Latest / Bloomberg Intelligence / BI Weekend: Oracle, Macy’s Earnings

Transcript

BI Weekend: Oracle, Macy’s Earnings · Bloomberg Intelligence

0:02
Speaker 1: This is Bloomberg Intelligence with Alex Steel and Paulsweenye.
0:06
Speaker 2: The real app performance has been the US corporate high yield.
0:09
Speaker 3: Are the companies lean enough? Have they trimmed all the fats?
0:11
Speaker 2: The semiconductor business is a really cyclical business.
0:15
Speaker 1: Breaking market headlines and corporate news from across the globe.
0:18
Speaker 3: Do investors like the M and A that we've seen?
0:21
Speaker 2: These are two big time blue chip companies.
0:25
Speaker 3: Window between the peak and cut changing super fast Bloomberg.
0:29
Speaker 1: Intelligence with Alex Steel and Paulsweenye on Bloomberg Radio.
0:34
Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
0:37
Speaker 2: business stories impacting Wall Street and the global markets.
0:40
Speaker 3: Each and every week we provide in depth research and
0:42
Speaker 3: data on some of the two thousand companies in one
0:43
Speaker 3: hundred and thirty industries our analysts cover worldwide.
0:47
Speaker 2: Today, we'll break down a merger between two of the
0:48
Speaker 2: world's largest advertising groups PLAUS.
0:50
Speaker 3: We'll discuss why shares of the computer tech company Oracle
0:53
Speaker 3: fell by the most in a year.
0:55
Speaker 2: But first we dive into how I planned US supermarket
0:57
Speaker 2: merger between Kroger and Albertson's crumbled. And this came after
1:00
Speaker 2: Albertson terminated their.
1:02
Speaker 3: Packed Albertson's also set a file the lawsuit against Kroger,
1:05
Speaker 3: claiming the company failed to exercise best efforts to secure
1:08
Speaker 3: regulatory approval.
1:10
Speaker 2: The lawsuit comes after our federal judge blocked the deal,
1:12
Speaker 2: saying the merger with lesson competition and raise prices for
1:15
Speaker 2: your shoppers. For more.
1:16
Speaker 3: We are joined by Jen Ree Bloomberg Intelligence senior litigation analyst.
1:19
Speaker 2: We first asked Jen if it's common for merger partners
1:22
Speaker 2: on a broken deal to suit each other.
1:24
Speaker 4: It happens once in a while. Well, I'll say it's
1:26
Speaker 4: pretty rare, but it has happened. I mean, think about
1:29
Speaker 4: Anthemin Signa. I don't know if you remember that deal
1:32
Speaker 4: from back in twenty fifteen. It fell apart also, and
1:35
Speaker 4: there was litigation for a couple of years after the
1:37
Speaker 4: deal was terminated in Delaware. And you know, they both
1:39
Speaker 4: came out with nothing. Spent a lot of money and
1:41
Speaker 4: both came out with nothing.
1:42
Speaker 3: Is it true that you think that Kroger didn't do
1:45
Speaker 3: enough here? Like, do they have a leg to stand
1:47
Speaker 3: on Alberson?
1:48
Speaker 4: I think a breach of contract claim based on you know,
1:51
Speaker 4: failing to abide by sufficiently defending against the antitrust claims
1:55
Speaker 4: is very difficult because you know, this is really very
1:57
Speaker 4: subjective and to some extent, when companies go to court
2:00
Speaker 4: and they have a remedy, they're sort of rolling the dice.
2:02
Speaker 4: They're hoping they'll convince the judge, even though they didn't
2:04
Speaker 4: convince the FTC. And I'm not so sure that you
2:07
Speaker 4: can think of that as a breach in this case though,
2:10
Speaker 4: having meant a trial, the remedy really was deficient. I mean,
2:13
Speaker 4: it was very difficult to understand how a judge, after
2:16
Speaker 4: the FDC presented their case on how this deal could
2:19
Speaker 4: cause harm in thousands of markets, how a judge could
2:21
Speaker 4: accept the remedy that had been put forward by Kroger,
2:24
Speaker 4: which was really very piecemeal, very complicated and difficult, and
2:27
Speaker 4: didn't really have the best buyer. So you know, we're
2:30
Speaker 4: gonna have to see what happens here with this.
2:31
Speaker 2: I mean, so again, I kind of thought that's kind
2:35
Speaker 2: of what a partially what a breakup fee kind of
2:38
Speaker 2: covers there. I mean, if this deal doesn't go through
2:41
Speaker 2: for whatever reason, you guys wanted to buyas you initiated
2:44
Speaker 2: the deal, if it doesn't go through, right, you got
2:46
Speaker 2: to compensate.
2:47
Speaker 5: Me right, right, that's exactly right. The seller is really
2:50
Speaker 5: has a.
2:51
Speaker 4: Difficult time during that interim period, right, they lose employees.
2:54
Speaker 4: They can always enter new supply contracts, So this is
2:56
Speaker 4: really intended to make that seller whole, you know, in
2:59
Speaker 4: this case, I think now Kroger's turned around and said, no,
3:01
Speaker 4: it was it was Albertsons that breached the contract, you know,
3:05
Speaker 4: And of course they're probably doing that to get a
3:06
Speaker 4: little bit of leverage here. Maybe the hopes would be
3:09
Speaker 4: that they could settle for something less than that six
3:12
Speaker 4: hundred million breakup fee in order to make all the
3:14
Speaker 4: litigation go away. Maybe maybe that's what's happening here, just
3:17
Speaker 4: a little bit of leverage.
3:18
Speaker 5: But you know, again, we'll have to see what happens.
3:20
Speaker 4: It would be a shame if they continue to litigate
3:22
Speaker 4: this and spend millions more dollars.
3:25
Speaker 6: Good for the lawyers.
3:26
Speaker 7: A deal, dumb question? Is a deal really done?
3:29
Speaker 5: Oh?
3:29
Speaker 7: Yes, they killed for sure, it's done.
3:31
Speaker 4: So Albertson's is already terminated. They exercised their right under
3:35
Speaker 4: the agreement to terminate, so it is done.
3:36
Speaker 5: The deal.
3:37
Speaker 4: Agreement is no longer good. So if they even wanted
3:40
Speaker 4: to do another deal, they'd have to enter a new agreement.
