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Netflix Shares Fall most Since 2022 as Tax Hit Spooks Investors · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am
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  Speaker 2: Keith wrong and Nathan joins as she is the US
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  Speaker 2: media analyst for Bloomberg Intelligence. Keith, what's going on with
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  Speaker 2: their friends at Netflix? I mean, so they had a
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  Speaker 2: tax dispute in Brazil. Is that enough to knock the
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  Speaker 2: stock down ten percent?
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  Speaker 3: Yeah?
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  Speaker 4: I think that's part of the story, Paul, So definitely
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  Speaker 4: nobody saw this coming in terms of this transaction tax.
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  Speaker 4: It's a little bit of a catch up charge that
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  Speaker 4: Netflix took in the third quarter, and there will be
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  Speaker 4: an ongoing charge as well, about forty million or soper quarter,
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  Speaker 4: but again nothing that will materially impact results. What that
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  Speaker 4: tax charge did was that it definitely depressed the margin performance,
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  Speaker 4: and this is something that everybody's been super focused on
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  Speaker 4: operating margin numbers. Those came in definitely much lighter than
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  Speaker 4: what Netflix itself had projected. But actually, if you just
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  Speaker 4: strip out that Brazil tax impact, they would have had
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  Speaker 4: record operating margins, so they guided for thirty one point five.
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  Speaker 4: They would have come in at close to almost thirty
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  Speaker 4: four percent if we didn't have that tax issue. I
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  Speaker 4: think fundamentals are definitely strong. But I think what is
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  Speaker 4: happening is, apart from the tax issue, was that it
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  Speaker 4: was just a very very ordinary quarter. You know, people
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  Speaker 4: were definitely expecting something, you know, a much bigger beat
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  Speaker 4: in terms of revenue, just given that, you know, the
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  Speaker 4: second half content slate has absolutely been a monster slate.
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  Speaker 4: I mean, we've seen some of their biggest hits ever
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  Speaker 4: in the third quarter. We expect to see more coming
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  Speaker 4: in four Q, but none of that was really reflected
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  Speaker 4: in the numbers, and I think that's why you're seeing
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  Speaker 4: so much of nervousness today.
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  Speaker 5: Okay, so ordinary results at Netflix is like the New
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  Speaker 5: Bad and you talk about the contest like k Pop
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  Speaker 5: Demon Hunters, a new season of Wednesday, the sequel to
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  Speaker 5: Happy Gilmour, and then in the fourth quarter there is
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  Speaker 5: the Stranger Things final season and a sequel to Knives Out.
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  Speaker 6: Yes, oh my god, that is really good.
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  Speaker 5: That is fantastic, great acting by Kerrie Russell and rufe
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  Speaker 5: A Sewall. Okay, Anyway, going back to the results, Gita,
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  Speaker 5: what was new I thought in the earnings report was
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  Speaker 5: that they flagged the possibility of M and A, which
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  Speaker 5: is not something you hear from Netflix. Of course, there
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  Speaker 5: have been all these reports that Netflix is interested in
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  Speaker 5: buying assets.
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  Speaker 6: From Warner Brothers Discovery.
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  Speaker 5: Do these latest results show that Netflix is now in
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  Speaker 5: a position where it has to make a purchase. It's
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  Speaker 5: a defensive buyer as opposed to an offensive buyer.
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  Speaker 4: I don't know whether it has to make a purchase.
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  Speaker 4: They definitely left the door open, which which suggests to
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  Speaker 4: us that they will take you a long and hard
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  Speaker 4: look at the studio assets. Not the cable networks. They
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  Speaker 4: made that extremely clear on the call, but the studio.
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  Speaker 4: If you just think about its Scarlett, I mean, this
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  Speaker 4: is definitely and I mean we spoke about this yesterday
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  Speaker 4: as well. This is a once in a generational opportunity
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  Speaker 4: for anybody who wants to own this kind of a studio.
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  Speaker 4: I mean, this is a top tier studio with a
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  Speaker 4: lot of very very you know, beloved popular franchises across
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  Speaker 4: the world. We know that these titles resonate. I mean
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  Speaker 4: Netflix themselves has a lot of the Warner Brother titles.
