Latest / Bloomberg Intelligence / US Banks Post Mixed Earnings Results

Transcript

US Banks Post Mixed Earnings Results · Bloomberg Intelligence

• 0:02
  Speaker 1: Bloomberg Audio Studios.
• 0:04
  Speaker 2: Podcasts.
• 0:05
  Speaker 3: Radio.
• 0:06
  Speaker 4: News.
• 0:09
  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 0:13
  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 0:16
  Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
• 0:19
  Speaker 5: you get your podcasts or watch us live on YouTube.
• 0:24
  Speaker 6: Given that we have just started earnings season, banks kicked
• 0:27
  Speaker 6: things off. Four big banks reporting this morning. Their share
• 0:31
  Speaker 6: prices are kind of all over the place, Alexis, given
• 0:33
  Speaker 6: the results they've delivered.
• 0:34
  Speaker 7: Yeah, I think it's hard to get a handle on what,
• 0:35
  Speaker 7: you know, because initially J.P. Morgan had a big leg down,
• 0:38
  Speaker 7: then it was up. Now it's sort of, you know, meh,
• 0:41
  Speaker 7: I guess is the technical term. So, yeah, it's hard
• 0:43
  Speaker 7: to wrap our heads around it.
• 0:44
  Speaker 1: How do you quantify meh?
• 0:47
  Speaker 7: I think we should ask Herman Chan.
• 0:49
  Speaker 6: Let's do that. Herman Chan is our senior analyst covering U.S.
• 0:52
  Speaker 6: banks for Bloomberg Intelligence. He's here with us in studio.
• 0:55
  Speaker 6: And Herman, if you had to kind of summarize everything,
• 0:58
  Speaker 6: what's the takeaway from the four big banks' earnings reports
• 1:01
  Speaker 6: this morning?
• 1:01
  Speaker 2: Yeah.
• 1:01
  Speaker 8: Takeaway is that equity trading performance continues to be robust.
• 1:06
  Speaker 8: Recall the second quarter, the banks really blew out the
• 1:08
  Speaker 8: equity trading front. It did slow down from a quarter-to-quarter basis,
• 1:12
  Speaker 8: but still... David Solomon mentioned CEO Goldman Sachs. We're in
• 1:17
  Speaker 8: a sort of top quartile trading environment versus a top
• 1:20
  Speaker 8: decile previously.
• 1:22
  Speaker 1: So, you know.
• 1:23
  Speaker 8: From a longer-term view, trading results really look good. That
• 1:27
  Speaker 8: being said, fixed income trading slowed down a little bit
• 1:30
  Speaker 8: in the third quarter. That's weighing on stocks like Wells Fargo, JP.
• 1:36
  Speaker 8: It was down in earlier reporting due to that fact
• 1:40
  Speaker 8: of the FICMIS.
• 1:41
  Speaker 7: But Herman, if you take a look at Citigroup, of course,
• 1:44
  Speaker 7: fixed income traders posting their highest revenue in at least
• 1:47
  Speaker 7: a decade, was this just that expectations were lower for
• 1:51
  Speaker 7: them so they met that bar? Or is it that
• 1:53
  Speaker 7: they're doing something that the other banks maybe could learn from?
• 1:56
  Speaker 1: Yeah, that's right.
• 1:57
  Speaker 8: Citi definitely bucked the trend in terms of fixed income trading.
• 2:01
  Speaker 8: Stronger on FIC relative to expectations, weaker on equities relative
• 2:05
  Speaker 8: to expectations. So They were a bit of an outlier,
• 2:08
  Speaker 8: whereas banks like Goldman and JP really beat on the
• 2:14
  Speaker 8: equity side, but were a bit softer on fixed income trading.
• 2:17
  Speaker 6: Do we know if that's because they gained market share
• 2:19
  Speaker 6: or stole market share from someone else, or have they
• 2:21
  Speaker 6: just really improved their approach to or their business for
• 2:26
  Speaker 6: that particular part?