3:43
Speaker 4: And now obviously there's antagonism between the.
3:45
Speaker 2: Companies, all right, in your world of antitrust, What is
3:48
Speaker 2: the expectation of change given a new administration, given you
3:54
Speaker 2: a Republican control House and Senate, is there any expectation
3:58
Speaker 2: that things will get easier?
3:59
Speaker 5: I think it get better.
4:00
Speaker 4: I think some of the exuberance on Wall Street is
4:03
Speaker 4: maybe a little overdone. These huge deals between competitors are
4:07
Speaker 4: still going to get challenged. And we have to remember
4:09
Speaker 4: that the two Republican FTC commissioners who will still be
4:12
Speaker 4: there on the Commission both voted yes to sue the
4:15
Speaker 4: Tapestry could pre deal and to sue the temper See
4:17
Speaker 4: Le Mattress Firm deal. They both said yes we should sue,
4:20
Speaker 4: so they are aligned in some restricts with suing the
4:23
Speaker 4: deals that could cause harm. I do think what we're
4:25
Speaker 4: going to see though, is an uptaking deals that can
4:27
Speaker 4: close with settlements. We didn't have any of that in Biden.
4:30
Speaker 4: The Biden enforcers did not want to settle deals if
4:33
Speaker 4: the deal was bad. They wanted to challenge the deal,
4:35
Speaker 4: and that's what they did. I think in this case,
4:37
Speaker 4: once we have a majority of the FTC and new
4:39
Speaker 4: people at the DOJ. We're going to see that list
4:41
Speaker 4: of settled deals that then go on to close grow.
4:43
Speaker 3: What do you make of the potential new FTC people
4:46
Speaker 3: coming in, Well.
4:47
Speaker 5: I'll just say this.
4:48
Speaker 4: If Lenakon's mission was to stop consolidation and revitalize antitrust,
4:52
Speaker 4: their mission is going to be to stop with they
4:54
Speaker 4: perceive as censorship of conservative viewpoints by big tech platforms.
4:59
Speaker 4: There has been a lot of talk about that, even
5:01
Speaker 4: suggesting that there could be collusion amongst big tech platforms
5:04
Speaker 4: to censor conservative viewpoints and that the FTC should be
5:08
Speaker 4: going after these companies under the anti trust laws to
5:10
Speaker 4: stop that. And I think that's going to be a
5:12
Speaker 4: big focus.
5:13
Speaker 2: So what's the timing there at the FTC and the DOJ.
5:18
Speaker 2: When do the new sheriffs, if you will, kind of
5:21
Speaker 2: get in town.
5:22
Speaker 4: The FTC could be DOJ will be quick, these people
5:26
Speaker 4: will leave. The appointees by Biden will leave in January,
5:29
Speaker 4: and that is the expectation also that Lena Kon at
5:31
Speaker 4: the FTC will leave in January. As soon as Trump
5:34
Speaker 4: is inaugurated January twenty, then Andrew Ferguson will become the chair.
5:38
Speaker 4: If Lena Khan is still there, she'll then just become
5:40
Speaker 4: a commissioner, but she will probably leave and then at
5:43
Speaker 4: that point he just has to get his new appointment
5:45
Speaker 4: mark meter through the Senate confirmation process. It could take
5:48
Speaker 4: a few months. He has a majority in the Senate
5:51
Speaker 4: in the House. I don't think it's going to be
5:52
Speaker 4: too difficult. So it'll be a few months and in
5:54
Speaker 4: the meantime it'll be a two to two FTC. Probably
5:57
Speaker 4: the DJ will change over more quickly, probably in January.
6:00
Speaker 3: So if I'm a company and I'm interested in buying
6:03
Speaker 3: another company, do I get on the list now? Do
6:05
Speaker 3: I wait until all this stuff is cleared and then
6:07
Speaker 3: I get on the waiting list to get my deal done?
6:10
Speaker 3: Like what's my strategy?
6:11
Speaker 4: I think if you know that it has some issues,
6:14
Speaker 4: if you know you're probably going to get investigated, you
6:16
Speaker 4: can go ahead and file it now because you have
6:18
Speaker 4: eight months ahead of you and the new people will
6:20
Speaker 4: be the decision maker.
6:21
Speaker 5: So if you have a deal you.
6:22
Speaker 4: Think has no issues and could get through in thirty days,
6:24
Speaker 4: maybe you wait right because you have a greater hope
6:27
Speaker 4: of just getting get cleared in thirty days once the
6:29
Speaker 4: new people are in all right.
6:30
Speaker 3: Thanks to Jen Rey, Bloomberg Intelligence Senior Litigation analyst.
6:34
Speaker 2: This week we focused on a Bloomberg Big Take story
6:36
Speaker 2: entitled Jane Fraser stares down skeptics ahead of City's critical year.
6:40
Speaker 3: You can find it on Bloomberg dot Com and the Terminal,
6:43
Speaker 3: and the story looks at extensive reporting and an exclusive
6:46
Speaker 3: interview with Citygroup CEO Jane Fraser, and it illustrates her
6:49
Speaker 3: five year plan to turn the bank around.
6:51
Speaker 8: For more.
6:52
Speaker 2: We were joined by the story's author, Todd Gillespie, a
6:54
Speaker 2: Bloomberg Finance reporter.
6:55
Speaker 3: We first asked Todd to break down his reporting and
6:57
Speaker 3: how Citygroup has done recently.
6:59
Speaker 9: Thanks generally speaking as a sector have done really well
7:02
Speaker 9: this year. You know, Citi's kind of sitting the middle
7:04
Speaker 9: of the pack of the top six major US banks,
7:06
Speaker 9: so they're doing okay.
7:09
Speaker 8: You know.
7:09
Speaker 9: Mark Mason, the CFO, said that the bank is set
7:12
Speaker 9: to hit the top end of its revenue guidance for
7:14
Speaker 9: the end of this year. So after years of disappointing people,
7:18
Speaker 9: you know, investors, analysts, slowly maybe starting to think that
7:21
Speaker 9: she can turn the ship around.
7:22
Speaker 6: But it's a huge task.
7:24
Speaker 3: Why is the ship so big and why is it
7:26
Speaker 3: so hard to turn Well.
