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Speaker 3: Let's talk us a little c suite conversation here. We
Speaker 3: can do that with the hotel business. Mark Hopplomacian joins us.
Speaker 3: He's a president and chief executive officer of Hyatt Hotels,
Speaker 3: joining us via zoom. Hey, Mark, thanks so much for
Speaker 3: joining us here. I'm looking at your stock here, fifty
Speaker 3: two week high. For those that don't know, H is
Speaker 3: the symbol. It's cool to get that one of those
Speaker 3: single letter symbols there. That's always pretty cool for us
Speaker 3: Wall Street, Folcus. I've got a market cap at fifteen
Speaker 3: point seven billion, stocks up about three tens a one
Speaker 3: percent today. Mark, talk to us about your recent earnings
Speaker 3: and kind of what was the messaging you needed to
Speaker 3: get across to your shareholders.
Speaker 4: Of all, it's great to be back with you all,
Speaker 4: and thanks for having me. I think that the the
Speaker 4: clear message was really centered around the fact that the
Speaker 4: transformation of the company to asset lighter platform has now
Speaker 4: shown up in the numbers in a very material way.
Speaker 4: We had the highest pre cash flow that in the
Speaker 4: company's history. We also had the mix of our asset
Speaker 4: light earnings to our total earnings went up to seventy
Speaker 4: six percent five years ago.
Speaker 5: That was in the in the mid forties.
Speaker 3: Hey market, So, did describe for us what your asset
Speaker 3: light strategy is? Is that relying more on franchisease.
Speaker 4: Yeah, so it's not really I wouldn't call it an
Speaker 4: asset light strategy. I would call it an asset light program.
Speaker 4: Where we were selling down. We had we had two
Speaker 4: major drivers of our of our of our earnings. One
Speaker 4: was from real estate that we owned hotels, and the
Speaker 4: other ones from management franchising hotels across the world. We're
Speaker 4: primarily a management business, not a franchise businesusiness, but that
Speaker 4: those are the two businesses. So as we sell down
Speaker 4: real estate, the proportion that's coming from real estate sourced
Speaker 4: earnings has been dropping. We've concurrently reinvested in buying new
Speaker 4: platforms and new brands over the last five years, and
Speaker 4: that has driven up our management and franchising fees. At
Speaker 4: the same time, so the mix has shifted to much
Speaker 4: more in the management and franchise feed driven business, which
Speaker 4: is very low capital intensivity and high margin and high
Speaker 4: free cash floats conversion. So that was probably the key message.
Speaker 4: The other thing that we did is we simplified our
Speaker 4: financial presentation because we have a business that's a subscription
Speaker 4: model membership business called Unlimited Ucation Club, and we sold
Speaker 4: the majority interest in that business to a third party
Speaker 4: which helped us simplify how we report our earnings and
Speaker 4: that was very well received by investors.
Speaker 6: And Mark, that's you and the c suite managing all
Speaker 6: of that. What about the demand side of the business,
Speaker 6: What kind of pricing power do you have per room?
Speaker 6: And what's the demand situation.
Speaker 4: Like actually demand, So we think about three different demand drivers.
Speaker 4: One is leisure, which has been the leader of the
Speaker 4: recovery through post COVID period. We think about group business,
Speaker 4: which is big meetings and conventions and things like that,
Speaker 4: and we also have business travel individual business travel. All
Speaker 4: three are showing signs of great momentum and positive outlooks.
Speaker 4: So starting with leisure, in the first quarter of this year,
Speaker 4: our pace meeting our bookings are up eleven percent for
Speaker 4: our all inclusive resorts in the Pervian and.
Speaker 5: Also up for our our resorts in the Americas.
Speaker 4: But leisure travel has been really really solid in China.
Speaker 4: We had a record year for Lunar in New Year.
Speaker 4: The spending amongst Chinese, both inside of China and other
Speaker 4: destinations in Asia was at them all time high. So
Speaker 4: that's leisure in group. Our pace into this year, that
Speaker 4: is forward bookings are up eight percent, and so we're
Speaker 4: looking at another solid year of growth of growth in meetings,
Speaker 4: and I think corporations are increasingly resolved to make sure
Speaker 4: that they prioritize those meetings. And then on business transient
Speaker 4: the US is lagging, but the overall business transient category
Speaker 4: demand around the world is about seven percent the low
Speaker 4: where it was pre pandemic, So we're getting closer and
Speaker 4: closer to being a parody. Europe is fully recovered, and
Speaker 4: then some China is fully recovered, and then some the
Speaker 4: United States is still lagging, and we're seeing signs of
Speaker 4: positive signs of business transient travel increasing. So I would
Speaker 4: say across all three major category we're seeing positive trends
Speaker 4: into twenty four mark.
Speaker 3: Could you talked to us about m and A and
Speaker 3: kind of growth via acquisition. How does that figure into
Speaker 3: your growth plans? What are you guys messaging to the
Speaker 3: street about your willingness to engage in em ande because
Speaker 3: I know you had to buy out recently of the
Speaker 3: Apple Leisure Group.
Speaker 7: I want to see kind of your appetite is going forward.
Speaker 4: Yeah, So over the past five years, we've invested about
Speaker 4: three point eight billion dollars in acquisitions, the biggest one
Speaker 4: being Apple Leisure Group at two point seven billion, and
Speaker 4: it's been tremendously beneficial to us because we've been able
Speaker 4: to expand our customer base in the most in the
Speaker 4: highest growth and most relevant to US categories, which is leisure,
Speaker 4: lifestyle and luxury. And so we've really done this in
Speaker 4: a very deliberate way to move the company in that direction.
Speaker 4: In the fourth quarter, I think we had fifty seven
Speaker 4: percent of our total rooms revenue around the world was
Speaker 4: leisure focused, which is up twenty points from the mid
Speaker 4: thirties to the mid fifties pre pandemics on now, so
Speaker 4: that the mix in the company is tremendously shifted, but
Speaker 4: they also been very profitable and high value acquisitions. The
Speaker 4: fees per room that we are earning today are materially
Speaker 4: higher than they were five years ago before we made
Speaker 4: these acquisitions and evolved the company. Even as we have
Speaker 4: grown our select service brands, so we are expanding in
Speaker 4: lower price points, but our overall feed growth per room
Speaker 4: has been growing, which is really I think part of
Speaker 4: the equation of actually driving share holder value on.
Speaker 5: An accelerated basis.
Speaker 4: In terms of our outbook, I think there will be
Speaker 4: more opportunities for MNA in the future, but probably smaller scale.
Speaker 6: Mark Paul and I talked by the story yesterday for
Speaker 6: the Journal reported that hotel parking fees are spiking because
Speaker 6: of the fact that you know, you guys that on
Speaker 6: hotels have to pay more and rent interest rates have increased.
Speaker 6: Maybe there's a demand issue in certain pockets. You got
Speaker 6: to increase prices where you can talk to me about
Speaker 6: how expensive it is to run your business, like where
Speaker 6: a cost coming down?
Speaker 8: Where cost going up?
