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Robinhood Credit Card, Boeing Shuffle · Bloomberg Intelligence

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1:00
Speaker 4: Calhoun stepping down at the end of twenty twenty four.
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Speaker 3: But first, Robinhood Market's best known for offering commission Free
1:05
Speaker 3: Trading is rolling out a credit card to US consumers
1:08
Speaker 3: as it looks to become a broader financial services company.
1:11
Speaker 4: The Robinhood Gold Card will be offered exclusively to members
1:14
Speaker 4: of the firm subscription based Gold program.
1:16
Speaker 3: For more, guest host Bailey Lipshaltz and I were joined
1:19
Speaker 3: by Robinhood, co founder and CEO of vladit Tenev. We
1:22
Speaker 3: first asked him for more context on the company's latest news.
1:25
Speaker 6: We were really excited to announce this. We've been working
1:27
Speaker 6: on it for quite a while and we didn't just
1:30
Speaker 6: want to launch another me too credit card. We really
1:34
Speaker 6: wanted to come in and do something special and really
1:38
Speaker 6: lead the industry. So it's really the best cash back
1:42
Speaker 6: rewards that we found in any credit card on the market,
1:45
Speaker 6: the best digital experience, and really the best design. We
1:48
Speaker 6: have a solid gold card that's basically a hunk of metal.
1:53
Speaker 6: It's extremely iconic, very simple, like, very well designed. We're
1:58
Speaker 6: really proud of the product.
2:00
Speaker 7: How does the credit card fit into the business, because
2:02
Speaker 7: I know early last year you guys announced a retirement products,
2:05
Speaker 7: so it feels like you're trying to expand away from
2:08
Speaker 7: the core trading platform.
2:10
Speaker 6: Yeah, so as a business Holistically, we're focused on three things.
2:14
Speaker 6: The first is being the number one platform for active traders.
2:18
Speaker 6: Right now, we're number two, but we have a path
2:20
Speaker 6: to being number one in some number of years, and
2:24
Speaker 6: that's really through user experience improvements, product innovations like twenty
2:28
Speaker 6: four hour market, adding new asset classes like futures, new
2:33
Speaker 6: platform launches like our web Pro platform, which we've announced.
2:37
Speaker 6: But we don't want to just be an active trader platform.
2:39
Speaker 6: We also want to grow wallet share with our customers
2:41
Speaker 6: and help them build wealth. That's where Robinhood Gold comes in.
2:45
Speaker 6: That's where our innovations and the retirement program with three
2:48
Speaker 6: percent match come in. And of course, now the credit
2:51
Speaker 6: card is sort of another pillar of us growing wallet
2:55
Speaker 6: share with customers and helping them do all of their
2:58
Speaker 6: financial activities one place via Robinhood.
3:01
Speaker 3: So are you competing with this card with the bank
3:05
Speaker 3: issued Visa master cards? Is that the market you're now
3:08
Speaker 3: going into.
3:09
Speaker 6: I think that we're trying to do something really interesting
3:12
Speaker 6: with this card. So if you think about premium credit cards,
3:15
Speaker 6: the best ones out there, accept less than half of
3:18
Speaker 6: the people that apply.
3:20
Speaker 3: Is that right? Is that half of that Chase Sephi
3:23
Speaker 3: or is that an platinum or whatever.
3:25
Speaker 6: Those classes of credit cards really like the typical sort
3:29
Speaker 6: of like super prime premium rewards cards, and they have
3:33
Speaker 6: high annual fees. So what we wanted to do is,
3:36
Speaker 6: in the same way that Robinhood democratized stock trading and
3:40
Speaker 6: made it accessible to a wider group of people, we
3:43
Speaker 6: want to open up the private client experience. I don't
3:47
Speaker 6: know if you've been to a Chase branch, but you
3:51
Speaker 6: can see there's two doors, one for the private clients
3:54
Speaker 6: and one for everyone else. And the whole idea behind
3:57
Speaker 6: Robinhood Gold is giving that private client experience for as
4:01
Speaker 6: little as five dollars a month, opening it to everyone.
4:04
Speaker 6: And it starts with the premium credit card. Of course,
4:06
Speaker 6: the retirement benefits where you get a three percent match,
4:10
Speaker 6: the first and biggest in the industry, the five percent
4:13
Speaker 6: apy on our cash, which is just an institutional grade,
4:17
Speaker 6: high yield offering that you have to have, you know,
4:20
Speaker 6: millions of dollars to match at other brokers. So yeah,
4:25
Speaker 6: we're putting all this together and we're seeing Robinhood Gold
4:27
Speaker 6: customers actually depositing the lion's share of their money into
4:31
Speaker 6: Robinhood and really growing with us. And I think we
4:34
Speaker 6: have an opportunity to offer them services for all their
4:37
Speaker 6: financial needs in BLAD.
4:39
Speaker 7: The perks are pretty sweet, as you mentioned, three percent
4:40
Speaker 7: cash back on all purchases. Do you make money off
4:43
Speaker 7: of this? How is this going to be kind of
4:45
Speaker 7: another peg for the profitability and the growth of the company.
4:49
Speaker 6: Yeah. Two things there. One is we do obviously any
4:53
Speaker 6: business line we enter, we intend to be profitable over
4:57
Speaker 6: the long run on a standalone basis, so not just
5:00
Speaker 6: a creative but we anticipate this being a profitable business
5:04
Speaker 6: line just within the card portfolio, and that's through not
5:09
Speaker 6: just the interchange transaction revenue, but also the lending business
5:14
Speaker 6: through the card. We anticipate this would actually be a
5:17
Speaker 6: very attractive card for people building credit over time, and
5:21
Speaker 6: not just folks that pay off their balance in full.
5:24
Speaker 6: The other side of it is we see that when
5:26
Speaker 6: customers adopt Robinhood Gold, their rate of deposit growth and
5:31
Speaker 6: account balance growth is much higher than non gold customers.
5:35
Speaker 6: They also adopt our products at a much higher rate,
5:38
Speaker 6: and so even though they're getting so much more value
5:41
Speaker 6: with all these industry leading rates and value props, the
5:45
Speaker 6: revenue that accrues to the business from the gold relationship
5:49
Speaker 6: is also multiples higher than non gold customers. And we
5:52
Speaker 6: think the credit card since it's so core to people's
5:56
Speaker 6: financial needs. Typically all of their the line share of
6:00
Speaker 6: spending goes through credit and if you're using a credit card,
6:03
Speaker 6: much easier to grab the paycheck deposit. We need to
6:06
Speaker 6: carry his cash around.