7:28
Speaker 9: City Group is you know, was once before the financial crisis,
7:31
Speaker 9: the world's largest financial company. It was the US's largest bank.
7:35
Speaker 9: This is a company that is probably the most global
7:38
Speaker 9: bank in the world. It's the only bank, for instance,
7:40
Speaker 9: that has a significant presence in Lebanon, where it had
7:43
Speaker 9: to evacuate staff earlier this year.
7:46
Speaker 6: We reported that earlier this year.
7:47
Speaker 9: And yeah, so you know, it's one of those banks
7:50
Speaker 9: that is so sprawling, which is one of its advantages
7:52
Speaker 9: because it gets, you know, it enables it to have
7:55
Speaker 9: this incredible global network of payment systems and m and
7:57
Speaker 9: a advice and you know X in all sorts of
8:00
Speaker 9: different countries.
8:01
Speaker 6: But it's also a big hindrance.
8:03
Speaker 9: And one of the things that Jane Fraser has tried
8:05
Speaker 9: to do is pull in exit you know, thirteen of
8:08
Speaker 9: its retail markets where it has retail banking presence. It's
8:11
Speaker 9: about IPO, it's retail business in Mexico by twenty twenty six.
8:16
Speaker 9: So it's really kind of trying to straighten, you know,
8:19
Speaker 9: downsize in the right ways she's saying, and also increase
8:21
Speaker 9: its feed businesses like wealth management and banking as well.
8:25
Speaker 2: What does City want to be when it grows up?
8:27
Speaker 2: Does it want to be JP Morgan? Is that the
8:30
Speaker 2: aspiration for City or they have a different strategy.
8:34
Speaker 9: I mean, it's hard to com bear, but yeah, I
8:35
Speaker 9: mean I probably say JP Morgan is a bank. I
8:38
Speaker 9: mean i'd say small steps, you know, I think Bank
8:40
Speaker 9: for America. The way that Bank of America came out
8:42
Speaker 9: of the financial crisis was something that City could have
8:44
Speaker 9: only hoped to emulate.
8:45
Speaker 8: Right.
8:45
Speaker 9: City has really been a laggard since the financial crisis
8:48
Speaker 9: in a way that Bank of America was able to
8:50
Speaker 9: suddenly turn that ship around fairly strongly. City is only
8:54
Speaker 9: just managing to maybe start to start do that.
8:57
Speaker 8: You know.
8:58
Speaker 9: It has very large servicesiness payment system, just like JP Morgan.
9:03
Speaker 9: It's obviously it's banking business has been traditionally one of
9:07
Speaker 9: the smaller on the M and A side, but larger
9:09
Speaker 9: on the DCM and ECM side. So it's trying to
9:13
Speaker 9: trying to see if it can kind of even out
9:14
Speaker 9: those businesses as well. So yeah, it's unclear. I mean, yeah,
9:20
Speaker 9: maybe if Jamie Diamond had stayed at City Group back
9:22
Speaker 9: in the day, it.
9:23
Speaker 6: Would have had a very different trajectory In talking.
9:25
Speaker 3: To shareholders and talking to analysts, what's the vibe on
9:29
Speaker 3: Jane Fraser, like, is she doing a good job?
9:31
Speaker 6: Is it?
9:31
Speaker 3: I realize it's only halfway through, but what's the confidence level?
9:35
Speaker 9: Yeah, well she's passed halfway through now. I mean she
9:37
Speaker 9: set out these targets in March twenty twenty two. She
9:39
Speaker 9: says that by the end of twenty twenty six she
9:41
Speaker 9: can get to a return on tangible common equity of
9:44
Speaker 9: eleven to twelve percent. They're sitting rather unhappily just under
9:48
Speaker 9: seven percent right now, which is one of the key
9:50
Speaker 9: metrics that investors an analyst, are quite unhappy with, to
9:53
Speaker 9: be honest. But people like her as a CEO, you know,
9:56
Speaker 9: people respect her. She's pretty forthright, she's got empathy, you know, regulators,
10:03
Speaker 9: you know folks. I think people like dealing with her
10:05
Speaker 9: as a person. But obviously, when you take a bank
10:08
Speaker 9: through this massive change, you know, right, they announced twenty
10:11
Speaker 9: thousand job cuts at the beginning of this year, nine
10:13
Speaker 9: thousand of those still to go in the next two years.
10:16
Speaker 9: It's it's, you know, you're obviously going to have enemies
10:19
Speaker 9: and people who really don't like the way that you're
10:21
Speaker 9: you're moving this thing around.
10:23
Speaker 2: What's next for city in their turner REMP plant. Is
10:25
Speaker 2: there a mile post that investors are saying for this
10:28
Speaker 2: is the next thing we need to see.
10:29
Speaker 9: The next thing everyone needs to see is positive operating
10:32
Speaker 9: leverage that really consistently comes through. That's you know, that's
10:35
Speaker 9: that's revenues outpacing growth and revenues outpacing expenses for them
10:39
Speaker 9: in the next twelve months. And they also really want
10:41
Speaker 9: to see strong growth towards that RTC that returns target
10:46
Speaker 9: every quarter, quarter by quarter, and that's the kind of
10:49
Speaker 9: consistency that city has lacked for the past decade that
10:52
Speaker 9: Jane Fraser is really trying to bring back to the
10:55
Speaker 9: business and show investors that they can believe the targets
10:59
Speaker 9: that she and her CFO Mark Mason set out and
11:02
Speaker 9: actually stick to those so that they have that confidence
11:06
Speaker 9: in the market, they can get rid of those regulatory
11:09
Speaker 9: burdens that have kneecapped them for so long, and that
11:12
Speaker 9: city can really come out of this stronger, more streamlined,
11:15
Speaker 9: and finally, you know, put behind it this bloat that
11:19
Speaker 9: has really weighed it down.
11:20
Speaker 3: You also mentioned in the piece, but how they do
11:23
Speaker 3: good numbers, They deliver good numbers, they don't get the
11:25
Speaker 3: credit for it and earnings.
11:26
Speaker 7: What's up with that?
11:27
Speaker 6: Totally?
11:28
Speaker 9: I mean every you know, every quarter there. You know,
11:31
Speaker 9: if they post strong revenues, it's the ROTC number that's
11:33
Speaker 9: not quite right. If the ROTC number is good, it's
11:36
Speaker 9: revenues that aren't quite right, or it's something like that.
