Latest / Bloomberg Intelligence / SpaceX, Tesla Boards Study Possible $3.5 Trillion Merger

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SpaceX, Tesla Boards Study Possible $3.5 Trillion Merger · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios.
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  Speaker 2: Podcasts. Radio. News.
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  Speaker 3: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 3: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
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  Speaker 3: Auto with the Bloomberg Business App. Listen on demand wherever
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  Speaker 3: you get your podcasts or watch us live on YouTube.
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  Speaker 4: Let's get back to that Elon Musk story because it's
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  Speaker 4: a story that just keeps on giving. And if it
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  Speaker 4: comes together, mega deal for the bankers and the lawyers.
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  Speaker 5: You look at the MAGO function and the biggest deal
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  Speaker 5: of the year is already tied to SpaceX with XAI.
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  Speaker 4: Yep, absolutely. So here we go. Elon Musk says SpaceX
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  Speaker 4: and Tesla have formed special committees to explore a potential merger.
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  Speaker 4: He spoke in a earnings call following SpaceX blowout earnings.
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  Speaker 4: Let's take a listen.
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  Speaker 6: I do think there's a lot of merit to combining
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  Speaker 6: the companies as we are pretty much in the superintelligence singularity.
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  Speaker 6: I think it would be a good idea, but it's
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  Speaker 6: really up to the special committees of both companies.
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  Speaker 4: Apparently, yeah. Very cool. That's good. If he says it's
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  Speaker 4: a go, it's likely to be a go. We're seeing
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  Speaker 4: that in the stock prices here, both SpaceX and Tesla
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  Speaker 4: trading up here today. Let's get some more reporting on that.
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  Speaker 4: Sana Pashankar is our space reporter for Bloomberg News down
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  Speaker 4: there in D.C. Sana, what's what's the makeup of the
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  Speaker 4: folks you talk to about the potential here for a
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  Speaker 4: merger of SpaceX and Tesla? That's certainly what I think
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  Speaker 4: a lot of Tesla investors are waiting for.
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  Speaker 7: Yeah, totally. So from what I'm hearing from people I'm
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  Speaker 7: speaking to and kind of what we heard from Musk yesterday,
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  Speaker 7: it almost seems as if it's rather a when rather
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  Speaker 7: than an if. Musk said that he thinks it's a
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  Speaker 7: good idea. He was openly pressing for a deal between
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  Speaker 7: the two companies. But ultimately, again, it's not up to him.
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  Speaker 7: It's up to getting shareholder support, particularly on the Tesla side. But,
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  Speaker 7: you know, it seems like there is a lot of
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  Speaker 7: momentum for this. And, you know, as Musk has outlined,
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  Speaker 7: at least a lot of synergies between the companies when
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  Speaker 7: it comes to AI.
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  Speaker 5: And I think you nailed it when you said that
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  Speaker 5: this is something he wants, but it's not totally up
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  Speaker 5: to him. What can he do in the meantime to
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  Speaker 5: kind of sell the case for why these two companies
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  Speaker 5: belong together?
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  Speaker 7: Well, yeah, I think that he was honestly really selling
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  Speaker 7: the case yesterday. And I think that's what he's trying
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  Speaker 7: to do. I mean, obviously, he's not part of these
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  Speaker 7: independent committees that are considering the mergers, but he has
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  Speaker 7: a lot of influence. And there are a lot of
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  Speaker 7: overlaps between the AI businesses as well, which he outlined.
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  Speaker 7: So I think that he can push for it. And,
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  Speaker 7: you know, there's no real question that he wants the merger.
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  Speaker 7: And so he's kind of like getting people excited about it,
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  Speaker 7: you know, talking about it on the earnings call, which
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  Speaker 7: he like previously refused to do. I think that's a
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  Speaker 7: really big tell of the enthusiasm he has for a
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  Speaker 7: potential deal between the two companies.
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  Speaker 4: Sana, is there any sense from the maybe the sources
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  Speaker 4: you've talked to about when this could occur? I mean,
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  Speaker 4: is this something that could occur? quickly, or is this
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  Speaker 4: going to take forever and a day to negotiate?
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  Speaker 2: Yeah.
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  Speaker 7: So, I mean, with Musk, you really never know. I mean,
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  Speaker 7: from the sources I'm talking to, it seems like they
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  Speaker 7: would maybe potentially want to deal to close within this
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  Speaker 7: administration because they see a favorable regulatory environment. But again,
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  Speaker 7: it's hard to know exactly. You know, the XAI merger happened,
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  Speaker 7: the SpaceX and XAI merger happened almost out of the blue.
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  Speaker 7: So it's really, you know, it's up to Musk and
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  Speaker 7: it's up to the shareholders.
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  Speaker 5: Yeah, I think you also made the point that the
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  Speaker 5: fact that he has talked about it publicly is significant,
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  Speaker 5: given that in the past he shied away from answering
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  Speaker 5: any questions on this. Given all of that, Sana, what
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  Speaker 5: was your takeaway from the earnings report that SpaceX posted? Obviously,
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  Speaker 5: investors like it because the stock is soaring.
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  Speaker 7: Yeah, SpaceX really had a blowout quarter. It basically exceeded
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  Speaker 7: estimates in net income, net profit, revenue. And that was
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  Speaker 7: driven a lot by sales of Starlink, which is their
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  Speaker 7: satellite internet business. And particularly sales for government and for
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  Speaker 7: business customers, and also their AI business, which was surprising.
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  Speaker 7: We know that they've been signing these massive deals to
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  Speaker 7: lease out computing space to other AI companies, and that
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  Speaker 7: was definitely reflected. Their losses were significantly lower than they
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  Speaker 7: were last quarter. And I think it's also increased adoption
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  Speaker 7: of Brock has contributed there as well.