6:07
Speaker 7: Now, this is the guy who walks around with hundreds
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Speaker 7: of dollars in his pocket.
6:10
Speaker 3: I don't know why I asked myself to say, when
6:13
Speaker 3: you walk into a bar, the jersey short good cash
6:15
Speaker 3: on the bar there?
6:16
Speaker 8: All right?
6:17
Speaker 3: So who is the typical Robinhood customer these days? Client?
6:21
Speaker 8: These days?
6:22
Speaker 6: A typical Robinhood customer, I would say, is someone in
6:26
Speaker 6: their thirties. They tend to be an early adopter of technology.
6:31
Speaker 6: They have. You know, more, half of our customers make
6:34
Speaker 6: over one hundred thousand dollars in annual income. So it's
6:40
Speaker 6: not sort of like the paycheck to paycheck customer as
6:44
Speaker 6: maybe some people think.
6:47
Speaker 2: Yep.
6:48
Speaker 6: And we also have much larger customers with big accounts.
6:52
Speaker 6: We recently have been introducing matches. In fact, we rolled
6:56
Speaker 6: out another initiative one percent unlimited pose and Match into
7:01
Speaker 6: Robinhood for all dollars deposited for our Gold members. So basically,
7:06
Speaker 6: most financial firms charge you a percentage to keep your
7:09
Speaker 6: money there as a management fee. We're paying you a
7:12
Speaker 6: percentage to move your money with us. And these types
7:16
Speaker 6: of offers have really attracted people with much bigger accounts.
7:19
Speaker 6: We've had customers with tens of millions of dollars moving
7:21
Speaker 6: those accounts to Robinhood and they've been very happy with
7:25
Speaker 6: the experience. So we have been adding capabilities to serve
7:29
Speaker 6: customers across the entire market, not just sort of in
7:33
Speaker 6: that middle tier, but also people with more money and
7:36
Speaker 6: people with less who are just getting started. We also
7:40
Speaker 6: would like to serve them and have been focusing on
7:42
Speaker 6: that demographic since day one and vlat.
7:45
Speaker 7: When I talk to skeptics, they point out that you
7:47
Speaker 7: guys are heavily reliant on options, trading crypto volumes, and
7:51
Speaker 7: that driving the business. Paul mentioned their huge run up
7:54
Speaker 7: over the last twelve months.
7:55
Speaker 4: It's still down.
7:55
Speaker 7: Forty eight percent from the IPO price. What is the
7:59
Speaker 7: kind of mission in the next coming months and years
8:01
Speaker 7: for the company to get back to that IPO price
8:03
Speaker 7: and trade higher.
8:04
Speaker 6: Well, I think we've been doing really well focusing on
8:07
Speaker 6: the inputs of the business. I can't really control the
8:11
Speaker 6: stock price directly, but if we're growing revenues, if we're
8:15
Speaker 6: diversifying revenues, if we're launching innovative new products for our customers,
8:20
Speaker 6: I think we can kind of grow through market headwinds
8:23
Speaker 6: and high interest rate environment and be sort of like
8:27
Speaker 6: a company that thrives in all conditions. And you mentioned
8:31
Speaker 6: the revenues and options trading and all these things. But
8:35
Speaker 6: what's happened in the past couple of years is the
8:38
Speaker 6: revenue profile of the business has diversified as we've rolled
8:41
Speaker 6: out all these products. As of the last earnings report
8:44
Speaker 6: several earnings calls, more than half of the revenues actually
8:47
Speaker 6: net interest margin, not even transaction base. So as we
8:51
Speaker 6: add more of these products, like the five percent yield
8:54
Speaker 6: on your cash, the profile of the business has also changed.
8:58
Speaker 3: Our thanks to Robinhood, co founder and Ceenev, we.
9:01
Speaker 4: Moved out of politics. President Joe Biden has gained ground
9:03
Speaker 4: against Republican Donald Trump and six of the seven key
9:06
Speaker 4: swinging states, and significantly so and at least two of them.
9:08
Speaker 4: The results make for the Democrats the strongest position yet.
9:11
Speaker 4: In a monthly Bloomberg News Morning Console Poll.
9:14
Speaker 3: For more on this poll, we were joined by Mark Niquett,
9:16
Speaker 3: Bloomberg Real Economy Team reporter. We first asked Mark to
9:19
Speaker 3: break down some of the poll's findings.
9:21
Speaker 8: The poll shows it's a monthly tracking poll that we've
9:23
Speaker 8: been doing since October, and it shows that Trump's still
9:26
Speaker 8: doing pretty well in Georgia, Arizona, Nevada are the most
9:28
Speaker 8: significant findings is that Biden has improved his standing in Michigan, Wisconsin,
9:35
Speaker 8: and Pennsylvania, sort of the blue Wall. I think these
9:38
Speaker 8: states are going to decide the election, and he needs
9:40
Speaker 8: to to win these states if he's going to get
9:42
Speaker 8: a second term. In Wisconsin, Biden now holds one point
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Speaker 8: lead over Trump after trailing and by four points in February.
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Speaker 8: In Pennsylvania, the candidates are tied after Trump had a
9:52
Speaker 8: six point lead in February, and they're also tied in Michigan.
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Speaker 3: Any common denominator here, Marcus to what might be driving
10:00
Speaker 3: of these poll numbers.
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Speaker 8: The timing of the poll was interesting. It was conducted
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Speaker 8: March eighth through the fifteenth in the swing states, and
10:08
Speaker 8: March eighth is a day after Biden's State of the
10:11
Speaker 8: Union address, which was pretty fiery, and I think, you know,
10:15
Speaker 8: alleviated some Democratic concerns about the president's age and his
10:19
Speaker 8: fitness to take on Trump a second time in a rematch.
10:23
Speaker 8: And it's also midway about March twelfth is Super Tuesday,
10:27
Speaker 8: when both Biden and Trump sort of clinch the respective nominations.