Speaker 4: You know, I think the primary look, first of all,
Speaker 4: let's start with the biggest cost category, which.
Speaker 5: Is people, yeah, at our hotels and in.
Speaker 4: Twenty twenty one non union markets, which is primarily in
Speaker 4: the South, the Sun Belt, the smile of the United States.
Speaker 4: I think our wage rates went up by twenty percent
Speaker 4: over the course of that year, and that started to
Speaker 4: mitigate or a millliarrate in twenty twenty two and twenty
Speaker 4: twenty three, but we experienced a massively acute situation in
Speaker 4: terms of supply of labor.
Speaker 5: That's really that's evened out. We were in the mid teams.
Speaker 6: That's even out in that because we also talked about
Speaker 6: didn't we paul about cleaning services like not staffing housekeeping
Speaker 6: because it just can't find the workers.
Speaker 8: So do you feel like you're at the right spot?
Speaker 4: I would say that there are pockets where we still
Speaker 4: have shortages, and I think part of that has to
Speaker 4: do with the nature of the workforce at this point.
Speaker 4: So we've got a lot of the byproduct of not
Speaker 4: having a really advanced immigration policy in the United States
Speaker 4: and h t B visa program, is that for at times,
Speaker 4: especially over the summer, where you have peak demand, we
Speaker 4: don't have the right type type of labor that's willing
Speaker 4: to take those jobs and uh and be happy to
Speaker 4: start their careers in those jobs. So I think this
Speaker 4: they go together. A lot of the a lot of
Speaker 4: the h t B people that come in on an
Speaker 4: hub visa which is a temporary work visa they come
Speaker 4: and they leave. Or the incidence of of immigration that
Speaker 4: allows us to hire people who are coming in into
Speaker 4: the workforce in the United States for the first time
Speaker 4: has been has been under some pressure now. Having said that, overall,
Speaker 4: our vacancy rates have gone from mid teens to mid
Speaker 4: single digits, so down ten points, which is extraordinary, and
Speaker 4: that's over the last eighteen months. So we are having
Speaker 4: a better time finding labor, but there are definitely pockets
Speaker 4: of constraints.
Speaker 7: Yep, hear that from a lot of folks in the
Speaker 7: service business.
Speaker 3: Hey, Mark, thanks so much for joining us, Mark Hopplomasian,
Speaker 3: he's a president and chief executive officer at Hyatt Hotels,
Speaker 3: joining us from Chicago, Illinois via zoom. The company stock
Speaker 3: h is the ticker all time high today. So how
Speaker 3: about that they had some pretty solid numbers recovering from
Speaker 3: the pandemic. Look like we see a lot of other
Speaker 3: entertainment and leisure spaces.
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Speaker 1: eleven thirty.
Speaker 3: All right, ma, go in the terminal. Then I click
Speaker 3: on time series and I go, got ten years. And
Speaker 3: I just look at the graph of M and A activity,
Speaker 3: both in terms of dollar volume and number of deals.
Speaker 3: And man, really, since like I don't know, mid twenty
Speaker 3: twenty two, there's been nothing going on in the MNA world.
Speaker 3: My M and A banker buddies, I don't know what
Speaker 3: they're living on these days. But let's check and see
Speaker 3: where we are on the M and A space kind
Speaker 3: of where we can be going from here. I guess
Speaker 3: that's what happens when rates go up five hundred basis points.
Speaker 3: Ted Smith joins us. He's co founder and president of
Speaker 3: Union Square Advisors, joining us here in our Bloomberg Interactive
Speaker 3: Broker studio. So Ted, M and A activity, it's been
Speaker 3: a little fallow over the last I don't know, eighteen
Speaker 3: months or so.
Speaker 7: What are you guys seeing out there in terms of activity.
Speaker 9: We're starting to finally see a little bit of a
Speaker 9: thought out there, Paul. I want to be careful not
Speaker 9: to suggest that it's getting overcooked. Anytime soon, but starting
Speaker 9: to see the number of deals both and the quality
Speaker 9: of deals start to come back. Strategical quirers are saying
Speaker 9: they've kind of come out of their funk. They're ready
Speaker 9: to do things again where they hadn't been to your
Speaker 9: point for the last twelve to eighteen months. And private
Speaker 9: equity firms, which in technology where we apply our trade
Speaker 9: are so important, have a lot of capital to put
Speaker 9: to work, so they're anxious to Was.
Speaker 3: It just interest rates going up that everybody just step
Speaker 3: back or is it global macro? What kind of caused
Speaker 3: people to step back here? Because when I think about
Speaker 3: M and A, I think I have to have a
Speaker 3: board and a c suite that has confidence in their
Speaker 3: business to go out and make.
Speaker 9: That kind of investment right. So on the strategic side,
Speaker 9: I think it was more macro. It was like, we
Speaker 9: don't know enough about where our business is going right
Speaker 9: now that we can take a risk on another business.
Speaker 9: I think in private equity land it was definitely, at
Speaker 9: least in part by interest rates, And it was also
Speaker 9: the fact that because even to your point in early
Speaker 9: twenty twenty two, there hadn't been a lot of capital
Speaker 9: returned to their limited partners, and so for every dollar
Speaker 9: that they're investing, they're also thinking should I be giving
Speaker 9: that back to my limiteds And so there's been a
Speaker 9: lot of tension in that part of the world.
Speaker 8: So I know tech might be your space, but just.
Speaker 6: Person so, I'm really interested in what's happening with Exon
Speaker 6: and Seinook trying to get in the middle of the
Speaker 6: deal between Chevron and hess And the broad question is like,
Speaker 6: are we going to see weird territorial fights like this
Speaker 6: in different sectors, where like one big company to stop
Speaker 6: another big company from buying a smaller company.
Speaker 8: Is that normal.
Speaker 9: I'm not sure that it's normal, but it's certainly not
Speaker 9: unheard of. And I think we think and again, in tech,
Speaker 9: we see a lot of semi normal or even abnormal
Speaker 9: potential buyers who see buying into the tech landscape as
Speaker 9: being something that will help increase their growth, increase their margins,
Speaker 9: put them into exposure of a sector that they previously
Speaker 9: had not been. So I think we'll see some more
Speaker 9: of that in tech, but more generally, to your question,
Speaker 9: I'm certainly no expert on the energy sector, but I
Speaker 9: think this is an environment where if you see that
Speaker 9: smaller company that can really make a difference in your
Speaker 9: business and accelerate intor granted growth. Buyers are not afraid
Speaker 9: to mix it up at this point because they've been
Speaker 9: on the sidelines for a while and they need to
Speaker 9: get back in.
Speaker 3: If I go to sand Hill Road with a really
Speaker 3: good idea, can I find any money? Will?
Speaker 10: They will?
Speaker 7: They invest in my company?
Speaker 11: They will?
Speaker 9: Valuations are obviously down from the peak in twenty twenty one.
Speaker 9: You're gonna ask a lot of questions about what's your
Speaker 9: AI strategy?
Speaker 8: You know, where where exactly they got to saw something
Speaker 8: for it?
