Latest / Bloomberg Intelligence / BI Weekend: Netflix Earnings, Energy Outlook (Podcast)

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BI Weekend: Netflix Earnings, Energy Outlook (Podcast) · Bloomberg Intelligence

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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg Intelligence
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Speaker 1: with Alex Steel and Paul Sweeney.
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Speaker 2: The real ap performance has been the US corporate high yield.
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Speaker 1: Bloomberg Intelligence with Alex Steele and Paul Sweeney on Bloomberg Radio.
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Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
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Speaker 3: Each and every week we provide in depth research and
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Speaker 3: data on some of the two thousand companies and one
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Speaker 3: hundred and thirty industries our analysts cover worldwide.
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Speaker 2: Today, we'll look at a new joint venture to fund
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Speaker 2: artificial intelligence infrastructure in the US.
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Speaker 3: Plus we'll discuss how the energy say will be impacted
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Speaker 3: under the new Donald Trump administration.
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Speaker 2: But first we begin with a streaming space.
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Speaker 3: Netflix shares swored to a record high this week after
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Speaker 3: streaming Giant reported its biggest quarterly subscriber gain in history.
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Speaker 2: For more, we were joined by Keitha Rong Andathen Bloomberg,
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Speaker 2: intelligence analyst on US Media.
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Speaker 3: We first asked Etha what stood out most in Netflix's earnings?
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Speaker 4: Everything, Alex So, I mean, you know, it was not
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Speaker 4: just I mean, we knew they were going to have
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Speaker 4: a strong quarter, It was just the magnitude of outperformance,
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Speaker 4: which was simply stunning. I mean, they added forty one
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Speaker 4: million subscribers throughout the year. Just for some context, that's
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Speaker 4: more than the total number of subscribers that some of
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Speaker 4: the streaming services even have out their peak for instance,
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Speaker 4: has less than forty million subscribers. So, I mean, just
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Speaker 4: the scale of the business is absolutely astounding. And it's
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Speaker 4: that scale which is now on display in every possible area, right,
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Speaker 4: whether it's revenue growth, whether it's you know, content cost
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Speaker 4: growth and you know cost per subscriber, which is going
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Speaker 4: to be significantly less than you know, the revenue growth
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Speaker 4: per subscriber. All of that is just you know, execution
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Speaker 4: at the highest level.
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Speaker 2: So, Keitha, this kind of raises the question to me,
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Speaker 2: yet again, how do you think this industry is going
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Speaker 2: to shake out? It just seems like there's Netflix. I'll
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Speaker 2: give you Disney because it's Disney, but everybody else. Is
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Speaker 2: there any room left for any of these other traditional
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Speaker 2: media players that are trying to get into the streaming business?
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Speaker 4: I mean, Paul, it's going to become more and more difficult.
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Speaker 4: I mean, with Netflix getting to that three hundred million
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Speaker 4: subscriber milestone, I would say very much built an insurmountable
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Speaker 4: lead in in streaming. There's absolutely no doubt about it.
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Speaker 4: They are expecting twenty nine percent operating margins. I mean
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Speaker 4: we have always you've always posed this question, I mean,
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Speaker 4: can Netflix get to that thirty thirty five percent operating margin?
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Speaker 4: And it looks like they're going to be able to
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Speaker 4: do that very very comfortably. That, you know, leaves us
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Speaker 4: to the all important question, can anybody else replicate this playbook?
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Speaker 4: Maybe they can, but it's going to take a very
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Speaker 4: long time, and I think by that time, Netflix is
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Speaker 4: going to be far ahead of you know, rivals, with
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Speaker 4: probably you know, forty percent operating margins, tons of free
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Speaker 4: cash flow, and maybe even like five hundred million subscribers.
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Speaker 3: So what is your question now? So say, we have
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Speaker 3: to be discerning and we have to say okay, well,
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Speaker 3: well if it's at a record, but you know, it's
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Speaker 3: not all amazing and flowers and sunshine and stuff.
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Speaker 2: What's that question.
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Speaker 5: Except it is all amazing?
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Speaker 3: You know, you'll help me, yeah, I mean you It
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Speaker 3: is so hard to find something wrong with this report.
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Speaker 4: I mean, if you were looking for Okay, is subscriber
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Speaker 4: growth going to slow down? Yeah, probably it's going to
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Speaker 4: slow down a little bit. But again they've said that
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Speaker 4: subscriber growth is going to be the main driver of
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Speaker 4: revenue growth in twenty twenty five. Is operating income momentum
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Speaker 4: slowing down?
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Speaker 5: No, it's not. Are we getting double digit revenue growth?
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Speaker 5: Yes we are. Is free cash flow there?
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Speaker 6: Oh?
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Speaker 5: Yes it is?
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Speaker 4: So I mean, okay, yes, I guess the big question
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Speaker 4: is what are going to be twenty twenty five is
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Speaker 4: all set because you do have that subscriber momentum, you
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Speaker 4: do have those price increases that are going to feed
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Speaker 4: that revenue growth. So the big question then is, okay,
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Speaker 4: but what about twenty twenty six? What about twenty twenty seven?
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Speaker 4: So twenty twenty six and twenty twenty seven, I think
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Speaker 4: the levers are really going to be the ad growth story,
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Speaker 4: and they're putting everything in place this year so that
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Speaker 4: advertising becomes a really big, bigger part of the revenue
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Speaker 4: equation starting in twenty twenty six, and they have everything
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Speaker 4: set to do that. So yes, they did raise their
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Speaker 4: prices on the ad tier a little bit just to smidge,
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Speaker 4: but again, remember it's only costing you eight dollars a month.
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Speaker 4: That's the same as Disney Plus. So again they have
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Speaker 4: a lot more I think, cushion to raise prices and
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Speaker 4: then to also increase their ad targeting capabilities and to
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Speaker 4: really be able to charge advertisers a premium. So I
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Speaker 4: think there's just so many different catalysts out there on
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Speaker 4: the Horizon Alyx. It's really hard to find any fault
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Speaker 4: with their report here.
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Speaker 3: Because now, Paul, I feel like it's not about can
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Speaker 3: you get streaming stuff for cheaper than you went on cable.
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Speaker 3: It's about the contents more interesting and better. And I
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Speaker 3: feel like that's a different thing than when I cut
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Speaker 3: the cord and say whatever.
