WEBVTT - SpaceX, Tesla Boards Study Possible $3.5 Trillion Merger 0:00:02.730 --> 0:00:04.410 Bloomberg Audio Studios. 0:00:04.890 --> 0:00:07.250 Podcasts. Radio. News. 0:00:09.760 --> 0:00:13.460 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:13.540 --> 0:00:16.580 weekdays at 10 a.m. Eastern on Apple CarPlay and Android 0:00:16.640 --> 0:00:19.939 Auto with the Bloomberg Business App. Listen on demand wherever 0:00:19.980 --> 0:00:23.040 you get your podcasts or watch us live on YouTube. 0:00:24.060 --> 0:00:26.079 Let's get back to that Elon Musk story because it's 0:00:26.480 --> 0:00:28.880 a story that just keeps on giving. And if it 0:00:28.920 --> 0:00:32.519 comes together, mega deal for the bankers and the lawyers. 0:00:32.550 --> 0:00:35.169 You look at the MAGO function and the biggest deal 0:00:35.229 --> 0:00:37.790 of the year is already tied to SpaceX with XAI. 0:00:37.890 --> 0:00:40.810 Yep, absolutely. So here we go. Elon Musk says SpaceX 0:00:40.870 --> 0:00:44.390 and Tesla have formed special committees to explore a potential merger. 0:00:44.430 --> 0:00:48.170 He spoke in a earnings call following SpaceX blowout earnings. 0:00:48.190 --> 0:00:48.729 Let's take a listen. 0:00:49.520 --> 0:00:51.540 I do think there's a lot of merit to combining 0:00:51.560 --> 0:00:57.000 the companies as we are pretty much in the superintelligence singularity. 0:00:57.240 --> 0:00:59.260 I think it would be a good idea, but it's 0:00:59.300 --> 0:01:01.500 really up to the special committees of both companies. 0:01:03.860 --> 0:01:06.400 Apparently, yeah. Very cool. That's good. If he says it's 0:01:06.440 --> 0:01:08.539 a go, it's likely to be a go. We're seeing 0:01:08.560 --> 0:01:11.459 that in the stock prices here, both SpaceX and Tesla 0:01:11.480 --> 0:01:13.420 trading up here today. Let's get some more reporting on that. 0:01:13.990 --> 0:01:18.970 Sana Pashankar is our space reporter for Bloomberg News down 0:01:19.010 --> 0:01:22.230 there in D.C. Sana, what's what's the makeup of the 0:01:22.270 --> 0:01:25.510 folks you talk to about the potential here for a 0:01:25.569 --> 0:01:28.500 merger of SpaceX and Tesla? That's certainly what I think 0:01:28.520 --> 0:01:29.960 a lot of Tesla investors are waiting for. 0:01:31.520 --> 0:01:34.959 Yeah, totally. So from what I'm hearing from people I'm 0:01:35.040 --> 0:01:38.280 speaking to and kind of what we heard from Musk yesterday, 0:01:38.300 --> 0:01:42.410 it almost seems as if it's rather a when rather 0:01:42.440 --> 0:01:45.530 than an if. Musk said that he thinks it's a 0:01:45.530 --> 0:01:48.390 good idea. He was openly pressing for a deal between 0:01:48.410 --> 0:01:51.690 the two companies. But ultimately, again, it's not up to him. 0:01:51.770 --> 0:01:56.890 It's up to getting shareholder support, particularly on the Tesla side. But, 0:01:56.990 --> 0:01:59.430 you know, it seems like there is a lot of 0:01:59.510 --> 0:02:04.400 momentum for this. And, you know, as Musk has outlined, 0:02:04.440 --> 0:02:07.200 at least a lot of synergies between the companies when 0:02:07.220 --> 0:02:08.080 it comes to AI. 0:02:09.100 --> 0:02:10.760 And I think you nailed it when you said that 0:02:10.780 --> 0:02:12.859 this is something he wants, but it's not totally up 0:02:12.900 --> 0:02:15.310 to him. What can he do in the meantime to 0:02:15.350 --> 0:02:18.710 kind of sell the case for why these two companies 0:02:18.750 --> 0:02:19.350 belong together? 0:02:20.970 --> 0:02:23.190 Well, yeah, I think that he was honestly really selling 0:02:23.230 --> 0:02:27.690 the case yesterday. And I think that's what he's trying 0:02:27.730 --> 0:02:30.030 to do. I mean, obviously, he's not part of these 0:02:30.130 --> 0:02:33.350 independent committees that are considering the mergers, but he has 0:02:33.389 --> 0:02:36.070 a lot of influence. And there are a lot of 0:02:36.220 --> 0:02:41.160 overlaps between the AI businesses as well, which he outlined. 