10:33
Speaker 8: They got enough delegates to clinch, so it kind of
10:35
Speaker 8: really made it a binary choice. You know, we knew
10:38
Speaker 8: this was going to be the outcome, but I think
10:41
Speaker 8: the Democrats in particular, we're thinking that until it was
10:44
Speaker 8: really clear in voters' minds that this was going to
10:47
Speaker 8: be a rematch and it was Trump or Biden, that's
10:50
Speaker 8: their choices, that you know, Biden was not going to
10:53
Speaker 8: do as well in the polls. So this is sort
10:55
Speaker 8: of the first poll that you know, we have clearly
10:58
Speaker 8: established that it's going to be a Trump Biden real match.
11:00
Speaker 4: Are voters voting because they like the candidates or because
11:04
Speaker 4: they don't like the other one?
11:05
Speaker 8: Well, Interestingly, our polls showed that in the case of Trump,
11:09
Speaker 8: most of the support is coming from people who like Trump.
11:12
Speaker 8: Only three and ten Trump supporters said they were voting
11:15
Speaker 8: for Trump because they didn't like Biden. They're essentially voting
11:18
Speaker 8: against Biden. But the case was different for Biden. About
11:22
Speaker 8: half the supporters of Biden so and they were voting
11:25
Speaker 8: for the president essentially as a vote against Trump. They
11:27
Speaker 8: didn't want to see Trump get back into the White House.
11:29
Speaker 8: There was even more pronounced in Wisconsin, were like six
11:32
Speaker 8: and ten of the supporters of Biden were voting for
11:34
Speaker 8: him because they were voting against Trump.
11:37
Speaker 4: To that point, are those voters more sticky or not? Like,
11:40
Speaker 4: is the anti vote stickier than the pro vote?
11:43
Speaker 2: Well?
11:44
Speaker 8: Is what we're going to find out is what's more motivating, right,
11:47
Speaker 8: support for your candidate or desire not to see the
11:50
Speaker 8: other candidate win. You know, I think Trump has benefited
11:53
Speaker 8: over time from enthusiastic support from his base and base
11:58
Speaker 8: turning out board for him, but the negative feeling can
12:02
Speaker 8: also be a very strong motivating factor, could drive folks
12:05
Speaker 8: to the polls specifically to vote against Donald Trump because
12:08
Speaker 8: they don't want to see him back in the lighthouse.
12:09
Speaker 8: But we're going to find out what's more motivating, you know,
12:12
Speaker 8: voting for your guy or voting against the other guy.
12:14
Speaker 4: All right, great stuff, really appreciate it, Thank you very much.
12:17
Speaker 4: We look forward to the next poll as well Mark Nkatt,
12:20
Speaker 4: He's Bloomberg Real Economy reporter, joining us in the latest
12:23
Speaker 4: Morning Console poll.
12:25
Speaker 3: Coming up on the program, we'll discuss why Apple's iPhone
12:27
Speaker 3: shipments are falling in China. You're listening to Bloomberg Intelligence
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13:05
Speaker 4: We look next at the aerospace industry in Boeing. Earlier
13:08
Speaker 4: this week, we got news that Boeing CEO Dave Calhoun
13:10
Speaker 4: is stepping down at the end of this year. It's
13:12
Speaker 4: all part of a leadership overhaul.
13:14
Speaker 3: This comes as a planemaker has been dealing with the
13:15
Speaker 3: aftermath of a near catastrophic fuselage failure on a seven
13:19
Speaker 3: thirty seven Max nine aircraft early this year.
13:21
Speaker 4: Boeing also said the chairman, Larry Kellner, will not stand
13:24
Speaker 4: for reelection and stand deal. Chief of Boeing's commercial airplane
13:27
Speaker 4: division is departing. He'll be replaced by Chief operating Officer
13:31
Speaker 4: Stephanie Pope.
13:31
Speaker 3: For more, we're joined by George ferguson Bloomberg Intelligence, senior
13:34
Speaker 3: aerospace analysts. We first asked George for his reaction to
13:38
Speaker 3: the news.
13:39
Speaker 9: My reaction was, you know, we thought Dave Calhoun probably
13:42
Speaker 9: would be going. I hate to sort of wish that
13:44
Speaker 9: in anybody, but it seemed that, you know, the problems
13:47
Speaker 9: in the manufacturing business just there were just too many
13:50
Speaker 9: of them over too long a period of time to
13:53
Speaker 9: say that he was as effectual, if that's a right words,
13:56
Speaker 9: as he should have been at bringing everything, you know,
14:00
Speaker 9: back into order. It does seem weird that it's going
14:02
Speaker 9: to take them till the end of twenty twenty four
14:05
Speaker 9: to find his replacement. There's a lot of things that
14:07
Speaker 9: have to happen between now and then that the company
14:10
Speaker 9: just can't wait for. They've got to serve to the
14:13
Speaker 9: FAA their view and how they're going to stabilize their
14:16
Speaker 9: production process, and at the same time, right they've got
14:19
Speaker 9: to start to increase build rates so they can improve
14:22
Speaker 9: profits and cash flow. They can't wait a year on
14:25
Speaker 9: that either. So there's a lot of super important things
14:27
Speaker 9: that are happening this year to wait till the end
14:30
Speaker 9: of the year to replace the CEO that doesn't seem
14:32
Speaker 9: to have been able to get that job done well.
14:35
Speaker 9: It seems like a lengthy timeline to me, But it
14:37
Speaker 9: may just be that the board was flat footed and
14:40
Speaker 9: realizing that the CEO had to go and as nowhere
14:43
Speaker 9: in a search and so they've got to start from
14:45
Speaker 9: scratch here and figure out who the next person is.
14:47
Speaker 3: What can you tell us about Stephanie Pope. She's going
14:49
Speaker 3: to be stepping up and taking a big role with
14:51
Speaker 3: the aircraft business.
14:52
Speaker 9: Yeah, so she's been around for a while and she's
14:54
Speaker 9: been CFO of that aircraft business. So it seems like
14:59
Speaker 9: a logical in side choice. But I think when you
15:02
Speaker 9: have a you know, ahead of that department stand deal
15:05
Speaker 9: who's leaving after thirty plus years of the company, they're
15:08
Speaker 9: hard shoes to fill. You look around internally for who could.
15:11
Speaker 7: Be the next person.
15:12
Speaker 9: The CFO is always in particularly decent shape because they
15:15
Speaker 9: understand at least all the financials about the business. She's
15:19
Speaker 9: also had, you know, had positions at Boeing Global Services,
15:23
Speaker 9: which is a super successful business inside Boeing, high teens margins.