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  Speaker 4: They perform extremely well on the platform. So yes, it
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  Speaker 4: is a defensive move. But again, if Netflix doesn't, you know,
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  Speaker 4: go ahead and doesn't make that purchase, I don't necessarily
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  Speaker 4: think that they are going to be in a much
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  Speaker 4: weaker position. It definitely complicates the strategy for them a
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  Speaker 4: little bit, just because you might have another player, like
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  Speaker 4: a paramount or a Comcast that becomes much stronger. But
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  Speaker 4: they still have a considerable lead versus all of their peers.
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  Speaker 4: So I don't think it's it's two or die.
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  Speaker 2: So what's the environment like out there in terms of
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  Speaker 2: creating content movies and TV shows? Is Netflix still like
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  Speaker 2: the first phone call you make if you're a producer
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  Speaker 2: or you're a writer. I've got this project. I'm going
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  Speaker 2: to go to Netflix can get it done. Is that
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  Speaker 2: because they had the biggest and maybe still have the
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  Speaker 2: biggest checkbook in Hollywood?
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  Speaker 6: They do.
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  Speaker 4: They're spending close to about seventeen and a half to
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  Speaker 4: eighteen billion dollars on content every year. And you know,
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  Speaker 4: there's been a lot of concerns Paul in general about
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  Speaker 4: the rise of AI, especially now that you have Sora too.
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  Speaker 4: You have all of these new tools from Google, from Meta.
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  Speaker 4: You know, is that going to be a disruptive force
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  Speaker 4: for all of these streaming players and Netflix? And it
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  Speaker 4: looks like it actually won't. You know, we've run some
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  Speaker 4: numbers internally. We think that it should help Netflix actually
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  Speaker 4: curb content costs by about five to ten percent. That's
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  Speaker 4: substantial cost savings, you know, for all of these streaming players,
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  Speaker 4: especially for Netflix which typically has used AI really really well.
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  Speaker 4: You're absolutely right. You know, they've done a great job
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  Speaker 4: when it comes to content. They're going to I think
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  Speaker 4: continue to do that. I mean, not only do we
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  Speaker 4: have the second half slate for this year which is
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  Speaker 4: extremely strong Scartege just mentioned all of those titles, but
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  Speaker 4: actually looking forward to twenty twenty six again, you have
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  Speaker 4: a whole host of different titles coming on the platform,
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  Speaker 4: you know, including Emily in Paris. You have Bridgerton, which
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  Speaker 4: has been one of their biggest series, and then you
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  Speaker 4: have the movie Narnia, which is supposed to be like
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  Speaker 4: this huge event for them coming a little bit later.
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  Speaker 4: So they have a steady, steady, steady pipeline of titles
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  Speaker 4: that should help them, you know, drive engagement and ultimately
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  Speaker 4: drive pricing.
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  Speaker 7: Stay with us more from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 7: AT and T reported numbers here.
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  Speaker 2: It looked pretty solid to me, but I know they
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  Speaker 2: had a lot of promotional stuff out there, so the
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  Speaker 2: revenue growth kind of came in a little bit lighter.
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  Speaker 2: John Butler, he covers this the stock for us at
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  Speaker 2: Bloomberg Intelligency Joints this year. We're gonna have the CEO,
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  Speaker 2: mister stinking of AT and T coming up in just moments.
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  Speaker 2: John Butler, senior telcom analysts for Bloomberg Intelligence Joints. This here, John,
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  Speaker 2: talk to us about the AT and T quarter. We
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  Speaker 2: know it's a that wireless business is a really competitive
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  Speaker 2: business out there.
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  Speaker 8: It's a tough one, Paul. It's a very mature market
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  Speaker 8: right now. You've had a lot of movement and the
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  Speaker 8: management suite with new CEOs at Verizon and T tea movels.
