Latest / Bloomberg Intelligence / BI Weekend: NYC Casinos, Macy’s, Salesforce Earnings

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BI Weekend: NYC Casinos, Macy’s, Salesforce Earnings · Bloomberg Intelligence

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Speaker 2: Today, we'll look at why the cloud based software company
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Speaker 2: Salesforce gave a strong outlook for sales in the current quarter.
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Speaker 3: its newly produced jets.
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Speaker 2: But first we begin with some news in the casino
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Speaker 2: and gaming space.
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Speaker 3: This week, New York Mets owner Steve Cohen won approval
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Speaker 3: to operate a casino next to City Fields and Queens.
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Speaker 2: It's one of the three projects select different gambling licenses
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Speaker 2: in New York City, and this was done by the
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Speaker 2: State Gaming Commission's Facility Location Board.
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Speaker 3: Cohen, the Hedge Fund Mobile submitted an eight billion dollar
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Speaker 3: casino proposal with partner hard Rock International and was picked
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Speaker 3: alongside genting groups Resorts World and Ballys. These three projects
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Speaker 3: are expected to generate significant revenue and create thousands of
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Speaker 3: jobs for.
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Speaker 2: More and all. This guest host Alex Simonova and I
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Speaker 2: were joined by Brian Eggert, Bloomberg Intelligence senior Gaming and
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Speaker 2: launching analysts. We first asked Brian to talk about what
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Speaker 2: the licenses represent and where we go from here.
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Speaker 5: So this is a fairly protractive process involving ultimately di
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Speaker 5: selection of three recipients. By the way, the only three
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Speaker 5: left in the running after a few others were limited
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Speaker 5: and dropped out, and really it authorized resort casinos for
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Speaker 5: the downstate New York area, mostly in New York City.
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Speaker 5: And as it turns out, the three qualified casino applicants,
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Speaker 5: if you will, really are are in New York City
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Speaker 5: but outside the Borough of Manhattan itself.
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Speaker 4: Brian, just looking at your note on these license approvals,
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Speaker 4: you write that they face a narrow path to decent
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Speaker 4: returns on investment. Can you please talk to us a
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Speaker 4: little bit more about that idea?
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Speaker 5: Sure? So, what we assume for those resorts is they
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Speaker 5: will get what I would call a gaming revenue premium
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Speaker 5: and room rate premium of ten twenty percent to other
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Speaker 5: kind of high end urban area resorts such as the
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Speaker 5: Burgata and Atlantic City wins Encore in Boston. However, are
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Speaker 5: concerned if in terms of the return prospects are that
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Speaker 5: development costs are quite high and perhaps some of the
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Speaker 5: targeted non gaming contribution elements might be a bit ambitious.
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Speaker 5: So for that reason, when we worked the numbers, we
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Speaker 5: came up with something like a ten percent return on investment,
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Speaker 5: which is certainly a bit less than most operators would
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Speaker 5: expect to attain in these regional markets.
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Speaker 2: So I'm thinking here I mean again, I'm just thinking
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Speaker 2: about Steve Cohen's I was looking at his plans in
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Speaker 2: conjunction with his city field. He obviously he owns the Mets.
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Speaker 2: City field is out there, the National Tennis centers out there.
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Speaker 2: We had the world's fair situations, so there's a ton
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Speaker 2: of opportunity out there. It seems like these are going
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Speaker 2: to be more retail hotel than casino. How do you
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Speaker 2: think the mix of revenue is going to be there?
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Speaker 5: So this certainly is I think when we work the numbers,
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Speaker 5: we assume that with respect to either food and beverage
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Speaker 5: or retail entertainment revenue, those will be fairly sizable chunks
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Speaker 5: of the overall revenue PI probably cuatively close to half,
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Speaker 5: which is true of many kind of gaming resorts in
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Speaker 5: attractive environments get a lot of non gaming revenue. I
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Speaker 5: think the same will be true here. The question is
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Speaker 5: will it be enough and will be margins which we
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Speaker 5: take to be about thirty percent, be sufficient to get
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Speaker 5: a good return. But certainly, you know the logic of
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Speaker 5: having at nexas city field makes a lot of sense.
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Speaker 5: You know, the other locations valleys and a golf course
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Speaker 5: in the Bronx. You know, the the resorts world in
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Speaker 5: Queen's pretty much expanding and existing facility all have their merit.
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Speaker 5: The question is will be enough to get a decent return,
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Speaker 5: But certainly some of these locations have rational prospects.
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Speaker 4: What does this victory for these three companies mean for
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Speaker 4: their competitors like Sands MGM, When where do they go
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Speaker 4: from here?
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Speaker 5: So to be queer, You know, Sans exited this process
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Speaker 5: back in April. When exited in May, it's Hudson York
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Speaker 5: project because of community opposition at MGM in October because
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Speaker 5: of the licensed terms. But bear in mind that they
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Speaker 5: do have other prospects. You know, when is developing a
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Speaker 5: UAE resort of its own, gm is building in Osaka, Japan.
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Speaker 5: They all can buy back in their own stock. So
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Speaker 5: I think they're weighing this particular opportunity relative to other
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Speaker 5: development prospects.
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Speaker 2: So we're going to get the licenses by year end.
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Speaker 2: What's the time taime if anybody any of these three
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Speaker 2: licensed winners lay out of timetable for getting a shovel
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Speaker 2: in the ground and maybe even opening the doors.
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Speaker 5: So I think it'll vary by operator. But the expectations
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Speaker 5: that these resorts will generally open by twenty thirty or so.
