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What's Next For Netflix? Look Ahead To Earnings · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day, we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
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  Speaker 1: at Bloomberg dot com slash podcast. Let's keep on that
• 0:22
  Speaker 1: Netflix team, shall we. They report earnings next week, and
• 0:26
  Speaker 1: that's usually a big event for the stock. Let's welcome
• 0:29
  Speaker 1: uh keitha wrong Onah and she is the technology and
• 0:31
  Speaker 1: media annalyst at Bloomberg Intelligence. She's been covering this company
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  Speaker 1: pretty much since its inception as a public company. Keithan,
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  Speaker 1: thanks so much for joining us here. What can we expect?
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  Speaker 1: What are investors really looking for when Netflix reports next week? Yeah,
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  Speaker 1: thank you so much Paul and Taylor for inviting me
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  Speaker 1: to this conversation. So, um, it's going to be a
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  Speaker 1: pretty week quarter for Netflix. They have telegraphs that pretty
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  Speaker 1: well to investors, so they're expecting about one million editions.
• 1:02
  Speaker 1: This will be the lowest ever for the company in
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  Speaker 1: at least ten years, and really it's a factor of
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  Speaker 1: many different things. So you had that massive pull forward
• 1:11
  Speaker 1: of demand from last year because of COVID when they
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  Speaker 1: reported twenty six million subscribers in the first half of
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  Speaker 1: that's usually the number that they report for the whole year.
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  Speaker 1: And then you also have, now, you know, the the
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  Speaker 1: additional factor of people going wanting to go more outdoors
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  Speaker 1: and demanding more out of home entertainment. And then the
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  Speaker 1: third thing that we're seeing is that there was obviously
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  Speaker 1: the effect of all those production shutdowns, so they had
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  Speaker 1: a pretty light content slate into Q, none of their
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  Speaker 1: big titles, So it's really the impact of all those
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  Speaker 1: three and so a pretty weak quarter is what we're
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  Speaker 1: expecting in general. With that weak quarter that we're expecting,
• 1:50
  Speaker 1: it seems like Netflix is trying to get ahead of
• 1:52
  Speaker 1: that announcement and help engagement and help penetration by going
• 1:56
  Speaker 1: into video games. What can we expect from net fille
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  Speaker 1: Alla video games? Yeah, I think that's you know, it's
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  Speaker 1: it's kind of been in the offering, I think for
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  Speaker 1: a little while now, and I think it's really a
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  Speaker 1: very natural extension of their content strategy. I think what
• 2:13
  Speaker 1: they're trying to do is to really be a comprehensive
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  Speaker 1: entertainment solution and really trying to build more and more
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  Speaker 1: engagement as you pointed out, and really more time spent
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  Speaker 1: with the platform. Remember a few years ago, when you know,
• 2:25
  Speaker 1: read Hingston's was asked about who their biggest competitor competitor is.
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  Speaker 1: He didn't say an Amazon Prime or or even Hbo.
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  Speaker 1: He he pointed out Fortnite as being their biggest competitor
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  Speaker 1: for time and attention. Um, so that's really kind of
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  Speaker 1: what they want. They want to you know, increase engagement,
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  Speaker 1: they want to increase time spent. And I think it's
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  Speaker 1: it really kind of makes sense that it makes it.
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  Speaker 1: It's a huge oportnity for Netflix to be able to
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  Speaker 1: differentiate its content offering, boost subscriber engagement, boost retention against
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  Speaker 1: all the other streaming players. Keithan talked to us about
• 2:57
  Speaker 1: the competitive environment again. Over the last year, you know,
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  Speaker 1: we saw a lot of new players on the streaming business,
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  Speaker 1: you know, Disney Plus and Peacock and you know all
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  Speaker 1: the others uh that are out there. Give us a
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  Speaker 1: sense of how it's shaking out in these early quarters. So, Um,
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  Speaker 1: as you pointed out, Paul, I mean, Disney Plus has
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  Speaker 1: been a runaway hit, so they have amassed more than
• 3:20
  Speaker 1: hundred million subscribers in you know, just a very short
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  Speaker 1: about just about thirteen to fourteen months, so they it's
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  Speaker 1: been a blockbuster success for them. Um and of course,
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  Speaker 1: as you pointed out, we've had a lot of new
• 3:32
  Speaker 1: players kind of a burst down into the screen. But
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  Speaker 1: I think we're kind of seeing, uh, really this come
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  Speaker 1: emerged as as as a two horse race, if you will,
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  Speaker 1: between Netflix and Disney, but you're also seeing all the
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  Speaker 1: other players kind of trying to jockey for scale. So
• 3:47
  Speaker 1: Amazon time very big deals just in the space of
• 3:51
  Speaker 1: you know, the past few weeks. They went out and
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  Speaker 1: acquired the NFL Thursday Night games for about eleven to
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  Speaker 1: twelve billion dollars and then the NBM studio for another
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  Speaker 1: eight and a house dollars. So again they really want
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  Speaker 1: to make Prime a talk to your service. Then you
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  Speaker 1: then you have HBO Max and the Discovery deal creating
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  Speaker 1: a new company, a hundred and fifty billion dollar company.