0:02:42.940 --> 0:02:45.540 So I think that he can push for it. And, 0:02:45.600 --> 0:02:48.260 you know, there's no real question that he wants the merger. 0:02:49.260 --> 0:02:51.500 And so he's kind of like getting people excited about it, 0:02:51.550 --> 0:02:53.510 you know, talking about it on the earnings call, which 0:02:53.550 --> 0:02:57.530 he like previously refused to do. I think that's a 0:02:57.669 --> 0:03:01.190 really big tell of the enthusiasm he has for a 0:03:01.230 --> 0:03:02.800 potential deal between the two companies. 0:03:03.520 --> 0:03:05.780 Sana, is there any sense from the maybe the sources 0:03:05.820 --> 0:03:08.860 you've talked to about when this could occur? I mean, 0:03:08.880 --> 0:03:11.660 is this something that could occur? quickly, or is this 0:03:11.700 --> 0:03:13.639 going to take forever and a day to negotiate? 0:03:14.970 --> 0:03:15.250 Yeah. 0:03:15.330 --> 0:03:18.570 So, I mean, with Musk, you really never know. I mean, 0:03:18.610 --> 0:03:20.889 from the sources I'm talking to, it seems like they 0:03:20.910 --> 0:03:24.280 would maybe potentially want to deal to close within this 0:03:24.340 --> 0:03:29.100 administration because they see a favorable regulatory environment. But again, 0:03:29.200 --> 0:03:32.620 it's hard to know exactly. You know, the XAI merger happened, 0:03:32.940 --> 0:03:37.060 the SpaceX and XAI merger happened almost out of the blue. 0:03:37.760 --> 0:03:40.610 So it's really, you know, it's up to Musk and 0:03:40.750 --> 0:03:41.810 it's up to the shareholders. 0:03:42.290 --> 0:03:44.410 Yeah, I think you also made the point that the 0:03:44.450 --> 0:03:47.310 fact that he has talked about it publicly is significant, 0:03:47.350 --> 0:03:50.250 given that in the past he shied away from answering 0:03:50.290 --> 0:03:53.400 any questions on this. Given all of that, Sana, what 0:03:53.420 --> 0:03:57.620 was your takeaway from the earnings report that SpaceX posted? Obviously, 0:03:57.680 --> 0:03:59.560 investors like it because the stock is soaring. 0:04:00.940 --> 0:04:05.470 Yeah, SpaceX really had a blowout quarter. It basically exceeded 0:04:05.570 --> 0:04:10.150 estimates in net income, net profit, revenue. And that was 0:04:10.190 --> 0:04:12.960 driven a lot by sales of Starlink, which is their 0:04:13.000 --> 0:04:18.080 satellite internet business. And particularly sales for government and for 0:04:18.120 --> 0:04:22.050 business customers, and also their AI business, which was surprising. 0:04:22.140 --> 0:04:24.970 We know that they've been signing these massive deals to 0:04:25.010 --> 0:04:28.990 lease out computing space to other AI companies, and that 0:04:29.029 --> 0:04:35.550 was definitely reflected. Their losses were significantly lower than they 0:04:35.589 --> 0:04:39.890 were last quarter. And I think it's also increased adoption 0:04:39.910 --> 0:04:41.510 of Brock has contributed there as well. 0:04:42.550 --> 0:04:45.750 Stay with us. More from Bloomberg Intelligence coming up after this. 0:04:49.630 --> 0:04:53.330 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:04:53.410 --> 0:04:56.430 weekdays at 10 a.m. Eastern on Apple CarPlay and Android 0:04:56.510 --> 0:04:59.810 Auto with the Bloomberg Business App. Listen on demand wherever 0:04:59.850 --> 0:05:02.930 you get your podcasts or watch us live on YouTube. 0:05:04.210 --> 0:05:06.050 We got a little M & A. 0:05:05.430 --> 0:05:07.470 Going on here today in the healthcare space. As I 0:05:07.490 --> 0:05:09.070 always say, my next life I want to come back 0:05:09.150 --> 0:05:11.400 as a healthcare M & A banker, because they get 0:05:11.480 --> 0:05:15.460 paid every single day. Here's another one. Abbott Labs spins 0:05:15.520 --> 0:05:19.029 off embattled business that sells baby formula. No idea, but 0:05:19.070 --> 0:05:21.410 our next guest, he knows what's going on. Matt Hendrickson, 0:05:21.690 --> 0:05:24.990 Bloomberg Intelligence Senior Equity Analyst. Matt, what's going on with 0:05:25.029 --> 0:05:26.440 our friends at Abbott Labs? 0:05:26.890 --> 0:05:29.750 Well, quick story is that they're finally spinning off their 0:05:29.830 --> 0:05:33.710 nutrition segment because that's probably the black sheep of the 0:05:33.850 --> 0:05:38.860 overall portfolio for them. And that allows them to focus 0:05:38.940 --> 0:05:40.920 on their kind of key growth drivers, which is in 0:05:40.960 --> 0:05:42.000 the medical device space. 