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Speaker 5: It'll take a few years to develop. There was always
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Speaker 5: the possibility of construction challenges, but that's the target. And
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Speaker 5: of course our related to concerns since you mentioned MGM
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Speaker 5: was MGM Ballely's Caesars O operaate casinos in Atlantic City,
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Speaker 5: and you know, the proximity to Alantic City of resorts
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Speaker 5: with casino elements at this caliber certainly presents a potential
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Speaker 5: competitive challenge to Atlantic City itself.
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Speaker 2: AC. That's tough. That's tough because I would see you know,
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Speaker 2: on the parkway, Brian, I know you see it too.
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Speaker 2: We have for years, for twenty thirty years, we've seen
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Speaker 2: the limousines from New York City going down the Parkway
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Speaker 2: to AC. That's going to get it impacted, isn't.
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Speaker 5: It It will? I think you know, some operaters Burgata,
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Speaker 5: for example, a hard rock may hold up better than others.
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Speaker 5: But you know, there's always a challenge when you've got
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Speaker 5: this much additional gaming capacity with resort elements opening up
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Speaker 5: in relative close proximity to a to a key Atlantic
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Speaker 5: City feeder market.
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Speaker 3: Our thanks to Brian Eger, Bloomberg Intelligence Senior Gaming and
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Speaker 3: Lodging analysts.
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Speaker 2: We move now to the retail space.
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Speaker 3: This week, the department store chains Macy's posted better than
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Speaker 3: expected results last quarter. However, shares dropped if the company
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Speaker 3: pointed to a potential for soft demand from low income
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Speaker 3: shoppers for the current quarter.
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Speaker 2: For more, Nora and I were joined by Mary Ross
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Speaker 2: and Gilbert Bloomberg Intelligence senior equity analyst covering retail.
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Speaker 3: We first asked Mary to break down Macy's most recent quarter.
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Speaker 6: We saw, actually, I think great results coming out of
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Speaker 6: Macy's see but the company put out conservative fourth quarter
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Speaker 6: guidance and that's really what they always do. They seek
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Speaker 6: to beat their numbers, and so that guidance came in
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Speaker 6: very close, you know, at the high end. It's right
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Speaker 6: around where analysts are because they already saw strong results
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Speaker 6: come in from other retailers. But we think, when we
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Speaker 6: think about it, we think there's upside here. So we
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Speaker 6: really view the results as look Macy's name plate because
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Speaker 6: of all the changes that they're making, and what that
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Speaker 6: means is they're bringing in more relevant brands that are
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Speaker 6: resonating with their consumer. Not only that, but the stores
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Speaker 6: look brighter. There's really kind of exciting music in the stores.
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Speaker 6: The store associates are more engaged with the customer. We've
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Speaker 6: noticed that on our channel text, particularly on Black Friday,
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Speaker 6: we saw more traffic in the store than we've seen
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Speaker 6: in years past. So we think that the changes that
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Speaker 6: CEO Tony Sprain is making and he's really making his
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Speaker 6: cues from what he's done at Bloomingdale's, it's resonating, it's working,
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Speaker 6: and so we think this momentum is building and we
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Speaker 6: certainly saw it in the third quarter numbers with comp
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Speaker 6: sales two point seven percent for the Go Forwards stores,
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Speaker 6: and so with that, I mean that's a big improvement sequentially,
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Speaker 6: and so we think that's building, you know, going into
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Speaker 6: the fourth quarter and just with you know, the constant
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Speaker 6: improvement that we're seeing there.
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Speaker 3: So when most people think about the retail space right now,
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Speaker 3: a lot of people think about the transition to e commerce,
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Speaker 3: but it sounds as though, from what you're explaining, a
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Speaker 3: lot of people are going there in person. I mean,
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Speaker 3: I'm looking at Coals, I'm looking at Dillard's. What are
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Speaker 3: they doing in particular that's really attracting customers to come
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Speaker 3: through the doors. Is it also collaborations with celebrities by chance?
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Speaker 6: Yes, you raised a valid point, and it is. It
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Speaker 6: does include collaborations. So for example, they Aqua you know,
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Speaker 6: they're under their Bloomingdale's brand currently has a collapse going
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Speaker 6: out with a designer out to move on and so yes,
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Speaker 6: these collaborations also even you know, they'll have some events.
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Speaker 7: But all of that is is certainly drawing.
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Speaker 6: In new customers and I think Macy's nameplate could certainly
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Speaker 6: do more on that end. They had their first collab
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Speaker 6: with their on thirty fourth brand this year, but we
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Speaker 6: think we're going to see more next year because if
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Speaker 6: you look at what Dillard's has been doing over the
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Speaker 6: last few years, and they have a different business model
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Speaker 6: than Macy's does. They're not really promotional. For example, for
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Speaker 6: Black Friday, they just had clearance sales and it was
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Speaker 6: pretty comparable to last year, so that didn't mean that
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Speaker 6: the rest of the merchandise was on sale.
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Speaker 7: Macy's the you know, is far more promotional.
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Speaker 6: But by doing collaborations, you know, by getting celebrities involved.
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Speaker 6: So for example, for the holiday, they have Jennifer Hudson
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Speaker 6: that's you know, fronting their campaign for the holiday, and
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Speaker 6: they're also engaging with social influencers. Yes, all of that
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Speaker 6: is resonating. We're seeing it with other brands, like for
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Speaker 6: example with American Eagle, which just tapped Martha Stewart and
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Speaker 6: that that's appealing to gen Z.
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Speaker 3: Oh wow, so one.