11:39
Speaker 9: And you know these are often battles really on earning schools.
11:42
Speaker 9: These are longer arning schools than most banks have, and
11:44
Speaker 9: you can really listen to those yourself. They do get
11:46
Speaker 9: quite colorful and quite lengthy, so you know you need
11:49
Speaker 9: to have an extra shot of espresso while they're going through.
11:52
Speaker 2: Thanks to Todd Gillespie, Bloomberg Finance.
11:55
Speaker 3: Reporter, coming up well, break down the carbon market and
11:57
Speaker 3: why it's a key part to transforming the energy landscape.
12:00
Speaker 2: You listening to Bloomberg Intelligence on Bloomberg Radio, providing in
12:03
Speaker 2: depth research and data on two thousand companies in one
12:05
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
12:08
Speaker 2: Bigo in the terminal.
12:09
Speaker 3: I'm Paul Sweeney and a Malex Steel, and this is Bloomberg.
12:16
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
12:20
Speaker 1: weekdays at ten am Eastern on Afocarplay and Android Auto
12:24
Speaker 1: with the Bloomberg Business app, Listen on demand wherever you
12:27
Speaker 1: get your podcasts, or watch us live on YouTube.
12:31
Speaker 7: We move next to a big deal in the media space.
12:34
Speaker 3: This week we heard that Onakrom Group is acquiring inner
12:36
Speaker 3: Public Group to create the world's largest advertising company.
12:40
Speaker 2: The deal values into Public at thirteen point three billion
12:43
Speaker 2: dollars and the merger has seen as a response to
12:45
Speaker 2: the changing advertising landscape.
12:47
Speaker 8: For more.
12:47
Speaker 3: We are joined by Githermongana than Bloomberg intelligence analysts on
12:50
Speaker 3: US Media.
12:51
Speaker 2: We first asked Githa exactly why this deal happened.
12:54
Speaker 10: Over the past ten to fifteen years, advertising has been
12:57
Speaker 10: completely disrupted by the likes of you know, Google and
13:01
Speaker 10: Meta where we've seen a complete shift of ad budgets
13:04
Speaker 10: from traditional mediums like you know, TV and radio and
13:07
Speaker 10: newspaper to really all digital forms of advertising to the Internet.
13:12
Speaker 10: And so there has been a lot of disintermediation with
13:15
Speaker 10: the ad agency holding companies all of these you know
13:18
Speaker 10: Madison Avenue type of agency companies that are only really
13:22
Speaker 10: a handful of them left. So you have the big
13:24
Speaker 10: four omnicommon Interpublic are of course two US based agencies,
13:28
Speaker 10: but the bigger ones are their European rivals, Publicies and WPP.
13:32
Speaker 10: And really what we're trying, what they're trying to do
13:35
Speaker 10: here is, you know, it's become such a data driven business.
13:38
Speaker 10: There is so much competition from big tech and now
13:41
Speaker 10: of course with the advent of AI, you know, this
13:44
Speaker 10: threat of disintermediation is only growing more and more. And
13:47
Speaker 10: I think this is absolutely the right time for consolidation.
13:50
Speaker 10: And this really just tells us about the amount of
13:52
Speaker 10: secular pressures in this industry, very very similar to the
13:56
Speaker 10: linear TV model in a way.
13:57
Speaker 6: How cost intensive is this business? How much do they
14:00
Speaker 6: spend on labor?
14:01
Speaker 10: For instance, sixty percent, sixty percent of all of their
14:05
Speaker 10: costs are are on labor. So really, this merger, in
14:08
Speaker 10: so many ways, John is really about saving costs. They
14:11
Speaker 10: already outlined about seven hundred and fifty million dollars in
14:15
Speaker 10: cost energies, and of course that is likely to go
14:17
Speaker 10: up as they kind of eliminate redundancies. And if you
14:21
Speaker 10: just kind of look at it over the course of
14:22
Speaker 10: the next ten years, I mean there have been multiple
14:24
Speaker 10: studies that have been conducted that have said that you know,
14:27
Speaker 10: with AI being able to create campaigns. Being able to
14:30
Speaker 10: create all of these the creative elements of what an
14:34
Speaker 10: ad agency does, almost thirty three thousand jobs or post
14:38
Speaker 10: to almost forty percent of the ad agency sector's jobs
14:42
Speaker 10: would have anyway been eliminated. So it is really going
14:45
Speaker 10: to come down to saving on on labor.
14:47
Speaker 1: Wow.
14:48
Speaker 2: So in this world where it's it's Facebook and it's YouTube,
14:52
Speaker 2: and if I'm Coca Cola and I'm Ford Motor Company
14:55
Speaker 2: and I'm going to do a big advertising buy on
14:57
Speaker 2: one of these digital platforms, how different is is than
15:01
Speaker 2: forty years ago when I was just advertising on network television.
15:04
Speaker 10: Yeah, it's really different now because all of these small
15:08
Speaker 10: businesses actually now just go directly to Google and Meta.
15:11
Speaker 10: So the way that it is now working is all
15:13
Speaker 10: of the small mom and pop stores, medium sized businesses
15:17
Speaker 10: are not going to these ad agency networks anymore. So
15:20
Speaker 10: it's really only a handful of these big brands that
15:23
Speaker 10: are really still you know, having their campaigns kind of
15:27
Speaker 10: designed by the big you know, ad agency networks. And
15:30
Speaker 10: even in those big brands, even brands like p ANDNG,
15:33
Speaker 10: even brands like Apple are really kind of going more
15:37
Speaker 10: and more in house. So it has become really difficult
15:40
Speaker 10: for the ad agency companies to kind of survive in
15:43
Speaker 10: this changing world, and they have to keep adapting, and
15:46
Speaker 10: they have to keep acquiring more data centric businesses. They
15:49
Speaker 10: have to keep investing more in AI really and in data.
15:53
Speaker 10: And if you kind of just look at omnicommon Interpublic
15:55
Speaker 10: versus their European rivals, they're actually lagging behind a little
15:58
Speaker 10: bit in terms of AI and tech investments. And I
16:01
Speaker 10: think this deal was kind of prompted a little bit
16:04
Speaker 10: by that as well.
16:05
Speaker 6: Can AI really deliver a creative execution for these firms?