0:05:43.880 --> 0:05:46.120 So tell us a little bit more about this nutrition business. 0:05:46.220 --> 0:05:49.969 Why is it embattled? Why is it something that Abbott 0:05:50.270 --> 0:05:52.520 can't afford to keep on or doesn't want to keep on? 0:05:53.029 --> 0:05:53.309 Yeah. 0:05:53.350 --> 0:05:58.900 I mean, it's multifactorial. First, it's their nutrition business, which 0:05:58.940 --> 0:06:01.820 is their baby formula, their adult nutrition formula. 0:06:01.880 --> 0:06:03.060 Oh, Ensure and everything. 0:06:03.080 --> 0:06:08.200 Ensure, Similac for the pediatric patients. They've been hit by 0:06:08.279 --> 0:06:11.969 multiple levels of litigation. The first one is with regards 0:06:12.110 --> 0:06:16.979 to preterm babies and they're getting intestinal related diseases, which 0:06:17.080 --> 0:06:19.600 led unfortunately to some deaths. That led to a level 0:06:19.640 --> 0:06:23.560 of litigation there. They're in the process of getting those resolved. 0:06:23.600 --> 0:06:27.060 There's another one where one of their plants had issues 0:06:27.120 --> 0:06:32.030 with contamination, led to a federal litigation against them. 0:06:32.470 --> 0:06:36.230 And then lastly, as Robert Ford mentioned in the call, 0:06:37.750 --> 0:06:38.229 it's changing. 0:06:38.290 --> 0:06:40.429 It's changing from kind of a healthcare type of segment 0:06:40.450 --> 0:06:42.330 to more of a consumer and a retail segment. And 0:06:43.380 --> 0:06:47.190 being part of an overall conglomerate wasn't allowing them to 0:06:47.260 --> 0:06:49.609 adapt quick enough. And so last year they had to 0:06:49.810 --> 0:06:52.610 start working on getting some new brands out there. They 0:06:52.630 --> 0:06:55.390 had to work on getting some pricing cuts out there 0:06:55.410 --> 0:06:57.650 to be able to be more competitive. And it just 0:06:57.750 --> 0:07:00.190 all came in line with, you know, they should be 0:07:00.250 --> 0:07:03.549 focusing on the medical device side. This was just creating 0:07:03.589 --> 0:07:06.230 distractions for both the medical device side, but also created 0:07:06.250 --> 0:07:07.730 distractions for the nutrition side. 0:07:08.470 --> 0:07:12.030 So Give us the core investment call for Abbott these days. 0:07:12.070 --> 0:07:14.250 What are investors, how are they viewing this company right now? 0:07:14.250 --> 0:07:16.740 Because the stock's down 4% or 5% today. It's down 0:07:17.140 --> 0:07:18.900 double digits for the year. What's going on there? 0:07:19.120 --> 0:07:21.060 Yeah, I mean, part of it is just the overall 0:07:21.100 --> 0:07:24.360 medtech sector rotation is hitting the stocks in general. For 0:07:24.480 --> 0:07:27.980 Abbott specifically, their main growth driver is their. 0:07:27.880 --> 0:07:29.180 Continuous glucose monitor. 0:07:29.220 --> 0:07:31.550 So those are those little patches you see on people's arms, 0:07:31.870 --> 0:07:34.850 measures their glucose levels every five minutes. You're seeing that 0:07:34.910 --> 0:07:39.030 growth decelerate from 20% in 2024, 16% last year to 7% 0:07:39.030 --> 0:07:40.230 this year. 0:07:40.270 --> 0:07:42.810 That's pretty stark. 0:07:43.070 --> 0:07:46.230 It's very stark, especially for a unit that's 15% of 0:07:46.270 --> 0:07:49.950 the total company. That's why you're seeing them have to 0:07:50.090 --> 0:07:53.610 cut their comparable sales growth outlook for the year. 0:07:53.650 --> 0:07:55.170 There was 6.5% to 7.5%. They had to cut it 0:07:55.190 --> 0:07:55.370 to 6% today. 