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  Speaker 1: Again HBO Max wanting to kind of break into that uh,
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  Speaker 1: top tier streaming offering. So we're definitely going to see
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  Speaker 1: a shakeout. I think at the end of the day,
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  Speaker 1: we're probably going to see about three or four or
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  Speaker 1: five major services Nextlork, Mestics, and Disney and Amazon obviously
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  Speaker 1: the top one to three I think among those, and
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  Speaker 1: then it's going to be really interesting to see what
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  Speaker 1: happens with you know, speak of what happens with viacoms,
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  Speaker 1: Paramount plus. I think eventually consolidation is on the card,
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  Speaker 1: but we'll have to wait and watch. There seems to
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  Speaker 1: be a push pull. We feel like there has to
• 4:45
  Speaker 1: be consolidation because you have to be big to compete.
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  Speaker 1: And yeah, we're getting a lot of big anti trust,
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  Speaker 1: anti big tech rhetoric out of this administration, saying that
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  Speaker 1: they don't like big companies. They want to promote competition.
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  Speaker 1: Do you expect deals to get done and and do
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  Speaker 1: they get done or they can be tied up in
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  Speaker 1: courts for a while. Yeah, So even with the that's
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  Speaker 1: a great point. I think even with the Amazon deal,
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  Speaker 1: I mean we have the new you know, FTC chair
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  Speaker 1: who kind of expressed some reservations about that. But I
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  Speaker 1: don't think they're necessarily if you kind of just look
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  Speaker 1: at the business that you know, any of these big
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  Speaker 1: tech players are in, I don't think they necessarily pose
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  Speaker 1: any competitive challenges right Acquiring a studio acquiring a media company. Um. Again,
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  Speaker 1: I'm not really sure about how long it could be
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  Speaker 1: tied up in courts, but I think ultimately, um, you know,
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  Speaker 1: if tex players like an Apple or an Amazon wants
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  Speaker 1: to go on studio, I think they should be able
• 5:40
  Speaker 1: to do so without too much hassle. Keith A real
• 5:43
  Speaker 1: quick thirty seconds. Is Netflix still a subscriber growth story?
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  Speaker 1: I see the stocks flat year to date. Um, so
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  Speaker 1: they have done a really good job, Paul, and kind
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  Speaker 1: of moving away a little bit from that over focus
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  Speaker 1: on subscribers. They're really now focusing more on free cash
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  Speaker 1: flows on margins, and they're showing some real, really good
• 6:01
  Speaker 1: numbers on that front as well. All right, Keithan, thank
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  Speaker 1: you so much for joining us. As always, you are
• 6:06
  Speaker 1: our guru for all things t MT. Keith Wrong and Nothing,
• 6:10
  Speaker 1: technology and media analyst for Bloomberg Intelligence joining us on
• 6:13
  Speaker 1: the phone from New Jersey. Uh. I hired Githa back
• 6:17
  Speaker 1: in the day. We worked together for ten days or
• 6:19
  Speaker 1: ten years, and she has just developed into one of
• 6:21
  Speaker 1: the top media and now technology analysts on Wall Street.
• 6:24
  Speaker 1: And we're fortunate to have her and all the other
• 6:26
  Speaker 1: good folks at a Bloomberg intelligence. Let's talk about retail sales.
• 6:34
  Speaker 1: Got some numbers this morning. Came in better than expected.
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  Speaker 1: Retail sales came into zero point six percent gain versus
• 6:41
  Speaker 1: a forecast of a zero point three decline. So pretty
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  Speaker 1: strong there. Let's get some details on that and some
• 6:45
  Speaker 1: of the other retail issues out there in the U
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  Speaker 1: S consumer. We do that with A. G. Solanki, national
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  Speaker 1: director for Retail in the US for Collier's International, joins
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  Speaker 1: us on the zone from phone from San Francisco and Chie,
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  Speaker 1: thanks so much for taking the time, love to get
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  Speaker 1: your kind of foot snapshot on the US consumer right
• 7:04
  Speaker 1: here as we slowly come out on the other side
• 7:06
  Speaker 1: of this pandemic. Yeah, thanks for having me. So let's
• 7:10
  Speaker 1: just just dive in. So what we're seeing right now
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  Speaker 1: is definitely we saw certain categories in retail I e. Clothing, uh,
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  Speaker 1: certain F and B categories, department store sales drop anywhere between,
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  Speaker 1: and of course conversely, we saw the e commerce jump in.