15:27
Speaker 9: To me, the only thing I don't see in her
15:29
Speaker 9: background is that manufacturing skill set. I think the next
15:32
Speaker 9: CEO has to really have a manufacturing engineering mindset background,
15:38
Speaker 9: and I think that's that's what I don't quite see there.
15:41
Speaker 4: Sort Of like Larry culp No.
15:45
Speaker 9: I mean Lowry obviously, he's pretty busy, and honestly, the
15:48
Speaker 9: job he has now a GE could be better profits,
15:52
Speaker 9: more fun than Boeing because there's a lot of great
15:55
Speaker 9: technology inside GE and there's a huge bow wave of
15:58
Speaker 9: a lot of maintenance coming that really high margin. I
16:01
Speaker 9: think you'd really have to work hard to get like.
16:03
Speaker 4: But George, I mean, does he like fun or does
16:05
Speaker 4: he like a challenge? I mean he was the one
16:06
Speaker 4: that went did GE to begin with.
16:08
Speaker 9: I do think he likes a challenge, and I think
16:10
Speaker 9: he showed his ability to navigate it really well at GE.
16:13
Speaker 9: But again, you know, they're just kind of getting to
16:16
Speaker 9: the super fun part. I think there's still challenge inside GE,
16:20
Speaker 9: but he's just getting to the point where he's got
16:22
Speaker 9: aerospace broken out and he can really make a lot
16:24
Speaker 9: of hay here. So someone like him is absolutely what
16:28
Speaker 9: I think Boeing needs. I don't know, maybe he's got
16:31
Speaker 9: a you know, maybe there's a protege somewhere inside there
16:33
Speaker 9: that they could tap or something.
16:35
Speaker 3: Thinking about who could be the next CEO. Here is
16:38
Speaker 3: the expectation, George, that it'll come from an external candidate
16:41
Speaker 3: or internally And are there any early front runners? Do
16:44
Speaker 3: you think?
16:45
Speaker 7: Yeah?
16:45
Speaker 9: So, I definitely think it's going to come external, right.
16:47
Speaker 9: I just think the fact that you've seen this purge
16:50
Speaker 9: of the CEO, you see the purge of commercial airplane president,
16:54
Speaker 9: means that we've depleted some talent there. There was you know,
16:58
Speaker 9: former heads of boeing'smmercial airplanes that had left when Muhlenberg
17:03
Speaker 9: came on. They could potentially be, you know, in the
17:06
Speaker 9: running for something like this. I know a couple of
17:08
Speaker 9: them wanted the CEO job and didn't get it, But
17:11
Speaker 9: I'm almost positive you're talking about something that's going to
17:13
Speaker 9: be outside. Ray Connor is the name that comes to mind.
17:16
Speaker 9: Used to be the head of Boeing Commercial. Not sure
17:19
Speaker 9: what he's doing now, but he might be on the list.
17:21
Speaker 4: Similar what's the culture like at a Boeing in terms
17:24
Speaker 4: of getting an outsider?
17:26
Speaker 9: You know, I think Boeing is one of those companies.
17:28
Speaker 9: I think you get a job and you stick around
17:30
Speaker 9: for lots and lots of years, and so, you know,
17:33
Speaker 9: I think that bringing people in from outside is something
17:37
Speaker 9: you do only when you have a breakdown like you've
17:40
Speaker 9: had now. Right under normal circumstances, there would be very
17:44
Speaker 9: clean lines of succession inside Boeing. You know, you would
17:48
Speaker 9: move up through the ranks and expect opportunities as you rose.
17:51
Speaker 9: But there's been so much tumult in this business over
17:53
Speaker 9: the last I don't know, you know, four years or
17:56
Speaker 9: so that I think that it's a time in their
17:59
Speaker 9: history where they're they're going to be going outside a
18:01
Speaker 9: lot more to replenish some of these senior management ranks.
18:04
Speaker 9: So they've just they've turned over a bunch of it.
18:07
Speaker 3: And George, it seems like this is no quick fix here.
18:10
Speaker 3: It seems like it was years, maybe even decades in
18:13
Speaker 3: the making in terms of maybe the deterioration of some
18:16
Speaker 3: of their quality controls.
18:18
Speaker 2: Here.
18:19
Speaker 3: When you talk to an industry folks, people at Boeing,
18:23
Speaker 3: is there a pathway to kind of get back to
18:25
Speaker 3: where they were in terms of quality.
18:26
Speaker 9: I think there is, but it's a lot of attention
18:28
Speaker 9: to detail. And like you said, it's it's slow work,
18:30
Speaker 9: so you can't sort of wave a wand I think
18:33
Speaker 9: and make it, you know, happen overnight. Really, you know,
18:37
Speaker 9: I think has a lot to do with people and processes, right,
18:41
Speaker 9: And that's why I think you want someone like a
18:43
Speaker 9: Larry Koppe who loves people in processes. You need and
18:47
Speaker 9: I mean that just takes time. You need a lot more,
18:49
Speaker 9: you need training, you need, you need, you know, in
18:52
Speaker 9: the interim, you probably need to beef up some of
18:54
Speaker 9: the oversight. You need to get into your supply chain.
18:58
Speaker 9: You need to give them a hug, you need to
18:59
Speaker 9: help them out, you know, help them bring you quality products.
19:02
Speaker 9: It's not a hey, how are you going to make
19:04
Speaker 9: my margins work better in the next couple of years discussion, right,
19:08
Speaker 9: It's really, like I said, it's people and processes. It's
19:11
Speaker 9: the softer side of management. I think Boeing over the
19:14
Speaker 9: last decade or two really was more into the how
19:18
Speaker 9: do I squeeze you to get you know, you to
19:20
Speaker 9: give me products at a cheaper price. So I could
19:22
Speaker 9: build my margins recipe for success. It wasn't that wasn't
19:27
Speaker 9: quite the term, but there was a term like that
19:29
Speaker 9: that Boeing was using with their suppliers. It was all
19:31
Speaker 9: about squeezing them. So the supply chain is all. You know,
19:34
Speaker 9: they've been scarred. They're worried about when Boeing comes to
19:37
Speaker 9: talk to them, and I think they need to get
19:39
Speaker 9: to a world where when Boeing shows up, that they
19:41
Speaker 9: think someone's there to help them and is looking out
19:43
Speaker 9: for their best.
19:44
Speaker 3: Interests our Thanks to George Ferguson, Bloomberg Intelligence, Senior Aerospace Analyst.