Speaker 7: Right?
Speaker 8: Exactly?
Speaker 9: Where are you going from here? The capital is available,
Speaker 9: but it is certainly more limited than it was two
Speaker 9: years ago and before that. Investors are being much more
Speaker 9: diligent about what they're willing to put capital to work in.
Speaker 9: And again, AI is obviously hot. That's blinding glimpse of
Speaker 9: the obvious for your audience.
Speaker 7: But what's different?
Speaker 9: I think, can I compare this, because I've been doing
Speaker 9: this for a long time, I compare this to the
Speaker 9: you know, the dot com era. Investors got to the
Speaker 9: point really quickly where it wasn't just about it's AI,
Speaker 9: it's what's the defensible business model, what's the real enterprise
Speaker 9: use case and how are you going to make money
Speaker 9: with it? That came so much faster with AI than
Speaker 9: it did in the dot com era, and that's what
Speaker 9: you're seeing on Santo Road.
Speaker 7: Now, show me a full business plan that's going to
Speaker 7: make money.
Speaker 6: Well, how are valuations? Do you think that we're getting
Speaker 6: overpaid things getting overpaid to be bought? Like, how hard
Speaker 6: is it to come to price.
Speaker 9: Better than it was in late twenty two and twenty three,
Speaker 9: where we've had quite a bit of disparity, and that
Speaker 9: was one of the reasons for not getting a lot
Speaker 9: of M and A done with.
Speaker 6: Have the buyers come down or have the seller Like, yeah,
Speaker 6: the buyers come down, the seller's gun up or vice versa.
Speaker 7: Some of both.
Speaker 9: I do think that the obviously the market has improved
Speaker 9: overall over the course of late twenty three and twenty four,
Speaker 9: so valuations have ticked up off of their lows. But
Speaker 9: I also think seller expectations have tempered a bit. We've
Speaker 9: been in this valuation, this down more down valuation environment
Speaker 9: now for almost two years, and eventually you have to
Speaker 9: realize this is the new normal.
Speaker 3: Yeah, I think that this I guess the question I
Speaker 3: was asking a lot of IPO bankers is when is
Speaker 3: that stigma of, you know, a down round.
Speaker 7: When is that going to kind of ease up off
Speaker 7: the marketplace?
Speaker 3: Because I felt like I didn't want to be one
Speaker 3: of the first people to do an IPO at a
Speaker 3: down round or would do a down run in the
Speaker 3: private market.
Speaker 7: So but it maybe more deals we get done, Maybe
Speaker 7: that that that happens.
Speaker 3: So on the M and A space here, I mean,
Speaker 3: how are you targeting your business, what your target sheheet
Speaker 3: look like, what type of company are you calling on?
Speaker 9: So we focus on late stage private companies and public companies.
Speaker 9: We will represent either buyers or sellers. That's a little
Speaker 9: different than other boutiques who tend to focus only on sellers.
Speaker 9: We think it's important to be able to do both.
Speaker 9: But opportunities in the one hundred million of enterprise value
Speaker 9: all the way up to a billion and well beyond
Speaker 9: is where we where we do our work. Might characterize
Speaker 9: that as middle market, but there's a that's where you know,
Speaker 9: under the M and A curve that's where the greatest
Speaker 9: amount of area is. So there's a lot to do there.
Speaker 9: We focus mostly on enterprise technologies. So again I mentioned
Speaker 9: the enterprise use case for AI. A lot of our
Speaker 9: companies are then are selling two big companies themselves saying here,
Speaker 9: here's how I can make you more efficient, how I
Speaker 9: can help you drive more revenue. That's where we spend
Speaker 9: most of our time. And there's a there's a lot
Speaker 9: of great software companies in there.
Speaker 6: Well, okay, I was in say Soft, where I feel
Speaker 6: like there are gazillion software companies like this one reports
Speaker 6: and some reports like it could snowflake. I have no
Speaker 6: idea the difference as like a general market person like,
Speaker 6: are we going to have to see big consolidation within that?
Speaker 9: I think we will see more consolidation. I'm not sure
Speaker 9: it's going to be big to big. I think you're
Speaker 9: going to continue to see the larger players acquire small
Speaker 9: medium sized companies on a relative basis to their own
Speaker 9: market caps. And that's, you know, certainly, that's what we're
Speaker 9: counting on. We don't think because you touched up, Paul,
Speaker 9: we don't think we're going to see a surgeon IPO activity.
Speaker 9: It'll be busier this year than it was last year,
Speaker 9: but that's a very low bar. Obviously, Ultimately ninety five
Speaker 9: plus percent of venture backed companies that get to an
Speaker 9: exit get to an exit through EM and A.
Speaker 7: And that's that's been true for literally decades.
Speaker 3: One of the things that's new, at least since I
Speaker 3: was on the street, was this whole private credit market.
Speaker 3: How does that impact your business to technology industry? Because
Speaker 3: I would guess it's just another form of capital for
Speaker 3: your companies, that's right.
Speaker 9: So it's it's been a boom for our business. We
Speaker 9: brought in a team led by Mike Meyer Partner who
Speaker 9: owns our capital markets businesses that actually is now our
Speaker 9: CEO has done a great job with that. That's almost
Speaker 9: two trillion dollar asset class from private credit today and
Speaker 9: it's also available to technology companies earlier than it ever
Speaker 9: has been before. So to your point, we can go
Speaker 9: to our clients and say, let's talk about your capital needs,
Speaker 9: the cost of capital that you're looking for, the flexibility
Speaker 9: you're looking for, and let's look across the entire debt
Speaker 9: equity spectrum and find a solution for you. And you
Speaker 9: can go to the private credit markets and find that
Speaker 9: tailored solution much easier than you can in the public markets.
Speaker 8: What other ways are we financing deals here?
Speaker 9: Again, most of the large acquirers are going to finance
Speaker 9: at largely off their balance sheet. Okay, so I mean,
Speaker 9: obviously if it becomes a really large deal, you might
Speaker 9: see the bigger companies go into the market. But to
Speaker 9: the point that Paul made earlier, right, that's a lot
Speaker 9: more expensive now, and so they prefer not to do
Speaker 9: that if they don't have to. Occasionally we're seeing stock
Speaker 9: for stock deals those used to be de Reger not
Speaker 9: so much anymore amongst the larger buyers. But mostly this
Speaker 9: is still a cash buyer's market, and so if you
Speaker 9: don't have enough cash on hand, then you're going to
Speaker 9: have to go out and find it. And I think
Speaker 9: we'll start to see a return to equity based financing,
Speaker 9: convertible based financing again, a lot of the use of
Speaker 9: the private credit market with its flexibility. Will we'll back
Speaker 9: some of the M and A.
Speaker 7: That's going to happen this year.
Speaker 3: I'm guessing in your middle market size, you don't have
Speaker 3: to deal with regulators.
Speaker 7: Too much approving deals.
Speaker 3: But boy, across the industry, if I'm a big ticket
Speaker 3: M and a banker, I got to make sure I
Speaker 3: got the right lawyers give me the advice because I
Speaker 3: didn'tink the Department of Justice, the FTC, everybody's cracking down.