0:07:59.480 --> 0:08:02.160 That needs to see a recovery, and they're dealing with 0:08:02.280 --> 0:08:05.530 certain recalls there as well. They're dealing with competition from 0:08:05.590 --> 0:08:08.910 companies like Dexcom and some other privately held companies like BioLink. 0:08:09.930 --> 0:08:13.890 All these things are being a headwind there that they 0:08:13.930 --> 0:08:15.970 need to focus on and get that recovery started. 0:08:17.010 --> 0:08:19.880 Is a company like Abbott Labs affected at all by 0:08:19.920 --> 0:08:20.700 the midterm elections? 0:08:23.240 --> 0:08:25.740 Yes and no. I mean, not too much. 0:08:25.800 --> 0:08:28.920 You could say that if with the elections, you're talking 0:08:28.960 --> 0:08:32.590 about ACA cuts, Medicaid cuts, that could hurt some of 0:08:32.640 --> 0:08:35.990 their procedure volumes, which then would hurt revenue. But most 0:08:36.030 --> 0:08:40.010 of their procedures are for those acute cases and very 0:08:40.070 --> 0:08:42.550 sick patients, and they're going to be treated regardless. 0:08:43.450 --> 0:08:47.310 So these medical device companies, what's the upside catalyst? When 0:08:47.350 --> 0:08:48.109 do they perform well? 0:08:49.400 --> 0:08:51.500 Well, I mean, if you're looking at it from a 0:08:51.540 --> 0:08:56.250 procedural volume standpoint, things are steady. It's just right now 0:08:56.370 --> 0:08:59.190 valuation is so low because of the shift to the 0:08:59.270 --> 0:09:02.190 AI sector. What they need to continue to do is 0:09:02.210 --> 0:09:05.990 get their product pipeline, get new products out there to launch. 0:09:06.490 --> 0:09:10.460 because that helps offset pricing cuts for their legacy products. 0:09:11.100 --> 0:09:13.380 And if you get that volume still going with the 0:09:13.480 --> 0:09:17.640 aging demographic and disrupting kind of the standard of care 0:09:17.740 --> 0:09:21.280 for certain procedures, that should be fine. You just have 0:09:21.300 --> 0:09:23.980 to get through kind of this kind of headwind of 0:09:24.420 --> 0:09:27.270 the macro environment related to the AI trade. 0:09:27.290 --> 0:09:29.790 Do you just think AI is seen as a threat 0:09:29.890 --> 0:09:30.550 to this industry? 0:09:32.230 --> 0:09:35.790 AI, it's basically a sector rotation right now. And so 0:09:35.809 --> 0:09:40.020 a lot of money is coming out from the MedTech 0:09:40.040 --> 0:09:42.400 side into the AI side. So anytime you see AI 0:09:42.440 --> 0:09:46.240 stocks pop, you see my MedTech stocks get cut. 0:09:47.380 --> 0:09:50.520 Stay with us. More from Bloomberg Intelligence coming up after this. 0:09:54.470 --> 0:09:58.170 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:09:58.250 --> 0:10:01.280 weekdays at 10 a.m. Eastern on apple carplay and android 0:10:01.340 --> 0:10:04.620 auto with the bloomberg business app listen on demand wherever 0:10:04.679 --> 0:10:08.210 you get your podcasts or watch us live on youtube. 0:10:09.410 --> 0:10:12.730 Well united airlines reported some uh numbers here stocks up 0:10:12.750 --> 0:10:15.050 four percent here today but they reported weaker than expected 0:10:15.090 --> 0:10:19.870 earnings called out soaring jet fuel costs. CEO Scott Kirby 0:10:19.890 --> 0:10:23.069 spoke with Bloomberg Surveillance earlier to talk about what it 0:10:23.090 --> 0:10:24.670 will mean for airfares. Let's take a listen. 0:10:25.260 --> 0:10:27.780 We've passed about 72% of the increase in fuel price, 0:10:27.820 --> 0:10:31.800 but I think it's pretty remarkable demonstration of the industry changes, 0:10:31.850 --> 0:10:36.250 the resilience, and also decommoditizing air travel at United Airlines 0:10:36.290 --> 0:10:38.150 that while we're not earning as much in the second 0:10:38.190 --> 0:10:39.650 half as we did last year and as much as 0:10:39.690 --> 0:10:41.910 we were expecting to this year, because of the run-up 0:10:41.950 --> 0:10:45.850 in fuel, we're still solidly profitable and it portends better 0:10:45.870 --> 0:10:48.790 times ahead when the situation does normalize, and eventually it will. 0:10:49.429 --> 0:10:52.109 That was CEO Scott Kirby, United Airlines, speaking with Bloomberg 0:10:52.130 --> 0:10:54.990 Surveillance earlier today. Scarlett, did I happen to mention that 0:10:55.030 --> 0:10:57.230 I'm a million-mile flyer for United Airlines? 