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  Speaker 8: So the fear is that promotional activity is going to
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  Speaker 8: pick up as these new CEOs try and make their mark,
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  Speaker 8: and I think we saw some evidence of that in
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  Speaker 8: three Q. You know, if you look at AT and
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  Speaker 8: t's numbers, they were truly mixed. I was really surprised
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  Speaker 8: at that. What we saw was revenue growth across the
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  Speaker 8: board just missed estimates slightly. It was a little bit
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  Speaker 8: slower than everyone expected. Subscriber growth, though, was higher than expected,
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  Speaker 8: and that really to me, that's those are the kind
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  Speaker 8: of financial metrics you see in a highly promotional environment,
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  Speaker 8: right you're promoting heavily, there's pressure on pricing. Their average
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  Speaker 8: revenue per user actually fell in the quarter on the
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  Speaker 8: wireless front, but subscribers rose, And so you're out there
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  Speaker 8: trying to build up your roles, your subscriber roles, at
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  Speaker 8: the expense of revenue in the short term, on the
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  Speaker 8: promise that in the long term, if you can keep
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  Speaker 8: those subscribers, it more than pays back.
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  Speaker 5: I always pay special attention to AT and t's results
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  Speaker 5: because I switched from AT and T after like, I
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  Speaker 5: don't know, fifteen years because of the original iPhone to
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  Speaker 5: T Mobile because they had all these great deals and
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  Speaker 5: I don't know, it seems more fun in general, I'm
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  Speaker 5: a sucker for fun.
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  Speaker 9: So the results it's down because of you.
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  Speaker 6: No no, no, I actually switched last year.
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  Speaker 5: But the reason I ask John, or the reason I
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  Speaker 5: bring this up, is because now AT and T is
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  Speaker 5: actually the smallest of the big three wireless providers, behind
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  Speaker 5: Rise and behind T Mobile. Does being the underdog work
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  Speaker 5: for it?
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  Speaker 8: It's a good question, Scarlet. What they're really doing is
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  Speaker 8: throwing their weight behind broadband. John Stankey, who's going to
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  Speaker 8: be on in a moment, can speak to this more
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  Speaker 8: eloquently than I can. But he has really pursued the
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  Speaker 8: broadband market in a big way, and I think a
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  Speaker 8: lot of it has to do with the fact that
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  Speaker 8: the broadband market is growing faster than wireless. It's still
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  Speaker 8: a mature market, it's still relatively saturated, but there's room
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  Speaker 8: for more growth there. AT and T is pursuing a
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  Speaker 8: fiber broadband strategy, and fiber is the single best way
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  Speaker 8: to deliver Internet period, full stop. There's nothing better out there,
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  Speaker 8: and AT and T is a real leader there. So
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  Speaker 8: I think on the wireless run, I don't want to
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  Speaker 8: say they have their eye off that ball in any
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  Speaker 8: way whatsoever. They're going through a big modernization of the
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  Speaker 8: wireless network right now standing up a lot of new spectrums,
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  Speaker 8: so you're going to see network quality increase significantly over time,
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  Speaker 8: and that will drive more net additions I think down
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  Speaker 8: the road. But if you think about AT and T,
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  Speaker 8: don't just think wireless. I think it's important to pay
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  Speaker 8: attention to what's happening in that broadband business because that
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  Speaker 8: really is setting the foundation for their future growth.
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  Speaker 2: So John, in the broadband business, are they competing against
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  Speaker 2: the cable companies because they've made that a key focus
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  Speaker 2: over the last decade or so.
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  Speaker 8: Yeah, I mean, the broadband market's getting really interesting right now.
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  Speaker 8: What you've seen is the cable guys are losing a
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  Speaker 8: lot of share to fiber, and particularly to fixed wireless access,
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  Speaker 8: which is basically a wireless link of broadband into your home.
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  Speaker 8: That's been a runaway hit with consumer. It really popular.
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  Speaker 8: AT and T was late to that game, but they're
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  Speaker 8: getting a lot of growth in FWA right now as
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  Speaker 8: it's called. So it's interesting to see the dynamic where
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  Speaker 8: the cable guys are losing share and the telcos are
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  Speaker 8: gaining share, and soon you're going to have starlink in
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  Speaker 8: on the market in a bigger way. They're right on
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  Speaker 8: the cosp of upgrading the capacity of their constellation, and
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  Speaker 8: so they're going to go from a very high priced product,
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  Speaker 8: I think, to a much more reasonably priced broadband offering.
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  Speaker 8: Once they get more capacity up there, they're going to
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  Speaker 8: look to fill that, and the way to do that
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  Speaker 8: is to cut your prices. And so suddenly you're going
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  Speaker 8: to have another wireless option, which is going to be satellite.