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Speaker 2: Yeah, And it's what Ethan her research calls virtuous circle.
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Speaker 2: The more subscribers you have, the more money you can
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Speaker 2: spend on content, which then gets you more subscribers, and
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Speaker 2: it goes and goes and goes, so Gith, I think
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Speaker 2: the last big area for them to conquer from my perspective,
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Speaker 2: and it goes to your point about advertising being longer
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Speaker 2: term growth driver is live sports. When are they going
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Speaker 2: to step up and jump into the deep end of
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Speaker 2: the pool and take a big NFL package, not just
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Speaker 2: a couple of days on Christmas, but a season package
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Speaker 2: from the NFL, from the NBA, from English Premier soccer.
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Speaker 2: There's really no area they can't go. When do you
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Speaker 2: think they're going to do that?
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Speaker 5: I think that's still a couple of years out, Paul.
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Speaker 4: So they obviously know that the live sports strategy is
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Speaker 4: working for them, there's no doubt about it. They had
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Speaker 4: the two of their biggest events with which were live
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Speaker 4: sports events, and you had those records subscriber gains, So
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Speaker 4: obviously sports can be a big subscriber acquisition tool. It
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Speaker 4: can also turn into a big subscriber attention tool.
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Speaker 5: They do have a.
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Speaker 4: Couple of things that they've signed up for, so you know,
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Speaker 4: WWE is something that they already have for the next
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Speaker 4: five years or so. But the next time huge NFL
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Speaker 4: package or an NBA package is really going to become
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Speaker 4: available it's probably going to be only in another four
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Speaker 4: or five years time. In the meantime, you do have,
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Speaker 4: you know, a couple of the smaller rights packages. You
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Speaker 4: do have UFC, which is coming up for renewal by
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Speaker 4: the end of this year. You do have you know,
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Speaker 4: Formula one, which is something that they already have a
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Speaker 4: pretty deep relationship with kind of given their success with
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Speaker 4: Drive to Survive. So again they could go after that.
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Speaker 4: They have the Women's World Cup. They already have got
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Speaker 4: the rights to that, So it's going to be smaller investments,
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Speaker 4: I would think before they really go after that big,
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Speaker 4: splashy package, which and by that time they're advertising what
6:35
Speaker 4: they all said sorry.
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Speaker 3: Which no, I was gonna say. It's interesting. I was
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Speaker 3: talking to somebody that were like, I've never watched wrestling
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Speaker 3: in my entire life, but or boxing, but I did
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Speaker 3: when Mike Tyson was doing it because it was on Netflix.
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Speaker 3: Why not? So I also wonder if you're bringing in
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Speaker 3: like a whole ye, you're gonna want the really sexy
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Speaker 3: NFL package, but do you actually need that in order
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Speaker 3: to continue to grow that momentum. It's kind of amazing.
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Speaker 3: So just record high after record high, here is that
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Speaker 3: what I'm looking at.
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Speaker 4: Pre much definitely a very very strong growth trajectory. Obviously,
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Speaker 4: we don't have a lot of visibility now going into
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Speaker 4: the subscriber numbers because that was the last time that
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Speaker 4: they disclosed that, but I think we're still going to
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Speaker 4: continue to see. I think what what's going to be
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Speaker 4: really interesting is when they start disclosing more advertising related metrics,
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Speaker 4: right that is where we need some visibility now. So
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Speaker 4: whether they give us a more updated monthly active user
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Speaker 4: number the last number that they disclosed was seventy million,
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Speaker 4: or whether they actually give us an actual, you know,
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Speaker 4: advertising revenue number, those are going to become the goalposts
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Speaker 4: I think in the near term our.
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Speaker 2: Thanks to KEITHA. Roungnathan, Bloomberg Intelligence analyst on US media.
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Speaker 3: We move next to some news in the banking industry.
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Speaker 3: We heard the Goldman Sacks is promoting a slate of
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Speaker 3: star executives to run its biggest Wall Street business lines
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Speaker 3: as part of the firm's revamp.
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Speaker 2: For more, we were joined by Todd Gillespie, Bloomberg Finance reporter.
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Speaker 3: We first asked taba Goldman Sachs revamp actually means and
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Speaker 3: who is.
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Speaker 7: Involved to MA see what they weren't necessarily know the
7:56
Speaker 7: names outside of the finance industry either. But these are
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Speaker 7: big people rising stuff up and comers, many of whom
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Speaker 7: have held senior posts at Goldman Sacks for a long
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Speaker 7: time already. But the idea of this is creating a
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Speaker 7: new layer of management basically and promoting a lot more people.
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Speaker 7: Fifteen new names are going to be sitting on Goldman
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Speaker 7: Sacks's management committee. That's up from twenty four, so in
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Speaker 7: totally talking about a thirty nine person management committee, which
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Speaker 7: which is quite an expansion here and now equities will
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Speaker 7: have three of its own heads, fixed income business will
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Speaker 7: have three of its own heads, and the banking business
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Speaker 7: at Goldman Sachs will also have three heads as well.
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Speaker 7: And those people will report into heads of each of
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Speaker 7: the overarching umbrellas at Goldman Sacks, who then obviously report
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Speaker 7: into the c suite there. So you know, it's quite
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Speaker 7: a big shift.
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Speaker 2: I don't like it. It just layers on another layer
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Speaker 2: of management. Where is the value added here is this?
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Speaker 2: I read this story which is a great story about
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Speaker 2: by the way, and I feel like they're just rewarding
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Speaker 2: people with titles.
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Speaker 7: That is certainly one of the concerns. But right here,
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Speaker 7: you've got to look at the context of the industry, right,
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Speaker 7: what is Goldman trying to do with doing this? They're
9:01
Speaker 7: trying to rest off, you know, competition from the alternative
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Speaker 7: asset management industry there. You know who's already been trying
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Speaker 7: to poach top executives from Goldman Sachs. We've had John
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Speaker 7: Woldron just last week handed an eighty million dollar retention
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Speaker 7: bonus to stay on for another five years, alongside David Solomon,
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Speaker 7: who's looking very comfortable in his seat as CEO. So
9:21
Speaker 7: you know, the bank is trying to fend off this
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Speaker 7: kind of competition from across the street. We all know
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Speaker 7: right now that banks are not in as lucrative shape
9:29
Speaker 7: right now as private equity firms like Carlisle, like Apollo
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Speaker 7: for instance, who have been reported to have approached people
9:35
Speaker 7: like Waldron already. So the bank is trying to you know,
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Speaker 7: this is a defensive move as much as a promotional
9:41
Speaker 7: move for the people inside.