16:10
Speaker 10: Yes, it can, maybe not at the highest level, but
16:14
Speaker 10: I think as you know, the algorithms kind of keep
16:17
Speaker 10: getting refined, we are definitely going to see a huge
16:20
Speaker 10: level of disintermediation. And even today, you know, we talk about,
16:26
Speaker 10: you know, these companies talk about how AI is helping
16:28
Speaker 10: them kind of refine their campaigns, kind of refine the messaging,
16:32
Speaker 10: get to better targeting. So AI is definitely a very
16:35
Speaker 10: very useful tool. And if you just kind of look
16:37
Speaker 10: at even Omnicom and Interpublic over the past year, one
16:40
Speaker 10: of the reasons why Interpublic has kind of been so
16:43
Speaker 10: keen to for the sale is because it has been
16:46
Speaker 10: losing so many clients. They lost a very very important
16:49
Speaker 10: client with Amazon, and really a whole string of account
16:53
Speaker 10: losses kind of precipitated this whole sale process. And on
16:57
Speaker 10: the other hand, if you look at Omnicom, they've actually
16:59
Speaker 10: have an AI assist tool called Omni which has helped
17:03
Speaker 10: them kind of really win a lot of clients. So
17:06
Speaker 10: we've kind of seen the two agency groups have very
17:09
Speaker 10: differing performances all right.
17:11
Speaker 3: Thanks to Keith Raganath and Bloomberg Intelligence Analysts on US media,
17:14
Speaker 3: each week.
17:15
Speaker 2: We look at research from Bloomberg and EF previously known
17:18
Speaker 2: as New Energy Finance.
17:19
Speaker 3: They're the team at Bloomberg that tracks and analyzes the
17:21
Speaker 3: energy transition from commodities to power, transport, industries, buildings, and
17:25
Speaker 3: agricultural sectors.
17:27
Speaker 2: This week, we took a look at the carbon market,
17:29
Speaker 2: a key part of transforming the energy landscape for more.
17:32
Speaker 2: We were joined by bo Chin b n EF, head
17:35
Speaker 2: of America's Environmental Markets and Weather analysts.
17:38
Speaker 3: We first asked bo to discuss what she's currently seeing
17:40
Speaker 3: in the US carbon market and what she expects in
17:42
Speaker 3: the year ahead.
17:43
Speaker 11: The US carbon market is now going through ups and downs,
17:47
Speaker 11: so this year has been super exciting year for US
17:50
Speaker 11: carbon markets. We have hit record highs. The most interesting
17:54
Speaker 11: carbon markets in US are on the coasts, so we
17:57
Speaker 11: have on the West coast California linked with Quebec, and
18:01
Speaker 11: then on the East Coast we have Regional Greenhouse Gas Initiative,
18:04
Speaker 11: which is a power sector specific carbon market focused on
18:09
Speaker 11: ten states. Both of these markets have seen price records.
18:14
Speaker 11: So looking at just West Coast, the California carbon price
18:19
Speaker 11: went up forty percent since twenty twenty three, hitting a
18:22
Speaker 11: record forty four dollars per ton, and we have seen
18:26
Speaker 11: this price is actually, unfortunately this year, come down thirty
18:30
Speaker 11: percent this year, and this is because of the reforms
18:35
Speaker 11: that have been proposed and also the delays of these reforms.
18:39
Speaker 11: On the East Coast we have a similar story. So
18:42
Speaker 11: it was a very polish story up till September with
18:45
Speaker 11: prices moving up seventy percent to twenty eight dollars per
18:48
Speaker 11: short ton, and then prices have since also come down
18:51
Speaker 11: twenty five percent because of their reforms.
18:54
Speaker 7: But we do expect next.
18:55
Speaker 11: Year to be a very exciting year as these reforms
18:59
Speaker 11: get concluded and we see more policy certainty within these markets.
19:06
Speaker 2: Explain it to me like I'm a five year old.
19:08
Speaker 2: What drives the price of carbon?
19:10
Speaker 7: I was going to ask that to you. Actually, yeah,
19:13
Speaker 7: carbon markets really is like commodity.
19:15
Speaker 2: Yeah, commodity, so demand, Yeah, it's demand.
19:20
Speaker 11: It's basically think it as a farmer's market where polluters
19:23
Speaker 11: go to buy permits and then abaters go to sell
19:27
Speaker 11: their permits. It depends how big family are feeding, how
19:30
Speaker 11: much demand is for that abatement, then that drives the price.
19:36
Speaker 11: In our world, we call that demand, and the price
19:39
Speaker 11: is a marginal abatement cost curve. So if you have
19:42
Speaker 11: a strong demand or a strong climate ambition and a
19:47
Speaker 11: very limited marginal abayment cost curve, that would lead to
19:51
Speaker 11: a high carbon price. And then vice versa. If you
19:54
Speaker 11: have low demand or low climate action and a very
19:58
Speaker 11: significant marginalbayment cost curve, meaning that you have cheap abatement
20:03
Speaker 11: and a vast amount of it, then you would have
20:06
Speaker 11: typically a lower carbon price.
20:08
Speaker 3: So to me, also the idea what the carbon price is,
20:12
Speaker 3: If you get it high enough, then companies are going
20:14
Speaker 3: to want to store their carbon because they're going to
20:18
Speaker 3: be able to then trade that credit and get money
20:20
Speaker 3: for it. Right, So the higher it is, the better
20:22
Speaker 3: it is for the environment because companies will be more
20:25
Speaker 3: incentivized to store their carbon or not produce it or
20:28
Speaker 3: to sell it.
20:28
Speaker 7: Right, Yeah, but what is that price?
20:32
Speaker 11: It really depends on the supply and demand assets a commodity.
20:37
Speaker 3: But like every talking about like eighty dollars, would it
20:39
Speaker 3: really be a good incentive?
20:40
Speaker 7: Is it one hundred?
20:41
Speaker 3: I mean any commodity is going to have that incentive price?
20:45
Speaker 11: Yeah, exactly. It depends on what technology you're looking at.
20:48
Speaker 11: What is the trigger point for a trigger price? So
20:51
Speaker 11: if you're like we typically say that the cheapest is
20:54
Speaker 11: the call to gas field switch in, and that also
20:57
Speaker 11: depends on the market, So in a Europe that typically
21:00
Speaker 11: is higher than US where gas is already very low.