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  Speaker 1: Right now, we're starting to see a shift. People are
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  Speaker 1: definitely coming back strong as it relates to buying power
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  Speaker 1: in store, and with that, we're starting to see in
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  Speaker 1: certain sectors a rebound. For example, in apparel increase. It's
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  Speaker 1: the largest increase we've seen thus far in any category.
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  Speaker 1: And also in addition to that, we're starting to see
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  Speaker 1: um store expansion. So this is led by the grocery,
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  Speaker 1: the home, beauty, and value oriented concepts. So new store
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  Speaker 1: openings right now or outpacing store closing, so we're pretty
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  Speaker 1: excited about that. How are consumers feeling about paying higher prices?
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  Speaker 1: On one hand, you have retail sales that looked relatively
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  Speaker 1: strong today, but then you're seeing consumer sentiment fall because
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  Speaker 1: inflation expectations in the next year are expected to be
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  Speaker 1: the highest since two thousand and eight. Are they willing
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  Speaker 1: to pay these higher prices? So there is definitely a
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  Speaker 1: concern around that, I think because there's this um you know,
• 8:33
  Speaker 1: kind of the stimulus payment of starting to slowly fade away,
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  Speaker 1: so they haven't really put a percent of their mindset
• 8:38
  Speaker 1: into Hey, we're looking at inflation of some sort and pricing,
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  Speaker 1: so there's still a spend, a strong spend, and what
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  Speaker 1: we're seeing from that strong spend occur is in what
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  Speaker 1: I would say more the service oriented side. So going
• 8:54
  Speaker 1: to the getting a massage, going for a pedigure, mannic here,
• 8:58
  Speaker 1: getting your hair done, um, the hair salons, et cetera.
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  Speaker 1: So we're still seeing that momentum um. When we I
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  Speaker 1: think it will start to fade, maybe we'll probably see
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  Speaker 1: those results closer to Q three Q four. So Andie,
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  Speaker 1: one of the things we saw from this from the
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  Speaker 1: retail perspective during this pandemic is what a lot of
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  Speaker 1: folks are saying is just you know, this accelerating growth
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  Speaker 1: of e commerce, and maybe it might have pulled maybe
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  Speaker 1: two or three years worth of market share gains in
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  Speaker 1: terms of e commerce in terms of relative to total
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  Speaker 1: re retail sales, maybe poured it, pulled it forward maybe
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  Speaker 1: by two or three years. Is that in fact the case?
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  Speaker 1: And do you think some of those e commerce gains
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  Speaker 1: are here to stay? Um? I don't do not believe
• 9:37
  Speaker 1: they are here to stay. I think they are a
• 9:39
  Speaker 1: part of our shopping journey for any UM consumer. However,
• 9:43
  Speaker 1: what we're starting to see is a bit of a
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  Speaker 1: cutback as it relates to e commerce, and our Q
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  Speaker 1: two numbers that we're forecasting are roughly around thirteen point
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  Speaker 1: six percent compared to Q two so UM, granted, it
• 9:56
  Speaker 1: was kind of an off quarter, but nonetheless we're starting
• 9:59
  Speaker 1: to see a stay realization, and I think that people
• 10:02
  Speaker 1: are still there's still you know, when we look at
• 10:04
  Speaker 1: the square footage in terms of UM per person square
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  Speaker 1: footage of retail, it's still pretty significant. People want to
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  Speaker 1: be out there. Are we finding enough workers to come
• 10:17
  Speaker 1: back to work? Good question. Yeah, that's that's a great question. Honestly,
• 10:22
  Speaker 1: it's been a big struggle some quick things that we've
• 10:25
  Speaker 1: been hearing, especially with chain restaurants and fast casual. What
• 10:29
  Speaker 1: we're seeing in that, you know, in that area is
• 10:32
  Speaker 1: that it has been a struggle. So what are they doing? Well,
• 10:35
  Speaker 1: they've identified some interesting ways to get around it. First off,
• 10:38
  Speaker 1: we're seeing a lot of the chain restaurants being quite
• 10:41
  Speaker 1: creative with how they're approaching or how they're getting out
• 10:44
  Speaker 1: there to identifying new employees. So we're not seeing too
• 10:48
  Speaker 1: much of an overpaying or arise in wages, but we're
• 10:52
  Speaker 1: seeing some interesting things of how they're kind of connecting
• 10:54
  Speaker 1: with you know this you know, the employees um and
• 10:59
  Speaker 1: that's either through TikTok. So a lot of the brands
• 11:02
  Speaker 1: are starting to use TikTok to um really get the
• 11:05
  Speaker 1: brand awareness out there, to use that as a way
• 11:08
  Speaker 1: of putting out you know, getting resumes in and out
• 11:11
  Speaker 1: UM and trying to tap into kind of that younger set.
• 11:14
  Speaker 1: So that's one. The other thing that we're I found
• 11:16
  Speaker 1: very interesting is that they're actually offering signing bonuses. Some
• 11:20
  Speaker 1: brands are offering signing bonuses UM to get people in.