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Speaker 3: Does it work, like, does it say shade people enough
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Speaker 3: when they're promoted and stuff like it? Find out eighty
9:47
Speaker 3: million in Waldron's a different story. But like this class
9:50
Speaker 3: coming up, Yeah.
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Speaker 7: I mean this is certainly. I mean, this has been
9:53
Speaker 7: in the works for a long time. I mean, this
9:54
Speaker 7: is a result of a year long or so set
9:56
Speaker 7: of discussions right where people know, you know, that they're
10:00
Speaker 7: as a restless, very talented, up and coming group of
10:03
Speaker 7: executives who want to be recognized. They want to see
10:06
Speaker 7: a path forward, and they hope, obviously the Bank hopes
10:08
Speaker 7: by doing this they're going to give them that path forward.
10:11
Speaker 7: It certainly doesn't end the internal politics, if anything, also
10:13
Speaker 7: creates you know, the potential for new tensions and you know,
10:17
Speaker 7: new fiefdoms. But we'll see later down the road how
10:20
Speaker 7: this plays out.
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Speaker 2: What's interesting for a positive for Goldman Sachs is, you know,
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Speaker 2: I think early in his tenure CEO Solomon some shaky ground,
10:27
Speaker 2: some missteps, and people were, you know, even suggesting maybe
10:30
Speaker 2: he's not the right person for the job. The boys,
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Speaker 2: he turned that narrative around. He seems he seems from
10:35
Speaker 2: the outside very secure in his position.
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Speaker 7: Certainly. Paul, Yeah, I mean the past two years have
10:40
Speaker 7: been a real turn around for him. I mean we've
10:42
Speaker 7: you know, there was a lot of criticism from early
10:43
Speaker 7: on for you know, missteps in the you know, the
10:46
Speaker 7: retail adventure that Goldman Sachs was was going on with
10:50
Speaker 7: Marcus with you know, with this you know JV with
10:54
Speaker 7: with Apple. It now has this cards business that it's
10:57
Speaker 7: trying to sell off. Now there's a lot of you know,
10:59
Speaker 7: speculation about what's going to happen to that. Now, who's
11:02
Speaker 7: going to pick up that portfolio? But certainly David Solomon,
11:06
Speaker 7: thanks to you know, a bumper cropper earning his results
11:08
Speaker 7: that have come out the past year or so, the
11:10
Speaker 7: bank is looking on much steadier ground and he's kind
11:13
Speaker 7: of consolidated his grip you could say, perhaps over this bank,
11:17
Speaker 7: and you know, and he's but he's also you know,
11:20
Speaker 7: he's aware that him being in the seat for longer
11:23
Speaker 7: will make other people unsettled, you know this, and the
11:25
Speaker 7: board is aware of that as well. And that's partly
11:27
Speaker 7: the reason for the John Walter in eighty million dollar
11:29
Speaker 7: attention bonus that we saw last week, and it could
11:31
Speaker 7: explain some of the moves that we're seeing as well.
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Speaker 2: All right, thanks to Todd Gillespie, Bloomberg Finance reporter.
11:36
Speaker 3: Coming up, we'll discuss Donald Trump's second term as US
11:39
Speaker 3: president and what it may end up meaning for his legacy.
11:41
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12:13
Speaker 3: We move now to some big news in the tech space.
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Speaker 2: This week, President Donald Trump announced SoftBank, Open Ai and
12:19
Speaker 2: Oracle performing a joint venture to fund artificial intelligence infrastructure.
12:23
Speaker 3: This includes an initial investment of one hundred million dollars
12:26
Speaker 3: and the goal is to speed up the development of
12:28
Speaker 3: AI technology for more.
12:29
Speaker 2: We're joined by An rag Rana, Bloomberg Intelligence technology analysts.
12:33
Speaker 3: We started off by asking the aniog what this announcement
12:35
Speaker 3: means for building AI infrastructure in the US.
12:38
Speaker 6: We know the funding is going to come, and there's
12:39
Speaker 6: a lot of funding coming into AI data centers. Now.
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Speaker 6: It has the blessing of the US government. It's going
12:45
Speaker 6: to be funded by private equity or private investors. Oracle's
12:49
Speaker 6: going to be the biggest cloud provider here, and open
12:51
Speaker 6: the I models are going to run on it or
12:53
Speaker 6: train on it. So it's a good thing for all
12:55
Speaker 6: three of them obviously, but it's also good for AI advancements.
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Speaker 6: The interesting part is Oracle is not even the top
13:03
Speaker 6: three cloud providers that's out there. You know, it's led
13:05
Speaker 6: by Amazon Web Services and then Microsoft and then Google.
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Speaker 6: So you know, them getting a piece of this spy
13:12
Speaker 6: is a very big deal for them because it's a
13:15
Speaker 6: very small business for them right now compared to what
13:17
Speaker 6: AWS generates in revenue.
13:20
Speaker 2: So how about the other big cloud players, what are
13:23
Speaker 2: they thinking not being.
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Speaker 6: Yeah, I think the I think if you see the
13:27
Speaker 6: when the rumor first came out that this is happening,
13:30
Speaker 6: you saw that Microsoft started to you know, trickle down
13:33
Speaker 6: a little bit. Because right now, Microsoft is the exclusive
13:37
Speaker 6: partner for open AI. Microsoft has outsourced some work to
13:40
Speaker 6: Oracle because they can't take care of the whole capacity. Then,
13:44
Speaker 6: after the announcement was made, open Ai and Microsoft issued
13:48
Speaker 6: a joint press release saying that you know, they're renegotiating
13:52
Speaker 6: their own contracts in between and currently their joint venture
13:57
Speaker 6: or partnership will be extended into till twenty thirty. Now,
14:00
Speaker 6: there are two parts of why open ai uses Microsoft Cloud.