• 2:27
  Speaker 8: Yeah, I think we'll hear more about that on the
• 2:29
  Speaker 8: earnings call when that happens later this morning. I would
• 2:34
  Speaker 8: say that predominantly for the ones that did show a
• 2:37
  Speaker 8: bit weaker results, a lot of that was driven by...
• 2:40
  Speaker 8: Really expectations across the market of higher, longer rate environment.
• 2:45
  Speaker 8: It didn't create a lot of opportunities in areas like
• 2:48
  Speaker 8: government trading and rates trading. So that could dampen expectations
• 2:54
  Speaker 8: going forward for the market's revenue. But overall, the power
• 2:59
  Speaker 8: from the trading business continues to be on the equity side.
• 3:02
  Speaker 7: I know we're going to hear from Bank of America
• 3:04
  Speaker 7: and Morgan Stanley tomorrow, but from the four banks that
• 3:07
  Speaker 7: reported today, are they all pretty bullish about the future?
• 3:11
  Speaker 7: What's their outlook like?
• 3:12
  Speaker 1: Yeah, so I would say that J.P.
• 3:14
  Speaker 8: Morgan lifted their guidance for, actually introduced their guidance for
• 3:19
  Speaker 8: net interest income for the following year. And those numbers
• 3:23
  Speaker 8: look a bit higher than expectations across consensus. So that's
• 3:27
  Speaker 8: a positive sign. They talked about growth in net interest income.
• 3:30
  Speaker 8: That's just general forecast. growth from higher interest rates. That's
• 3:35
  Speaker 8: helpful for their balance sheet and also just growth in
• 3:38
  Speaker 8: loans and deposits. And they saw some growth in low-yielding
• 3:43
  Speaker 8: or low-cost deposits as well.
• 3:44
  Speaker 1: So, that all bodes well for margin at NII.
• 3:48
  Speaker 6: I have a question for you about Wells Fargo, because
• 3:50
  Speaker 6: for a number of years, it was operating under this
• 3:52
  Speaker 6: asset cap imposed.
• 3:53
  Speaker 1: By the Federal Reserve. And that was lifted, I believe,
• 3:56
  Speaker 1: last year. What's changed? Has it taken advantage of the
• 3:59
  Speaker 1: fact that it can now grow?
• 4:01
  Speaker 9: Yes.
• 4:01
  Speaker 8: So Wells Fargo has been on this journey of getting
• 4:06
  Speaker 8: back some of the market share that they lost in
• 4:09
  Speaker 8: areas like trading and just general banking, where they weren't
• 4:14
  Speaker 8: growing as fast as their peer group due to that
• 4:17
  Speaker 8: asset cap that you mentioned.
• 4:19
  Speaker 1: And that's happening.
• 4:21
  Speaker 8: Balance sheet growth was actually a bit softer for Wells
• 4:24
  Speaker 8: this year, this quarter, particularly in commercial lending. So we'll
• 4:28
  Speaker 8: hear more about that on the earnings call. But the
• 4:31
  Speaker 8: general trend is that they're growing much faster in the
• 4:34
  Speaker 8: markets business and in commercial lending.
• 4:37
  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
• 4:44
  Speaker 5: You're listening to the Bloomberg Intelligence Podcast.
• 4:47
  Speaker 1: Catch us live weekdays at 10 a.m.
• 4:49
  Speaker 5: Eastern on Apple CarPlay and Android Auto with the Bloomberg
• 4:52
  Speaker 5: Business App. Listen on demand wherever you get your podcasts
• 4:56
  Speaker 5: or watch us live on YouTube.
• 4:59
  Speaker 1: Of course, it's not just the big banks that have reported.
• 5:01
  Speaker 6: Domino's Pizza also reported results.
• 5:04
  Speaker 1: Let's bring in our Michael Halen.
• 5:05
  Speaker 6: He's our senior restaurant and food service analyst at Bloomberg
• 5:08
  Speaker 6: Intelligence joining us from Princeton, New Jersey. Domino's shares down
• 5:12
  Speaker 6: about 3.7% this morning. What did we learn from the company?