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Speaker 6: Yeah, so these bold campaigns that these brands are doing,
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Speaker 6: Macy's is also getting involved there and they're dipping there
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Speaker 6: to I would say, they're dipping their toe in the water.
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Speaker 6: But I think we're going to see that increase, you know,
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Speaker 6: and build as we get into twenty twenty six. And
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Speaker 6: when you talk about the digital business, because of course
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Speaker 6: you're always hearing let's say, stronger growth on digital. For example,
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Speaker 6: when we looked at Black Friday, you know, over the
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Speaker 6: weekend through Cyber Monday, the sales strength was really led
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Speaker 6: by digital. Digital was up double digits versus you know,
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Speaker 6: load to mid single digits for in store.
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Speaker 7: So I think that's really positive there.
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Speaker 6: But so when we look at Macy's, a third of
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Speaker 6: their sales come from digital, so still in the store
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Speaker 6: is very big, but it's also omni channel well, the
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Speaker 6: ability to buy online, take back in store, or buy
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Speaker 6: online pickup in store.
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Speaker 2: Just real quick, thirty seconds, what's macy saying about the
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Speaker 2: consumer out there.
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Speaker 6: Yeah, So they're saying that the lower end consumer is
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Speaker 6: really feeling pinched, and that's where they're seeing some challenges
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Speaker 6: on some of the price increases on their lower price
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Speaker 6: point items. But the higher middle income, in the higher
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Speaker 6: income consumer is resilient and they haven't flashed or batter
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Speaker 6: DENI with higher prices that they took to offset tariffs,
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Speaker 6: and they're still buying.
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Speaker 2: Thanks to Mary Ross Gilbert Bloomberg Intelligence, senior equity analyst
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Speaker 2: covering retail.
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Speaker 3: Coming up, we continue in the retail space and look
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Speaker 3: at earnings from the discout retailer dollar.
11:45
Speaker 2: Tree listening to Bloomberg Intelligence on Bloomberg Radio, providing research
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Speaker 2: thirty industries.
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Speaker 3: the terminal. I'm normal Linda, and I'm Paul.
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Speaker 1: on Bloomberg Radio.
12:09
Speaker 3: I'm Paul Sweeney and I'm normal Linda, filling in for
12:11
Speaker 3: Scarlet Foo.
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Speaker 2: We continue into retail space. This week, dollar Tree reported
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Speaker 2: better than expected profit and raised its full year outlook.
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Speaker 3: It's a sign that the discount retailer is capturing more
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Speaker 3: spending from stretched shoppers. For more of this, Paul and
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Speaker 3: I were joined by Lilly Meyer, Bloomberg Retail reporter.
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Speaker 2: First ass Lily to break down Dollar Tree's most recent quarter.
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Speaker 8: Yeah.
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Speaker 9: So Dollar Tree did well this quarter at matt expectations
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Speaker 9: on revenue and same store sales, and it raised its
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Speaker 9: profit outlook for the year. I think they really have
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Speaker 9: hit a niche in being able to capture consumers, both
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Speaker 9: lower end consumers who need cheaper goods and then high
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Speaker 9: income consumers who are looking to trade down.
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Speaker 3: So, I mean, what do we think about elasticity of
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Speaker 3: the lower end consumer right now? Because I mean, if
12:55
Speaker 3: you think about Walmart, I used to think of this
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Speaker 3: as a company that you know, was a cheaper place
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Speaker 3: to show, but it seems as though it's appealing to
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Speaker 3: multiple consumer types. But it seems as a dollar Tree
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Speaker 3: really is a great place for the lower end consumer.
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Speaker 9: Yeah, and actually recently dollar Tree has been looking to
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Speaker 9: kind of break into that higher income shopper as well.
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Speaker 9: So it has this pricing strategy, so it has some
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Speaker 9: products that are still cheaper, but then it has some
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Speaker 9: it's getting more products that are more expensive.
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Speaker 2: What is Dollar Tree saying about its core consumer out there?
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Speaker 2: Who is that core consumer and how are they behaving?
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Speaker 9: Yeah, so I think it's core consumer is still a
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Speaker 9: lower income shopper. Eighty five percent of their products are
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Speaker 9: two dollars an under, so they really still have a
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Speaker 9: lot of value.
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Speaker 3: So they're seeing.
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Speaker 9: Those shoppers continue to go in. But this quarter they
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Speaker 9: saw traffic down and they attributed that to tariff increases.
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Speaker 3: But what's the takeaway in terms of the outlook. I mean,
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Speaker 3: you talked about tariff still being a drag here.
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Speaker 9: Yeah, so tariffs will really dragged this quarter. They said
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Speaker 9: that's going to lessen, So I think this was the
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Speaker 9: quarter where we're really seeing the biggest tariff impact. It'll
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Speaker 9: be really interesting to see what they predict for consumers
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Speaker 9: next year. I'm interested to hear about that and also
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Speaker 9: what they see for holiday if they continue to see
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Speaker 9: hire income shoppers trading down for gifts.
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Speaker 2: Is the dollar stores do they see a surgeon sales
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Speaker 2: seasonal surge and sales from holiday sales that Do they
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Speaker 2: see that like a department store would.
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Speaker 9: Yeah, I don't know if it's the same surge, but
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Speaker 9: you know, they sell a lot of gift wrapping and
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Speaker 9: gift bags and some of those smaller gifts stocking stuffer,
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Speaker 9: so I think they see a lot of that around
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Speaker 9: the holidays.