14:05
Speaker 6: One is to train their models. Now that's the expensive
14:07
Speaker 6: that really where a lot of the capex is going
14:11
Speaker 6: in that area. Microsoft will give, you know, allow other
14:15
Speaker 6: cloud providers, but they have the right of first refusals,
14:18
Speaker 6: which means they will figure out whether they are okay
14:20
Speaker 6: with Oracle doing it or not. It seems to me
14:22
Speaker 6: that they are doing they're okay with Oracle because they've
14:25
Speaker 6: already outsourced some work to Oracle. I don't know if
14:27
Speaker 6: it's going to happen or if they're going to share
14:29
Speaker 6: that with AWS. We'll see that. But the biggest piece
14:32
Speaker 6: of it, the revenue sharing, is if you use open
14:34
Speaker 6: ai technology to develop an enterprise application, what we call
14:38
Speaker 6: as inferencing revenue from APIs, Microsoft still controls that that's
14:42
Speaker 6: going to run on Microsoft Cloud. So Microsoft also got
14:45
Speaker 6: the best of it, which is the reason why Microsoft
14:48
Speaker 6: is up three percent also in this game today.
14:50
Speaker 3: So here's my really dumb question. What are some hurdles here?
14:53
Speaker 3: Aka power and permits?
14:57
Speaker 6: Yeah, but that's where the government is saying they will
14:59
Speaker 6: help you out or help these companies out and taking
15:02
Speaker 6: care of it. You know, that is that's not entailed.
15:05
Speaker 3: That means like speeding up a permit process, or like
15:07
Speaker 3: allowing coal plants to run, Like what does that really entail?
15:11
Speaker 6: I think coal plants must be tough because frankly speaking,
15:14
Speaker 6: it is very difficult for a cloud provider not to
15:16
Speaker 6: use renewable energy. I think there's going to be a
15:18
Speaker 6: lot more talk about nuclear. For example, what we heard
15:21
Speaker 6: with Microsoft going through, they will build they may build
15:25
Speaker 6: their own smaller you know, you could say capacity to
15:29
Speaker 6: run some of these things. They have the money to
15:31
Speaker 6: fund it obviously. So you know, if it's one hundred
15:34
Speaker 6: billion spending, we think maybe twenty twenty five percent of
15:37
Speaker 6: that goes towards you know, more tech oriented stuff, whether
15:41
Speaker 6: it's chip, whether it's servers, whether it's you know, pipeline
15:44
Speaker 6: I mean connecting networking devices and or cloud computing, and
15:48
Speaker 6: the rest of that is probably going to go to
15:51
Speaker 6: more the building of the data center and you know,
15:53
Speaker 6: the cooling units, all that stuff that goes with it.
15:57
Speaker 2: So on our When I think of the electric vehicle business,
16:00
Speaker 2: I think of a business that China is actually leading
16:03
Speaker 2: the way. They are ahead of the US and European
16:06
Speaker 2: automakers for AI, which is arguably a much bigger business
16:10
Speaker 2: opportunity in a longer term one. Perhaps where is the
16:14
Speaker 2: US in terms of a leadership position. It feels like
16:16
Speaker 2: we're putting the resources behind it.
16:19
Speaker 6: Well, we have in video chips, so that really makes
16:21
Speaker 6: a very big difference at this point. One of the
16:24
Speaker 6: things we don't know about China is what are they
16:26
Speaker 6: doing on the AI side and the government. That's not
16:29
Speaker 6: publicly available anywhere, So it's a difficult guess for somebody.
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Speaker 6: But one thing is for sure. If you have a
16:35
Speaker 6: lot of private money coming in and we have the capacity.
16:38
Speaker 6: I mean, as I said, Microsoft itself this year is
16:41
Speaker 6: going to spend eighty billion dollars in CAPEX. You know,
16:43
Speaker 6: we think it's going to be closer to eighty five.
16:45
Speaker 6: So if you look at all these large companies with
16:47
Speaker 6: a trillion plus or two three trillion dollar market gap,
16:50
Speaker 6: they can raise funds and you know, get a lot
16:54
Speaker 6: more AI investments. And now the government is getting involved
16:57
Speaker 6: in it. So I mean it's I would say, in
16:59
Speaker 6: all directions, seems that US will not let this one slip,
17:02
Speaker 6: and it's going to make sure that, you know, we
17:04
Speaker 6: remain the dominant force out there.
17:06
Speaker 3: Well then speaking of in terms of say Microsoft and
17:09
Speaker 3: their capax, maybe hitting eighty five billion, is this it
17:12
Speaker 3: was this money that everyone was already planning to spend.
17:14
Speaker 3: It was just now packaging a nice little wrapper to everybody.
17:17
Speaker 6: Not from Microsoft point of view, because Microsoft is not
17:19
Speaker 6: part of this you know, spending ecosystem. So Microsoft is
17:22
Speaker 6: going to spend this, but now good part is going
17:24
Speaker 6: to be Microsoft may not have to spend this much
17:27
Speaker 6: going forward because, as I said, the biggest bulk of
17:30
Speaker 6: that spending was going towards helping some of these large
17:34
Speaker 6: language model providers train their models on it. Now, if
17:37
Speaker 6: that's done with external money, the likes of private equity
17:40
Speaker 6: or SoftBank, then Microsoft is not going to take that
17:43
Speaker 6: margin head or investors are not going to ask them,
17:45
Speaker 6: you know, you're spending eighty billion dollars whereas the corresponding
17:48
Speaker 6: eighty billion revenue in it. So I think it really
17:50
Speaker 6: helps Microsoft also down the road.
17:53
Speaker 2: And to come back a little bit for SoftBank's Masasan here,
17:58
Speaker 2: he's back on the think state.
18:01
Speaker 6: Yeah, it's been you know, missing hits for him for
18:04
Speaker 6: some time. But one thing is for sure. You know,
18:06
Speaker 6: the addressable market of everything AI related is going to
18:09
Speaker 6: be so large. They specifically mentioned a lot of healthcare initiative.
18:13
Speaker 6: If you remember when you look at Larry Allison's acquisition
18:16
Speaker 6: of Serner, you know he's spending a lot of his
18:19
Speaker 6: personal time trying to fix that healthcare system, which, to
18:22
Speaker 6: be very honest, is probably the biggest burden on us
18:25
Speaker 6: GDP right now because of the high amount of healthcare
18:29
Speaker 6: spending we do as a country.