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  Speaker 8: So the competitive dynamics there are getting interesting. But for
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  Speaker 8: AT and T and their dedication of fiber, I think
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  Speaker 8: they're extremely well positioned and not only hold their own
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  Speaker 8: but from here.
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  Speaker 5: You know, what I've noticed is that if you have
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  Speaker 5: the old school cable broadband, they're always trying to push
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  Speaker 5: you into fiber optic by making the old school cable
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  Speaker 5: broadband so expensive that you end up calling to complain
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  Speaker 5: about it, and then they're like, hey, we can upgrade.
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  Speaker 6: You to fire optic. That's been a polenging I fell
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  Speaker 6: victim to it.
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  Speaker 5: John AT and D's results they set the tone for competitors' earnings.
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  Speaker 5: T Mobile reports on Thursday, Verizon reports next week. The
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  Speaker 5: interesting bit there is that both of those companies have
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  Speaker 5: named new CEOs in the last month, so they're in
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  Speaker 5: a moment of transition here. What will you be looking
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  Speaker 5: for to carry over from aight andd's results to those numbers.
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  Speaker 8: So I'm going to be laser focused on what's called
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  Speaker 8: wireless service growth, which is the revenue they earn from
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  Speaker 8: charging you your monthly bill. Every one of them have
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  Speaker 8: sizeable handset revenue, but I call them empty calories if
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  Speaker 8: you will, you know they're sold at cost or even
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  Speaker 8: a little bit below cost. So what matters most is
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  Speaker 8: that service revenue. And again Scarlett, if service revenue goes
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  Speaker 8: down but subscriber growth goes up, it tells you there's
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  Speaker 8: a lot of promotional activity out there. And in particular
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  Speaker 8: for both companies, again they both have new CEOs. I'm
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  Speaker 8: going to be listening very carefully for any changing course
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  Speaker 8: on the strategy of either one. Verizon in particular has
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  Speaker 8: been a shared donor for years, and I think the
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  Speaker 8: new CEO maybe thinking about getting more promotional. I've even
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  Speaker 8: seen evidence of it in some of their advertising. So
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  Speaker 8: management commentary, pardon me, on strategy is going to be
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  Speaker 8: the big focus for me.
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  Speaker 5: We saw Apple shares hit a record earlier this week
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  Speaker 5: because of iPhone optimism. Apparently, the early numbers on the
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  Speaker 5: iPhone seventeen were pretty positive, and I'm kind of surprised
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  Speaker 5: that that did not extend to eight and T, T
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  Speaker 5: Mobile and Verizon in the same way, because of course
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  Speaker 5: their partners with AT and T and sell with Apple
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  Speaker 5: and selling these new devices. What kind of numbers are
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  Speaker 5: we anticipating to hear from companies when it comes to
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  Speaker 5: early pre sales of the iPhone seventeen.
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  Speaker 8: We know, it's funny you bring that up, because AT
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  Speaker 8: and T over indexes to the iPhone. They have more
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  Speaker 8: iPhone users in their base than the other two carriers.
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  Speaker 8: And that goes back. If you remember when the iPhone
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  Speaker 8: first launched, AT and T had this exclusivity deal with
• 13:34
  Speaker 8: Apple for a couple of years, and it really led
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  Speaker 8: to an outsized piece of iPhone users at AT and T.
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  Speaker 8: But there, pardon me, there were so many other issues
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  Speaker 8: going on in the quarter, it just never came up. Again.
• 13:52
  Speaker 8: I go back to that thought that handset sales are
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  Speaker 8: sold at or below cost. I think the big danger
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  Speaker 8: with the popular iPhone launch is that it can spark
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  Speaker 8: outsized promotional activity, and again we saw evidence of that
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  Speaker 8: in AT and t's results.
• 14:11
  Speaker 7: Stay with us. More from Bloomberg Intelligence coming up after this.
• 14:18
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 14:21
  Speaker 1: weekdays at ten am. He's done on Apple, Cocklay, and
• 14:24
  Speaker 1: Android Auto with the Bloomberg Business App. Listen on demand
• 14:27
  Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
• 14:32
  Speaker 5: We're looking at companies that are reporting earnings this season
• 14:35
  Speaker 5: and giving us any kind of indication that they are
• 14:37
  Speaker 5: affected by tariffs, and so far this year, we haven't
• 14:41
  Speaker 5: really seen much evidence of that until today. Mattel is
• 14:45
  Speaker 5: now saying that it is delaying orders or retailers it's
• 14:49
  Speaker 5: customers are delaying orders because of uncertainty over the TERRAF.