0:10:57.250 --> 0:10:59.449 Just remind us of what that means and what happens 0:10:59.470 --> 0:11:01.290 and how you get treated when you get on board. 0:11:01.450 --> 0:11:04.410 Well, I've flown cumulatively a million miles United over my career, 0:11:04.860 --> 0:11:07.099 so I get, like, special little medallion and stuff. I 0:11:07.120 --> 0:11:09.480 got a little handshake and a call-out by the pilot. 0:11:09.500 --> 0:11:10.920 It was all very— Do you have to. 0:11:10.840 --> 0:11:12.620 Do anything to maintain that status, by the way? 0:11:12.800 --> 0:11:12.959 No. 0:11:13.260 --> 0:11:14.360 It's just there for life. 0:11:14.380 --> 0:11:15.920 You can do one mile a year from now on. 0:11:16.240 --> 0:11:18.119 Yes, but I'm doing a lot more because I am 0:11:18.160 --> 0:11:20.420 in my empty nester years, so we are traveling like crazy. 0:11:20.840 --> 0:11:23.179 George Ferguson also spends a lot of time on airplanes. 0:11:23.240 --> 0:11:23.380 Why? 0:11:23.420 --> 0:11:26.160 Because he's a senior aerospace defense and airlines analyst for 0:11:26.200 --> 0:11:30.030 Bloomberg Intelligence. George, what'd you learn from the United Earnings 0:11:30.070 --> 0:11:30.550 Report here? 0:11:32.490 --> 0:11:37.480 Look, I think I learned that One thing we knew, 0:11:37.500 --> 0:11:40.220 they were having a hard time passing through all the 0:11:40.700 --> 0:11:43.520 fare increases they needed to manage higher fuel prices. They 0:11:43.940 --> 0:11:47.630 mean the US airline business. And look, United and Delta 0:11:47.670 --> 0:11:51.370 have reported so far, they're the two sort of best 0:11:51.429 --> 0:11:55.610 positioned companies. to capture this premium flyer, which should mean 0:11:55.630 --> 0:11:58.250 they're cushioned to a degree, and they're having a hard 0:11:58.309 --> 0:12:02.270 time pushing through the full increase they need. I think 0:12:02.290 --> 0:12:05.290 the low-cost carriers, some of the guys in the hybrids 0:12:05.320 --> 0:12:08.800 in the middle will also have a more challenging time. 0:12:09.480 --> 0:12:14.050 Scott's a big believer in differentiation. I personally think people 0:12:14.429 --> 0:12:17.099 largely fly with where they get the best price and 0:12:17.120 --> 0:12:18.740 they feel like they're not going to get banged up 0:12:18.820 --> 0:12:21.680 too much. So it'll be interesting to see as we 0:12:21.730 --> 0:12:25.569 get into 2027 if this differentiation makes a difference. And 0:12:25.590 --> 0:12:28.170 I guess the last thing I'd add quickly here is that. 0:12:29.190 --> 0:12:31.910 I think United found– the reason the stock really took 0:12:31.950 --> 0:12:34.929 a beating yesterday was that United found a good off-ramp 0:12:34.990 --> 0:12:38.650 to get a pullback from their commentary that they would 0:12:38.690 --> 0:12:42.010 recover all of the fair increases they needed to manage 0:12:42.050 --> 0:12:44.410 the higher fuel prices. I think this was a good 0:12:44.510 --> 0:12:49.580 juncture to reset expectations. Delta didn't do that, but I think– 0:12:49.820 --> 0:12:51.939 Scott saw it as a good opportunity and really put 0:12:52.000 --> 0:12:55.880 out a really high fuel price, like $ 4. 60 for this, 0:12:56.380 --> 0:12:59.340 for 4Q into next year. They really don't, they don't 0:12:59.360 --> 0:13:00.780 provide a lot of guidance. I think he kind of 0:13:00.820 --> 0:13:02.440 uses this as a nice off ramp to get out 0:13:02.480 --> 0:13:04.880 of that discussion when they're going to recapture. 0:13:05.820 --> 0:13:10.020 George, the way that these Airlines deal with higher fuel 0:13:10.059 --> 0:13:13.020 fares is to either raise ticket prices, so Paul has 0:13:13.040 --> 0:13:15.950 to pay more when he travels, or trim their flight schedules. 