Speaker 9: It's true, and we think of it in terms of
Speaker 9: to whom are we going to be selling this company,
Speaker 9: because if you're one of the Big seven, you're gonna
Speaker 9: get scrutiny for almost every deal, right, and so we
Speaker 9: watch for that as as we bring opportunities forward and
Speaker 9: think about what that might look like.
Speaker 7: But you're right, it's really that group.
Speaker 9: And let's face it, they have lived for a very
Speaker 9: long time on asking for forgiveness, not permission, and I
Speaker 9: think they're going to continue that activity. But by the way,
Speaker 9: it's not just the DJ here. We've seen a lot
Speaker 9: more activity and scrutiny out of Europe and the UK
Speaker 9: in particular, and we think that's going to continue for
Speaker 9: a while.
Speaker 3: Yeah, the UK, they get Brexit and then they realize, oh,
Speaker 3: we can have a seat at the table now.
Speaker 8: Yeah yeah, yeah, Iah ex Oktay.
Speaker 3: Very good, All right, Ted, thanks so much for joining
Speaker 3: us once again. Ted Smith, he is a co founder
Speaker 3: and president of Union Square Advisors. Joining us live here
Speaker 3: in our Bloomberg Interactive Brokers to you're talking about the
Speaker 3: world of tech, the world of deal making again. The
Speaker 3: past eighteen months, just looking at my MA function on
Speaker 3: the Bloomberg terminal, been much slower than maybe like the
Speaker 3: ten year average, And I guess that can happen when
Speaker 3: rates go up five hundred basis points.
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Speaker 6: I kind of felt like it was a bit of
Speaker 6: a nothing burger, Like it wasn't bad, it wasn't terrible,
Speaker 6: And I'm really wondering if we actually.
Speaker 8: Learned anything today on inflation.
Speaker 6: So good thing that Ira Jersey is here, Bloomberg Intelligence
Speaker 6: chief you as interest rate strategist.
Speaker 8: Iira, did I learn anything today?
Speaker 12: We didn't learn a whole lot from the PC report
Speaker 12: on inflation. I mean, obviously the headline numbers were as expected.
Speaker 12: There were some details here and there that were kind
Speaker 12: of interesting. Certainly the downward revisions for December turned a
Speaker 12: couple of heads here and there and helped contribute to
Speaker 12: the rally. What I found really interesting, and I think
Speaker 12: something that people have been talking about this the personal
Speaker 12: income number being so hot today. So that was up
Speaker 12: one percent, which was well above expectations, and that was
Speaker 12: driven in large part by two factors. One was massive
Speaker 12: increase in government spending, so basically Social Security payments in
Speaker 12: particular were increased a lot in January. Part of that
Speaker 12: was a cost of living adjustment, so that was up
Speaker 12: three and a half percent in one month's you know,
Speaker 12: that's massive and the most that we've had in the year.
Speaker 12: And the other was actually dividend payments. So dividend payments
Speaker 12: actually contributed about seventy five billion dollars to personal income
Speaker 12: in annually. That's an annualized rate in the in January,
Speaker 12: and that's a pretty big move do it normally it's
Speaker 12: significantly less than that every month. So take that with
Speaker 12: a little bit of a grain AsSalt too, and I
Speaker 12: think the market looked through that, and that's why treasuries
Speaker 12: have rallied a little bit since the since those data
Speaker 12: came out.
Speaker 3: So, ira would it be bad form to give the
Speaker 3: Federal Reserve a little pat on the back here in
Speaker 3: terms of their ability to bring inflation down?
Speaker 11: Well, maybe it might be a little bit early for that.
Speaker 12: You know, when you still have two point eight percent
Speaker 12: core inflation on a PC weighted basis, that's not at
Speaker 12: their target yet. But certainly, you know, anything sub three
Speaker 12: percent is better than five.
Speaker 11: Percent for sure.
Speaker 12: But when you look at some of the details there
Speaker 12: there still are pockets of inflation that are very hot,
Speaker 12: and they're in sectors that aren't particularly interest rates sensitive. Right,
Speaker 12: so there are sectors like services excluding housing, and if
Speaker 12: you consider those types of services, it's going to be
Speaker 12: hard for inflation to keep coming down. So the Fed
Speaker 12: obviously has tightened monetary policy quite a lot. There's certainly
Speaker 12: certainly some room maybe for inflation to continue to fall.
Speaker 12: So you know, we're going to continue to have this
Speaker 12: debate as will the Federal Reserve cut interest rates before midyear?
Speaker 12: If they don't cut by June, then are they going
Speaker 12: to be able to cut because of the election cycle,
Speaker 12: and you know, do they.
Speaker 11: Want to get in front of that.
Speaker 12: So so that debate is going to continue right up
Speaker 12: until the May and June meetings, I think, certainly into
Speaker 12: the June meeting if they don't cut in May. So
Speaker 12: so you know, that's why you're going to have these gyrations.
Speaker 12: But they're going to be probably bounded where you're going
Speaker 12: to see two year yields go from you know, four
Speaker 12: fifty to five percent and probably probably hover in that
Speaker 12: area depending on what the market's expectation for the Fed's
Speaker 12: next move is.
Speaker 6: Well, I wondered if we learned anything about the reaction
Speaker 6: function of the market, because it looks like what we
Speaker 6: learned is that we're going to sell the room or
Speaker 6: buy the news this time round.
Speaker 8: Is that fair to say, Well.
Speaker 12: The selling really came because European rates were selling off overnight,
Speaker 12: and you know, so it was just a global rate
Speaker 12: sell off a little bit. But the rally back I
Speaker 12: think that there was it was pretty clear that some
Speaker 12: people were short and thinking, hey, if we get a
Speaker 12: you know, zero point four print on headline inflation, then
Speaker 12: that could be mean that we get meaningfully higher treasury yields.
Speaker 12: With that not happening, I think that's the reason why
Speaker 12: you had that pullback. That was a little bit of
Speaker 12: a relief rally there in terms of the in terms
Speaker 12: of the market reaction. So so you know, we knew
Speaker 12: that that inflation was going to kind of be within
Speaker 12: the range that it was just because PC doesn't diverge
Speaker 12: that much directionally from CPI. So so the forecasts were
Speaker 12: obviously reasonably good going into some of these numbers.
Speaker 7: All right, what do we look forward next? What's the
Speaker 7: market now? Looking forward?
Speaker 8: May we just like snooze until May or something?
Speaker 11: Well, I don't know if it's going to be a
Speaker 11: snows fest.
Speaker 12: I mean we are our duration scorecard that we put
Speaker 12: out this morning and basically saying should you position long, short,
Speaker 12: or neutral? The Bloomberg Treasury Index says you should be
Speaker 12: neutral because it's very things are that there's nothing particularly
Speaker 12: rich or cheap about the market given the incoming data
Speaker 12: that we've received. But next week's data it could be
Speaker 12: market moving. Right ism new orders and the ism manufacturing
Speaker 12: report that we get next week that is often market moving.