21:05
Speaker 11: We also looked into this that not only a power
21:08
Speaker 11: sector now is the ones that are being trigger but
21:11
Speaker 11: also transport where you tilt from ice vehicle to a
21:17
Speaker 11: EV and a carbon price can help you to do that.
21:20
Speaker 11: And also carbon price doesn't work alone, so there's a
21:23
Speaker 11: lot of complementary policies. We are pretty much the yeah,
21:27
Speaker 11: final defense. So if other complementary policies didn't deliver the
21:31
Speaker 11: results we wanted to see, then carbon price can do
21:34
Speaker 11: the final lift.
21:35
Speaker 2: Hopefully interesting, So real quickly change in administrations coming up.
21:39
Speaker 2: What does that mean for your world?
21:41
Speaker 11: Yeah, it's really exciting actually for US. Maybe for the
21:45
Speaker 11: clean energy sector it's maybe not such positive news as
21:49
Speaker 11: potentially some subsidies like Inflation Reduction Act and other complementary
21:55
Speaker 11: policies for renewables and clean transport will be now reduced
22:00
Speaker 11: and there will be more support for oil and gas industry.
22:04
Speaker 11: But for carbon market this could be a good thing
22:06
Speaker 11: because we would have more emissions that would support carbon prices.
22:10
Speaker 11: But also a lot of states could now really double
22:13
Speaker 11: down on carbon market as a policy tool to support prices. Also,
22:18
Speaker 11: for investors, carbon price could become an attractive tool to
22:23
Speaker 11: invest because carbon markets, particularly those compliance carbon markets, can
22:28
Speaker 11: hedge inflation, which could become a topic now with the
22:32
Speaker 11: immigration rules and twists being changed with the new admin quickly.
22:37
Speaker 3: Is it a bad thing that it's so fragmented?
22:40
Speaker 6: Yes?
22:41
Speaker 3: Do we ever get to a place where there's like
22:43
Speaker 3: a US carbon price?
22:45
Speaker 6: We do hope.
22:46
Speaker 10: So for.
22:49
Speaker 11: National level carbon price, it will most likely not become
22:52
Speaker 11: a realistic thing in the next few years, but we
22:55
Speaker 11: could see more states linking like even right now we
23:00
Speaker 11: are seeing that Washington, which survived the repeal actually.
23:05
Speaker 7: In November as well.
23:06
Speaker 11: So now there's more opportunity for Washington state to be
23:09
Speaker 11: linked with a California.
23:10
Speaker 7: There are also other states that.
23:12
Speaker 11: Are talking about having a compliance carbon market. Actually right
23:16
Speaker 11: here in New York, very excited about Niki. I'm excited
23:20
Speaker 11: to make the sun O Mikid become a Hey Nikki.
23:25
Speaker 7: So New York is going to.
23:27
Speaker 11: Be a economy wide and it's going to be a
23:28
Speaker 11: similar size to California. So if these all get linked,
23:32
Speaker 11: then we could have a like maybe not an official
23:35
Speaker 11: national but a benchmark price our.
23:37
Speaker 2: Thanks to bo Chin b n Ef, head of America's
23:40
Speaker 2: Environmental Markets and weather analysts.
23:42
Speaker 3: Coming up on the program, we'll discuss why the department
23:44
Speaker 3: store chain may See has trimmed its profit outlook for
23:46
Speaker 3: the year.
23:47
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
23:50
Speaker 2: depth research and data on two thousand companies from one
23:52
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
23:55
Speaker 2: bi go on the terminal, Paul Swinging and am Alex
23:57
Speaker 2: Steel and this is Bloomberg.
24:05
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
24:09
Speaker 1: weekdays at ten am Eastern on Applecar Play and Android
24:12
Speaker 1: Auto with the Bloomberg Business App. You can also listen
24:15
Speaker 1: live on Amazon Alexa from our flagship New York station.
24:19
Speaker 1: Just say Alexa Play Bloomberg.
24:21
Speaker 3: Eleven thirty We moved next to the computer tech company Oracle.
24:24
Speaker 7: This week's shares of Oracle fell by the most in
24:26
Speaker 7: a year.
24:27
Speaker 2: That's after the company reported second quarter profit and revenue
24:29
Speaker 2: that missed analysts expectations from more.
24:31
Speaker 3: We are joined by anaag Rana, Bloomberg Intelligence technology analyst.
24:34
Speaker 2: First, ask on Arov what Oracle's results say about its business.
24:37
Speaker 8: See, when you look at the constant currency growth for
24:40
Speaker 8: a cloud infrastructure, it was fifty two percent. I think
24:43
Speaker 8: consensus was fifty one, so a slight beat, but the
24:46
Speaker 8: reaction tells me it was not good enough for byside investors.
24:50
Speaker 8: You know, from our side, there's no problem in terms
24:53
Speaker 8: of future growth prospects for that business because backlock's very strong.
24:57
Speaker 8: The demand is there. And for Oracle, they're actually getting
25:01
Speaker 8: work from Microsoft because Microsoft is leasing their data centers
25:05
Speaker 8: because it is having a huge backlog of work on
25:08
Speaker 8: their end.
25:08
Speaker 3: So does that mean this is just a Hey, the
25:10
Speaker 3: stock could run up really fast. Therefore, the expectator, just
25:13
Speaker 3: the expectation game, is that what I can read into
25:15
Speaker 3: the equity.
25:16
Speaker 8: I would absolutely say that because right now this has
25:19
Speaker 8: been the trade for twenty twenty four has been the
25:23
Speaker 8: infrastructure that's related to AI, so whether that's the chips,
25:27
Speaker 8: even the numbers were pretty good, and twenty twenty five
25:30
Speaker 8: could be a year where you will see the downstream
25:32
Speaker 8: impact of some of these AI infrastructures, which is cloud
25:36
Speaker 8: companies or other software companies coming up with applications that
25:40
Speaker 8: are based on some of these AI infrastructures. So we
25:43
Speaker 8: have a long way to go before we realize the
25:45
Speaker 8: true value of AI spending across the entire value chain.
25:50
Speaker 8: For this year, we just saw it in the you know,
25:52
Speaker 8: the cloud and the chips part of it.