• 11:24
  Speaker 1: So it's it's we'll start to see some shifts there.
• 11:28
  Speaker 1: But for the most part, specifically when it comes to
• 11:31
  Speaker 1: labor and restaurants, UM, they are still challenged. We're seeing
• 11:36
  Speaker 1: that with kind of reduced menu offerings, reduced operating hours, etcetera. Uh,
• 11:42
  Speaker 1: and so they have to be creative today. I think
• 11:46
  Speaker 1: some of the retailers are pretty creative during this pandemic.
• 11:48
  Speaker 1: One of them was this curbside pickup. That's a pretty
• 11:50
  Speaker 1: cool thing. I kind of enjoy that. Is that going
• 11:53
  Speaker 1: to state? Do you think? Oh? Most definitely. We're actually
• 11:57
  Speaker 1: starting to see um, you know, letters of intent requesting
• 12:02
  Speaker 1: or requiring curbside pick up. So when I was speaking
• 12:06
  Speaker 1: with a variety of national retailers, I said, how is
• 12:09
  Speaker 1: that you helped or not helped having curbside? Is it
• 12:13
  Speaker 1: an added expense? They said, not at all. It's actually
• 12:16
  Speaker 1: a convenience to our customer. And it's another channel of
• 12:20
  Speaker 1: how we can um provide another solution for that that
• 12:24
  Speaker 1: customer where if they don't feel like they want to
• 12:26
  Speaker 1: come into the store and they just want to pick
• 12:28
  Speaker 1: it up curbside, they have that flexibility and so that's
• 12:31
  Speaker 1: really important to them. They've seen a lift in sales
• 12:34
  Speaker 1: anywhere between twelve and FI. Yeah, that's pretty pretty interesting
• 12:39
  Speaker 1: seeing retailers get pretty creative on j Slanki, national director
• 12:42
  Speaker 1: Retail for in the US for Collier's International, giving us
• 12:46
  Speaker 1: her thoughts on the retail landscape again generally pretty strong
• 12:50
  Speaker 1: as consumer confidence continues to rebound. All right, So we
• 12:55
  Speaker 1: are getting right into the meat of this earning season
• 12:58
  Speaker 1: and there's a lot of folks out there. It's a boy,
• 13:00
  Speaker 1: these earnings are really better come through because when you
• 13:02
  Speaker 1: look at valuations, you can make the argument that a
• 13:05
  Speaker 1: lot of these uh parts of the market are overextended
• 13:08
  Speaker 1: from evaluation perspective. Josh Wine, portfolio manager at Hennessey Funds,
• 13:12
  Speaker 1: joins as Josh, I love to get your thoughts on
• 13:14
  Speaker 1: kind of what you need to see, what you expect
• 13:17
  Speaker 1: to see out of this earnings season here as it
• 13:21
  Speaker 1: relates to you know, kind of maybe earnings and valuations
• 13:24
  Speaker 1: in this market. Yeah, it's good to be with you.
• 13:27
  Speaker 1: I have a spell in my face hearing about karaoke
• 13:29
  Speaker 1: and Dolly part and that's a great way to start
• 13:31
  Speaker 1: this out. The world is a better place for my
• 13:33
  Speaker 1: not doing karaoke as well. Um yeah, earning season, uh,
• 13:37
  Speaker 1: you know, certainly want to see the consumer so as
• 13:39
  Speaker 1: as companies roll out earnings. You know, it was very
• 13:41
  Speaker 1: interesting to see bank earnings and I think it was expected,
• 13:44
  Speaker 1: you know, very strong earnings there. But you know, we
• 13:46
  Speaker 1: have a retail sales number today that was well ahead
• 13:49
  Speaker 1: of expectations, and things like clothing and electronics and restaurants
• 13:53
  Speaker 1: were you know, above above average growth and and ahead
• 13:56
  Speaker 1: of expectations. So you know, it is what it is,
• 13:59
  Speaker 1: and it would be great to hear, you know, some guidance.
• 14:01
  Speaker 1: You know, what are you know, companies thinking about, you know,
• 14:04
  Speaker 1: the next quarter. You know, right now we have very
• 14:06
  Speaker 1: easy comparisons to a year ago. But you know, let's see,
• 14:09
  Speaker 1: you know, what it's going to look like in Q
• 14:11
  Speaker 1: four when the comparison is is meaningfully more difficult, and
• 14:15
  Speaker 1: certainly Q one of next year it will be somewhat
• 14:18
  Speaker 1: of a regular comparison to Q one of this year. Josh,
• 14:22
  Speaker 1: how are you investing in this time when you get
• 14:25
  Speaker 1: strong retail sales but then you see consumer sentiment coming
• 14:28
  Speaker 1: really soft given one year inflation expectations are going back
• 14:33
  Speaker 1: the highest since two thousand and eight. How do you
• 14:36
  Speaker 1: take to contradicting factors and invest Yeah, it's interesting because
• 14:41
  Speaker 1: you know, I was looking, you know, the market, you know,
• 14:44
  Speaker 1: twenty times forward earnings, so about a five percent earnings
• 14:47
  Speaker 1: yield against the backdrop of a one three on the tenure.