19:48
Speaker 4: We moved next to big tech and Apple. Earlier in
19:50
Speaker 4: the week, we reported that Apple iPhone shipments in China
19:52
Speaker 4: fell about thirty three percent in February from a year earlier,
19:55
Speaker 4: and that's citing data from the China Academy of Information
19:58
Speaker 4: and Communications Technology.
20:00
Speaker 3: For more on this, we were joined by man Deep Sing,
20:01
Speaker 3: Bloomberg Intelligence Senior Tech analysts. We first asked man Deep
20:05
Speaker 3: why he thinks China iPhone shipments are falling.
20:07
Speaker 5: Clearly, you know they have a problem both with the
20:11
Speaker 5: demand for iPhone as well as competition. I think one
20:15
Speaker 5: of the things that doesn't get as much attention right
20:17
Speaker 5: now is the fact that Huawei has a comparable phone
20:21
Speaker 5: to iPhone, and the reason they have been able to
20:24
Speaker 5: do it very quickly is because of the supply chains
20:27
Speaker 5: that Apple created in the region. So a lot of
20:30
Speaker 5: those suppliers are actually making the phone for Huawei and
20:34
Speaker 5: they don't have to do much because Apple is at
20:36
Speaker 5: the cutting edge when it comes to the chip, the assembly,
20:40
Speaker 5: and so all the supply chains. Guys are actually diversifying
20:45
Speaker 5: themselves and making phones for Shami Huawei. Huawei is the
20:49
Speaker 5: notable share gainer here, but that just goes to show that,
20:52
Speaker 5: you know, they are also diversifying.
20:54
Speaker 3: I don't know the answer. I can't think of an
20:56
Speaker 3: answer for Apple, particularly on a supply chain. I can
20:59
Speaker 3: pencil out China going too close to zero in terms
21:02
Speaker 3: of sales. I could pencil that out, put a multiple
21:04
Speaker 3: on it, and there we go. There is no Apple
21:06
Speaker 3: without China. In terms of supply chain. There is no
21:09
Speaker 3: Apple without that supply chain.
21:11
Speaker 5: And for the longest time we thought the risk for
21:13
Speaker 5: the suppliers is if Apple is not giving business to them,
21:16
Speaker 5: they don't have anything to manufacture. Well, guess what they have,
21:20
Speaker 5: you know, a Huawei and the local guys, and so
21:23
Speaker 5: that's how they are going about the business right now.
21:25
Speaker 4: So if I'm Tim Cook and I have seen this
21:28
Speaker 4: for years and I want to diversify my supply chain,
21:31
Speaker 4: what does that look like? What is that?
21:33
Speaker 5: I mean, it's a we did a big report. It's
21:35
Speaker 5: a multi year yes, and you know, the assembly part
21:40
Speaker 5: is already moving to India. We've seen a big ramp
21:44
Speaker 5: up in India. Almost twenty two percent of the phones
21:46
Speaker 5: last year iPhones, not the highest end, but a lot
21:49
Speaker 5: of the models were assembled in India, and gradually they
21:52
Speaker 5: will have to diversify, you know, the assembly side. The
21:56
Speaker 5: problem they're running into is the all the components that
21:59
Speaker 5: you need to manufacture an iPhone and the complex device
22:03
Speaker 5: that it is. It's not that easy to just you know,
22:07
Speaker 5: lift and shift your supply chains into a different regions.
22:10
Speaker 5: There's so many dependencies both with TSMC and the other
22:13
Speaker 5: suppliers that feed into the Chinese assembly. So all that
22:18
Speaker 5: needs to be relocated, and it will happen. It's just
22:21
Speaker 5: it's a multi year effort, and right now the focus
22:24
Speaker 5: is also shifting towards on device AI. I feel the
22:28
Speaker 5: reason why Chinese government is really cracking down is because
22:31
Speaker 5: the next wave of this is AI will run on device,
22:35
Speaker 5: and they don't want a US based company probably to
22:38
Speaker 5: be running AI you know on device in the in
22:41
Speaker 5: the region. So that's the other aspect of THEIRS.
22:44
Speaker 3: A bear case could be made here, long term, multi
22:47
Speaker 3: year bear case here. I've got supply chain issues. I've
22:50
Speaker 3: already zeroed out my China revenue and.
22:52
Speaker 4: Aris's revenue is going to be changing because of all
22:55
Speaker 4: the new laws right in terms.
22:56
Speaker 5: Of core cases could be Yeah, the DOJ lawsuit, it's
22:59
Speaker 5: come at the worst time for Apple. I mean, they
23:03
Speaker 5: should be doubling down on other markets where they can
23:05
Speaker 5: acquire share that they may end up losing in China. Obviously,
23:09
Speaker 5: the dj lawsuit is not helping. And the EU regulation
23:12
Speaker 5: they are digital markets acts, so from a regulatory perspective,
23:16
Speaker 5: you're right. I think the bear case is really around
23:19
Speaker 5: the revenue exposure and I'm sure the supply chains they'll
23:23
Speaker 5: moddel through in terms of making sure they can still
23:26
Speaker 5: make the phone. And you know, as long as the
23:29
Speaker 5: manufacturers or they are getting the business, they don't mind
23:32
Speaker 5: Apple continuing to you know, have the supply chains remain
23:36
Speaker 5: intact there. But I think the hard part would be
23:39
Speaker 5: the EPs drawdown as a result of the Chinese revenue
23:44
Speaker 5: going down.
23:45
Speaker 4: Why can't they just build stuff in the US? Like,
23:47
Speaker 4: I know, it's not as easy as like here's a plant,
23:49
Speaker 4: let's PLoP it down in the US. But like why
23:50
Speaker 4: is India the next port of call? Like why not
23:52
Speaker 4: the US?
23:53
Speaker 5: Well, again, it's the components. So think of the bill
23:56
Speaker 5: of Yeah, there are certain components that can only be
24:00
Speaker 5: sourced over there, and over time they can move things around.
24:04
Speaker 5: But if you're talking about, you know, a twelve hundred
24:07
Speaker 5: dollars phone, it has a certain bill of materials. Things
24:11
Speaker 5: are done in a certain way. That's why it comes
24:13
Speaker 5: at that cost. We're not talking about a five thousand
24:15
Speaker 5: dollars phone.
24:16
Speaker 4: You remember when the iPhone was coming out of a
24:18
Speaker 4: thousand and it was like, no one's going to pay that.