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Speaker 3: So what are we seeing in terms of just the
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Speaker 3: broader read on the retail space? This kind of gives
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Speaker 3: us a picture of the lower end consumer, But what
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Speaker 3: are you seeing across the board?
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Speaker 9: So broadly, we're really still seeing consumer spend, So there
14:40
Speaker 9: hasn't been that massive pullback that I think some of
14:43
Speaker 9: us were imagining might happen. We're still seeing consumer spend,
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Speaker 9: but they're really value driven, so they're looking for the
14:48
Speaker 9: best deals they can get. They're trading down when they
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Speaker 9: need to, They're stocking up on essentials.
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Speaker 2: How promotional are retailers right now? Because I'm in I know,
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Speaker 2: talk to Punham Gooile, the retail analyst Bloomberg Intelligence. She says,
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Speaker 2: you know, the more promotions you see out there, that's
15:05
Speaker 2: going to be that goes right to the margins, the
15:07
Speaker 2: profit margins of some of these retailers. What are we
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Speaker 2: seeing this season?
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Speaker 9: That's a good question. So this season, we've actually seen
15:13
Speaker 9: some retailers pull back on deals to protect their margin.
15:17
Speaker 9: So some companies are doing that as part of a
15:19
Speaker 9: broader strategy, and then some are having to do that
15:21
Speaker 9: because of tariff. So, you know, for Black Friday, typically
15:24
Speaker 9: they'd offer big discounts and some are pulling back or
15:27
Speaker 9: not offering discounts at all.
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Speaker 3: So consumers have still been broadly spending in the retail space.
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Speaker 3: What are they spending on? Is it? You know, are
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Speaker 3: we spending money on essentials right now? Skipping this lurging? Yeah, yeah,
15:39
Speaker 3: that's exactly it.
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Speaker 9: So Black Friday, we talked to a lot of folks
15:43
Speaker 9: who were saying they're going to just get essentials this
15:46
Speaker 9: Black Friday. So instead of buying, you know, a Lake Crusette,
15:49
Speaker 9: Dutch oven, they were We talked to someone who instead
15:52
Speaker 9: was going to buy like three bags of forty pounds
15:55
Speaker 9: dog food.
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Speaker 2: Oh that sounds okay.
15:57
Speaker 7: Yeah, So really.
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Speaker 9: Using you know, deals to get things that they need
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Speaker 9: for themselves rather than getting that big ticket item they
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Speaker 9: waited for.
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Speaker 2: What I learned from talking to retail folks is omni
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Speaker 2: channel retail, which is you use both the online and
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Speaker 2: the bricks and mortar, and maybe you look at something online,
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Speaker 2: then you want to go touch and feel it, or
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Speaker 2: maybe you order it then you pick it up at
16:18
Speaker 2: the store. Omni channels that still a thing.
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Speaker 9: Yeah, Yeah, So we were out there on Black Friday
16:24
Speaker 9: and some of the stores, and you know, while a
16:26
Speaker 9: lot of people have switched their holiday shopping to be online,
16:29
Speaker 9: we still saw a ton of people in stores, especially
16:32
Speaker 9: at stores with really good deals and stores that have
16:34
Speaker 9: appealed to young shoppers. So brands like Addicted and Princess
16:38
Speaker 9: Paul that are in malls were really flooded with young people.
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Speaker 3: Our thanks to Lily Meyer, Bloomberg Retail reporter, move next.
16:44
Speaker 2: To quarterly earnings from the cloud based software company Salesforce.
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Speaker 3: This week, the company reported third quarter earnings that beat
16:50
Speaker 3: analyst expectations. Salesforce also gave an outlook for revenue in
16:54
Speaker 3: the current quarter that topped Wall Street estimates.
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Speaker 2: This suggests that the software company is persuading customers to
16:59
Speaker 2: buy it AI tools. For more on this, Nornite were
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Speaker 2: joined by anarag Rana, Bloomberg Intelligence technology analyst.
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Speaker 3: We first asked Aniog for his take on the most
17:07
Speaker 3: recent earnings report from Salesforce.
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Speaker 10: Yeah, the sack.
17:10
Speaker 11: The results did come in, I mean almost in line
17:12
Speaker 11: with how we were looking at it in terms of
17:15
Speaker 11: that the core business is still struggling. But when it
17:17
Speaker 11: comes to some of their AI products that has started
17:20
Speaker 11: to do well, they've gained momentum. But when you look
17:22
Speaker 11: at somebody like a salesforce, when you have a revenue
17:25
Speaker 11: base of forty one billion dollars, it takes a lot
17:28
Speaker 11: to move the needles. So even though these products are
17:30
Speaker 11: very small and you know, growing triple digits, but they
17:34
Speaker 11: are not you know, right there in order to take
17:37
Speaker 11: down what is happening on the core business, which is
17:39
Speaker 11: a decline in seat growth or the less addition of
17:44
Speaker 11: seats because of macro IT spending, and that is probably
17:48
Speaker 11: going to be the story, at least for the near term.
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Speaker 3: So it seems as though analysts are still generally positive
17:54
Speaker 3: on in terms of AI adoption trends when we think
17:57
Speaker 3: about this company though.
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Speaker 11: Yes, absolutely, and that's you know, one of the things.
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Speaker 11: We saw really good numbers on both the data cloud
18:04
Speaker 11: side of it and also the agent force. But when
18:06
Speaker 11: you look at the stock reaction and finally people have
18:09
Speaker 11: when you really scrape the numbers and see that their
18:12
Speaker 11: commercial remaining performance obligations, which is the order book for
18:16
Speaker 11: next quarter, which they expect to grow about thirteen percent
18:19
Speaker 11: in constant currency four percentage of point of that is informatica.