18:31
Speaker 2: Our thanks to Anna rog Rana, Bloomberg Intelligence senior technology analysts.
18:35
Speaker 3: This week, we also focus on a Bloomberg Big Take
18:37
Speaker 3: story titled Trump Shows he is on competing quests for
18:41
Speaker 3: legacy and revenge. You can find this on the Bloomberg
18:43
Speaker 3: terminal as well as Bloomberg dot com.
18:45
Speaker 2: The story looks at how President Donald Trump's attention is
18:48
Speaker 2: divided between policy victories and exacting revenge on those he
18:51
Speaker 2: considers his enemies.
18:53
Speaker 3: For more, we spoke to the stories author and Nancy Cook,
18:55
Speaker 3: Bloomberg Senior national political correspondent. We first asked her to
18:58
Speaker 3: walk us through what that story is.
19:00
Speaker 9: Well, it's really about sort of these two impulses that
19:03
Speaker 9: he has and that his aids are really thinking about
19:06
Speaker 9: as he you know, begins his second term in the
19:08
Speaker 9: White House, and the first impulse is really to you know,
19:12
Speaker 9: govern well, leave a legacy. You know, some of his
19:15
Speaker 9: aids for the last few months have been talking about
19:17
Speaker 9: sort of wanting him to have as big of a
19:19
Speaker 9: legacy as Ronald Reagan.
19:21
Speaker 5: You know.
19:21
Speaker 9: They want him to preside over a booming economy, energy exploration,
19:26
Speaker 9: you know, getting what they see is immigration under control,
19:30
Speaker 9: and they really want, you know, his success to be
19:32
Speaker 9: built around governing. But there's a whole other crew of
19:35
Speaker 9: Trump Maga people who really also want retribution and revenge
19:40
Speaker 9: to be a part of that. They want people to
19:42
Speaker 9: pay for the investigations that they say Trump endured, They
19:47
Speaker 9: want people to pay for, you know, coming after him
19:50
Speaker 9: with legal challenges, the Jack Smith investigation, the New York
19:54
Speaker 9: hush money case. They want people to pay, and also
19:57
Speaker 9: just critics, you know, career government official who maybe raise
20:00
Speaker 9: questions about Trump's first term. This crew wants Trump to pay.
20:04
Speaker 9: And so the story just really talks about how the
20:06
Speaker 9: competing impulses of Trump's first term is going to be
20:10
Speaker 9: between sort of wanting to govern well but also wanting
20:12
Speaker 9: to get revenge. And I think that a central theme
20:15
Speaker 9: of his presidency the second time around will be what
20:18
Speaker 9: the balance of that looks like.
20:20
Speaker 2: Nancy, do we have any idea who President Trump really
20:24
Speaker 2: listens to in the second administration? Seemed like in the
20:26
Speaker 2: first administration he had Jared Kushner and Ivanka there. Who's
20:30
Speaker 2: got his ear these days?
20:32
Speaker 9: Do you think, well, it's a different crew than last time.
20:35
Speaker 9: I would say Susie Wiles, who is his chief of
20:37
Speaker 9: staff and the first female chief of staff at the
20:39
Speaker 9: White House ever, really is hugely respected. You know, he
20:44
Speaker 9: really listens to her and really takes her counsel. She's
20:47
Speaker 9: worked for him, you know, on and off since twenty sixteen.
20:50
Speaker 9: She ran his Florida political operations about the twenty sixteen
20:54
Speaker 9: campaign and twenty twenty and then joined him, you know,
20:58
Speaker 9: his campaign full time when he, you know, decided to
21:01
Speaker 9: run for a third time. They are very close and
21:04
Speaker 9: she he does listen to her, and then she has
21:07
Speaker 9: a group of very loyal aids around her who worked
21:10
Speaker 9: on the campaign. And I feel like, you know, it's
21:13
Speaker 9: a pretty well oiled machine, and a lot of those
21:16
Speaker 9: people were Florida based, and I would say, it's a
21:18
Speaker 9: really different staff than it was for his first administration.
21:23
Speaker 3: What kind of legacy do you think President Trump is
21:25
Speaker 3: after right now?
21:26
Speaker 9: I think right now he's feeling good and he's not
21:28
Speaker 9: feeling under attack, and so I think right now he
21:32
Speaker 9: you know, is probably a little bit more drawn to
21:34
Speaker 9: the Ronald Reagan model. But you have to remember he
21:36
Speaker 9: also pardoned fifteen hundred January sixth people, including people who
21:40
Speaker 9: violently assaulted police officers that day, and that is also
21:44
Speaker 9: part of the revenge. And so I think, you know,
21:46
Speaker 9: it's going to vacillate between one and the other. I
21:50
Speaker 9: do think that he thinks that he could be a
21:52
Speaker 9: better president than people give him credit for. Biden thought
21:55
Speaker 9: the same thing, and so we'll have to see what,
21:58
Speaker 9: you know, happens over the next four years. He and
22:00
Speaker 9: his team are riding high right now. You know, they
22:03
Speaker 9: feel like they won all seven battleground states. They put
22:06
Speaker 9: together a new coalition, brought some new people into the
22:09
Speaker 9: Republican Party, and so I will be curious to see,
22:12
Speaker 9: you know, what happens a year from now or two
22:13
Speaker 9: years from now when they're not riding as high, or
22:16
Speaker 9: when he feels under attack, and what that looks like
22:18
Speaker 9: at that point.
22:20
Speaker 2: Nancy, what do you think are kind of the to
22:23
Speaker 2: do list for the first hundred days. Is this a
22:25
Speaker 2: president that views these first hundred days, as other presidents do,
22:28
Speaker 2: as a time to really get stuff done.
22:30
Speaker 9: He signed a ton of executive orders, everything related to immigration, energy,
22:36
Speaker 9: the federal workforce. He's really hitting the ground running. Susie
22:40
Speaker 9: Wiles's chief of staff, has told people that she views
22:43
Speaker 9: the first one hundred days as kind of an artificial metric.
22:46
Speaker 9: They are really looking at the first two years as
22:48
Speaker 9: the key time to get things done. That's when we
22:51
Speaker 9: know that Republicans will control both the House and Senate.