24:20
Speaker 4: This is insane, this is ridiculous. Now it's like twelve
24:23
Speaker 4: hundred whatever.
24:23
Speaker 2: Yeah, exactly.
24:24
Speaker 3: The market adapts as we've seen here, all right, So
24:28
Speaker 3: if you're a bull, are you simply saying there's two
24:30
Speaker 3: billion units out there? They'll forget to way to make
24:32
Speaker 3: money off of those things and that ecosystem.
24:35
Speaker 5: I mean The bull case is still the ecosystem and
24:37
Speaker 5: the fact that they have an install base of one
24:40
Speaker 5: point three billion users you know who still have the
24:43
Speaker 5: iPhone and they will refresh the phone at some point,
24:46
Speaker 5: and everyone still likes the iOS ecosystem. I think what
24:50
Speaker 5: Huawei is doing is laying out a path where people
24:54
Speaker 5: can move out of the iOS ecosystem, and then the
24:57
Speaker 5: whole AI thing and the regulatory stuff, I think is
25:01
Speaker 5: just making it worse. Word the timing of it is
25:03
Speaker 5: just worse for Apple right now.
25:05
Speaker 3: The Developer conference in June, right the pressure is gonna
25:08
Speaker 3: be big for.
25:09
Speaker 10: Them to reach.
25:09
Speaker 5: And remember they're looking at leveraging by do now. The
25:13
Speaker 5: reason for leveraging by Doo for AI in Chinese region
25:17
Speaker 5: is just to please you know that, the fact that
25:19
Speaker 5: they're using a local AI player as opposed to deploying
25:23
Speaker 5: their own ais our.
25:24
Speaker 3: Thanks to Mandy, you've seeing Bloomberg Intelligence senior tech analyst.
25:26
Speaker 4: Coming up on the program a look at how Danish
25:28
Speaker 4: Drugmakernovo Nordist is expanding its treatment for cardiovascular disease.
25:32
Speaker 3: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing research
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25:41
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25:48
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Speaker 2: Just say Alexa playing Bloomberg eleven thirty the mood.
26:07
Speaker 4: Now to the cruise operator Carnival, the company reporting first
26:09
Speaker 4: quarter revenue the beat analyst expectations. The company also raising
26:13
Speaker 4: its profit forecast for the year on record bookings volume,
26:16
Speaker 4: and this includes high demand for cruise vacations combined with
26:18
Speaker 4: cost management including debt, refinancing and repayment.
26:21
Speaker 3: For more on this, we're joined by Jody Lorie, Bloomberg
26:24
Speaker 3: Intelligence credit analysts. We first asked for her take on
26:27
Speaker 3: Carnival's first quarter earnings.
26:28
Speaker 1: I would say that when you look at Carnival, it's
26:30
Speaker 1: really a cash flow story. It really is a credit
26:33
Speaker 1: story more than anything else. And the bookings are sort
26:37
Speaker 1: of confirming that. Now the booking level if you include
26:40
Speaker 1: short and long term, it's actually not at the peak,
26:42
Speaker 1: which was second quarter of last year, but it's right
26:45
Speaker 1: near the peak, and based on what management is saying,
26:48
Speaker 1: it sounds like second quarter of this year my top
26:52
Speaker 1: second quarter of last year. That said, I think more importantly,
26:55
Speaker 1: the company is starting to attack some of its debt load,
26:58
Speaker 1: particularly in of its secured areas, which will help to
27:03
Speaker 1: sort of free up the balance sheet a little bit,
27:05
Speaker 1: provide some flexibility, make it so that the company has
27:09
Speaker 1: an ability to sort of make its way back to
27:11
Speaker 1: high grade ratings as it's been targeting for twenty twenty six.
27:15
Speaker 7: H Jody, you call that out just using the FA
27:17
Speaker 7: function on the terminal Carnival cruise almost thirty two billion
27:20
Speaker 7: dollars in debt compared to a market cap of twenty
27:23
Speaker 7: one billion dollars. How does that stack up to the
27:27
Speaker 7: likes of Royal Caribbean or Norwegian and some of those
27:30
Speaker 7: other piers in the cruise liner space.
27:32
Speaker 1: So yeah, Carnival was able to bring down their debt
27:35
Speaker 1: load to about thirty billion over the past year, and
27:40
Speaker 1: it's likely that it'll probably end this year around that
27:43
Speaker 1: level based on what they're taking in in terms of ships.
27:46
Speaker 1: That said, it is significantly higher than Royal, it is
27:49
Speaker 1: significantly higher than Norwegian, but on a leverage perspective, it's
27:54
Speaker 1: sort of middle of the pack at the moment as
27:56
Speaker 1: compared to Royal and Norwegian. Royal is a few quarters
27:59
Speaker 1: ahead of Carnival in terms of its deleveraging strategy. Management
28:03
Speaker 1: at Royal actually bumped up their narrative around getting to
28:06
Speaker 1: investment grade level metrics to do it earlier than twenty
28:09
Speaker 1: twenty five, and Carnival stuck to that twenty twenty six number,
28:13
Speaker 1: which I think is descriptive of being a little bit
28:15
Speaker 1: more conservative, particularly with the backdrop of everything happening globally,
28:20
Speaker 1: not just the Baltimore Bridge situation, but also at the
28:24
Speaker 1: Red Sea and everywhere else that's affecting Carnival more broadly
28:28
Speaker 1: because of its more global nature.
28:30
Speaker 3: I'm looking at again, the FA function is barely called out.
28:33
Speaker 3: I still see, you know, three four billion dollars in
28:35
Speaker 3: capex every year. Are they buying ships or what are
28:39
Speaker 3: they spending that kind of money on?
28:41
Speaker 1: Yeah, the three four billion dollars of CAPEX is primarily ship.
28:45
Speaker 1: There is a portion of it that is in terms
28:48
Speaker 1: of maintenance CAPEX right, your ships get old, you have
28:51
Speaker 1: to update them every few years. You have all these
28:54
Speaker 1: sort of different requirements related to it. They also have
28:56
Speaker 1: that celebration key that they're rolling out on, which is
28:59
Speaker 1: on the Grand Behind and that's to rival their peers,
29:02
Speaker 1: which have been investing really heavily also into island presence, right.