18:23
Speaker 11: So when you strip that out, you will see that
18:26
Speaker 11: that particular backlock number goes from eleven percent this quarter
18:29
Speaker 11: to let's say nine or ten percent. So the core
18:31
Speaker 11: is still declining or the core is still under pressure.
18:35
Speaker 2: So the stock down twenty seven percent year to date
18:37
Speaker 2: on a rock that does that reflect the fact that
18:40
Speaker 2: it's just it budgets are tight, or that AI poses
18:44
Speaker 2: an existential threat to certain providers like a Salesforce.
18:50
Speaker 11: I don't think that's the case, because it's going to
18:52
Speaker 11: be very difficult for an established Fortune two thousand company
18:56
Speaker 11: to get rid of their core system of record, you know,
18:58
Speaker 11: whether that's an HRS sales customer service and just deploy
19:02
Speaker 11: a model in there. At least we are not there yet.
19:04
Speaker 11: Maybe you know, five years down the road we may
19:06
Speaker 11: see a scenario like this. But that's not really why
19:09
Speaker 11: Salesforce is struggling. It is basically, we are the largest
19:13
Speaker 11: provider of sales automation tool and customer service tool to
19:16
Speaker 11: Fortune two thousand companies. It's those companies that are not
19:20
Speaker 11: hiding at that same rate that they used to because
19:23
Speaker 11: outside of AI and AI infrastructure, everything else is still
19:26
Speaker 11: weak at this.
19:27
Speaker 2: Point our thanks to anaag Rana Bloomberg Intelligence technology analysts, we.
19:31
Speaker 3: Move to some news in the aerospace sector.
19:33
Speaker 2: This week's shares of the aerospace company Airbus plunged after
19:36
Speaker 2: revealed a quality issue on some fuselage panels of its
19:40
Speaker 2: A three to twenty airliner. This came just days after
19:42
Speaker 2: Airbus flagged a software glitch on about six thousand jets.
19:46
Speaker 3: As a result, Airbus must inspect hundreds of its best
19:48
Speaker 3: selling A three twenty jets for potential quality flaws in
19:51
Speaker 3: the aircraft's body, and this could risk slowing down delivery
19:54
Speaker 3: of newly produced jets.
19:55
Speaker 2: For more on this guest host Alex Semonova and I
19:57
Speaker 2: were joined by George ferguson Bloomberg Intelligence. Your aerospace, defense
20:01
Speaker 2: and airlines analysts first asked George to talk to us
20:03
Speaker 2: about why it seems Airbus has been able to fly
20:07
Speaker 2: under the radar until just recently.
20:08
Speaker 8: I think they've also had their challenges in the supply
20:12
Speaker 8: chain along the way, just throwing challenges were so much
20:15
Speaker 8: greater that they stole the spotlight, if you will. But
20:19
Speaker 8: I mean, look, the aerospace supply chain is a bit
20:22
Speaker 8: thin right, It doesn't have the same redundancy as like
20:25
Speaker 8: you'd get in an auto supply chain, and so when
20:28
Speaker 8: you just have some little problem at one of your suppliers,
20:31
Speaker 8: you know, it can really interrupt your ability to deliver airplanes.
20:34
Speaker 8: And I think right now what you're seeing is that
20:37
Speaker 8: Airbus already has a really tall order to meet the
20:41
Speaker 8: something like eight hundred and twenty airplane guidance or delivery
20:45
Speaker 8: guidance they've got for this year. We don't think they're
20:48
Speaker 8: gonna make it. I think they need seventy plus a
20:52
Speaker 8: three twenties in the last two months of the year
20:54
Speaker 8: in November December. We think that's pretty hard given they've
20:58
Speaker 8: kind of delivered fifty five ish most months of in
21:02
Speaker 8: the last couple, you know, for months, and so I
21:06
Speaker 8: think a quality problem here probably really places in doubt
21:10
Speaker 8: their ability to make that guidance, and that's going to
21:14
Speaker 8: hurt their profitability for the year.
21:15
Speaker 4: George, you mentioned that really ambitious target for eight hundred
21:19
Speaker 4: and twenty aircraft deliveries by the end of this year.
21:22
Speaker 4: How disappointed could investors get if it fails to meet
21:25
Speaker 4: that target. On top of the headwinds that this company
21:28
Speaker 4: is already facing well.
21:30
Speaker 8: I mean, so I think you're starting to see, you know,
21:32
Speaker 8: the disappointment here. Again, I'd be surprised if most investors
21:37
Speaker 8: weren't already concerned that the target was too high. I
21:41
Speaker 8: think Airbus has really put out a bunch of very
21:44
Speaker 8: ambitious build rate targets right the I think our latest
21:48
Speaker 8: number in A three twenty is that we would be
21:50
Speaker 8: going to something like seventy five a month, and that's
21:54
Speaker 8: consistently throughout the entire year, right by the end of
21:58
Speaker 8: twenty twenty six, which to us just seems far too high.
22:01
Speaker 8: And I feel like Airbus keeps trying to lead the
22:04
Speaker 8: supplier base by pushing these higher numbers out and trying
22:08
Speaker 8: to pull the supplier base along, and then over time
22:11
Speaker 8: lowers some of these expectations. So look, I think anything
22:15
Speaker 8: they miss now isn't going away. It gets pushed into
22:18
Speaker 8: the next year and the next year, and again, I
22:21
Speaker 8: think the bigger challenge here is investors have to ask themselves,
22:25
Speaker 8: are a lot of these Airbus targets for delivery rates?