• 5:18
  Speaker 3: You know, the earnings call wasn't all that encouraging. You know,
• 5:21
  Speaker 3: same-store sales missed estimates came in pretty weak. You know,
• 5:26
  Speaker 3: the fourth quarter guide is still kind of wide for
• 5:30
  Speaker 3: our tastes. You know, discounting efforts to bring people in
• 5:35
  Speaker 3: via discounting are boosting traffic, but they're hurting average checks.
• 5:40
  Speaker 2: You know, management cited.
• 5:43
  Speaker 3: You know, less items per order. So that's how they're
• 5:47
  Speaker 3: seeing their low-income consumers and middle-income consumers cut back is
• 5:50
  Speaker 3: by just ordering less items when they do order from Domino's.
• 5:56
  Speaker 3: You know, and we have concerns about the fourth quarter. So,
• 5:59
  Speaker 3: you know, their new product, the Domino, is a personal...
• 6:02
  Speaker 3: Detroit style pizza. Um, what's problematic here for us is
• 6:08
  Speaker 3: it's at a lower price point.
• 6:10
  Speaker 2: So we think this is going to continue to pressure check.
• 6:13
  Speaker 7: Right.
• 6:14
  Speaker 3: And so, you know, you know, we're not too optimistic
• 6:19
  Speaker 3: here that dominoes can get back to, you know, two
• 6:23
  Speaker 3: to 3% seam source sales growth, especially as they're going
• 6:26
  Speaker 3: to be lapping a pretty strong, uh, comp here in
• 6:28
  Speaker 3: the fourth quarter.
• 6:30
  Speaker 7: So, Michael, is this a Domino's pizza problem, or are
• 6:34
  Speaker 7: they just sort of in the same boat with the competition?
• 6:37
  Speaker 7: I'm thinking, you know, Papa John's, Pizza Hut. Are they
• 6:40
  Speaker 7: all just struggling for market share, a market share that
• 6:43
  Speaker 7: continues to dwindle as people eat out less? I guess
• 6:46
  Speaker 7: when they do, what are they choosing, protein over pizza?
• 6:51
  Speaker 3: You know, for the names, that's part of it. Yes,
• 6:53
  Speaker 3: protein over pizza, you know, protein's hot right now. But,
• 6:55
  Speaker 3: you know, these companies that you mentioned earlier, are all
• 6:59
  Speaker 3: over-indexed to low-income consumers. And that's the segment of the
• 7:04
  Speaker 3: consumer that is struggling the most.
• 7:06
  Speaker 2: And so I think that's why you're seeing the struggles.
• 7:09
  Speaker 3: Domino's has outperformed Papa John's and Pizza Hut for some time.
• 7:15
  Speaker 3: And part of their issues are lapping very strong success
• 7:19
  Speaker 3: from last year. They expanded into DoorDash last year. They
• 7:22
  Speaker 3: they also debuted the stuffed crust pizza, which we think
• 7:28
  Speaker 3: which was very good. And we don't think the Domino
• 7:30
  Speaker 3: is going to be nearly as strong for them. So
• 7:33
  Speaker 3: partly Domino's is is a victim of its own success.
• 7:36
  Speaker 3: But there's competition everywhere. You know, Casey's General Stores apparently
• 7:42
  Speaker 3: has has a very good pizza out there. You know,
• 7:47
  Speaker 3: it's just a very difficult segment of the market and
• 7:50
  Speaker 3: it's exacerbated when you're mainly serving low and middle income consumers.
• 7:54
  Speaker 6: I like what you said about they're over indexed to
• 7:55
  Speaker 6: lower income consumers. We've seen other consumer facing companies solve
• 7:59
  Speaker 6: that by really catering to premium customers and getting chasing
• 8:04
  Speaker 6: that segment of the market. Do we presume that that's
• 8:07
  Speaker 6: something Domino's will likely chase as well?
• 8:11
  Speaker 3: Well, they are, and they are doing that by going
• 8:14
  Speaker 3: to Uber Eats and then DoorDash. That's their way of
• 8:18
  Speaker 3: trying to get more higher-income consumers.
• 8:23
  Speaker 2: Under their umbrella, right?
• 8:24
  Speaker 3: And so they're going to continue to market that.
• 8:26
  Speaker 2: They're going to continue to push that.