• 14:53
  Speaker 5: So we want to get a perspective now from Lindsay Dutch.
• 14:55
  Speaker 5: She is Bloomberg Intelligence's Consumer Hardlines senior analysts, and Lindzye.
• 15:00
  Speaker 5: I'm kind of surprised that this didn't happen earlier.
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  Speaker 3: Hi, Scarlett, Thanks for having me. Yes, we so we
• 15:07
  Speaker 3: heard earlier, actually in the second quarter earnings, that there
• 15:11
  Speaker 3: were possibilities for delays and for the toymakers, you know, Walmart, Target,
• 15:16
  Speaker 3: those retailers tend to take their holiday orders by July
• 15:21
  Speaker 3: so there was already worry sort of heading into third
• 15:23
  Speaker 3: corning third quarter earnings that we got last night, and
• 15:26
  Speaker 3: of course it was a negative surprise on the top
• 15:28
  Speaker 3: and the bottom line. Those orders were delayed further than
• 15:32
  Speaker 3: sort of everyone expected, and they're taking smaller quantities than
• 15:36
  Speaker 3: usual you know, onto their you know, shelves ahead of
• 15:40
  Speaker 3: the holiday season, which which was a real concern for
• 15:43
  Speaker 3: Mattel's fourth quarter earnings which would be coming up.
• 15:47
  Speaker 2: So lindsay, what's Mattel and some of the other companies
• 15:50
  Speaker 2: saying about, you know, when their products you know, get
• 15:54
  Speaker 2: stamped with a tariff, Like how much did they try
• 15:57
  Speaker 2: to push back on the manufacture in whatever country comes from,
• 16:00
  Speaker 2: say China, how much the importer made taken his or
• 16:03
  Speaker 2: her P and L versus you know, how are they
• 16:05
  Speaker 2: saying that they're navigating that?
• 16:08
  Speaker 3: So from the cost side, the toymakers actually have been
• 16:12
  Speaker 3: managing this pretty well. So Mattel is forecasting less than
• 16:16
  Speaker 3: one hundred million dollar hit on the cost side on
• 16:19
  Speaker 3: an annual basis. They're mitigating that in several different ways.
• 16:23
  Speaker 3: They're cutting costs in other areas. They did adjust sourcing
• 16:26
  Speaker 3: as much as they could, you know, selling more internationally
• 16:30
  Speaker 3: versus the US, you know, shifting that mix a little bit,
• 16:33
  Speaker 3: and they are. They did roll out some price increases
• 16:37
  Speaker 3: in the second and the third quarter, which is ahead
• 16:40
  Speaker 3: of holiday, so that should help protect on the profit
• 16:43
  Speaker 3: on the margin side for that fourth quarter. It looks
• 16:46
  Speaker 3: like those toymakers are bearing the brunt of that cost
• 16:50
  Speaker 3: rather than sort of passing it through towards a retailer.
• 16:53
  Speaker 5: So MATEL shares today fell as much as nine point
• 16:56
  Speaker 5: seven percent, but they've paired their losses and are only
• 16:59
  Speaker 5: off by a third one percent.
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  Speaker 6: Where there's smoke, there's fire.
• 17:03
  Speaker 5: So I wonder if this is something that also is
• 17:05
  Speaker 5: an issue for Hasbro. Yet when I look at Hasbro's
• 17:08
  Speaker 5: share price, it's up nine tens of one percent. I
• 17:10
  Speaker 5: realized that we shouldn't read too much into the day
• 17:12
  Speaker 5: to day moves of each stock price. But can you
• 17:15
  Speaker 5: just talk a little bit about how Hasbro's now positioned.
• 17:19
  Speaker 3: Yes, so Hasbro, I think, faces very similar challenges on
• 17:22
  Speaker 3: the toy side. Toys still for Hasboro account for more
• 17:26
  Speaker 3: than fifty percent of annual revenue, but they do also
• 17:29
  Speaker 3: have a very strong and a growing digital gaming business.