22:28
Speaker 8: Are they just too ambitious? And don't we have to
22:30
Speaker 8: sort of knock them down when we build our consensus
22:33
Speaker 8: for what we think the company's going to be able
22:34
Speaker 8: to do.
22:35
Speaker 2: Because George, I mean a number like seventy seems really
22:38
Speaker 2: high to me because when we talk about Boeing, it's like, Gee,
22:41
Speaker 2: I hope they can get the forty maybe to fifty.
22:44
Speaker 2: Is that does Boeing typically run that far behind on
22:47
Speaker 2: a production schedule than a Airbus.
22:51
Speaker 8: So I would say that if you would consider normal
22:54
Speaker 8: the end of the last decade when both were building
22:57
Speaker 8: and Boeing wasn't having the problems with mcas Airbus was
23:02
Speaker 8: up in the higher sixties and Boeing was in the
23:04
Speaker 8: higher fifties, and so we have traditionally seen Airbus be
23:09
Speaker 8: able to put out more airplanes than Boeing. I think
23:13
Speaker 8: their supply base maybe a little bit more robust, and
23:16
Speaker 8: I think they have sort of multiple final assembly areas
23:20
Speaker 8: around the world. I think those are some of the
23:23
Speaker 8: reasons why Airbus can just has the infrastructure to put
23:27
Speaker 8: out more airplanes, more narrowbody airplanes per month.
23:30
Speaker 2: Our thanks to George Ferguson Bloomberg Intelligence senior Aerospace, Defense
23:33
Speaker 2: and Airlines analysts.
23:34
Speaker 3: Coming up, we'll take a look at US data centered
23:36
Speaker 3: power demand and just how quickly the sector is expanding.
23:39
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
23:42
Speaker 2: depth research and data on two thousand companies and one
23:44
Speaker 2: hundred and thirty industries.
23:45
Speaker 3: You can access Bloomberg Intelligence be a B I go
23:47
Speaker 3: on the terminal. I'm normal Inda, and.
23:49
Speaker 2: I'm Paul Sweeney, and this is Bloomberg.
23:57
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
24:02
Speaker 1: on Bloomberg Radio.
24:04
Speaker 3: On Paul Sweeney and I'm normal Linda filling in for Scarlettfoo.
24:07
Speaker 2: We move next to the real estate Space nor Nite.
24:09
Speaker 2: We're joined by Jeff Langbaum. This week, Bloomberg Intelligence Senior
24:13
Speaker 2: US REET analyst.
24:14
Speaker 3: Jeff discussed research on real estate investment trusts or reads
24:17
Speaker 3: as his outlook for them. In twenty twenty six.
24:19
Speaker 2: We first asked Jeff how reads have been performing this year.
24:23
Speaker 12: They haven't performed well in twenty twenty five, that's for sure.
24:28
Speaker 12: I mean, basically, you know, kind of flats to slightly
24:30
Speaker 12: down on an aggregate basis, but relative to the S
24:34
Speaker 12: and P underperformed significantly. And that's going on three years now. Obviously,
24:39
Speaker 12: you know, you had the rising rate cycle that was
24:42
Speaker 12: pretty damaging. You had some difficulties especially in the office sector.
24:47
Speaker 12: But as we sit here looking ahead to twenty twenty six,
24:49
Speaker 12: the fundamental backdrop looks okay. And especially if you get
24:53
Speaker 12: rates falling, if that ten year yield starts to drop,
24:56
Speaker 12: and you know, that has cascading effects on evaluations, it
25:00
Speaker 12: has cascading effects on cost of capital and and really
25:04
Speaker 12: would be a boost for the sector going forward.
25:08
Speaker 3: We are you seeing to be some bright spots right
25:10
Speaker 3: now in the reat sector, Jeff Senior.
25:14
Speaker 12: Housing, That is the that I didn't look at you.
25:21
Speaker 12: I'm looking at you, Paul, the I mean, that's that's
25:24
Speaker 12: the clear winner right now. The fundamental backdrop, driven by
25:30
Speaker 12: demographics is huge and growing. There's an incredible coming need
25:37
Speaker 12: for housing for the aging baby boomers, and you know
25:42
Speaker 12: there's nothing, nothing being built, so the supply demand uh
25:45
Speaker 12: dynamics in that space are incredible. And you know there's
25:50
Speaker 12: a couple of roots that play in that space, Well
25:52
Speaker 12: Towers the biggest one. They're growing like crazy and the
25:56
Speaker 12: stock is reflecting it.
25:58
Speaker 2: All right, So what's the aside from folks, you know,
26:04
Speaker 2: old folks housing, which is I'm going to say, because
26:06
Speaker 2: you know, I'm there, I'm there, I'm in the demo
26:09
Speaker 2: what else is working here? What is is it? Is
26:12
Speaker 2: there a replay on all this AI data center stuff.
26:16
Speaker 12: So the you know, there's there's a couple of different
26:19
Speaker 12: ways to answer that. The direct impact of AI on
26:23
Speaker 12: on reads is the two big data center reads Equinics
26:27
Speaker 12: and Digital Realty, and they are playing in that space
26:30
Speaker 12: right now. It's kind of unclear exactly where they fit.