• 14:50
  Speaker 1: So you know, valuations on average are incredibly compelling. You
• 14:55
  Speaker 1: know that they're basically that's spread the earnings yield versus
• 14:59
  Speaker 1: the ten years were we were before the pandemic started. Uh.
• 15:02
  Speaker 1: That being said, you know, yeah, certainly size matters a
• 15:07
  Speaker 1: lot in this market increasingly so. So you know, a Microsoft,
• 15:11
  Speaker 1: great company, thirty four times forward earnings. When I see that,
• 15:15
  Speaker 1: and they're growing quite nicely, but I think to myself
• 15:18
  Speaker 1: that the market definitely places a premium on growth. I
• 15:21
  Speaker 1: think more so in the case of a Microsoft, it's
• 15:24
  Speaker 1: not only a great balance, but just the size and
• 15:26
  Speaker 1: the liquidity. So I think that there's definitely a size
• 15:29
  Speaker 1: and liquidity story, and what gets blocked out by that
• 15:33
  Speaker 1: by that sun is you know, kind of midcaps with
• 15:36
  Speaker 1: a similar valuation story and you know, compelling growth, but
• 15:41
  Speaker 1: certainly the multiples are not there, and I think that
• 15:44
  Speaker 1: you know in that lies you know a great opportunity. Josh,
• 15:47
  Speaker 1: where are you and your team at Hennessey Advisors in
• 15:51
  Speaker 1: Chapel Hill, North Carolina. I don't know why you didn't
• 15:54
  Speaker 1: locate in Durham Superior University down there, but anyway, what
• 15:58
  Speaker 1: are you and your team doing in terms of work
• 16:01
  Speaker 1: right now? What are the areas you're focusing on? Sure? Yeah,
• 16:04
  Speaker 1: so I would point you know, in our Hennessy Cornerstone
• 16:06
  Speaker 1: mad Cap thirty fund, where we're looking at valuation, earnings,
• 16:09
  Speaker 1: growth and stock price momentum. And where that leads us
• 16:13
  Speaker 1: is a lot of the consumer names that you know,
• 16:15
  Speaker 1: don't get the attention of of you know, maybe like
• 16:17
  Speaker 1: a Costco or a Starbucks. You know, these are MidCap names,
• 16:20
  Speaker 1: UH companies like Mattel, Big Lots UH and Meritage Homes,
• 16:26
  Speaker 1: so you know, strong free cash flow generating companies, you know,
• 16:30
  Speaker 1: strong balance sheets. The multiples are interesting to me because
• 16:33
  Speaker 1: I think these are for the most part well known names.
• 16:36
  Speaker 1: But you know, Big Lots trading at nine times for earnings,
• 16:39
  Speaker 1: Mattel at sixteen times, Meritage at about six times for earnings. So, uh,
• 16:45
  Speaker 1: you know, I think that that you know, value can
• 16:48
  Speaker 1: be its own catalyst. And and I don't think a
• 16:51
  Speaker 1: lot of people agree with that, but I think that
• 16:53
  Speaker 1: these names, they are strong names, and they will live
• 16:56
  Speaker 1: to see another day and and at some point investors
• 16:59
  Speaker 1: will inevitable a U turn their attention towards these overlooked
• 17:03
  Speaker 1: type names. What is the path forward for interest rates? It?
• 17:09
  Speaker 1: Does it have to go higher from here? How are
• 17:11
  Speaker 1: you thinking about that? Yeah? I think about it a lot.
• 17:15
  Speaker 1: So I've covered equities in in some way, shape or
• 17:18
  Speaker 1: form for about twenty five years, and I've never paid
• 17:21
  Speaker 1: that much attention to the bondo market as much as
• 17:23
  Speaker 1: I do now. And first of all, you know, the
• 17:25
  Speaker 1: bond market to me, you know, there might be some
• 17:28
  Speaker 1: Obviously the FED is gets in the way of maybe
• 17:31
  Speaker 1: true price discovery to a large degree, but the bond
• 17:34
  Speaker 1: market is telling me that maybe we are borrowing some
• 17:37
  Speaker 1: growth from future quarters now that we've reopened, and there's
• 17:40
  Speaker 1: this delayed wealth effects, so people are out spending money,
• 17:43
  Speaker 1: and uh, you know, you see that if you just
• 17:46
  Speaker 1: walk down any and he needs, you know, any street
• 17:48
  Speaker 1: in this country probably, And uh so, I think that
• 17:53
  Speaker 1: we've been saying for so many years now that rates
• 17:56
  Speaker 1: have to go higher, and every year that becomes less
• 18:00
  Speaker 1: and less true, and and so yeah, I don't think
• 18:02
  Speaker 1: they have to go higher. I think rates, you know,
• 18:05
  Speaker 1: versus overseas rates are are somewhat elevated in the United States.