Speaker 12: Plus we have payrolls coming up, right, So in order
Speaker 12: to get the Fed Reserve to think that they're going
Speaker 12: to cut early and aggressively, you really need to have
Speaker 12: the employment situation deteriorate much more than it has. So
Speaker 12: that's one reason why that will continue to be a
Speaker 12: key focus report for the market.
Speaker 6: Lots of people have the steepeners on. Then there was like,
Speaker 6: oh gosh, the steepeners didn't make me money. I got
Speaker 6: to take that off. And then it was like, now
Speaker 6: we're going to say with the steepeners, what do I
Speaker 6: do with the steepener?
Speaker 7: Can somebody define steepener for this equity person?
Speaker 11: Oh?
Speaker 8: Okay, so let me try as like the person. Okay.
Speaker 6: It basically means when long end yields go higher than
Speaker 6: short end yields, and the idea is the Fed's gonna cut,
Speaker 6: so you're gonna buy the front end and then yields
Speaker 6: in the back and go up.
Speaker 8: Irah am I right? Did I pass?
Speaker 12: So that is a that is a bear steepener. A
Speaker 12: bull steepener would be if say, front end yields rallied
Speaker 12: a lot and yields went down and long term yields
Speaker 12: just went down slower or didn't move at all.
Speaker 11: So so you can get a steepener either bull or bear.
Speaker 12: But basically it's it's that long term yields don't move
Speaker 12: as much as or stay higher than front end yields do.
Speaker 12: That that's basically the.
Speaker 11: Definition of a steepener.
Speaker 12: You know a lot of people thought that it would
Speaker 12: be a bull steepener because they were expecting you know,
Speaker 12: we were just think about it a month ago, we
Speaker 12: were thinking that the Federal reserve, the market was priced
Speaker 12: with a federal reserve to cut interest rates by one
Speaker 12: point five percent this year. So that's one reason why
Speaker 12: a lot of people were in those steepeners, because they
Speaker 12: thought the two year yields, instead of being a four
Speaker 12: point seven percent, they'd have a three handle now and
Speaker 12: they don't. And so that's one reason why you've continued
Speaker 12: to see the curve kind of reinvert a little bit here.
Speaker 12: I don't know where we are at the moment, but
Speaker 12: probably thirty nine or forty basis points inverted between the
Speaker 12: two year and the ten year. You know, we've been
Speaker 12: we've had the call for quite a while that we
Speaker 12: thought that the curve would remain inverted for most, if
Speaker 12: not all, of this year and certainly the first half,
Speaker 12: and that seems to be playing out pretty well.
Speaker 11: And that was predicated.
Speaker 12: On on our view that the Fed woulden't cut more
Speaker 12: than three times this year. And now now we're priced
Speaker 12: for three cuts, so you know, we have to reevaluate that.
Speaker 11: Call right now, you know, based on the incoming data.
Speaker 6: Obviously, thirty nine basis points is where we are. So
Speaker 6: basically we just learned Paul. Is that IRA's right?
Speaker 11: Right?
Speaker 8: Ira said the stuff.
Speaker 6: He's been saying this since I don't know, last summer
Speaker 6: and no one's listening, and now we're listening.
Speaker 8: The markets up.
Speaker 7: Oh, Paul, very good, Hey, Ira? I mean what I mean?
Speaker 3: It's interesting here? What it is it May or June?
Speaker 3: Do we care whether it's May or June? When they
Speaker 3: start cutting rates? I feel like they gotta do it
Speaker 3: before we get too much into the election season.
Speaker 7: But I don't know.
Speaker 12: Yeah, big picture, it really doesn't matter. You know, it
Speaker 12: matters to people who are trading June, who are trading
Speaker 12: you know what we call, you know, very short term
Speaker 12: interest rate contracts that people who are in money market
Speaker 12: instruments like T bills, they care whether it's May or June, right,
Speaker 12: because there's some incremental few basis points of pickup that
Speaker 12: you can get depending on what they do. But you know,
Speaker 12: big picture, you don't care. Ten year yields don't really care.
Speaker 12: Two year yields do care. So if they go, you know,
Speaker 12: the I think the big challenge is if they don't
Speaker 12: go by June, what is there what is their propensity
Speaker 12: to move in July or September? Right, around the political
Speaker 12: party conventions and then obviously in the middle of the
Speaker 12: election season. You know, we don't have a lot of
Speaker 12: experience with this because there's only a presidential election every
Speaker 12: four years. But at least to date, the Federal Reserve
Speaker 12: has never started a new activity, whether it's hiking or cutting,
Speaker 12: in the middle of an election season. They've continued policies
Speaker 12: that they that they started prior to an election period,
Speaker 12: but they've never you know, they've never started at say,
Speaker 12: the September before an election. But you know, so that's
Speaker 12: one reason why, like, if one reason why I think
Speaker 12: they it would behoove them if they were thinking about
Speaker 12: cutting at all, they should just cut one time and
Speaker 12: then they can skip a few meetings. So an outcome
Speaker 12: that would not surprise me at all is if the
Speaker 12: Federal Reserve were to cut in June and then wait
Speaker 12: to cut again until after the election, and then if
Speaker 12: they have to because the economy deteriorates meaningfully, then they
Speaker 12: can cut again in July or September and just say, well,
Speaker 12: there's a continuation of the policy that we started a
Speaker 12: couple of months ago. Because you know, the unemployment rate's
Speaker 12: gone up and inflations come down, like whatever whatever reasons
Speaker 12: that they espouse for their initial cut.
Speaker 6: You know what we had Bruce Richards on a marathon
Speaker 6: asset management yesterday on television. He called that the two
Speaker 6: step yeah, which I was like, okay, I kind of
Speaker 6: get that right, Like you move a little and then
Speaker 6: you pause, and you move little and.
Speaker 8: Then you pause. Hey, Ira, thanks a lot, Ira Jersey.
Speaker 8: He is a chief US rate strategist at Bloomberg Intelligence.
Speaker 6: He lost me after that, like two steps. I don't
Speaker 6: know where you go after the two step, but you know,
Speaker 6: but that idea you move a little and then you hold.
Speaker 7: Okay, I mean yeah, I mean may or June.
Speaker 3: I don't think again, as Iris said, I don't think
Speaker 3: the market, generally speaking, cares that much. I'm you know,
Speaker 3: as an equity investor, having the anticipation of RAID cuts
Speaker 3: is as good as having them, in my opinion, just
Speaker 3: turn right now.
Speaker 8: Yeah.
Speaker 6: And they actually talk about that in terms of the
Speaker 6: lag of monetary policy, that if it's just the expectation
Speaker 6: of stuff, that changes what the lag of monetary policy
Speaker 6: actually is because by the time you feel it, you're
Speaker 6: already anticipating those cuts.
Speaker 7: That's being said, I like to refinance the mortgage.
Speaker 8: Yeah, I know, I know, not yet, not yet.