22:54
Speaker 9: You know, the Republicans have total control right now in Washington,
22:58
Speaker 9: and I think that they view the two years as
23:00
Speaker 9: the key time to get things done.
23:02
Speaker 3: Right, So, I was wondering, like, it's really until the midterms,
23:05
Speaker 3: right when women things may change. Also, any leverage that
23:08
Speaker 3: President Trump may have over individual members that are up
23:11
Speaker 3: for reelection that might change as well.
23:14
Speaker 9: Yeah, that's absolutely right. And you have to remember he's
23:16
Speaker 9: a lame duck president too, you know, he can't serve again,
23:19
Speaker 9: and so I think that they view that too as
23:22
Speaker 9: part of this calculus of the first two years of
23:24
Speaker 9: being very important. But we were already seeing them move
23:27
Speaker 9: at a very dizzying pace. And I think that that's
23:30
Speaker 9: going to continue immigration deportation.
23:34
Speaker 2: How aggressive do you think the president can be here?
23:37
Speaker 9: Well, he's already trying. I mean, he's signed executive orders
23:40
Speaker 9: to change the asylum process to you know, shut down
23:43
Speaker 9: the border via se via you know, national emergency. They
23:47
Speaker 9: were canceling immigration appointments that people had already that were
23:51
Speaker 9: you know, legal immigration people trying to come here legally.
23:54
Speaker 9: And so I think that, you know, Stephen Miller, who
23:57
Speaker 9: is sort of the architect of his immigration policy, is
24:00
Speaker 9: a deputy chief of Staff in the White House. He
24:02
Speaker 9: has a huge amount of power, just like last time,
24:05
Speaker 9: and I think that you know, he is telling both
24:09
Speaker 9: members of Congress, but also he's telling Trump himself that
24:12
Speaker 9: you know, you need to move quickly on immigration. This
24:14
Speaker 9: is a quote unquote quick win for US. And so
24:17
Speaker 9: I think that they are going to spend a lot
24:19
Speaker 9: of time in the first six weeks to two months
24:22
Speaker 9: on immigration.
24:23
Speaker 2: Our thanks to Nancy Cook, Bloomberg's senior national political correspondent.
24:27
Speaker 3: Coming up on the program, a look at corporate earnings
24:30
Speaker 3: in the aerospace industry.
24:31
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
24:34
Speaker 2: depth research and data on two thousand companies and one
24:36
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
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24:41
Speaker 3: Sweeney and amlex Steel and this is Bloomberg.
24:51
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24:55
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25:01
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25:09
Speaker 3: We moved next to the aerospace industry this week. We
25:12
Speaker 3: got earnings from American Airlines and GE Aerospace.
25:15
Speaker 2: American Airlines forecast at a surprise first quarter loss as
25:18
Speaker 2: a carrier works to win back corporate travel after a
25:21
Speaker 2: strategic blunder last year.
25:22
Speaker 3: Meantime, Genmal Electric Aerospace GE Aerospace exceeded Wallstreet expectations for
25:27
Speaker 3: profit and sales in the fourth quarter.
25:29
Speaker 2: This comes as the jet engine maker works through supply
25:31
Speaker 2: chain limitations and capitalized on a strong maintenance backlog.
25:35
Speaker 3: For more We are joined by George Ferguson Bloomberg Intelligence
25:38
Speaker 3: senior Aerospace, Defense and Airlines analyst.
25:40
Speaker 2: We first asked George for his take on results from
25:42
Speaker 2: American Airlines.
25:44
Speaker 10: Yeah, so, I mean on an adjusted basis, though, American
25:47
Speaker 10: fine and four Q is all about their one Q
25:49
Speaker 10: guide and that was guided at a loss compared to
25:52
Speaker 10: their peers United in Delta. So I mean, American looks
25:57
Speaker 10: like they're just going to add less capacity in the
25:59
Speaker 10: first quarter and that's going to make it more difficult
26:02
Speaker 10: to manage expenses. Expenses will be higher than peers, and
26:07
Speaker 10: so their performance just won't be as good.
26:11
Speaker 1: But I guess what I.
26:11
Speaker 10: Would say though, is Americans four Q earnings, you know,
26:16
Speaker 10: their their revenue growth in all markets looked better than
26:20
Speaker 10: their peers on par or better.
26:23
Speaker 6: You know.
26:24
Speaker 10: So, American a couple of years ago decided on a
26:27
Speaker 10: new strategy where they were going to try to do
26:29
Speaker 10: less agency ticketing, you know, through travel agencies and such,
26:33
Speaker 10: and more direct That kind of backfired. They've they've turned
26:37
Speaker 10: that around and they're going back towards a more traditional
26:40
Speaker 10: distribution of tickets, and I think it's starting to show
26:43
Speaker 10: up in the financials now again. I think four Q
26:46
Speaker 10: looked pretty good from a revenue performance, and so I
26:50
Speaker 10: would expect that one Q is probably a bit of
26:52
Speaker 10: a glitch, as they're just not going to put as
26:53
Speaker 10: much capacity in the marketplace manage a little bit higher expenses.
26:57
Speaker 10: But I really think that they're closing the gap, and
26:59
Speaker 10: we'll get to close the gap with the United and
27:02
Speaker 10: Delta as they roll through twenty twenty five.
27:04
Speaker 3: So when do they expect them to catch up and
27:07
Speaker 3: sort of reverse the mistake that they made, Like when
27:10
Speaker 3: does that resolve itself completely?
27:12
Speaker 10: So, I mean I was looking, you know, to some
27:15
Speaker 10: of the differential and yields, price paid per mile flown
27:19
Speaker 10: at the carriers. Delta is still the top dog, but
27:23
Speaker 10: Americans only sort of three percent behind. It's always hard
27:26
Speaker 10: to figure out exactly when the catchup's.
27:27
Speaker 5: Going to occur.
27:28
Speaker 10: Is it going to occur in the next couple of quarters.
27:30
Speaker 10: Probably not. I think it'll take a while, But I
27:32
Speaker 10: bet you they make a lot of progress during twenty
27:34
Speaker 10: twenty five. I mean, it's a pretty competitive marketplace.
27:38
Speaker 2: There's a fair.