• 8:29
  Speaker 3: What they said on the call was that they still
• 8:31
  Speaker 3: don't have their fair share of that third-party marketplace aggregator market.
• 8:37
  Speaker 3: And so they're going to continue to spend money there
• 8:39
  Speaker 3: to try to attract higher-income consumers, yeah.
• 8:41
  Speaker 7: And I guess Domino's is not going to be opening
• 8:43
  Speaker 7: up as many new stores as it had hoped or
• 8:46
  Speaker 7: as it was expecting to in this year.
• 8:49
  Speaker 1: What did they say?
• 8:50
  Speaker 3: Yeah, that was probably the biggest red flag on the call, right?
• 8:56
  Speaker 8: Yeah.
• 8:58
  Speaker 3: Domino's has had strong net unit growth for years, and
• 9:01
  Speaker 3: that's kind of something that investors in Wall Street has
• 9:05
  Speaker 3: banked on year after year. And, you know, their commentary about,
• 9:09
  Speaker 3: you know, franchisees, franchisee profitability dropping and that impacting net
• 9:15
  Speaker 3: unit growth. I don't think was taking taken very well
• 9:19
  Speaker 3: by the street. And I think that's a big reason
• 9:21
  Speaker 3: why the stock is down so much.
• 9:23
  Speaker 10: Right.
• 9:23
  Speaker 3: I think there's some concern now that, you know, number one,
• 9:26
  Speaker 3: they're not going to hit their 125 to 105, 150 U.S.
• 9:30
  Speaker 2: Store goal for this year.
• 9:32
  Speaker 3: But that net unit growth as a system may come
• 9:36
  Speaker 3: in lighter next year than investors had expected.
• 9:40
  Speaker 6: And before we let you go, Michael, just a quick
• 9:42
  Speaker 6: roundup of what you think we might expect when Jersey
• 9:45
  Speaker 6: Mike's reports. And I believe this is the first earnings
• 9:47
  Speaker 6: report as a publicly traded company.
• 9:51
  Speaker 2: Yeah, they've reported that this will be the second.
• 9:54
  Speaker 3: They were a little bit off cycle, so you might
• 9:56
  Speaker 3: have missed it. Yeah, they reported a little bit late.
• 9:59
  Speaker 2: I guess they got it.
• 10:01
  Speaker 3: The chance to do that since they IPO'd. You know,
• 10:04
  Speaker 3: what we are expecting, you know, what we think is
• 10:06
  Speaker 3: unique about this name, which we know is unique about
• 10:09
  Speaker 3: this name, is that it's one of the few fully
• 10:11
  Speaker 3: franchised businesses that are experiencing growth.
• 10:15
  Speaker 9: Oh.
• 10:15
  Speaker 2: Like strong growth.
• 10:16
  Speaker 3: We're talking about 8% to 10% net unit growth. We're
• 10:18
  Speaker 3: talking 3% to 4% same-store sales growth. We think marketing
• 10:21
  Speaker 3: is going to, you know, get them same-store sales that
• 10:25
  Speaker 3: are better than the street expects.
• 10:28
  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
• 10:35
  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 10:39
  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 10:42
  Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
• 10:45
  Speaker 5: you get your podcasts or watch us live on YouTube.
• 10:50
  Speaker 1: This is Bloomberg Intelligence.
• 10:51
  Speaker 6: Alexis Kristoforos and Scarlett Fu here with you as Paul
• 10:54
  Speaker 6: Sweeney is off. He's actually in Europe and I wonder
• 10:57
  Speaker 6: if he's doing any shopping.
• 10:58
  Speaker 7: Oh, I have a feeling the person he's with is
• 11:00
  Speaker 7: doing some shopping.
• 11:03
  Speaker 6: Certainly, he can enjoy the strong dollar versus the euro
• 11:05
  Speaker 6: because that's been a theme here as political concerns drive
• 11:09
  Speaker 6: that euro weaker. The reason we're talking about shopping in
• 11:13
  Speaker 6: Europe is because LVMH has come out with results. This
• 11:16
  Speaker 6: is the French luxury giant, LVMH Moet Hennessy Louis Vuitton.