29:07
Speaker 1: The Caribbean island presence is a money maker for all
29:10
Speaker 1: of them. It's this captive audience. They bring the people
29:13
Speaker 1: who are on their ships to these islands and to
29:16
Speaker 1: these sections of islands, like you know, not the whole
29:18
Speaker 1: Grand Bahama, but that carved out sections specifically for carnival,
29:22
Speaker 1: and you know, wine and dine them get them to
29:25
Speaker 1: spend extra money. That onboard spend is really where you
29:27
Speaker 1: see that.
29:28
Speaker 7: Margin you mentioned wining and dining. I just want to
29:31
Speaker 7: look at some of the other areas that you cover
29:33
Speaker 7: talking about wind resorts, MGM, Hilton, all the funds, all
29:36
Speaker 7: the fund stuff. Yeah, you have the best job. I
29:38
Speaker 7: hope you take advantage of it. But when you look
29:41
Speaker 7: at the underlying business dynamics of some of the other
29:44
Speaker 7: areas that you cover, what are we seeing in terms
29:46
Speaker 7: of hotel demand and hotel sales and what that means
29:49
Speaker 7: from a credit.
29:50
Speaker 1: Perspective, so hotel demands, hotel sales. It is a bit
29:55
Speaker 1: mixed regionally, but I think overall we're pretty optimistic about
29:58
Speaker 1: this year, and that's a function of the fact that
30:00
Speaker 1: business and conference is really picking up this year as
30:03
Speaker 1: compared to the past few years. You know, we're at
30:06
Speaker 1: that point where that post pandemic narrative has sort of
30:09
Speaker 1: played out and we're getting to more normalized. That said,
30:12
Speaker 1: there are areas of expansion and growth. We're also seeing
30:15
Speaker 1: that all inclusive area be a much more attractive area
30:19
Speaker 1: for a lot of these companies, and I think we
30:21
Speaker 1: are seeing some rivalry across the board when it comes
30:24
Speaker 1: to hotels, casinos, cruise lines as these destination opportunities. We're
30:29
Speaker 1: talking Las Vegas obviously, not the regional casinos that's a
30:32
Speaker 1: little bit different, but Las Vegas, Macau, the cruise lines,
30:36
Speaker 1: and the hotels. There's a lot of sort of this
30:38
Speaker 1: destination narrative that's going on to get people to spend
30:41
Speaker 1: that extra money and to sort of go on vacation, live.
30:44
Speaker 3: Life to the fullest.
30:45
Speaker 1: Now, we do have these partnerships that are happening between
30:49
Speaker 1: Marriott and MGM, but then also we have an MGM
30:53
Speaker 1: and carnival relationship, So there is this fluidity that's happening
30:56
Speaker 1: within my industry that makes it sort.
30:58
Speaker 3: Of interesting and you get a great view on the
31:01
Speaker 3: consumer Jody with you know, the coverage you have again
31:04
Speaker 3: hotels and casinos and cruise lines. Where are people kind
31:07
Speaker 3: of spending their dollar And it seems like they're still
31:10
Speaker 3: spending on that whole experiential thing, the experiences. What are
31:14
Speaker 3: the companies you cover, what are they saying is to
31:16
Speaker 3: the how that's likely to play out?
31:19
Speaker 1: So consumers are definitely spending still on experiences. We're still
31:23
Speaker 1: very much seeing it now. If you compare twenty twenty
31:26
Speaker 1: three twenty twenty two, it's a different sort of narrative
31:29
Speaker 1: than twenty twenty three twenty twenty four because the base
31:32
Speaker 1: is a much greater, right, if you looked at the
31:35
Speaker 1: base going back to twenty twenty one, you're dealing with nothing,
31:39
Speaker 1: building on nothing. It's very significant. That said, there still
31:42
Speaker 1: is that narrative of growth and that consumer spending on
31:46
Speaker 1: experiences where we sort of wonder is what's going to
31:50
Speaker 1: happen heading into the second half. That's sort of the
31:53
Speaker 1: puzzle piece that isn't quite filled out for us yet,
31:56
Speaker 1: where first half into the summer season is very strong.
32:01
Speaker 1: We're also seeing that for cruise lines. They're saying that
32:03
Speaker 1: going into the twenty twenty five they're seeing strength, and
32:06
Speaker 1: that's a function of the fact that people book their
32:08
Speaker 1: cruises so far in advance. You don't get that benefit
32:11
Speaker 1: in the hotel space, you don't get that benefit as
32:13
Speaker 1: much in the vacation arena elsewhere. People don't book vacations
32:19
Speaker 1: apart from cruises so far in advance. So I think
32:23
Speaker 1: as we head into second half, we'll sort of get
32:25
Speaker 1: a feel for how comfortable the consumer is in terms.
32:27
Speaker 3: Of spending our Thanks to Jody Lourie Bloomberg Intelligence Credit Analysts,
32:31
Speaker 3: we turn.
32:31
Speaker 4: Down to the drug space.
32:33
Speaker 6: Now.
32:33
Speaker 4: This week we heard the Danish weight loss drug maker
32:35
Speaker 4: Novo Nordisk has agreed to buy Cardier Pharmaceuticals for up
32:38
Speaker 4: to one point one million dollars. This comes as soaring
32:41
Speaker 4: demand for obesity drugs continues to drive the more deal
32:44
Speaker 4: making for Nova Nordois.
32:45
Speaker 3: For more, we were joined by Michael Shaw, Bloomberg Intelligence,
32:48
Speaker 3: Senior pharmat Biotech Analysts. We first asked him for some
32:51
Speaker 3: context on this deal, but.
32:53
Speaker 10: Deal very much in line with kind of Novo's strategic aspirations,
32:56
Speaker 10: which is to build a presence in the cordative ast
32:59
Speaker 10: to spaced. So prior deals that they've done include a
33:03
Speaker 10: deal with KBB for a hypertension asset, a deal with
33:07
Speaker 10: care Video for silk investment, So this is very much
33:10
Speaker 10: in line with that sort of play in terms of
33:13
Speaker 10: you know, the lead asset, it's a drug called CDR
33:15
Speaker 10: one three two L, So you know, in simple terms,
33:19
Speaker 10: it's designed to block a buyermarker of heart failure. What
33:23
Speaker 10: we see with current therapies is you know, current therapies
33:27
Speaker 10: kind of slow disease progression, but they don't necessarily you know,
33:31
Speaker 10: hold it or reverse it. And that's kind of what
33:33
Speaker 10: Nova trying to do with this asset.