• 17:34
  Speaker 3: So when I think about third quarter earnings, and they're
• 17:36
  Speaker 3: reporting tomorrow morning. You know, I think that digital gaming business,
• 17:40
  Speaker 3: you know, could shine and it could offset a lot
• 17:42
  Speaker 3: of pressure on that toy product side. Hasbro also has
• 17:46
  Speaker 3: significantly lower expectations for their toy business, so they are
• 17:50
  Speaker 3: thinking about that business being down, you know, made to
• 17:54
  Speaker 3: high single digits, whereas Mattel has stuck with their guidance
• 17:58
  Speaker 3: for sales growth of one to three percent on a
• 18:00
  Speaker 3: constant currency basis. So Mattel's outlook is just much more
• 18:04
  Speaker 3: ambitious and much more optimistic for that fourth quarter. Or
• 18:08
  Speaker 3: Hasbro's going in they have the digital gaming offset, and
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  Speaker 3: they already have lower expectations.
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  Speaker 2: Lindsay, what what are the trends impacting the toy business
• 18:17
  Speaker 2: these days? I mean, I guess a lot of electronics,
• 18:21
  Speaker 2: but what are some of the big trends that you're
• 18:23
  Speaker 2: paying attention to.
• 18:25
  Speaker 3: So a big trend that we have seen growing momentum
• 18:29
  Speaker 3: on is really the adult trend, which is adults eighteen
• 18:33
  Speaker 3: plus playing with more toys, and Hasbro, Mattel, Lego they're
• 18:37
  Speaker 3: all playing into this. So those big black box legos
• 18:41
  Speaker 3: that are very high price points, you know, they've done
• 18:44
  Speaker 3: very well the past couple of years. But Mattel is
• 18:47
  Speaker 3: also leaning into that. A lot of their new products
• 18:50
  Speaker 3: coming out, even with Barbie or hot Wheels, are really
• 18:53
  Speaker 3: collector's items. They're really aiming at that adult And honestly,
• 18:58
  Speaker 3: the industry was up six percent the first half of
• 19:00
  Speaker 3: high single digit in the third quarter, and that's really
• 19:03
  Speaker 3: being driven by this trend.
• 19:06
  Speaker 5: As we look ahad to the holiday season, I realized
• 19:09
  Speaker 5: for companies themselves, they are already knee deep in it,
• 19:11
  Speaker 5: but as consumers we're looking head to it. Are there
• 19:14
  Speaker 5: any must have items that the toy makers are really
• 19:17
  Speaker 5: counting on or these toy retailers are really counting on.
• 19:21
  Speaker 3: So I look through all the holiday lists and I
• 19:23
  Speaker 3: was a little bit disappointed. I didn't see any Wow
• 19:26
  Speaker 3: gifts or what I would call a wow gift. One
• 19:29
  Speaker 3: cool collab that Mattel has, but it's really for twenty
• 19:32
  Speaker 3: twenty six. Pre Orders will be available in November as
• 19:35
  Speaker 3: they are doing a collab with Netflix the Kpop Demon Hunters,
• 19:39
  Speaker 3: So they are doing action figures and dolls for that
• 19:42
  Speaker 3: series and that should be coming out next year, and
• 19:45
  Speaker 3: I do think that could be a big hit, particularly.
• 19:47
  Speaker 6: For kids movies.
• 19:49
  Speaker 2: I mean, Hollywood used to do these tie ins with
• 19:51
  Speaker 2: all toys and lunchboxes and things like that. Is that
• 19:55
  Speaker 2: still a marketing lane for the toy industry for the
• 19:59
  Speaker 2: movie industry, it.
• 20:01
  Speaker 3: Is, and these companies are really leaning into that. But
• 20:04
  Speaker 3: there hasn't been a ton of new content. So Mattel
• 20:08
  Speaker 3: has the Disney Princess and the Frozen license. You know,
• 20:11
  Speaker 3: the Disney lineup for the past year, you know, hasn't
• 20:14
  Speaker 3: been stellar. The snow White movie was not really a
• 20:17
  Speaker 3: huge success. They are looking forward to live action Mowana
• 20:21
  Speaker 3: coming out next year. You know, that could be another,
• 20:24
  Speaker 3: you know, key thing for Mattel. You know, doing the
• 20:26
  Speaker 3: dolls for the Muana movie and other licensing agreements are
• 20:31
  Speaker 3: key growth drivers. We just need a little bit of
• 20:33
  Speaker 3: a stronger entertainment slate.