27:38
Speaker 10: Amount of overlap. I don't think, you know, Americans hubs
27:41
Speaker 10: probably aren't as great as Deltas and United, but I
27:44
Speaker 10: would expect they're going to close a good portion of
27:46
Speaker 10: that gap this year.
27:48
Speaker 2: You know, I'm just looking an evaluation on a pe basis.
27:50
Speaker 2: American you know, got an eight handle, United's around ten times,
27:54
Speaker 2: Delta is the premium at eleven twelve times. What drives
27:58
Speaker 2: the differential evaluation for these three companies. I kind of
28:01
Speaker 2: think of them as kind of all kind of the same.
28:04
Speaker 2: But the market doesn't, does it?
28:05
Speaker 10: It doesn't look I think Delta does have you know,
28:10
Speaker 10: as you just pointed out, has the best reputation in
28:13
Speaker 10: the group. Again there you know, they're the market leader
28:17
Speaker 10: in revenue per mile flown. I think they've done a
28:20
Speaker 10: really good job on their loyalty program. I think that's
28:23
Speaker 10: probably generating the most revenue of those big three as well,
28:28
Speaker 10: and that's really nice, high powered revenue, right, A lot
28:30
Speaker 10: of it flows to the bottom line. So Delta is
28:33
Speaker 10: clearly the market leader. And again I think it's that loyalty.
28:36
Speaker 10: I think there's a real desire to fly Delta. There's
28:39
Speaker 10: sort of this Delta cult out there. United has been
28:41
Speaker 10: kind of closing that ground. The United has a very
28:44
Speaker 10: strong international network and I think we've really seen that
28:49
Speaker 10: recently with you know there's very good demand, very strong
28:53
Speaker 10: demand to go transatlantic right now Americans. The dollars strong.
28:57
Speaker 10: Americans apparently want to go there in the depths of
28:59
Speaker 10: winter now, even because we just can't get enough Europe
29:02
Speaker 10: after the pandemic. I don't know how long this lasts,
29:05
Speaker 10: maybe as long as the dollar is this strong. But
29:08
Speaker 10: I think that's been really shining through and United and
29:10
Speaker 10: helping them close some of the gap. They still have
29:13
Speaker 10: work to do on the loyalty side, and I think
29:15
Speaker 10: the domestic side of their network, and America has kind
29:18
Speaker 10: of been the laggard. And again I think you know,
29:21
Speaker 10: their internationals, especially international indo Europe isn't as good I think,
29:26
Speaker 10: and into Asia is much less than those two carriers,
29:30
Speaker 10: And America just doesn't have the loyalty program as strong.
29:32
Speaker 10: So I think they've been more highly levered than the
29:36
Speaker 10: other two because they have gone through fleet refreshes earlier.
29:39
Speaker 10: So that's sort of why they're the laggard. But again,
29:42
Speaker 10: they all operate in the same marketplace. There are some
29:45
Speaker 10: nuances to their hubs, but it's hard to see any
29:48
Speaker 10: one of them walking away too far from the others,
29:51
Speaker 10: and I think that's why we're seeing this convergence in
29:53
Speaker 10: the full service.
29:54
Speaker 5: We'll see it.
29:55
Speaker 3: George, we have a little over a minute, luck, but
29:56
Speaker 3: I didn't want to let you go before we talked
29:58
Speaker 3: about GE and what that read through A and their
30:00
Speaker 3: aerospace division men for Boeing so strong.
30:04
Speaker 10: GE's got, you know, the maintenance business really powering cash
30:07
Speaker 10: flow and margins. They guided to next year they show
30:13
Speaker 10: cash flow and profit not growing as fast as revenue.
30:17
Speaker 10: Story there is. I think you're going to see more
30:19
Speaker 10: deliveries out of Boeing and Airbus. We're calling for that.
30:22
Speaker 10: New engines are diluted to margins and so that'll take
30:26
Speaker 10: a little bit of the shine off that business. But
30:28
Speaker 10: everybody's flying everything as long as they can because it's
30:31
Speaker 10: hard to get new airplanes because of the supply chain problems.
30:34
Speaker 10: And that's really helping to boost that margin income at GE,
30:38
Speaker 10: which is you know, well into double digits kind of stuff.
30:41
Speaker 2: It's great stuff, all right.
30:42
Speaker 3: Thanks to George Ferguson, Bloomberg Intelligence, Senior Aerospace, Defense and
30:46
Speaker 3: Airlines analyst. Each week we take a look at research
30:49
Speaker 3: from Bloomberg n EF previously known as New Energy Finance.
30:52
Speaker 2: They're the team at Bloomberg that tracks and analyzes the
30:54
Speaker 2: energy transition from commodities to power, transport, industries, buildings, and
30:59
Speaker 2: agricultural sects.
31:00
Speaker 3: This week we took a look at what a Trump
31:01
Speaker 3: administration means for the energy transition from where we are
31:04
Speaker 3: joined by Derek Flackole Bloomberg bn EF's lead US policy analyst.
31:08
Speaker 2: We first asked Derek, what's the substance of Trump's recent
31:11
Speaker 2: executive orders on energy and if we're in need of
31:14
Speaker 2: an energy emergency?
31:16
Speaker 11: From a sort of market perspective, the answer would arguably
31:19
Speaker 11: be no. Certainly from a supply amount, the US is
31:22
Speaker 11: the world's largest producer of oil and gas, there is
31:26
Speaker 11: an argument to be made about price, which is certainly
31:28
Speaker 11: the basis of the Trump administration's order. But more to
31:32
Speaker 11: the point, declaring an emergency doesn't have a sort of
31:36
Speaker 11: clear legal basis of restriction. It's a thing that's more
31:38
Speaker 11: or less the discretion of the president, so he does
31:40
Speaker 11: have the power to declare this. The substantive implications, of course,
31:44
Speaker 11: might be somewhat different. There's not a lot of precedent
31:47
Speaker 11: for a national energy emergency to close would be the
31:49
Speaker 11: nineteen seventies, where there was a large amount of regional
31:51
Speaker 11: emergencies declared, there might be some ability to ignore or
31:55
Speaker 11: look past normal environmental rules or restrictions that could slow
31:58
Speaker 11: the construction of energy project. But of course this would
32:02
Speaker 11: require a lot of cooperation with perhaps state and local
32:04
Speaker 11: authorities and certainly the private sector to really build anything out,
32:07
Speaker 11: and the implications on prices remained to be seen. It
32:10
Speaker 11: takes a long time to build anything, and that means
32:11
Speaker 11: a long time to have an impact on prices.