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Speaker 6: It was interesting to get their earnings out yesterday from
Speaker 6: Paramount because there was a little bit of good and
Speaker 6: a little bit of bad. Right, you know, fifteen percent
Speaker 6: decline in TV advertising, so that feels like that's not great,
Speaker 6: but then streaming subscribers went up. I was one of
Speaker 6: those people, so real well comparing it's my weird addiction.
Speaker 8: I have to Survivor. I know, which is because I
Speaker 8: was paid for years.
Speaker 6: I know, too late, but I know I'm paying my
Speaker 6: twenty money to Survivor.
Speaker 8: It's still a million.
Speaker 6: They didn't adjust aipulation, but one time it was two
Speaker 6: million and they did Survivor All Stars.
Speaker 8: But that was back twenty nineteen.
Speaker 6: But point is I was paying twenty five bucks a season,
Speaker 6: so I just did the Paramount plus thing. But I
Speaker 6: think I'm gonna add more because the ads are.
Speaker 8: Just so annoying. Really, Yeah, and I'm gonna be one
Speaker 8: of those people that they love.
Speaker 6: Yes, anyway, let's go to geta because she knows much
Speaker 6: more than I do on this. It wrong enough then
Speaker 6: and she covers US Media Bloomberg Intelligence senior industry analyst,
Speaker 6: hey Geet Debt. So there was like a little bit
Speaker 6: of good, a little bit of bad. What's my broader
Speaker 6: takeaway from that?
Speaker 13: Yes, you're absolutely right at like streaming was definitely a
Speaker 13: key positive, and you're absolutely right in terms of the
Speaker 13: subscriber numbers, those came in slightly ahead of estimates. The
Speaker 13: bigger positive was the r poo trends. So remember Wall
Speaker 13: Street has now kind of shifted its focus away from
Speaker 13: subscribe just subscriber growth to revenue growth as well as profitability,
Speaker 13: and they kind of scored pretty well on the revenue
Speaker 13: growth metrics as well. So urpoo increased about thirty percent
Speaker 13: through the year, and that's on the back of a
Speaker 13: price increase. And then the next thing, of course you
Speaker 13: look at was profitability and their losses narrowed, so they're
Speaker 13: obviously taking a step in the right direction. I think
Speaker 13: what investors are kind of really cheering though, is that
Speaker 13: they did articulate some kind of strategy to kind of
Speaker 13: get to profitability, and they outlined a timeframe as well.
Speaker 13: So twenty twenty five is when they're expecting paramount plus profitability,
Speaker 13: which is definitely I think good news. The question is,
Speaker 13: I'm not sure whether it's enough.
Speaker 11: Yep.
Speaker 3: I mean the stock is a four point three percent today,
Speaker 3: that's a good news. Of bad news is looks down
Speaker 3: twenty two percent year to day eight, and it's down
Speaker 3: for about forty five percent over the last year. And Keith,
Speaker 3: before we move forward here, we have a big discussion
Speaker 3: internally here in the studio. Do you prefer the pronunciation
Speaker 3: of your first name githa thh or Geeta with a
Speaker 3: T It's it's th.
Speaker 8: Boom told you John Tucker, thank you for schooling than
Speaker 8: she told me years ago.
Speaker 3: I was forget See, I've known Keith and I have
Speaker 3: worked together for fifteen years, you know, and she just
Speaker 3: doesn't bother to correct me anymore.
Speaker 7: So I figured, you know, if it's I'm.
Speaker 8: Going to stick validating us.
Speaker 7: What was the interview with Paul?
Speaker 10: Like?
Speaker 11: Was it intimidating when he interviewed you for your job?
Speaker 7: I begged keith to join me. I begged Keitha to
Speaker 7: join me. She did and it was the best thing
Speaker 7: we ever did, So Keitha.
Speaker 3: I guess the bigger picture here with Paramount is what
Speaker 3: does the ownership here want to do with the company.
Speaker 3: It appears by all accounts that they're just not big
Speaker 3: enough to compete against some of these big technology companies,
Speaker 3: some of these big media companies like a Netflix, like
Speaker 3: a Disney and boy, there's a lot of speculation around Paramount.
Speaker 7: Did they address that at all?
Speaker 13: They didn't. I mean the one thing though, that you know,
Speaker 13: I think Bob Beckish got out of the way was
Speaker 13: they are going to do something that is good for
Speaker 13: all shareholders. He kind of underlined that because there has
Speaker 13: been this constant, you know, question about whether you know,
Speaker 13: Sherry Redstone is kind of just going to cash out
Speaker 13: and leave everybody else hanging, and so he wanted to,
Speaker 13: you know, kind of get that out of the way.
Speaker 13: But again, you know, I think the focus is going
Speaker 13: to come, you know, the M and A options. Paul
Speaker 13: and We've discussed this seemed to be shrinking at this point.
Speaker 13: You know, Warner Brothers Discovery obviously said they're no longer interested.
Speaker 13: Other firms have kind of come taken a look. Apollo
Speaker 13: being one of them, said not interested. The only interested
Speaker 13: party right now is sky Dance, controlled by David Ellison,
Speaker 13: but again he's really not there's really no natural buyer
Speaker 13: for all of the assets. He's not interested in controlling
Speaker 13: some TV networks. He's only really looking at the studio.
Speaker 13: So again, I'm not sure that Paramount Management necessarily wants
Speaker 13: to do kind of a part parts sale here. So
Speaker 13: I think they're going to kind of go back and
Speaker 13: focus on fundamentals. I think some of that those the
Speaker 13: unrealistic M and A expectations are kind of going to
Speaker 13: subside a little, but we're going to go back to fundamentals,
Speaker 13: I think for the time being.
Speaker 6: Well to that point, then did they buy themselves some time?
Speaker 6: Because I could make an argument that, okay, well the
Speaker 6: slowing and ad sales and maybe that's an industry wide thing. Okay,
Speaker 6: other players are getting hit they did as streaming subscribers,
Speaker 6: so they have some time now that they might not
Speaker 6: have had twenty four hours ago. Is that a real
Speaker 6: statement or no?
Speaker 13: I think so. I definitely think so, because with streaming,
Speaker 13: what we're going to see is We're going to see
Speaker 13: some sustained momentum in those ARPUH increases, so they're doing more,
Speaker 13: you know, international price increases. They've kind of integrated Showtime
Speaker 13: into Paramount and with that they've been able to take
Speaker 13: some price increases. So we're going to kind of see
Speaker 13: that play out so pretty much most of twenty twenty four.
Speaker 13: The question is what happens after twenty twenty four, But
Speaker 13: they definitely have bought themselves sometime.
Speaker 7: So what is the outlook for the studio here?
Speaker 10: Geita Studio.
Speaker 13: Unfortunately, for twenty twenty four looks really bleak. So the
Speaker 13: big movie, of course that everybody was kind of looking at,
Speaker 13: was Mission Impossible. That's been pushed out to twenty twenty five.