• 20:35
  Speaker 7: Stay with us. More from Bloomberg Intelligence coming up after this.
• 20:42
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• 20:46
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• 20:49
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• 20:56
  Speaker 2: Hilton Hotels reported some pretty solid results there, stocks up
• 21:00
  Speaker 2: about five percent today, up about twelve percent year to date.
• 21:04
  Speaker 2: Let's check in with Jody Laurie Laurie. She is senior
• 21:08
  Speaker 2: credit analyst for a Bloomberg Intelligence. She joined us from Princeton,
• 21:11
  Speaker 2: New Jersey. Jody, what did you hear from Hilton in
• 21:15
  Speaker 2: their earnings release?
• 21:17
  Speaker 10: So I think, Paul, you know what's interesting is that
• 21:20
  Speaker 10: Brian Egger, my equity counterpart, and I came up with
• 21:22
  Speaker 10: the same conclusion in that they're a little bit too optimistic,
• 21:25
  Speaker 10: it seems in general. I think what's so funny is
• 21:28
  Speaker 10: when you compare and actually taking a step back, it's
• 21:31
  Speaker 10: a little alarming when equity and credit analysts are right
• 21:34
  Speaker 10: as a decide note, but when you compare what their
• 21:38
  Speaker 10: estimates were for RevPAR looking a year ago. You know,
• 21:43
  Speaker 10: fourth quarter of last year, you were talking two to
• 21:46
  Speaker 10: three percent positive two to three percent.
• 21:47
  Speaker 9: Now they're saying zero to one percent. Yeah, for some.
• 21:50
  Speaker 10: Reason they're able to reach an ebadad that's almost similar
• 21:53
  Speaker 10: to what they were projecting then.
• 21:55
  Speaker 6: So it's a little bit.
• 21:56
  Speaker 9: Of a head scratcher.
• 21:57
  Speaker 10: I guess a lot of it's coming from the cost
• 21:59
  Speaker 10: component of it. You know, if your your revenue per
• 22:01
  Speaker 10: available room isn't necessarily growing, but then your EVEDA is growing,
• 22:05
  Speaker 10: you sort of say, okay, well.
• 22:06
  Speaker 9: Where that where is that coming from? And what does
• 22:09
  Speaker 9: that mean? Overall?
• 22:11
  Speaker 2: So what is the company saying about kind of their
• 22:15
  Speaker 2: just the underlying book of business, How are their bookings looking?
• 22:18
  Speaker 2: And you know, what are they saying about I guess
• 22:20
  Speaker 2: components of their customer base.
• 22:24
  Speaker 10: So if you break it out, the US is a
• 22:26
  Speaker 10: clear sort of underperformer at the moment. In terms of travel,
• 22:30
  Speaker 10: we're seeing some weakness, some more muted results on the
• 22:33
  Speaker 10: leisure side of things. For group and business, which was
• 22:37
  Speaker 10: supposed to be a tailwind this year, it's actually pulling back.
• 22:40
  Speaker 9: It's a little bit decreased.
• 22:41
  Speaker 10: Now they're saying that group going into next year is
• 22:43
  Speaker 10: going to be positive, but it is interesting to hear
• 22:46
  Speaker 10: that this component where they're hanging their hat on as
• 22:49
  Speaker 10: the area of growth is now not really performing.
• 22:51
  Speaker 9: Now.
• 22:52
  Speaker 10: If you look across their brands, what stood out for me,
• 22:56
  Speaker 10: especially for the third quarter but also year to date,
• 22:59
  Speaker 10: is that compare their higher end brands versus a year ago,
• 23:02
  Speaker 10: it was very strong in terms of growth from an
• 23:06
  Speaker 10: occupancy standpoint, but then if you look at the lower
• 23:08
  Speaker 10: end brands, they're actually a lot weaker. So the farther
• 23:11
  Speaker 10: down you go in terms of their quality of their brands.
• 23:13
  Speaker 10: So if you're talking the Conrad brand, which is one
• 23:16
  Speaker 10: of their more premier brands, Weld or for Story, et cetera,
• 23:18
  Speaker 10: those who have been doing pretty well compared to last year.