• 18:09
  Speaker 1: And when I look at overseas markets and economies they
• 18:12
  Speaker 1: are in no, they are not nearly as good a
• 18:15
  Speaker 1: shape as we are here in the United States for
• 18:17
  Speaker 1: the most part. So I think that we have a
• 18:20
  Speaker 1: lot to contend with overseas and in emerging markets, and
• 18:23
  Speaker 1: I don't know how sustainable things could ever be if
• 18:26
  Speaker 1: we don't get those economies reopened and functioning properly. So
• 18:31
  Speaker 1: you know, I'm not going to make any prediction on
• 18:33
  Speaker 1: the tenure or bonds in general, but you know, I
• 18:36
  Speaker 1: don't think rates have to go higher at all, and
• 18:38
  Speaker 1: I think they could go a little bit lower. All right, Josh,
• 18:40
  Speaker 1: thank you so much. We appreciate that. As always Josh
• 18:43
  Speaker 1: Way and he's a portfolio manager at Tennessee Funds giving
• 18:45
  Speaker 1: us his thoughts on the market. Uh. Here it remains
• 18:49
  Speaker 1: bullish here, but earnings coming in fast and furious will
• 18:52
  Speaker 1: continue next week. We had the banks this week, as
• 18:55
  Speaker 1: Josh mentioned, coming in pretty starn solid. But we're gonna
• 18:58
  Speaker 1: have some tech. We're gonna have some consumer names next
• 19:00
  Speaker 1: week that will continue the narrative on earnings and this market.
• 19:04
  Speaker 1: This is Bloomberg looking at Moderna here stock is up
• 19:10
  Speaker 1: nine point eight percent all time high four dollars. Uh
• 19:14
  Speaker 1: it's got sporting a market cap of a hundred and
• 19:17
  Speaker 1: fourteen billion dollars included today in the SMP five hundred,
• 19:21
  Speaker 1: of course, manufacturer of the Moderna vaccine, which has been
• 19:25
  Speaker 1: so successful for so many patients for this COVID. Let's
• 19:28
  Speaker 1: get a sense of what's going on at this company.
• 19:30
  Speaker 1: That's now you probably started the you know, two years ago,
• 19:34
  Speaker 1: nobody really knew about it. Now it's a household name.
• 19:37
  Speaker 1: John Murphy, he's a pharmaceutical analyst for Bloomberg Intelligence based
• 19:40
  Speaker 1: in London. He joins us, John, tell us about this company.
• 19:43
  Speaker 1: Give us a thirty thou foot overview of what this
• 19:46
  Speaker 1: company really is. We know it, as you know, a
• 19:49
  Speaker 1: manufacturer of a very effective vaccine. But give us a
• 19:52
  Speaker 1: sense of what this company is about. Sure, yeah, nice
• 19:55
  Speaker 1: to join you. Actually you summed it up very nice.
• 19:57
  Speaker 1: That we hadn't really heard about this company, had we
• 19:59
  Speaker 1: a couple of years ago. Now it has been around since,
• 20:03
  Speaker 1: but only came to the market in two thousand and eighteen,
• 20:05
  Speaker 1: and it was a I guess a bit of a
• 20:07
  Speaker 1: minnow then, although at the time it created a splash
• 20:10
  Speaker 1: because it's i p O was seven and a half billion,
• 20:12
  Speaker 1: so for a biotech that that was quite significant. So
• 20:16
  Speaker 1: M R and A based a vaccine focused looking at
• 20:19
  Speaker 1: a number of different infectious diseases. You could argue they
• 20:23
  Speaker 1: maybe got a little bit lucky or got a big
• 20:25
  Speaker 1: leg up when COVID came along, because clearly there was
• 20:27
  Speaker 1: a lot of cash that that came their way. But
• 20:29
  Speaker 1: they have for for a number of years been looking
• 20:32
  Speaker 1: at areas such as flu rs V, side of megalovirus,
• 20:36
  Speaker 1: so really looking to to develop a broad pipeline of
• 20:41
  Speaker 1: of vaccines in the anti infective space. And again, as
• 20:44
  Speaker 1: I said, they clearly benefited from COVID here in terms
• 20:48
  Speaker 1: of getting an acceleration in development. And I guess the
• 20:51
  Speaker 1: question now is after COVID, where do things go? That
• 20:54
  Speaker 1: is the question. What is the future for this company.
• 20:56
  Speaker 1: We had a great conversation earlier this week talking about
• 20:59
  Speaker 1: using at m R and a technology for cancer for HIV.