26:33
Speaker 12: There should be a significant amount of demand for their space,
26:38
Speaker 12: especially for the stuff that they're looking to build, but
26:40
Speaker 12: they have to raise a ton of capital in order
26:42
Speaker 12: to fund that that that development, you know, and you
26:47
Speaker 12: see capex numbers coming out from all the hyperscalers that
26:50
Speaker 12: are astronomical, and you know reads, you know, investors in
26:54
Speaker 12: reads don't necessarily love the concept of raising a ton
26:57
Speaker 12: of money to deploy it in kind of risky assets
27:00
Speaker 12: that you need to then go lease up. So the
27:02
Speaker 12: demand should clearly be there, but it's going to be
27:05
Speaker 12: interesting to see how it plays out over the next
27:07
Speaker 12: couple of years as that demand filters through.
27:09
Speaker 2: The other issue with AI, though, is there.
27:11
Speaker 12: Is a kind of a concern that AI is going
27:14
Speaker 12: to impact demand for office space, and you know, as
27:17
Speaker 12: companies get more efficient, they need less headcount, they need
27:20
Speaker 12: less office space. Haven't really started to see that play
27:23
Speaker 12: out yet, but it's definitely a sentiment that is out
27:27
Speaker 12: there and is impacting the stocks to a degree. You know,
27:30
Speaker 12: just as we got past the whole work from home
27:33
Speaker 12: thing and concern over whether offices we're ever going to
27:37
Speaker 12: have people back in them, now we have concerned that
27:39
Speaker 12: the robots are going to replace the people.
27:42
Speaker 3: So of course we do have the income in New
27:43
Speaker 3: York City Mayor saying that he wants to freeze rents
27:46
Speaker 3: on rent stabilized apartments in New York City. What's the
27:49
Speaker 3: latest in terms of the apartment rate space right now?
27:53
Speaker 12: Yeah, I mean it's unclear exactly what he's going to
27:55
Speaker 12: be able to do on rent stabilization freeze capping rents.
28:01
Speaker 12: But the reats that own own residential in New York City,
28:04
Speaker 12: names like Avalon Bay Equity Residential, they own stuff that's
28:08
Speaker 12: not subject to those caps. It's it's largely newer market
28:12
Speaker 12: rate stuff, and so they're not going to be directly impacted.
28:16
Speaker 12: And so you know, at the end of the day,
28:19
Speaker 12: if there is less new the net result of of
28:24
Speaker 12: caps like that is less new stuff, get less stuff
28:26
Speaker 12: getting renovated, less stuff getting built, and and that just
28:29
Speaker 12: you know, keeps supply down and as long as demands
28:32
Speaker 12: stays elevated, then that should flow through to the ability
28:35
Speaker 12: to keep buildings full and keep rents rising to a degree.
28:38
Speaker 12: So I think that in the in the near term,
28:40
Speaker 12: you know, that that should be it should be fine
28:43
Speaker 12: for names like like those that play in the in
28:46
Speaker 12: the city, you know, the the it's it's those that
28:49
Speaker 12: own the kind of the lower tier space that maybe
28:51
Speaker 12: are a little bit more exposed are.
28:53
Speaker 3: Thanks to Jeff'slingbam Bloomberg Intelligence senior US re analysts.
28:57
Speaker 2: On Bloomberg Intelligence, we often look at research from Bloomberg
28:59
Speaker 2: and EF previously known as New Energy Finance.
29:02
Speaker 3: They have a team at Bloomberg that tracks and analyzes
29:04
Speaker 3: the energy transition from commodities to power, transport, industries, buildings,
29:08
Speaker 3: and agriculture sectors. This week we took a look at
29:11
Speaker 3: US data center powered demand and just how quickly that
29:14
Speaker 3: sector is expanding.
29:15
Speaker 2: For more on this guest host Alex Semonovan and I
29:17
Speaker 2: were joined by Helen co b Nf, head of US
29:20
Speaker 2: Power Markets Research. We first asked Helen if we have
29:23
Speaker 2: the power necessary to power all the data centers we
29:27
Speaker 2: keep hearing about.
29:28
Speaker 10: What we're seeing is quite an unprecedented acceleration of data
29:32
Speaker 10: center demand, driven largely by AI and at BNF. What
29:38
Speaker 10: we see and expect is that data center power demand
29:42
Speaker 10: is going to reach roughly one hundred and six gigawatts
29:44
Speaker 10: by twenty thirty five.
29:46
Speaker 2: Where are we today, just for example.
29:48
Speaker 10: Today, we are definitely a lot lower in capacity, so
29:53
Speaker 10: roughly half of that right now. What we also know
29:57
Speaker 10: is that that one oho six gigawats by twenty thirty five,
30:00
Speaker 10: that's thirty six percent higher than our outlook just six
30:03
Speaker 10: months ago. So we've increased that forecast quite a lot
30:08
Speaker 10: since these last six months. What we've seen is a
30:10
Speaker 10: flood of early stage projects getting announced, which results in
30:13
Speaker 10: a much larger pipeline, and therefore our forecast has also
30:17
Speaker 10: increased quite a bit to power these data centers. What
30:21
Speaker 10: we know is that there's a lot of new build
30:24
Speaker 10: of power supply coming online to try to reach this
30:28
Speaker 10: overall power demand.
30:30
Speaker 4: Helen, we're obviously in the early innings of this build
30:33
Speaker 4: out of data centers. What signs are you seeing already
30:36
Speaker 4: of any kind of strains on resources on electricity?
30:40
Speaker 10: What we know is there are certain regions that are
30:43
Speaker 10: hitting a tipping point in terms of actually being able
30:46
Speaker 10: to power this overall supply. What we know is that
30:50
Speaker 10: Northern Virginia is still the largest kind of market for
30:54
Speaker 10: data center demand based on our forecast, and we are
30:57
Speaker 10: seeing a lot of growing concern in that PEG region.