0:13:16.830 --> 0:13:19.790 What's the calculus between doing either of those? Which is 0:13:19.850 --> 0:13:23.599 more effective? Which provides immediate relief to its bottom line? 0:13:28.400 --> 0:13:30.980 Yeah, so this is a really hard equation for the airlines. 0:13:31.000 --> 0:13:33.860 And that's one of the challenges they're starting to have, right? 0:13:33.940 --> 0:13:37.100 And that is, you trim the flight schedules so you 0:13:37.140 --> 0:13:40.620 can get flyers to pay more. You need your competitors 0:13:40.679 --> 0:13:43.970 to do the same. Because if your competitors decide they 0:13:43.990 --> 0:13:46.190 just want to get market share, then you're just going 0:13:46.210 --> 0:13:49.490 to see fares stay low. And as you trim your 0:13:49.530 --> 0:13:53.170 flight schedules, you lose your economies of scale. You're flying 0:13:53.410 --> 0:13:57.700 less available seat miles for the airline. And that means 0:13:57.820 --> 0:14:01.760 all your costs start to rise, especially your overhead, based 0:14:01.850 --> 0:14:06.110 on less capacity. And we're seeing a bit of it. Look, 0:14:06.429 --> 0:14:08.830 United didn't do a lot of cutting in 3Q, right? 0:14:09.090 --> 0:14:12.350 They flew 1.5% more available seat miles. If you look 0:14:12.390 --> 0:14:15.330 at seats... They put four and a half percent more 0:14:15.429 --> 0:14:19.820 seats into the marketplace. That's like double GDP growth, right? So, 0:14:20.400 --> 0:14:23.200 and even there, if you look at every single expense 0:14:23.380 --> 0:14:27.560 item on their income statement, it's all rising faster than inflation, 0:14:28.100 --> 0:14:30.780 even many of them, if you adjust it for the 0:14:30.820 --> 0:14:34.020 increase in seats. And so this becomes the real challenge 0:14:34.060 --> 0:14:36.350 is they need everyone else to come in and cut 0:14:36.380 --> 0:14:39.370 capacity as well to see fares firm. And there's just 0:14:39.410 --> 0:14:41.810 too many airlines in this business. Some that are just 0:14:41.850 --> 0:14:44.160 trying to survive. But I think you're going to see 0:14:44.180 --> 0:14:48.520 this in the near term, this sort of combined cut capacity, 0:14:48.980 --> 0:14:50.800 raise prices so you can cover costs. 0:14:51.080 --> 0:14:52.720 George, I also want to talk to you about Boeing. 0:14:53.060 --> 0:14:56.240 I'm seeing some reporting here from Bloomberg. Boeing won U.S. 0:14:56.370 --> 0:15:00.010 regulator approval for its 737 MAX 10 jet. What does 0:15:00.050 --> 0:15:00.650 that mean for Boeing? 0:15:01.640 --> 0:15:05.660 I think they're probably doing somersaults over there in Seattle. 0:15:05.880 --> 0:15:09.780 And I mean, it's now headquarters is Washington, D.C. Look, 0:15:10.180 --> 0:15:15.430 that 737-10 is the primary competitor to the Airbus A321. 0:15:15.880 --> 0:15:19.970 They're both the largest narrowbodies. They carry like 200 plus people, 0:15:20.010 --> 0:15:22.290 depending on how you want to rack and stack people 0:15:22.330 --> 0:15:26.510 inside an airframe. You know, airlines love those people movers. 0:15:26.530 --> 0:15:29.790 Scott Kirby, a big buyer of the 737-10, couldn't get 0:15:29.810 --> 0:15:33.150 him fast enough. Went to Airbus for an A321 order. 0:15:33.170 --> 0:15:37.050 Still has 737-10 on the books. Dead today. I'm getting 0:15:37.070 --> 0:15:40.340 this call. Excited to get that airplane. If you look 0:15:40.380 --> 0:15:44.380 at Airbus, I think the majority of their backlog for 0:15:44.420 --> 0:15:48.790 narrowbodies is that A321. Boeing, there's 2,000 of them in 0:15:48.810 --> 0:15:51.230 their backlog that we see. We think there's more that 0:15:51.250 --> 0:15:58.400 could be converted on 5,000, 6,000-plus backlogs. It is in 0:15:58.520 --> 0:16:02.240 high demand by airlines because it lowers economies. It provides 0:16:02.280 --> 0:16:06.600 bigger economies and helps lower per seat prices. So it 0:16:06.640 --> 0:16:08.700 was good to see Boeing get that. That keeps them 0:16:08.720 --> 0:16:09.830 very competitive with Airbus. 