• 21:03
  Speaker 1: I mean, the hopes here are so high. Yeah, I
• 21:06
  Speaker 1: think you're exactly right now. And and you know what,
• 21:09
  Speaker 1: sometimes I think, um, and it's kind of natural that
• 21:12
  Speaker 1: when you see a new technology, expectations initially are high,
• 21:16
  Speaker 1: they get they then they get a little bit disappointed,
• 21:19
  Speaker 1: if you like, when when these high expectations aren't met.
• 21:21
  Speaker 1: And now we're kind of going up to that to
• 21:23
  Speaker 1: that peak again. So I think if you look at
• 21:25
  Speaker 1: the anti infective areas again, as I mentioned the lights
• 21:28
  Speaker 1: of flu, rs V, sites of megalovirus, these are probably
• 21:31
  Speaker 1: more realistic in the next three to five years to
• 21:34
  Speaker 1: see them come out with a product. I'm pretty long
• 21:37
  Speaker 1: in the tooth, and I can tell you twenty years
• 21:39
  Speaker 1: ago we were talking about cancer vaccines. We've not seen
• 21:42
  Speaker 1: them come through. I wouldn't be betting my money on
• 21:45
  Speaker 1: on cancer delivering something there. HIV again looks like a
• 21:49
  Speaker 1: pretty difficult area. But although maybe not not as not
• 21:52
  Speaker 1: a sexy, not as attractive rs V side of megalovirus,
• 21:56
  Speaker 1: these are five to ten billion dollar markets, so it's
• 21:59
  Speaker 1: a very very large from that perspective. All right, I'd
• 22:02
  Speaker 1: love to talk about the economics of the vaccine. I'm
• 22:05
  Speaker 1: looking at the f A function on the Bloomberg terminal,
• 22:07
  Speaker 1: which gives the income statement balance you all the good
• 22:09
  Speaker 1: stuff you would need for financial analysis on m r
• 22:13
  Speaker 1: n A, which is the MODERNA symbol. Eight hundred million
• 22:16
  Speaker 1: dollars in revenue in analysts estimate eighteen point six billion.
• 22:23
  Speaker 1: Is all of that the vaccine. Talked to us about
• 22:25
  Speaker 1: the economics for MODERNA of this vaccine. They're not given
• 22:28
  Speaker 1: it away, are they? It is all the vaccine. Yeah,
• 22:32
  Speaker 1: that that is essentially that is essentially a pent You're
• 22:35
  Speaker 1: absolutely that is the vaccine. And I think the big
• 22:38
  Speaker 1: question as well, because as you said in your introduction,
• 22:41
  Speaker 1: you've got you've got to stop. Here is a hundred
• 22:43
  Speaker 1: and fourteen hundred and fifteen billion dollar market cat what
• 22:46
  Speaker 1: is the sustainability of that income? So can we factor
• 22:49
  Speaker 1: into our numbers what it's going to do. Is it're
• 22:51
  Speaker 1: gonna do twenty billion again next year for example, give
• 22:54
  Speaker 1: or take the company says it can do, and then
• 22:56
  Speaker 1: what happens in a couple of years after that in
• 22:59
  Speaker 1: terms of in the to the actual the actual economics.
• 23:03
  Speaker 1: They don't release or tell you exactly what they're charging,
• 23:06
  Speaker 1: but you can estimate it's a shop here. Um. And
• 23:10
  Speaker 1: of course they're going to have some associated costs marketing costs,
• 23:13
  Speaker 1: they've got the R and D costs. But it's going
• 23:15
  Speaker 1: to be relatively profitable for them in the high income markets, certainly,
• 23:19
  Speaker 1: But like a lot of a lot of their competitors,
• 23:22
  Speaker 1: this is being provided at cost to the low income markets.
• 23:24
  Speaker 1: And Kovacs for example. You know, John, I'm smart enough
• 23:28
  Speaker 1: to know that I should not be going toe to
• 23:30
  Speaker 1: toe with Mr Paul Sweeney on level two income statement
• 23:33
  Speaker 1: analysis for the c f A. What I can ask you, though,
• 23:37
  Speaker 1: is take us away a little bit from fundamentals, and
• 23:40
  Speaker 1: you have a stock that's now included in the S
• 23:42
  Speaker 1: and P five hundred. What are you hearing from We
• 23:46
  Speaker 1: know their portfolios that track the S and P that
• 23:50
  Speaker 1: now have to buy the stock. How much of that
• 23:52
  Speaker 1: is also included in a move that's now up ten
• 23:55
  Speaker 1: on the day. Yeah, Now, I think I think you're
• 23:58
  Speaker 1: exactly right, and I think that's exactly what it should
• 24:01
  Speaker 1: be linked to today's move. I think we've seen it before,
• 24:04
  Speaker 1: because you get the fact that there's a number of
• 24:06
  Speaker 1: index passive funds. You've also got mutual funds, for example,
• 24:10
  Speaker 1: that index themselves against the SMP. And you guys have
• 24:13
  Speaker 1: no better than me. But I understand there's in excess
• 24:15
  Speaker 1: of ten trillion dollars that is index or benchmark to
• 24:19
  Speaker 1: the SMP. Now, not all of those have to go
• 24:21
  Speaker 1: out and buy the stock today. But again we've seen
• 24:24
  Speaker 1: it before. You get a spike for the first couple
• 24:26
  Speaker 1: of days, and then it normally settles down. Maybe with
• 24:29
  Speaker 1: Maderna because we've had this phenomenal run, maybe it doesn't
• 24:31
  Speaker 1: settle down as quickly, but that's what you that's certainly
• 24:34
  Speaker 1: what you do. Tend tend to see m r N
• 24:37
  Speaker 1: a technology that's now entered the lexicon for a lot
• 24:40
  Speaker 1: of people as we've kind of dealt through this pandemic.
