all that they can in 0:17:45.320 --> 0:17:47.560 terms of streaming, and of course he is a Parks veteran, 0:17:47.640 --> 0:17:50.760 so he knows exactly, you know, how that business works. 0:17:51.400 --> 0:17:54.439 But it also looks like he's positioning Disney Plus to 0:17:54.480 --> 0:17:59.119 become this major hub for the entire Disney ecosystem, something 0:17:59.160 --> 0:18:03.159 almost akin to Amazon Prime for all things Disney, starting 0:18:03.200 --> 0:18:04.840 in spring of twenty twenty seven. And so I think 0:18:04.880 --> 0:18:06.560 that's going to be pretty exciting for the company. 0:18:07.080 --> 0:18:09.000 Yeah, that sounds very strategic. 0:18:09.480 --> 0:18:11.879 How do you think about how that's going to change 0:18:11.920 --> 0:18:15.840 the entertainment industry and how other media companies respond to 0:18:15.920 --> 0:18:16.920 that kind of positioning. 0:18:17.800 --> 0:18:20.360 Yeah, So, I mean Disney has a really unique hand 0:18:20.359 --> 0:18:22.680 to play here, Scarlett. I mean, they have theme parks, 0:18:22.680 --> 0:18:25.960 which really other than Comcast, nobody else has. Obviously, they 0:18:26.000 --> 0:18:29.560 have this great movie and studio business, and of course 0:18:29.560 --> 0:18:32.200 that they're streaming business too, And the one thing that 0:18:32.240 --> 0:18:34.840 they have or they do better than everybody else is 0:18:35.080 --> 0:18:38.280 ESPN and sports. They have huge, huge exposure there to 0:18:38.400 --> 0:18:41.200 all of the Marquee sports rights. So you know, again, 0:18:41.840 --> 0:18:44.160 it's all come down to one thing in the streaming world, 0:18:44.200 --> 0:18:47.080 which is engagement, and if they can build on that 0:18:47.160 --> 0:18:51.200 engagement and keep you within that Disney ecosystem for everything, 0:18:51.240 --> 0:18:52.960 I mean, whether you're buying a theme park ticket or 0:18:53.000 --> 0:18:54.680 wanting to watch a movie or wanting to watch a 0:18:54.720 --> 0:18:58.000 show on Disney Plus or Hulu, I mean, right there, 0:18:58.080 --> 0:19:00.760 that's a major differentiator versus peers. 0:19:01.640 --> 0:19:05.800 So Githa Paramount also reported numbers here. I'd love to 0:19:05.800 --> 0:19:07.600 get a sense of kind of what the company's saying 0:19:07.640 --> 0:19:13.080 these days about their I guess stalled merger with Warner 0:19:13.080 --> 0:19:16.040 Brothers Discovery and how they plan to operate as an 0:19:16.440 --> 0:19:18.600 single entity over the next twelve months. 0:19:19.400 --> 0:19:22.359 So their numbers yesterday, Paul were actually pretty decent, and 0:19:22.400 --> 0:19:24.360 a lot of that was just the cost savings from 0:19:24.440 --> 0:19:27.960 the sky Dance, you know, acquisition. So it's it's pretty 0:19:27.960 --> 0:19:30.520 clear that once they are able to get their hands 0:19:30.520 --> 0:19:32.680 on Warner Brothers and they're able to close on that transaction, 0:19:32.720 --> 0:19:35.479 they're obviously going to do all that they can to 0:19:36.040 --> 0:19:39.080 deliver on those six billion and synergies. But it's really 0:19:39.080 --> 0:19:41.959 been a very long and arduous road and it's not 0:19:42.160 --> 0:19:45.040 looking easy at all. So one of the things that 0:19:45.040 --> 0:19:47.639 I think people still are extremely concerned about is leverage. 0:19:47.680 --> 0:19:48.840 We know it's going to be about six and a 0:19:48.880 --> 0:19:52.040 half times at closing whenever that happens, and then the 0:19:52.080 --> 0:19:53.720 other thing that you have now is kind of the 0:19:53.760 --> 0:19:56.800 sticking fee, right, and so that's because this deal is 0:19:56.800 --> 0:19:58.000 going to get delayed by. 0:19:57.920 --> 0:19:59.720 At least two full quarters. 0:20:00.040 --> 0:20:02.280 It was supposed to close on September thirtieth, it's going 0:20:02.359 --> 0:20:05.879 to be maybe closer to a March end of March timeframe. 0:20:06.280 --> 0:20:08.280 We're going to see it close to almost about one 0:20:08.280 --> 0:20:11.600 point three billion dollars in ticking fees and guess how 0:20:11.640 --> 0:20:15.080 that's going to be funded more share issuance. So we're 0:20:15.119 --> 0:20:18.720 looking at massive dilution here, I mean paramount share, paramounts, 0:20:18.720 --> 0:20:22.359 guidance share. You know, a number of shares outstanding right 0:20:22.400 --> 0:20:24.480 now is one billion. It's going to go to close 0:20:24.520 --> 0:20:27.000 to about five billion when all of this is said 0:20:27.000 --> 0:20:30.560 and done. So this is just, you know, it just 0:20:30.840 --> 0:20:34.080 is not a very very encouraging outlook at all from 0:20:34.080 --> 0:20:35.200