• 23:21
  Speaker 10: If you go further down the line into some of
• 23:23
  Speaker 10: their more economy skill brands, that's where it's weakest. And
• 23:26
  Speaker 10: that speaks to that ke shaped economy that everybody is
• 23:29
  Speaker 10: talking about.
• 23:31
  Speaker 2: What I noted they get probably eighty percent of the
• 23:33
  Speaker 2: revenue is US based.
• 23:35
  Speaker 8: Here.
• 23:35
  Speaker 7: What's their international strategy these days?
• 23:38
  Speaker 10: So internationally they seem to be growing a lot. They're
• 23:41
  Speaker 10: focusing on new types of brands to get there. They
• 23:44
  Speaker 10: definitely see certain pockets of international doing well. I mean
• 23:47
  Speaker 10: the Middle East and Africa actually did very well this quarter,
• 23:50
  Speaker 10: which was an interesting component to see. And I think
• 23:52
  Speaker 10: that they're looking at Asia and they're sort of a
• 23:54
  Speaker 10: little concerned to some extent, but they definitely it was
• 23:58
  Speaker 10: an interesting sort of between what's going on in the
• 24:01
  Speaker 10: US and what's going on elsewhere in the world. I
• 24:03
  Speaker 10: think where we're sort of concerned is that they are
• 24:08
  Speaker 10: still giving back to shareholders the same level that they were.
• 24:11
  Speaker 10: You know, the three point three billion expected for this year.
• 24:14
  Speaker 10: They have leveraged that's roughly within their range of three
• 24:19
  Speaker 10: to three and a half times. But if you're talking
• 24:21
  Speaker 10: about in twenty twenty six, that's very uncertain. You say, Okay,
• 24:24
  Speaker 10: wouldn't you want to hold onto your cash maybe just
• 24:26
  Speaker 10: a little bit more than you're giving out.
• 24:29
  Speaker 2: What What are the Hiltons of the world doing in
• 24:32
  Speaker 2: terms of capacities is the industry? Are they building new hotels,
• 24:36
  Speaker 2: are they taking hotels off the market? Are they building
• 24:39
  Speaker 2: higher end or lower end? Where's the kind of the
• 24:41
  Speaker 2: capital for this industry going?
• 24:44
  Speaker 10: For Hilton specifically, they're still very much growing. I mean,
• 24:47
  Speaker 10: that was a lot of the conversation. You know, the
• 24:49
  Speaker 10: management team was very optimistic about growth coming from these.
• 24:53
  Speaker 9: New properties and also from new brands.
• 24:55
  Speaker 10: I mean, they have a new lifestyle brand that they're
• 24:57
  Speaker 10: introducing as part of their gross strategy, and I think
• 25:00
  Speaker 10: they're trying to key into these low these younger consumers,
• 25:04
  Speaker 10: getting them to go into these lifestyle brands and more
• 25:07
  Speaker 10: of these quick service brands that might not necessarily be
• 25:10
  Speaker 10: traditional hotels, maybe sort of tapping into what they're seeing
• 25:14
  Speaker 10: in airbnbs and verbos and other sort of alternatives to
• 25:17
  Speaker 10: your traditional hotels. Now, what I will say though, is
• 25:21
  Speaker 10: something that was a little bit jarring to me as
• 25:24
  Speaker 10: a credit analyst and as somebody who likes macroeconomics is
• 25:27
  Speaker 10: they talked about how inflation is actually reducing and with
• 25:31
  Speaker 10: it our rates, and I don't think that's quite the
• 25:33
  Speaker 10: calculation I would do. But I also am sort of
• 25:36
  Speaker 10: curious as to if the consumer is necessarily feeling that
• 25:40
  Speaker 10: you layer that in. They did mention a little bit
• 25:42
  Speaker 10: about the government shutdown affecting volumes and affecting the outlook,
• 25:48
  Speaker 10: but I do sort of wonder what that means for
• 25:49
  Speaker 10: other companies in the space, for example, choice that really
• 25:52
  Speaker 10: depends on government in terms of infrastructure spending and long
• 25:57
  Speaker 10: term stays at their properties throughout the country.
• 26:01
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