25:54
Speaker 2: The demand is so robust on a rock that I've
25:57
Speaker 2: heard companies talk about maybe even some shortage of some
26:01
Speaker 2: components of some of the things they want to buy.
26:03
Speaker 2: Talk to us about that. What did Oracle say?
26:05
Speaker 8: Yeah, Oracle is no different than other companies because even
26:09
Speaker 8: for Microsoft, they cannot get up data centers at the
26:12
Speaker 8: same rate as they're seeing demand coming from open AI.
26:15
Speaker 8: They are not They are everybody's having struggled to procure
26:19
Speaker 8: in video GPUs to train some of these models. And
26:22
Speaker 8: that's the case. Oracle's backlock is so strong. But you
26:26
Speaker 8: know there has been supply challenges. They are spending a
26:28
Speaker 8: lot of money on capital expenditure. Last year approximately, they
26:32
Speaker 8: spent about seven billion dollars in capex. This year is
26:35
Speaker 8: going to be double of that fourteen billion dollars. So
26:39
Speaker 8: I mean it we see that when these companies spend
26:43
Speaker 8: money to expand their capacity, we know that demand is
26:46
Speaker 8: behind it.
26:47
Speaker 7: So this is like the software stuff.
26:49
Speaker 3: So Nvidia supplies the chips for Oracle, who then uses
26:53
Speaker 3: builds the software stuff for companies like Eccentric or Amazon
26:57
Speaker 3: AM I is that correct?
26:59
Speaker 8: Yeah, it's you got it right. In this case, what's
27:02
Speaker 8: happening is companies like Microsoft, Google, AWS, and Oracle are
27:07
Speaker 8: building an infrastructure on which companies can build applications. So
27:12
Speaker 8: these companies could be accentual, it could be JP Morgan,
27:15
Speaker 8: it could be Citybank, et cetera. These companies will go
27:18
Speaker 8: out and create their own AI apps that can then
27:21
Speaker 8: be used internally by the companies. And I mean you
27:24
Speaker 8: can do this in house also by buying AI servers
27:27
Speaker 8: but cloud is usually a better and each cheaper way
27:30
Speaker 8: to go because you can turn it off if you
27:31
Speaker 8: don't like it. So that's what we are seeing right.
27:34
Speaker 2: Now is peak AI anywhere on the horizon there on
27:38
Speaker 2: a rug.
27:39
Speaker 8: That's a very very good and tough question, frankly, because
27:42
Speaker 8: the question is going to be will people get bored
27:44
Speaker 8: in the AI infrastructure space, and they will will they
27:47
Speaker 8: move to somewhere else? We saw that in the last
27:50
Speaker 8: three months suddenly the interest in Salesforce, for example, and
27:53
Speaker 8: that is because Salesforce is the second leg of this equation.
27:57
Speaker 8: One is the infrastructure we talked about. Second is the application.
28:00
Speaker 8: Salesforce created some AI application that can help you do
28:04
Speaker 8: you know, fix your online orders, automatically, do some referns,
28:10
Speaker 8: et cetera. So that's the application part of it. We
28:13
Speaker 8: think next yer is going to be a lot of
28:16
Speaker 8: Salesforce like applications that will come to the market by
28:20
Speaker 8: different software companies that will help people be more productive.
28:23
Speaker 8: And then the third and the final layer would be
28:25
Speaker 8: the consulting companies that are helping in the implementation of
28:28
Speaker 8: that that goes in tandem with software companies. But we
28:32
Speaker 8: think there are multiple years before we see the true
28:35
Speaker 8: realization of the funding that's happening right now.
28:37
Speaker 7: All right, quickly on a rag.
28:39
Speaker 3: Adobe is a competitor Oracle and what do we learn
28:41
Speaker 3: from Oracle as relates to Adobe.
28:43
Speaker 8: Yeah, from a from Wells. They're both software companies, but
28:48
Speaker 8: they do slightly different things. For Adobe, the big question
28:51
Speaker 8: is going to be is their business being cannibalized by
28:54
Speaker 8: open source AI tools. We don't think that's the case
28:58
Speaker 8: right now, but that's a big argument in this space.
29:00
Speaker 8: If you look at the entire software space right now,
29:03
Speaker 8: Adobe's probably the one where do you have the biggest
29:06
Speaker 8: argument whether they're going to be the net beneficiaries of
29:09
Speaker 8: AI or whether they're going to get hurt by I.
29:11
Speaker 8: For Adobe, we expect them to go out and come
29:14
Speaker 8: out and say that the adoption rate of their own
29:16
Speaker 8: AI tools is picking up, and that's really what we
29:19
Speaker 8: are looking for. All right.
29:20
Speaker 3: Thanks to Anna Agrana Bloomberg Intelligence and your technology analyst.
29:23
Speaker 2: We move next to the retail space and Macy's. This week,
29:26
Speaker 2: the department store chain said it had trimmed its profit
29:29
Speaker 2: outlook for the year.
29:30
Speaker 3: This comes after Macy's concluded its investigation into an employee
29:33
Speaker 3: that hid millions of dollars and expenses. The discovery of
29:36
Speaker 3: the accounting eras led Macy's to delay its full earnings
29:38
Speaker 3: report back in November.
29:40
Speaker 2: For more, we were joined by Mary Ross Gilbert Bloomberg
29:42
Speaker 2: Intelligence senior Ecuadanalysts. We first asked Mary to walk us
29:45
Speaker 2: through Macy's recent investigation.