• 11:21
  Speaker 1: It's a mouthful.
• 11:23
  Speaker 6: And their results kind of give us a sense of
• 11:25
  Speaker 6: what the Chinese consumer is doing and what especially consumers
• 11:28
  Speaker 6: who are visiting Europe are doing with their purchases as well.
• 11:31
  Speaker 6: Deb Akin is our Bloomberg Intelligence Luxury Goods Analyst, and
• 11:35
  Speaker 6: she joins us now from London. Deb, what did LVMH's
• 11:38
  Speaker 6: latest results tell us?
• 11:40
  Speaker 8: Hi.
• 11:43
  Speaker 10: Yeah, so we had the third quarter sales figure.
• 11:48
  Speaker 9: The first to report, and they'll be joined by a
• 11:50
  Speaker 9: raft of a dozen companies over the next couple of weeks.
• 11:55
  Speaker 9: The big takeaway from positive stance is that the US
• 11:59
  Speaker 9: is robust. We saw growth of 5%, Europe 4%, Japan 6%.
• 12:05
  Speaker 10: The area that isn't is Asia.
• 12:07
  Speaker 9: ex-Japan, where China has continued on the back of the
• 12:11
  Speaker 9: macro environment to trend down. So we actually saw mid-teens
• 12:16
  Speaker 9: decline in in China overall, which brought Asia X Japan
• 12:21
  Speaker 9: down to.
• 12:24
  Speaker 10: Minus 5%.
• 12:25
  Speaker 9: And what we're seeing there is more price cyclicality, really
• 12:31
  Speaker 9: locals and newness fighting over traditional styles.
• 12:37
  Speaker 10: We ran surveys.
• 12:38
  Speaker 9: Actually as a department through August, and there's a lot
• 12:41
  Speaker 9: of detail on terminal on which brands, which bags, which
• 12:46
  Speaker 9: categories are doing best. And there was a noticeable shift
• 12:51
  Speaker 9: towards more affordable product. Whereas for Louis Vuitton, for example,
• 12:57
  Speaker 9: they would hold and say, you know, we're in this
• 12:59
  Speaker 9: for the long term.
• 13:00
  Speaker 10: Our product is worth, our design is worth what it is.
• 13:04
  Speaker 9: And we're doing so much more to stimulate the economy
• 13:08
  Speaker 9: to make good and to do well with the local shopper.
• 13:12
  Speaker 10: And I think that that will be something that will.
• 13:14
  Speaker 9: Feed through this earnings season as we progress over the
• 13:18
  Speaker 9: next couple of weeks out of China.
• 13:20
  Speaker 7: Deb, I'm just looking at the brands that fall under LVMH.
• 13:23
  Speaker 7: There are 75 luxury brands divided into six core business categories.
• 13:28
  Speaker 7: One of them, of course, being fashion and leather, but
• 13:30
  Speaker 7: they've also got perfume and cosmetics, wines and spirits. Don't
• 13:34
  Speaker 7: mean to catch you off guard, but was there anything
• 13:36
  Speaker 7: in there that was showing real promise or strength in
• 13:39
  Speaker 7: this latest report?
• 13:41
  Speaker 10: Yeah, absolutely.
• 13:42
  Speaker 9: And really outside of fashion and leather, the big thing
• 13:44
  Speaker 9: on fashion and leather is that it has a big
• 13:46
  Speaker 9: exposure to China.
• 13:49
  Speaker 10: And a lot of volume from the Louis Vuitton bag.
• 13:53
  Speaker 9: So if the Louis Vuitton volume is down on the
• 13:57
  Speaker 9: bag category, it's going to hit fashion and leather overall.
• 14:01
  Speaker 10: But aside from that, yes. If we look across the board,
• 14:04
  Speaker 10: we can see.
• 14:08
  Speaker 10: Wines and spirits.
• 14:09
  Speaker 9: So it's been for the last couple of quarters, improving gradually,
• 14:13
  Speaker 9: and that was up 6%. So we're starting to see
• 14:16
  Speaker 9: some good numbers come through, sell out and selling equal.