0:16:10.750 --> 0:16:13.770 Stay with us. More from Bloomberg Intelligence coming up after this. 0:16:17.800 --> 0:16:21.500 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:16:21.580 --> 0:16:24.630 weekdays at 10 a.m. Eastern on Apple CarPlay and Android 0:16:24.690 --> 0:16:27.990 Auto with the Bloomberg Business App. Listen on demand wherever 0:16:28.030 --> 0:16:31.110 you get your podcasts or watch us live on YouTube. 0:16:32.610 --> 0:16:35.450 Netflix reported results last night. Revenue growth came in a 0:16:35.530 --> 0:16:38.820 little bit below forecast, stock trading off about 5% here today. 0:16:38.980 --> 0:16:44.700 It's hitting a 52-week low here today. We're off about 30% 0:16:44.700 --> 0:16:48.200 year to date. The leadership team says the streaming service 0:16:48.700 --> 0:16:51.880 recent price increase has gone well, and the company is 0:16:52.080 --> 0:16:55.780 seeing good results. Speaking on Netflix earnings call, co-CEO Ted 0:16:55.820 --> 0:16:59.540 Sarandos repeated that the U.S. is not growing as fast 0:16:59.580 --> 0:17:00.040 as legalism. 0:17:00.490 --> 0:17:03.240 Our content around the world is largely working, as you 0:17:03.260 --> 0:17:05.440 heard a couple examples there from Greg, but we see 0:17:05.480 --> 0:17:11.260 titles across Latin America, EMEA, APAC, driving engagement, subscriber growth, revenue, 0:17:11.320 --> 0:17:11.920 and profit. 0:17:12.420 --> 0:17:12.980 Now, the U.S. 0:17:13.040 --> 0:17:13.899 Is also working. 0:17:14.520 --> 0:17:16.640 It's just not growing as fast as it could or 0:17:16.680 --> 0:17:17.550 as fast as we'd like. 0:17:17.570 --> 0:17:22.550 All right. That was Netflix co-CEO Ted Sarandos. He was repeating, again, 0:17:22.590 --> 0:17:24.550 that the U.S. is not growing as fast as they 0:17:24.590 --> 0:17:27.450 would like here. We're seeing that in the Price action 0:17:27.490 --> 0:17:29.350 today in the stock is trading down about 5% here. 0:17:29.530 --> 0:17:35.310 Geetha Ranganathan, she is the media analyst for Bloomberg Intelligence. Geetha, again, 0:17:35.350 --> 0:17:38.129 the street looks a little bit disappointed in these results here, 0:17:38.510 --> 0:17:41.689 just judging by the stock price movement here today. What 0:17:41.710 --> 0:17:43.170 did you take away from the earnings release? 0:17:44.730 --> 0:17:47.649 I think the biggest source of disappointment, Paul, was really 0:17:47.730 --> 0:17:51.350 the advertising outlook. So they had initially guided for $ 3 0:17:51.310 --> 0:17:55.540 billion in advertising. Remember, this is a nascent business for Netflix, 0:17:55.600 --> 0:17:59.140 but obviously there's a lot of anticipation that this will 0:17:59.160 --> 0:18:03.160 end up becoming a major growth driver as subscription growth 0:18:03.200 --> 0:18:05.770 starts to kind of mature and slow down. But the 0:18:05.790 --> 0:18:08.550 fact that they pulled guidance down for the advertising revenue 0:18:08.590 --> 0:18:11.270 by about 10 percent for this year, which then weighed 0:18:11.410 --> 0:18:15.680 on the 4Q guidance as well as the 2026 overall 0:18:15.720 --> 0:18:19.520 revenue guidance, I think definitely kind of spooked investors a 0:18:19.560 --> 0:18:19.880 little bit. 0:18:21.000 --> 0:18:22.770 So how do they solve for that? How do they 0:18:23.010 --> 0:18:25.690 get more people to subscribe to the ad tier? 0:18:25.830 --> 0:18:26.109 Is it? 0:18:26.520 --> 0:18:29.180 Moving people from the premium tier to the ad tier 0:18:29.220 --> 0:18:32.149 because that will pay off more down the road? Or 0:18:32.210 --> 0:18:34.530 is it you just have to sign up new people? 0:18:34.650 --> 0:18:37.380 Or is it a further crackdown on people who might 0:18:37.400 --> 0:18:38.560 be sharing their passwords? 0:18:39.640 --> 0:18:42.340 I think it's a little bit of all of the above, Scarlett, 0:18:42.380 --> 0:18:45.540 but what they actually highlighted in terms of the delay, 0:18:46.359 --> 0:18:48.419 and they said that this is really just a timing issue. 0:18:49.100 --> 0:18:53.060 It's not that there's any structural problem with the ad business. 