29:47
Speaker 12: What happened here is that they had a single employee
29:50
Speaker 12: who basically hid small package delivery expenses of about one
29:55
Speaker 12: hundred and fifty one million. That was over a three
29:58
Speaker 12: year period, so were the year to date. I think
30:01
Speaker 12: it was about nine million is the effect in the
30:05
Speaker 12: for that period. So the company, of course had to
30:08
Speaker 12: lower their guidance, and the gross margin figures anyps of
30:13
Speaker 12: course because it drops all the way down there, but
30:16
Speaker 12: it doesn't affect cash. So that's the good news and
30:20
Speaker 12: it's put behind him. What they have done is they've
30:23
Speaker 12: improved their financial controls. They've added some additional checks and
30:28
Speaker 12: balances there. So I think this is now behind them,
30:32
Speaker 12: and I think the real focus here is on the
30:35
Speaker 12: go forward operations. And I say go forward meaning let's
30:39
Speaker 12: exclude the one hundred and fifty stores that they're going
30:41
Speaker 12: to close. Sixty five of those stores will close in
30:44
Speaker 12: the fourth quarter. That's ahead of the original fifty they
30:48
Speaker 12: slated to close, and then the other eighty five maybe
30:51
Speaker 12: that'll get done by next year instead of the next
30:53
Speaker 12: two years. Nonetheless, if you put those aside and you
30:57
Speaker 12: look at what's going on with the go forward business,
31:00
Speaker 12: we're seeing sequentially sequential improvement with the first fifty stores
31:05
Speaker 12: that they've completely revamped actually posting a positive increase. They
31:10
Speaker 12: were up one point nine percent in the third quarter,
31:13
Speaker 12: and that's the third quarter of positive comp improven there.
31:16
Speaker 12: So we're actually seeing signs that the plans, the initiatives
31:21
Speaker 12: that they're employing are working. So we see some green
31:25
Speaker 12: shoots in there. What does it let me think this
31:28
Speaker 12: accounting issue is behind them all right?
31:30
Speaker 2: What does a revamped store look like? What's the strategy
31:33
Speaker 2: behind a revamped store?
31:36
Speaker 5: Paul, That's a good question.
31:38
Speaker 12: So what that means is is they've really up their
31:41
Speaker 12: game in terms of merchandising. They brought in new brands
31:44
Speaker 12: like Lafitte, La Levec Fee, Donna, Karen, Carl Lagerfeld, Steve Madden.
31:51
Speaker 12: These brands offer great style and value to the company.
31:57
Speaker 12: Their private label program has been completely revamped. Now that's
32:01
Speaker 12: only about fifteen percent of sales. So the biggest part
32:04
Speaker 12: is really bringing me in these other brands. But not
32:07
Speaker 12: only that, they've uped their game in terms of service.
32:10
Speaker 12: They now have salespeople in the shoe department and then
32:13
Speaker 12: they have runners. So what happens is a salesperson will
32:16
Speaker 12: be working directly with a client and they'll say, hey,
32:19
Speaker 12: I need size eight, size eight and a half in this,
32:23
Speaker 12: and then they run and go get them. And then
32:25
Speaker 12: also they have service in handbags and in women's ready
32:29
Speaker 12: to wear. So having boosted the service levels also improving
32:34
Speaker 12: the overall appearance throughout the stores. We've been in our
32:38
Speaker 12: channel checks watching this happen, and we see the improvement.
32:42
Speaker 12: We see how that they got rid of some brands
32:44
Speaker 12: that were less relevant, brought in these newer ones. And
32:47
Speaker 12: we also saw during that Black Friday, we saw this
32:52
Speaker 12: year more traffic in the stores than we saw in the.
32:55
Speaker 5: Prior two years.
32:57
Speaker 12: And of course when you look at the data, their
33:00
Speaker 12: sales were better this year. They saw an increase in
33:03
Speaker 12: the Black Friday through Cyber Monday and the consumer transaction data,
33:07
Speaker 12: and that's something the company mentioned on the call today
33:10
Speaker 12: that yes, they're seeing strong you know, or sort of
33:13
Speaker 12: sequential improvement versus the third quarter into the fourth quarter.
33:17
Speaker 5: So I think those are some of the part.
33:20
Speaker 3: You're describing Mary. The revamped stores. It sounds a little
33:23
Speaker 3: bit like Bloomingdale's Light.
33:27
Speaker 5: You know what.
33:28
Speaker 12: That's exactly if you look at a let's say, one
33:31
Speaker 12: of their better what what they would call that, one
33:34
Speaker 12: of their flagships. So we have one here right next
33:37
Speaker 12: door in Century City, it does very much look like
33:41
Speaker 12: a Bloomingdale's.
33:42
Speaker 5: The store is interesting. It's brand new.
33:44
Speaker 12: I mean they've remodeled it four or five times within
33:47
Speaker 12: the last few years. What I mean by that is
33:49
Speaker 12: they've expanded beauty. So you walk in, it's an incredible
33:52
Speaker 12: showcase of beauty.
33:54
Speaker 5: Also includes Blue Mercury, of course.
33:56
Speaker 12: So we we've seen just and the stores so much brighter.
34:00
Speaker 12: But even in a tired old mall down in southern
34:04
Speaker 12: California that I will go to, even that store looks
34:08
Speaker 12: much better, even though it's sort of a tired location.
34:14
Speaker 5: They've really improved it.
34:16
Speaker 12: The better brands that they've incorporated, making these little Calvin
34:20
Speaker 12: Klein they look like little boutique shops, Michael Core's, Calvin Kleine,
34:25
Speaker 12: Tommy Hillfigure those are all in there and beautifully appointed.
34:30
Speaker 12: It's much more open. There's not just a sea of merchandise.
34:34
Speaker 12: It just makes more sense. So that's been extended across
34:38
Speaker 12: another hundred stores, so not just a fifty, but another
34:41
Speaker 12: one hundred.
34:41
Speaker 2: All right, So what's the company saying just about holiday
34:46
Speaker 2: sales so far? It is kind of confirmed what you've seen.
34:50
Speaker 5: Yes, they did.
34:51
Speaker 12: They said that they saw a good start to the
34:54
Speaker 12: holiday season, but of course we still have more to go.
34:57
Speaker 12: So no, and they act actually raised their guidance ATAD
35:03
Speaker 12: so I thought that was also an indication of what
35:07
Speaker 12: they're seeing, and so they could potentially beat the guidance
35:10
Speaker 12: because when they put things the guidance out, they really
35:14
Speaker 12: attempt to exceed those figures.
35:17
Speaker 3: Right. Thanks to Mary Ross Gilbert, Bloomberg Intelligence Senior Equity Analyst.
35:21
Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apples, Spotify,
35:25
Speaker 1: and anywhere else you get your podcasts. Listen live each
35:29
Speaker 1: weekday ten am to noon Eastern on Bloomberg dot Com,
35:32
Speaker 1: the iHeartRadio app tune In, and the Bloomberg Business app.
35:36
Speaker 1: You can also watch us live every weekday on YouTube
35:39
Speaker 1: and always on the Bloomberg terminal