Speaker 13: We do have a few movies here and there. I mean,
Speaker 13: you have Quiet Plays that's coming out in June. There's
Speaker 13: obviously some anticipation building there. But again, in general, Paul,
Speaker 13: the box office outlook for twenty twenty four is just
Speaker 13: pretty weak, and that's just because of all of those
Speaker 13: Hollywood strikes. Has pushed out a lot of movies into
Speaker 13: twenty twenty five. It's kind of going to shave off
Speaker 13: I think at least two billion dollars off of the
Speaker 13: box office.
Speaker 6: So presumably we're going to look through that, right, I mean,
Speaker 6: presumably they're going to recoup that and they'll be pent
Speaker 6: up in twenty twenty five.
Speaker 13: That is the big question, right, Yes, we've seen kind
Speaker 13: of box office demand, you know, in general, kind of
Speaker 13: come back, but it's still about twenty percent below pre
Speaker 13: pandemic level. So the big question is, Okay, when all
Speaker 13: of those big titles kind of hit the screens in
Speaker 13: twenty twenty five, are we kind of going to see
Speaker 13: a bigger resurgence. The jury is still out. I think yes,
Speaker 13: it's definitely going to be better than twenty twenty four. Is
Speaker 13: it going to be as good as it was? You know,
Speaker 13: and it's heyday? I'm not so sure.
Speaker 3: So, Gith, how about the CBS television network and the
Speaker 3: Viacom cable networks? You know, one point that was such
Speaker 3: a big part of this company. Here, talk to us
Speaker 3: about the advertising the television advertising market. What's kind of
Speaker 3: the forecast for the next several years. Is it a
Speaker 3: growing business? Is it a declining business?
Speaker 13: It's a melting ice cube, Paul, just like you know,
Speaker 13: just like the whole PayTV ecosystem, so you know, this
Speaker 13: is this used to be back in the day about
Speaker 13: a sixty billion market. It's shrunk. It's going to probably
Speaker 13: hit about forty five billion by the end of next year.
Speaker 13: And really, you know, this is just kind of a
Speaker 13: progression of where all the eyeballs are moving. So they're
Speaker 13: moving away from the linear TV networks to streaming, and
Speaker 13: so we're seeing kind of those ad dollars follow those
Speaker 13: eyeballs and going from you know, the TV medium to
Speaker 13: what is now called connected TV, which is really all
Speaker 13: the streaming platforms and you know, you're using all your
Speaker 13: connected TV devices, the rokus and the Google sticks and
Speaker 13: all of that to kind of television, and that's where
Speaker 13: all of the advertising is moving as well. Unfortunately, Paramount
Speaker 13: doesn't have too much of a presence there. Yes, they
Speaker 13: do have you know, Pluto TV, which is their solution,
Speaker 13: but it's not going to be able to kind of
Speaker 13: offset the leakage that we're seeing in the television ecosystem
Speaker 13: and that is really a problem for all of these
Speaker 13: media companies, for Paramount a little bit more so.
Speaker 8: But here's the thing.
Speaker 6: If they wind up just doing advertising on streaming, like,
Speaker 6: isn't it going to be eventually kind of shake out
Speaker 6: the same.
Speaker 13: So that has been kind of their hoole spiel. I mean,
Speaker 13: of course they're saying that, you know, they can reclaim
Speaker 13: some of those lost dollars. The problem is the digital
Speaker 13: ad space is getting really really crowded as well, and
Speaker 13: so you know, again it depends on who has the
Speaker 13: most watch time. Netflix dominates. They have about two and
Speaker 13: a half hours of viewing time every day. Disney Plus
Speaker 13: is you know, follows very closely. And now the biggest
Speaker 13: blow really to all of these players has been Amazon
Speaker 13: because they just came out about a month ago and
Speaker 13: they introduced advertising on their Prime video service and that
Speaker 13: is really kind of shaking up the whole digital ad market.
Speaker 13: So if you're a subscale player, chances are you're not
Speaker 13: going to really be able to make a dent even
Speaker 13: within the digital ad space.
Speaker 1: Wow.
Speaker 3: Interesting, all right, Githa, thanks so much for joining us there.
Speaker 3: Githa Raganathan, analyst on US media for Bloomberg Intelligence. Githa
Speaker 3: Raganathan joining us from the headquarters of Bloomberg Intelligence, done
Speaker 3: in Princeton, New Jersey. Boy, I don't you know that
Speaker 3: melting ice cub that's not good.
Speaker 8: Yeah, just do. That sentence wasn't good.
Speaker 3: Yeah, that's not good for them. And but I just
Speaker 3: don't know what they do. I don't know what the
Speaker 3: endgame is here.
Speaker 6: What's funny is this is a total side note, but
Speaker 6: my daughter grew up without commercials because.
Speaker 8: We never had linear TV.
Speaker 6: We had to like Netflix, right, And now she's experiencing
Speaker 6: commercials because all these streaming players have commercials, and so
Speaker 6: now she like quotes all these She's nine, by the way,
Speaker 6: so she can quote all these commercials now from and
Speaker 6: she like likes them and wants to be with them,
Speaker 6: and she rails.
Speaker 8: Against car commercials.
Speaker 6: Really, I don't know what that is. She's like, who
Speaker 6: needs all these cars?
Speaker 7: This is ridiculous.
Speaker 8: I don't want to see this.
Speaker 6: So I feel like I'm gonna have to pay up
Speaker 6: for the non commercial one.
Speaker 7: Now, yeah, a lot of people do, a lot of
Speaker 7: people do well.
Speaker 6: It just shaves time too, right, And they're only and
Speaker 6: that that block between segments is only going to get
Speaker 6: more and more.
Speaker 7: I'm thinking, yep.
Speaker 3: And if you're on broadcasting cable television, what are the advertisers.
Speaker 3: They're not the car companies, they're not Coca Cola, they're healthcare.
Speaker 3: You need this drug for this problem.
Speaker 8: As my husband loves, He's like, I have all these problems.
Speaker 8: It's like I don't want to see this on TV exactly.
Speaker 8: That such a good point.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 8: Another sock weer're watching here is Hewlett Packard. So this
Speaker 8: is HPQ.
Speaker 6: This is the company that makes PCs and printers reported
Speaker 6: or that stocks down by about one percent. It reported
Speaker 6: earnings that quite frankly, just show that there's still a
Speaker 6: slowdown in the PC market. They seemed relatively more constructive
Speaker 6: in the back half, but still I got some questions.
Speaker 6: There's no one else to bring to and talk to
Speaker 6: about it. Then, as Woojin Ho, Bloomberg.
Speaker 8: Intelligence Senior Technology analyst, Wujin what was your biggest takeaway here?
Speaker 14: Yeah, Look, the first quarter results were pretty week if
Speaker 14: you if you look at the first quoter PC numbers, Uh,
Speaker 14: they fell below consensus expectations, and you know, the the
Speaker 14: the fact that they were able to maintain guidance on
Speaker 14: the revenue side for PCs as well as EPs side.
Speaker 10: They're really hoping for that second half, as you were saying, Alex.
Speaker 7: And give us the drivers here, wouge for that second half.
Speaker 7: What has to happen?