• 14:21
  Speaker 9: So we should see some more growth coming forward there.
• 14:25
  Speaker 9: Perfume and cosmetics, I kind of feel with the LVMH group,
• 14:30
  Speaker 9: also with Hermes and others, they don't do as well
• 14:32
  Speaker 9: as a L'Oreal. So perfume and cosmetics up 1%. And
• 14:36
  Speaker 9: I think that this is more there's more that these
• 14:39
  Speaker 9: companies can do and i think that they will be
• 14:41
  Speaker 9: able to do once their bigger market categories have firmed
• 14:45
  Speaker 9: themselves up a bit um watches and jewelry up six
• 14:48
  Speaker 9: percent we've seen jewelry has been strong across the board
• 14:51
  Speaker 9: for so many of these categories including um carrying jewelry
• 14:55
  Speaker 9: for example where new companies gucci and others are going
• 14:59
  Speaker 9: into this category and are enjoying the huge success that
• 15:04
  Speaker 9: Richemont with brands like Cartier, Van Cleef and Arpel and
• 15:07
  Speaker 9: others have enjoyed. So, for example, under the LVMH group,
• 15:11
  Speaker 9: Bulgari is a big brand and the acquired Tiffany brand,
• 15:15
  Speaker 9: which is doing more and more to upscale and doing
• 15:19
  Speaker 9: very well on the back of that. And then their
• 15:21
  Speaker 9: selective retail in the one big area under there that
• 15:24
  Speaker 9: you will know very well, Sephora. So selective retail growth
• 15:29
  Speaker 9: is 8% within that area. And also duty-free stores where
• 15:34
  Speaker 9: they pulled away from some parts of China with disposals.
• 15:38
  Speaker 9: So that's evened out for them there. So everywhere except
• 15:42
  Speaker 9: for fashion and leather goods was a positive score. And
• 15:46
  Speaker 9: that gave them 1% overall because actually fashion and leather
• 15:49
  Speaker 9: goods is their biggest category by far.
• 15:51
  Speaker 6: Deb, very quickly, the wobbliness in China means that overall
• 15:56
  Speaker 6: LVMH and other brands will need to rely more on
• 15:58
  Speaker 6: the U.S.
• 15:59
  Speaker 1: Can the U.S. make up for the Chinese market?
• 16:05
  Speaker 9: The big thing on China over the last couple of
• 16:07
  Speaker 9: years is that we've seen double-digit decline. And actually, I
• 16:10
  Speaker 9: made some presentations in September where I actually think we
• 16:14
  Speaker 9: get about 6% growth coming solidly the next few years
• 16:18
  Speaker 9: from the K-wealth positive curve, the impact out of the US.
• 16:24
  Speaker 9: I see the US shifting from 26% to around about 30%, 31%
• 16:29
  Speaker 9: of the market overall. Meanwhile, my estimate, China and Chinese
• 16:33
  Speaker 9: cluster shoppers across the greater region, pre-COVID used to be
• 16:37
  Speaker 9: about a third of sales, including when traveling.
• 16:40
  Speaker 10: And I think they're only just over 20% now.
• 16:43
  Speaker 9: So in answer to that, yes, with the US solid,
• 16:47
  Speaker 9: with Europe robust, another key emerging markets growing, I think
• 16:51
  Speaker 9: there's still a way forward for the luxury market until
• 16:54
  Speaker 9: China can gradually improve and they can work their products
• 16:58
  Speaker 9: directly for the Chinese market as a group.
• 17:01
  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
• 17:08
  Speaker 5: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 17:12
  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 17:15
  Speaker 5: Auto with the Bloomberg Business app. Listen on demand wherever
• 17:19
  Speaker 5: you get your podcasts or watch us live on YouTube.
• 17:23
  Speaker 6: We are looking at Netflix making an announcement. And Alexis,
• 17:26
  Speaker 6: you mentioned this earlier. It's going to show the 2030
• 17:28
  Speaker 6: World Cup in Spain as part of its push to
• 17:32
  Speaker 6: add live sports content to its programming.
• 17:34
  Speaker 7: Yeah, also has some NFL games. It's got women's FIFA.