0:18:53.540 --> 0:18:57.399 They just haven't been able to ramp up some of 0:18:57.460 --> 0:19:00.159 the ad product capabilities and some of the integrations that 0:19:00.180 --> 0:19:03.340 they were hoping to get done by this point. And 0:19:03.359 --> 0:19:07.330 so remember, again, they are the latest or they do 0:19:07.380 --> 0:19:10.190 not have the first mover advantage that so many of 0:19:10.250 --> 0:19:12.790 our traditional media companies have. You take a Disney with 0:19:12.830 --> 0:19:17.810 Disney Plus or Peacock, all of those products or even 0:19:17.830 --> 0:19:20.889 Paramount Plus, HBO, all of those products have had success. 0:19:21.130 --> 0:19:24.369 advertiser relationships in place for their traditional TV business, which 0:19:24.410 --> 0:19:27.270 they then extended to their digital ad business. Netflix does 0:19:27.390 --> 0:19:29.340 not have that advantage. So they really have to kind 0:19:29.380 --> 0:19:31.580 of build this whole business from scratch. They have to 0:19:31.619 --> 0:19:35.060 build the advertising relationships. They have to build the technology, 0:19:35.119 --> 0:19:37.560 the ad stack, the tech stack. So there's a lot 0:19:37.580 --> 0:19:40.909 of different components here. And so it looks like things 0:19:40.910 --> 0:19:43.760 are progressing a little bit slower than what the street 0:19:43.760 --> 0:19:45.040 was basically expecting. 0:19:45.040 --> 0:19:47.699 Talk to us about programming expense, Geetha. I mean, at 0:19:47.700 --> 0:19:50.439 the beginning stages, of this company, it was like the 0:19:50.460 --> 0:19:51.840 street was like, hey, you can spend as much as 0:19:51.880 --> 0:19:55.080 you want because you're driving subscriber growth. And then it became, well, 0:19:55.100 --> 0:19:56.800 maybe you want to dial that back because we need 0:19:56.820 --> 0:19:59.180 to focus on profitability. But where are we now? It 0:19:59.200 --> 0:20:02.939 seems like they're increasing spending and maybe there's concerns that 0:20:02.960 --> 0:20:04.619 they're not getting the return on that spending. 0:20:05.790 --> 0:20:08.630 Yeah, this is really a big source of concern for 0:20:08.690 --> 0:20:11.630 the street, Paul. So, you know, this year, for instance, 0:20:11.650 --> 0:20:15.010 they took up their programming budget by about 10 percent, 0:20:15.070 --> 0:20:18.210 which is really a pretty high, considering that in the 0:20:18.250 --> 0:20:20.010 past they've only taken it up by about six to 0:20:20.050 --> 0:20:21.879 seven percent. I mean, at the end of the day, 0:20:21.910 --> 0:20:26.000 as you just pointed out, keeping that programming expense increase 0:20:26.140 --> 0:20:29.859 under control is really important for their operating leverage, for 0:20:29.880 --> 0:20:33.520 their operating margin story. And remember, Netflix has gone from 0:20:33.900 --> 0:20:37.010 becoming just a subscriber story to really a profit and 0:20:37.050 --> 0:20:40.169 a margin story. And so when you have that programming 0:20:40.250 --> 0:20:43.910 cost increase by the amount that it's increasing, And what's 0:20:43.990 --> 0:20:46.350 worse is the fact that they really, even with that 0:20:46.470 --> 0:20:50.990 increase in programming costs, they've really not been able to 0:20:51.090 --> 0:20:56.379 produce any big breakout show or any home run, as 0:20:56.460 --> 0:20:59.580 they call it, which would really drive engagement. So I 0:20:59.619 --> 0:21:02.100 think what's really worrisome is the fact that you're having 0:21:02.119 --> 0:21:05.580 a major step up in programming costs. But you're not 0:21:05.660 --> 0:21:08.609 necessarily having that return on investment, as you just pointed out, 0:21:08.650 --> 0:21:13.490 and that is going to weigh on revenue growth in 0:21:13.510 --> 0:21:13.929 the future. 0:21:13.950 --> 0:21:18.160 And it's resulting in people being taken out as well, right? 0:21:23.160 --> 0:21:25.619 is a former chairman of Walt Disney Television. Dan Lin, 0:21:25.680 --> 0:21:28.659