Speaker 14: Well, there's a there's a couple of things, right. You
Speaker 14: have a macro improvement and better consumer dollars. You have
Speaker 14: the second half seasonality that's going to drive it up
Speaker 14: back to school for the consumer side.
Speaker 3: Uh.
Speaker 14: But there's also a big Windows eleven upgrade cycle that's
Speaker 14: coming in and which is supposed to be a tailwind.
Speaker 14: But I do have some doubts for for one big reason,
Speaker 14: corporate I spending has been fairly weak and that really
Speaker 14: needs to cooperate in the second half for.
Speaker 10: The PC numbers to materialize. For hp.
Speaker 8: Do my homework for me. We have the CEO of
Speaker 8: HPQ tomorrow in the morning. Yeah, and we're going to
Speaker 8: run it on the closed Show. What are the best
Speaker 8: questions to ask?
Speaker 6: Because I'm really interested in kind of when they see
Speaker 6: the trough really materializing, how how long that trough actually
Speaker 6: may last.
Speaker 14: Yeah, So I think we are getting closer to the trough, right.
Speaker 14: I think next quarter is going to be the trough
Speaker 14: in terms of a PC revenue side. If we think
Speaker 14: about it from from this perspective, you want to ask
Speaker 14: along the lines of why are they so bullish on
Speaker 14: the second half? If I do my if looking at
Speaker 14: the back of the envelope math, it looks like they
Speaker 14: need about ten percent second half growth versus first half growth.
Speaker 14: Typically it's about five percent second half growth versus first half,
Speaker 14: So it's going to be well above seasonality.
Speaker 10: So some of those.
Speaker 14: Drivers maybe, as they said on the call, is higher pricing,
Speaker 14: so PC prices are going to come up as as
Speaker 14: as well as you know, possibly possibly some timing on
Speaker 14: the incremental contribution to to aipcs.
Speaker 10: And I opened a tend door box.
Speaker 3: I believe because I'm just looking at the PGO function
Speaker 3: which kind of breaks down kind of their revenue where
Speaker 3: it comes from. Commercial is a big part of their business.
Speaker 3: Talk to us about the buying cycle on on the
Speaker 3: commercial side of the enterprise side.
Speaker 7: Which is it every two to three years? Is it predictable?
Speaker 14: And where are we Yeah, so, so we're actually on
Speaker 14: the beginning and the beginning or the start of the
Speaker 14: PC refresh cycle from the pre COVID times right, Typical
Speaker 14: refresh cycles for PCs are about four years and then
Speaker 14: we get new ones. Now this lies into my concern.
Speaker 14: If the pieces are running okay and the budgetary dollars
Speaker 14: are the corporate dollars are still fairly tight, you know,
Speaker 14: I would like to say that they would like to
Speaker 14: hold on to those PCs for another six months to
Speaker 14: a year, and that would fall into fiscal twenty twenty five.
Speaker 14: The other thing that concerns me in terms of this
Speaker 14: particular PC cycle is the emergence of aipcs.
Speaker 10: We don't know, Wait.
Speaker 8: Real quick, what's an AIPC.
Speaker 14: Well, an AIPC is a PC that has specific artificial
Speaker 14: intelligence chips provided by Intel or a MD and can
Speaker 14: run AI functionality. That's actually there's a lot of hype
Speaker 14: on AIPC starting from CEES even last year, and we're
Speaker 14: going to start seeing the ramp up at the second
Speaker 14: half of this year and materialize even more in twenty
Speaker 14: twenty five. So my issue with the AIPC wrap up cycle.
Speaker 14: I do think it's going to materialize. It's just that
Speaker 14: there's no application ecosystem to help support it right now,
Speaker 14: and if there's going to be buying decisions coming up
Speaker 14: at the end of this year, I may want to
Speaker 14: delay a quarter or two to see what the AIPC
Speaker 14: can actually do and is it right?
Speaker 10: Doesn't fit into my corporate workflow, that's interesting.
Speaker 3: So I'm looking at the stock absolutely unchanged on it
Speaker 3: over the past year.
Speaker 7: I look at the A and R functions.
Speaker 3: I got eight buys, eight holds in three cells the street.
Speaker 3: There's no conviction on this name here. When you talk
Speaker 3: to clients, what are they saying about it?
Speaker 11: Yeah?
Speaker 14: And then it sounds about right right, So so the
Speaker 14: bulls are looking forward to that second half PC upgrade cycle.
Speaker 14: Have to look past twenty twenty four to get that
Speaker 14: PC upgrade cycle to happen, And it's going to happen
Speaker 14: in twenty five, right regardless, because Windows is going to
Speaker 14: shut down Windows ten. Microsoft is gonna shut down Windows ten,
Speaker 14: and it's going to really push that upgrade cycle regardless.
Speaker 14: My main concern is twofold, and I'm going to step
Speaker 14: away from the PC segment for our moment here. That
Speaker 14: printer segment is a cash goal. It's a twenty percent
Speaker 14: nineteen to twenty percent operating margin business, and they really
Speaker 14: can't sell the hardware. And if you can't sell the hardware,
Speaker 14: you're not going to be able to sell the higher
Speaker 14: margin supplies. So over the long term, the concern for
Speaker 14: me is is that diminishing hardware sales is going to
Speaker 14: impact the demand for supplies because no one's printing anymore,
Speaker 14: everyone's digitizing, and then it's going to affect the long
Speaker 14: term profitability.
Speaker 8: Interesting.
Speaker 6: I just wonder though, for the refresh cycle, Like I
Speaker 6: hear you on the profitability part in the printer PERP
Speaker 6: and the refresh cycle, I mean, how dependent do you
Speaker 6: think will actually be on that. I'm still waiting for
Speaker 6: the iPhone.
Speaker 8: Supercycle that I've been hearing in bouts in twenty sixteen.
Speaker 14: Yeah, well, I want you to think about it this way, Alex.
Speaker 14: We came off of a terrible, terrible twenty twenty three
Speaker 14: from from a uni volume perspective, right, and we're probably
Speaker 14: still going to be bouncing along historic lows from unit volumes.
Speaker 14: And you know, people have not been upgrading their PCs
Speaker 14: and laptops for the last two three years since the
Speaker 14: beginning for COVID, so we're starting to get some tired
Speaker 14: PCs out there, and again more importantly for the corporate side,
Speaker 14: we have the Windows eleven forced upgrade and that is
Speaker 14: going to force our upgrade cycle. Now.
Speaker 2: Now, to.
Speaker 14: Give you a data point, normalized normalized volumes on an
Speaker 14: annual basis is roughly around two hundred and sixty to
Speaker 14: two hundred and seventy million PCs, and we're probably going
Speaker 14: to be running around two hundred and sixty two million
Speaker 14: for this year, so we're still below average trend. And
Speaker 14: I think there's scope in twenty five that we are
Speaker 14: going to get above to sixty five million units.
Speaker 10: Nahpiece is going to benefit from that as well.
Speaker 6: All right, Rich, thanks a lot, which and hoo a
Speaker 6: Bloomberg Intelligence senior technology.
Speaker 8: And a listener.
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