• 17:39
  Speaker 7: I think some of their games coming to the platform
• 17:41
  Speaker 7: as well. So it's really making a huge investment in
• 17:44
  Speaker 7: live sports.
• 17:44
  Speaker 1: Starting to add up. And of course, that's a lot
• 17:46
  Speaker 1: of cash outlay as well.
• 17:47
  Speaker 6: Geetha Ranganathan is our Bloomberg Intelligence Analyst on U.S.
• 17:51
  Speaker 4: Media.
• 17:51
  Speaker 6: And Geetha, just looking at this announcement once again, exclusive
• 17:54
  Speaker 6: broadcasting rights for the 2030 FIFA World Cup, Men's FIFA
• 17:58
  Speaker 6: World Cup, in Spain and in Dora. It just reminds
• 18:02
  Speaker 6: you of how they have to slice and dice these
• 18:03
  Speaker 6: deals up so carefully. I mean, this is for two markets,
• 18:07
  Speaker 6: not for the 2030 World Cup overall. So there's going
• 18:11
  Speaker 6: to be a lot of announcements like this. To negotiate
• 18:13
  Speaker 6: something like this takes an incredible amount of time. Is
• 18:16
  Speaker 6: something like broadcasting the World Cup going to be something
• 18:21
  Speaker 6: that really moves the needle for Netflix?
• 18:24
  Speaker 4: Yeah, absolutely, Scarlett. So I think they're making very measured investments,
• 18:28
  Speaker 4: very calculated moves here. I think the real, to answer
• 18:31
  Speaker 4: your question, it's definitely a big move in Spain. I mean,
• 18:35
  Speaker 4: let's remember, these are the defending champions. This is a
• 18:37
  Speaker 4: nation that is really, really passionate about the sport. They
• 18:42
  Speaker 4: are also one of the hosts of the 2030 FIFA
• 18:45
  Speaker 4: Men's World Cup. All of that definitely makes a difference.
• 18:48
  Speaker 4: This is a big move for Netflix, at least when
• 18:51
  Speaker 4: it comes to advertising. You really get a share of
• 18:54
  Speaker 4: eyeballs and you're able to make a pretty big dent
• 18:57
  Speaker 4: from an advertising standpoint. Is it going to move the
• 19:00
  Speaker 4: needle for them overall? Maybe not.
• 19:03
  Speaker 1: I think they need a much bigger splash.
• 19:05
  Speaker 4: I think maybe getting the rights to the FIFA World
• 19:08
  Speaker 4: Cup in the United States will be something that is really,
• 19:11
  Speaker 4: really huge. And we know that that's in negotiation right now.
• 19:15
  Speaker 4: But just remember, that's going to be a huge, huge
• 19:17
  Speaker 4: price tag. We don't know the financial details behind the
• 19:20
  Speaker 4: Spanish broadcasting rights. But we do know what it's going
• 19:23
  Speaker 4: to be in the U.S. It's going to be somewhere upwards.
• 19:26
  Speaker 2: Of $ 2.
• 19:27
  Speaker 1: Billion per tournament.
• 19:29
  Speaker 4: So that's a huge step up from what Fox paid
• 19:32
  Speaker 4: for this year, which was around $ 485 million. So FIFA
• 19:35
  Speaker 4: is really looking to score big. And it's going to
• 19:37
  Speaker 4: be interesting to see if Netflix is willing to pay up.
• 19:40
  Speaker 7: Now, I'm just taking a look at the stock here, Geetha.
• 19:42
  Speaker 7: One-year return down nearly 42 percent. Talking about Netflix here.
• 19:46
  Speaker 7: They're out with earnings next, I think it is Tuesday,
• 19:49
  Speaker 7: October 21st.
• 19:50
  Speaker 4: 20th.
• 19:50
  Speaker 7: There's been talk about engagement. It's just not where it
• 19:53
  Speaker 7: needs to be with Netflix. What are you expecting from
• 19:56
  Speaker 7: that profit report?
• 19:58
  Speaker 4: Yeah, it's going to be really interesting because as you
• 20:00
  Speaker 4: just pointed out, sentiment has been really muted on this talk.