32:13
Speaker 2: Hey, Derek, just from at that thirty thousand foot level,
32:15
Speaker 2: what does a Prince president Trump presidency meet for just
32:18
Speaker 2: alternative energy in general, maybe wind in particular.
32:23
Speaker 11: Sure, so zooming in on wind there's a bit more
32:27
Speaker 11: vulnerability than a lot of other energy sectors because in
32:31
Speaker 11: offshore wind there's reliance on federal permits. Everything is basically
32:36
Speaker 11: on the federally owned seabed as well as federal leases.
32:40
Speaker 11: So those are two different areas where the president has
32:42
Speaker 11: a lot of leverage to halt leasing or new construction.
32:46
Speaker 11: Trump has already done that with one specific executive order.
32:50
Speaker 11: Onshore wind is a little bit different. Unless it's on
32:52
Speaker 11: federal land or impacts certain federally regulated waters or endangered species,
32:57
Speaker 11: you're not going to need a federal permit for that,
33:00
Speaker 11: so that's a bit more limited there. And then when
33:02
Speaker 11: you're looking at solar and storage and other factors like that,
33:07
Speaker 11: it's not really as affected by Trump's orders. He did
33:12
Speaker 11: pause certain forms of funding from the Inflation Reduction Act,
33:15
Speaker 11: the Infrastructure Investment and Jobs Act. Those are the sort
33:17
Speaker 11: of Biden era signature clean energy subsidy laws. But by
33:21
Speaker 11: my understanding, that shouldn't really be affecting the tax credits,
33:23
Speaker 11: which are driving a lot of deployment, and state level
33:26
Speaker 11: regulation in the power sector, which is a major driver continues.
33:29
Speaker 11: You're still going to see demands for clean power for
33:32
Speaker 11: utilities in California, Michigan, a wide variety of states, and
33:35
Speaker 11: in places that don't have those standards, like Texas, there's
33:39
Speaker 11: still a really substantial amount of solar and storage build
33:42
Speaker 11: not because of not because of regulations, because of market demand,
33:46
Speaker 11: because it's quick to build and provides meets load growth
33:48
Speaker 11: pretty quickly. So he can't really stop it, but he
33:51
Speaker 11: can slow or complicate it in various ways.
33:53
Speaker 3: And I hear you on the tax credits that has
33:55
Speaker 3: to take an Act of Congress, but that would be
33:57
Speaker 3: pivotal for a lot of these companies. Part though, has
34:01
Speaker 3: to do with the deployment of cash. So the Department
34:06
Speaker 3: of Loans issued a boatload of money right before. I mean,
34:09
Speaker 3: they've been trying to get rid of this money like
34:10
Speaker 3: crazy for the last four years. Where is that money now, Like,
34:13
Speaker 3: is it just like dry up and go away? Can
34:15
Speaker 3: Trump recall any of these loans?
34:18
Speaker 11: So recalling that will be pretty tricky. A large amount
34:21
Speaker 11: of those loans have now been committed from the Department
34:24
Speaker 11: Energy's Loan Program's office. Both an active loan and a
34:27
Speaker 11: conditional commitment are considered obligated as I as far as
34:31
Speaker 11: my research told me, which means it's basically contractually assigned
34:34
Speaker 11: to a private company. That means that it's pretty difficult
34:39
Speaker 11: to claw that back. The active loans, of course, are
34:42
Speaker 11: even more difficult because once a business is actually enjoying
34:45
Speaker 11: the benefits of that you're building a factory or opening
34:47
Speaker 11: a mine, it becomes both legally and politically trickier to
34:51
Speaker 11: pull that away.
34:53
Speaker 2: So when we sit back, Derek, what's the reality here?
34:57
Speaker 2: You know you mentioned when where there is some some
35:00
Speaker 2: opportunity for the federal government to slow things down, But
35:03
Speaker 2: how about other areas of alternatives. Is that going to
35:06
Speaker 2: need cooperation of Congress, private sector. How do you think
35:10
Speaker 2: that might play out?
35:12
Speaker 11: Well, It definitely requires a lot of cooperation on both ends. Firstly,
35:17
Speaker 11: from the sort of utility scale deployment side of things, again,
35:20
Speaker 11: you're still looking at a lot of state driven demand
35:23
Speaker 11: for a build out, either regulatory or market. Secondly, if
35:27
Speaker 11: you're trying to really cut the tax credits or slow
35:30
Speaker 11: deployment that way, you do need Congress's approval to really
35:34
Speaker 11: substantially change the rates. Over the longer term, maybe two
35:37
Speaker 11: to three years, you could see Trump reversing some of
35:40
Speaker 11: the finalized Biden administration regulations in a way that might
35:43
Speaker 11: make these credits harder to access, but that's going to
35:46
Speaker 11: take time. And on top of that, in terms of
35:50
Speaker 11: other parts of things like you know, oil and gas access,
35:54
Speaker 11: things like that, that's going to be driven heavily by
35:57
Speaker 11: private sector decision making. Right, lower a bunch of barriers,
36:02
Speaker 11: But you can't really say to energy producers, Okay, we're
36:06
Speaker 11: going to make you produce at an amount that basically
36:11
Speaker 11: reduces your profitability. And one last point, I'll make something
36:14
Speaker 11: that ties into all this fossil and non fossil infrastructure
36:17
Speaker 11: is permitting reform, and that is mostly going to take
36:20
Speaker 11: an Act of Congress. In particular, it's probably going to
36:23
Speaker 11: take a sixty votes in the Senate, which means seven
36:26
Speaker 11: Democrats coming alongside. You can't really easily fit that into
36:29
Speaker 11: a reconciliation bill, which is primarily about tax and spending,
36:32
Speaker 11: and it can get you a fifty votes passage in
36:35
Speaker 11: the Senate.
36:35
Speaker 5: All right.
36:36
Speaker 3: Thanks to Derek Flackhole, Bloomberg b Any Apps, Lead US
36:39
Speaker 3: policy analyst.
36:40
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