33:35
Speaker 4: So they're trying to stop it all together and reverse it.
33:38
Speaker 5: Yeah.
33:38
Speaker 4: Wow, Actually that's amazing. How does this also fit into
33:41
Speaker 4: Novo's weight loss drug in that I remember speaking to
33:46
Speaker 4: the Nova Nordisk CEO and they're like really really really
33:50
Speaker 4: invested in like improving people's overall health. Like the weight
33:53
Speaker 4: loss drug isn't about losing weight, it's about relieving the
33:57
Speaker 4: pressure that it puts on the heart, it's about relieving diabetes,
34:00
Speaker 4: it's about the broader stuff. How do these two work together.
34:03
Speaker 10: Could potentially add to Novo's cardiovascular portfolio. So, I mean
34:08
Speaker 10: it's still very early stage, but you know, we're seeing
34:11
Speaker 10: Novo build this presence in the space. So we've seen
34:14
Speaker 10: the outcome status for supplemental approval for GOVI that's also
34:19
Speaker 10: you know, pending a approval in heart failure. We've got
34:23
Speaker 10: these other passets which I talked about in terms of Zelkaveka, MAAB.
34:27
Speaker 10: So it's really just kind of building out that portfolio
34:30
Speaker 10: in the space.
34:31
Speaker 8: All right.
34:31
Speaker 3: So I'm asking for a friend here, Mikey. When is
34:34
Speaker 3: Novo Nordisk in a ramp up its production of these
34:38
Speaker 3: with gov and ozempic and all that kind of stuff
34:40
Speaker 3: to meet demand because it's not even close yet.
34:43
Speaker 10: Yeah, I mean, so Novo Holdings obviously did the deal recently.
34:48
Speaker 10: I mean production is going to take time to ramp up,
34:50
Speaker 10: you know, three four years before you know, these sites
34:53
Speaker 10: come online. There's also limited capacity in the market as well.
34:58
Speaker 10: I think what's going to help kind of things you know,
35:02
Speaker 10: longer term is you know, the potential approvals of oral
35:06
Speaker 10: JOLP ones that should hopefully ease some of the you know,
35:10
Speaker 10: some of the type.
35:10
Speaker 3: Supply and what's the what's the timing on that?
35:13
Speaker 10: So twenty seven I would say that sort of time
35:16
Speaker 10: frame twenty seven to twenty eight, possibly maybe a year earlier.
35:20
Speaker 10: There's several you know, players that are developing oral jop
35:23
Speaker 10: one drugs, so Lily being one of them. We could
35:27
Speaker 10: see some data for Viking and amjines albeit early data
35:32
Speaker 10: this year, but yeah, that could really be key to
35:34
Speaker 10: kind of opening up the market.
35:36
Speaker 4: So are there also M and A opportunities or boltons
35:39
Speaker 4: that nobody could make to help expand capacity more quickly?
35:43
Speaker 10: Well, they've done one deal already and yeah, I mean
35:46
Speaker 10: they're looking to invest to basically expand capacity going forward
35:50
Speaker 10: and support their jop one portfolio. So it wouldn't surprise
35:53
Speaker 10: me if you know, there are further deals of further
35:55
Speaker 10: efforts and investment into expanding this supplydcraft.
36:00
Speaker 3: All right, So Mikey, what are some of the maybe
36:02
Speaker 3: the one or two big therapeutics or drugs or twenty
36:08
Speaker 3: twenty four event here that are you guys are waiting
36:10
Speaker 3: on that If something hits, it's just going to be big,
36:12
Speaker 3: Whether it's in the world of cancer or if it's
36:15
Speaker 3: in the world anywhere else in healthcare, what's kind of
36:17
Speaker 3: the big next big blockbuster that you think is reasonable
36:21
Speaker 3: to come out of the format industry.
36:22
Speaker 10: I think twenty four is all of our weight loss
36:25
Speaker 10: and some of the chomon viviencies. To be honest, I
36:27
Speaker 10: mean some of the data points that we're looking out for.
36:30
Speaker 10: It's going to be semi glue Tide's mash readouts, so
36:33
Speaker 10: that's a liver condition. We're also expecting kind of detailed
36:37
Speaker 10: data from Boeing and Zealand's server do Tide in the
36:42
Speaker 10: same disease area, and then we'll also see details of
36:45
Speaker 10: Lily's ze bound in that liver condition too. You know
36:49
Speaker 10: BC readouts, you know, front and center again, So in
36:53
Speaker 10: terms of you know, data upcoming data sets, it's going
36:56
Speaker 10: to be amgines readouts for Amgine's assets, and as I
37:01
Speaker 10: said earlier, possibly some oral data for Vikings GLP one drug.
37:06
Speaker 4: What do you make of the valuations for the likes
37:09
Speaker 4: of Nova, Nordisk or any that are in the weight
37:12
Speaker 4: loss drug Like, we have no idea how to value this.
37:15
Speaker 4: It's sort of like the AI phenomenon. How do you
37:18
Speaker 4: think about it.
37:19
Speaker 10: Yeah, So when we look at you know, Lily and Nova,
37:23
Speaker 10: you know, they clearly stand out obesit GLP ones underpinning
37:28
Speaker 10: their growth prospects. You know, both have well, Nova at
37:31
Speaker 10: least has you know, margins up there with peers. But
37:35
Speaker 10: we look at you know, the obesity space. You know,
37:39
Speaker 10: in general, more than one hundred million suffers GLP one
37:42
Speaker 10: penetration rates you know, very low at the moment. You know,
37:47
Speaker 10: we think access is going to improve, you know, as
37:49
Speaker 10: we see more data, as we see more benefits and comorbidities,
37:54
Speaker 10: and you know, we're looking at a or we're forecasting
37:57
Speaker 10: ABC market size of you know, eighty billion dollars in
38:01
Speaker 10: twenty thirty, which is looking quite conservative. And when we
38:05
Speaker 10: look at kind of penetration rates as based on just
38:08
Speaker 10: twelve percent of US patients being on a JLP one therapy,
38:13
Speaker 10: So there's significant runway there, you know, to support the valuations.
38:17
Speaker 10: And then there's also other markets which we haven't necessarily
38:20
Speaker 10: kind of fully factored in. So China, for example, could
38:24
Speaker 10: be a massive market for these drugs.
38:26
Speaker 4: Right Thanks to Michael Sha Bloomberg Intelligence senior Pharma biotech analyst.
38:29
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