• 20:03
  Speaker 4: And yes, it's coming down all to engagement. So we
• 20:06
  Speaker 4: really need something to kind of re-energize the growth narrative here.
• 20:10
  Speaker 4: You know, when we're kind of looking at the financial metrics,
• 20:12
  Speaker 4: revenue growth, we kind of expect it to be in line.
• 20:15
  Speaker 4: They're guiding to about 12%. you know, operating margin, all
• 20:18
  Speaker 4: of that to be in line, you know, but it's
• 20:20
  Speaker 4: going to be interesting to see if they do make
• 20:22
  Speaker 4: any major announcements regarding their advertising, how that is progressing.
• 20:26
  Speaker 4: They've said a couple of times that they expected to
• 20:28
  Speaker 4: hit $ 3 billion this year. Again, I think the market
• 20:32
  Speaker 4: will definitely be looking for updates to see if, you know,
• 20:34
  Speaker 4: if they're pacing right there on track or if they're
• 20:37
  Speaker 4: going to exceed that. And then again, whether they set
• 20:39
  Speaker 4: a target for advertising going into 2027. That is also
• 20:44
  Speaker 4: going to be something interesting. And also whether they set
• 20:47
  Speaker 4: other broader financial targets, whether it's operating margin, which has
• 20:50
  Speaker 4: kind of been hovering around 30%, 31%. But I think
• 20:53
  Speaker 4: the street really wants to see that get closer to
• 20:55
  Speaker 4: about 35%. And then again, revenue growth is the big number.
• 20:59
  Speaker 4: Can they hold on to the double-digit gains? This year,
• 21:01
  Speaker 4: we know they're going to get to about 13%, 14%.
• 21:02
  Speaker 4: Can they keep that same margin? low to mid teens
• 21:07
  Speaker 4: for next year as well. Those are all going to
• 21:09
  Speaker 4: be the big questions when they report on Tuesday.
• 21:12
  Speaker 6: Did they have any big hits in the third quarter
• 21:15
  Speaker 6: that got people super excited? Because I think about the
• 21:17
  Speaker 6: prior year and there are things like K-pop Demon Hunters,
• 21:20
  Speaker 6: Happy Gilmore 2, Squid Games, the third season. It feels
• 21:24
  Speaker 6: like they didn't have any really big show to rally around.
• 21:29
  Speaker 4: That's an excellent point, Scarlett. And I think that is
• 21:31
  Speaker 4: what has been driving all of this nervousness. So you
• 21:34
  Speaker 4: had a combination. So there's a couple of different things here.
• 21:36
  Speaker 4: You had the World Cup in the third quarter, which
• 21:39
  Speaker 4: really kind of took away a lot of the eyeballs.
• 21:41
  Speaker 4: And then you kind of combine that with this lack
• 21:44
  Speaker 4: of hits.
• 21:44
  Speaker 9: Right.
• 21:45
  Speaker 4: And then you're going up against tough comms. You brought
• 21:47
  Speaker 4: up exactly that. the Squid Game, the K-pop Demon Hunters,
• 21:50
  Speaker 4: the Wednesday, all of that. So you're going up against
• 21:53
  Speaker 4: tough comps and they're not coming up with any hits. Meanwhile,
• 21:56
  Speaker 4: the thing that is really scaring investors is that they
• 21:59
  Speaker 4: actually took up their content budget this year by 10%.
• 22:03
  Speaker 4: So they're spending about $ 20 billion on content this year.
• 22:07
  Speaker 4: And I think the street is really worried that if
• 22:08
  Speaker 4: with 20 billion, you're not able to come up with
• 22:10
  Speaker 4: two or three big hits, what is going to be
• 22:12
  Speaker 4: the future of Netflix?
• 22:14
  Speaker 5: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
• 22:19
  Speaker 5: and anywhere else you get your podcasts. Listen live each weekday,
• 22:23
  Speaker 5: 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn,
• 22:28
  Speaker 5: and the Bloomberg Business app. You can also watch us
• 22:31
  Speaker 5: live every weekday on YouTube and always on the Bloomberg Terminal.