• 24:44
  Speaker 1: Give us a sense of who the players are here
• 24:46
  Speaker 1: besides moderna And you know, is this is this something
• 24:49
  Speaker 1: that we need to pay attention to going forward, this technology? Yes,
• 24:54
  Speaker 1: I think that's a really important question, a great point
• 24:56
  Speaker 1: to bring up, and and the reason for that is
• 24:59
  Speaker 1: the was a lot of talk about this. There's a
• 25:01
  Speaker 1: lot of buzzwords go around in pharmaceuticals, in science, and
• 25:05
  Speaker 1: they talk about new technologies and what they're going to deliver,
• 25:08
  Speaker 1: and a lot of times there's a lot of a
• 25:10
  Speaker 1: lot of talk, but they don't tend to deliver. Now,
• 25:12
  Speaker 1: now this is absolutely not the case here. But we've
• 25:15
  Speaker 1: really got two leaders here. We've got Maderna on one side,
• 25:18
  Speaker 1: and we've got by on Tech, the German company with
• 25:21
  Speaker 1: whom Fiser is partnered. They're the two leaders. They're a
• 25:25
  Speaker 1: long way out, and it's interesting. There's a lot of
• 25:27
  Speaker 1: others and making moves or saying we want to get involved.
• 25:31
  Speaker 1: Fiser themselves that said they might start up their own
• 25:33
  Speaker 1: their own area. Glaxo had mentioned that, Santa Fe had
• 25:36
  Speaker 1: mentioned it, but it takes a number of years to
• 25:39
  Speaker 1: really get get to understand the technology and make the
• 25:42
  Speaker 1: appropriate investments. So at the moment these guys are out
• 25:45
  Speaker 1: on their own, how much of a lead, maybe four
• 25:48
  Speaker 1: to five years of the lead something like that. But
• 25:50
  Speaker 1: but clearly it's an area that is going to be
• 25:53
  Speaker 1: super important going forward for vaccines. Finally, just quickly here,
• 25:58
  Speaker 1: I'm thinking, what does this means? Are other sort of
• 26:00
  Speaker 1: biotech companies that are also racing along with Maderna and
• 26:04
  Speaker 1: and you sort of have these big pharmaceutical companies that
• 26:07
  Speaker 1: are making big bats on some of these unprofitable companies
• 26:10
  Speaker 1: at the time. But all they need is is one
• 26:13
  Speaker 1: big grand slam. Yeah, I'm a guess, and you know,
• 26:17
  Speaker 1: the drug companies, the investors, all of us, right, if
• 26:19
  Speaker 1: we're looking at things like that, if you can, if
• 26:21
  Speaker 1: you can pick out, pick out that grand slam. Absolutely,
• 26:24
  Speaker 1: and that's why a lot of companies are paying huge
• 26:27
  Speaker 1: amounts and some some cases people would say over paying
• 26:30
  Speaker 1: for the new technologies. It's not easy to be able
• 26:34
  Speaker 1: to pick out unfortunately. So I think this is great
• 26:37
  Speaker 1: for the sector going in today. It gets people to
• 26:39
  Speaker 1: focus on a sector that maybe they've not looked at before. Hey, John,
• 26:43
  Speaker 1: thanks so much for joining us. Really appreciate your insight
• 26:45
  Speaker 1: and expertise. John Murphy's a pharmaceutical analysts for Bloomberg Intelligence
• 26:49
  Speaker 1: based in London, giving us the latest on moderna. This
• 26:53
  Speaker 1: is Bloomberg. Thanks for listening to the Bloomberg Markets podcast.
• 26:57
  Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
• 27:00
  Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
• 27:04
  Speaker 1: on Twitter at Matt Miller three and I fall Sweeney.
• 27:08
  Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
• 27:10
  Speaker 1: can always catch us worldwide at Bloomberg Radio