31:01
Speaker 10: What we project in PGM is that data center capacity
31:04
Speaker 10: is going to hit roughly thirty one gigawatts by twenty thirty.
31:09
Speaker 10: And what we do is when we adjust that overall
31:12
Speaker 10: kind of like what power demand looks like in PGM
31:17
Speaker 10: relative to supply, what we expect is there might be
31:20
Speaker 10: a nine point five gigawatch shortfall of overall power supply
31:24
Speaker 10: by the end of the decade if we assume that
31:27
Speaker 10: all of this data center demand is going to come online.
31:30
Speaker 2: If all this data center demand comes online, obviously the
31:33
Speaker 2: need for electricity or power is just extraordinary. I'm a
31:36
Speaker 2: big fan of nuclear, A small mobile reactor, modular reactor here,
31:41
Speaker 2: there's SMR type things talk to us about that is
31:44
Speaker 2: that a viable technology solution at some point.
31:47
Speaker 10: So we know that there has been a lot of
31:49
Speaker 10: company announcements around small modular nuclear as well as just
31:53
Speaker 10: nuclear in general. And there has been several different new
31:58
Speaker 10: power purchase agreement and surround nuclear by major hyperscale companies
32:03
Speaker 10: as well. What we see within BNF is that in
32:07
Speaker 10: the near term what is likely going to power data
32:10
Speaker 10: center demand is actually going to be gas, and nuclear
32:13
Speaker 10: is a much more longer kind of like long term
32:17
Speaker 10: play in terms of how you power data center demand.
32:20
Speaker 10: But what we expect is that the major ramp up
32:22
Speaker 10: in overall demand is coming over these next three years,
32:26
Speaker 10: and gas is likely what's going to meet that overall demand.
32:30
Speaker 4: What kind of measures are being taken to limit any
32:34
Speaker 4: kind of potential power outages from this build.
32:37
Speaker 10: Out, Well, we do see that there's been a lot
32:41
Speaker 10: of different regulations that are evolving real time around data
32:45
Speaker 10: center demand. What we know is that Georgia adopted new
32:49
Speaker 10: rules pushing grid connection costs onto large users like industrial users.
32:54
Speaker 10: Ohio now requires data centers to pay for at least
32:57
Speaker 10: eighty five percent of the energy they request each month,
33:01
Speaker 10: even if it is underutilized, and so policies are kind
33:05
Speaker 10: of being put in place to kind of navigate rising
33:07
Speaker 10: and growing demand.
33:09
Speaker 2: Are we building these data centers too quickly? Is there
33:12
Speaker 2: a risk for an overbuild? It just feels like it's
33:16
Speaker 2: too much, too fast, but all the projections say we're
33:19
Speaker 2: going to need all that compute.
33:21
Speaker 10: It's a really great question, something as an analyst I
33:24
Speaker 10: think about quite a bit. At BNF. What we've done
33:29
Speaker 10: is we've benchmarked our data center forecast relative to a
33:32
Speaker 10: whole bunch of other third party forecasts out there, and
33:35
Speaker 10: what we see is that our forecast is relatively conservative
33:39
Speaker 10: compared to other third parties because our data center forecast
33:44
Speaker 10: does include and analyze some of the additional power constraints
33:50
Speaker 10: as well as like project development timelines of data center development.
33:54
Speaker 10: And what we found is that it roughly takes seven
33:57
Speaker 10: years to develop a data center, and even that we're
34:00
Speaker 10: seeing quite a bit of new capacity come online. That
34:05
Speaker 10: is a result of just fundamentals around AI demand, whether
34:09
Speaker 10: that is company announcements of data centers as well as
34:14
Speaker 10: just like the underlying growth and trend around AI.
34:17
Speaker 4: I can't help but wonder how are data centers addressing sustainability?
34:22
Speaker 4: Are they using clean energy? What measures are they taking.
34:26
Speaker 10: A lot of these hyperscalers that are building out data
34:29
Speaker 10: centers do have sustainability goals and clean energy commitments. However,
34:36
Speaker 10: like within the data center's outlook. What we mostly focused
34:39
Speaker 10: on is just what is the additional capacity and activity
34:43
Speaker 10: around data center demand within the United States, And we
34:47
Speaker 10: also did a small analysis on specific markets that are
34:52
Speaker 10: likely going to have constraints in the market around power supply,
34:56
Speaker 10: and within URCOTT and PGM, which is our two larges
35:00
Speaker 10: power market region that expects high data center demand growth,
35:04
Speaker 10: what we're seeing is that the likelihood of what's going
35:08
Speaker 10: to meet that supply is going to be gas, and
35:11
Speaker 10: so we don't specifically look at sustainability commitments, but what
35:18
Speaker 10: we know is that a lot of what's supplying data
35:21
Speaker 10: centers will be gas in the narature.
35:23
Speaker 3: Our thanks to Helen co be Any, head of US
35:25
Speaker 3: Power Markets Research.
35:26
Speaker 2: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio,
35:29
Speaker 2: providing in depth research and data on two thousand companies
35:32
Speaker 2: and one hundred and thirty industries.
35:33
Speaker 3: And remember you can access Bloomberg Intelligence be a Bigo
35:36
Speaker 3: on the terminal. I'm normal Indo and I'm Paul Sweeney.
35:38
Speaker 2: Stay with us. Today's top stories and global business headlines
35:41
Speaker 2: are coming up right now.