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  Speaker 8: Stay with us. More from Bloomberg Intelligence coming up after this.
• 4:49
  Speaker 3: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 4:53
  Speaker 3: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 4:56
  Speaker 3: Auto with the Bloomberg Business App. Listen on demand wherever
• 4:59
  Speaker 3: you get your podcasts or watch us live on YouTube.
• 5:04
  Speaker 8: We got a little M & A.
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  Speaker 4: Going on here today in the healthcare space. As I
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  Speaker 4: always say, my next life I want to come back
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  Speaker 4: as a healthcare M & A banker, because they get
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  Speaker 4: paid every single day. Here's another one. Abbott Labs spins
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  Speaker 4: off embattled business that sells baby formula. No idea, but
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  Speaker 4: our next guest, he knows what's going on. Matt Hendrickson,
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  Speaker 4: Bloomberg Intelligence Senior Equity Analyst. Matt, what's going on with
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  Speaker 4: our friends at Abbott Labs?
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  Speaker 9: Well, quick story is that they're finally spinning off their
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  Speaker 9: nutrition segment because that's probably the black sheep of the
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  Speaker 9: overall portfolio for them. And that allows them to focus
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  Speaker 9: on their kind of key growth drivers, which is in
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  Speaker 9: the medical device space.
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  Speaker 5: So tell us a little bit more about this nutrition business.
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  Speaker 5: Why is it embattled? Why is it something that Abbott
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  Speaker 5: can't afford to keep on or doesn't want to keep on?
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  Speaker 2: Yeah.
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  Speaker 9: I mean, it's multifactorial. First, it's their nutrition business, which
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  Speaker 9: is their baby formula, their adult nutrition formula.
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  Speaker 1: Oh, Ensure and everything.
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  Speaker 9: Ensure, Similac for the pediatric patients. They've been hit by
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  Speaker 9: multiple levels of litigation. The first one is with regards
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  Speaker 9: to preterm babies and they're getting intestinal related diseases, which
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  Speaker 9: led unfortunately to some deaths. That led to a level
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  Speaker 9: of litigation there. They're in the process of getting those resolved.
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  Speaker 9: There's another one where one of their plants had issues
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  Speaker 9: with contamination, led to a federal litigation against them.
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  Speaker 1: And then lastly, as Robert Ford mentioned in the call,
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  Speaker 1: it's changing.
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  Speaker 9: It's changing from kind of a healthcare type of segment
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  Speaker 9: to more of a consumer and a retail segment. And
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  Speaker 9: being part of an overall conglomerate wasn't allowing them to
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  Speaker 9: adapt quick enough. And so last year they had to
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  Speaker 9: start working on getting some new brands out there. They
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  Speaker 9: had to work on getting some pricing cuts out there
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  Speaker 9: to be able to be more competitive. And it just
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  Speaker 9: all came in line with, you know, they should be
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  Speaker 9: focusing on the medical device side. This was just creating
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  Speaker 9: distractions for both the medical device side, but also created
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  Speaker 9: distractions for the nutrition side.
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  Speaker 4: So Give us the core investment call for Abbott these days.
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  Speaker 4: What are investors, how are they viewing this company right now?
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  Speaker 4: Because the stock's down 4% or 5% today. It's down
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  Speaker 4: double digits for the year. What's going on there?
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  Speaker 9: Yeah, I mean, part of it is just the overall
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  Speaker 9: medtech sector rotation is hitting the stocks in general. For
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  Speaker 9: Abbott specifically, their main growth driver is their.
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  Speaker 1: Continuous glucose monitor.
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  Speaker 9: So those are those little patches you see on people's arms,
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  Speaker 9: measures their glucose levels every five minutes. You're seeing that
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  Speaker 9: growth decelerate from 20% in 2024, 16% last year to 7%
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  Speaker 9: this year.
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  Speaker 1: That's pretty stark.
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  Speaker 9: It's very stark, especially for a unit that's 15% of
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  Speaker 9: the total company. That's why you're seeing them have to
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  Speaker 9: cut their comparable sales growth outlook for the year.
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  Speaker 1: There was 6.5% to 7.5%. They had to cut it
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  Speaker 1: to 6% today.
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  Speaker 9: That needs to see a recovery, and they're dealing with
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  Speaker 9: certain recalls there as well. They're dealing with competition from
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  Speaker 9: companies like Dexcom and some other privately held companies like BioLink.
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  Speaker 9: All these things are being a headwind there that they
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  Speaker 9: need to focus on and get that recovery started.
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  Speaker 5: Is a company like Abbott Labs affected at all by
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  Speaker 5: the midterm elections?
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  Speaker 1: Yes and no. I mean, not too much.
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  Speaker 9: You could say that if with the elections, you're talking
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  Speaker 9: about ACA cuts, Medicaid cuts, that could hurt some of
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  Speaker 9: their procedure volumes, which then would hurt revenue. But most
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  Speaker 9: of their procedures are for those acute cases and very
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  Speaker 9: sick patients, and they're going to be treated regardless.
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  Speaker 4: So these medical device companies, what's the upside catalyst? When
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  Speaker 4: do they perform well?
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  Speaker 9: Well, I mean, if you're looking at it from a
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  Speaker 9: procedural volume standpoint, things are steady. It's just right now
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  Speaker 9: valuation is so low because of the shift to the
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  Speaker 9: AI sector. What they need to continue to do is
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  Speaker 9: get their product pipeline, get new products out there to launch.
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  Speaker 9: because that helps offset pricing cuts for their legacy products.
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  Speaker 9: And if you get that volume still going with the
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  Speaker 9: aging demographic and disrupting kind of the standard of care
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  Speaker 9: for certain procedures, that should be fine. You just have
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  Speaker 9: to get through kind of this kind of headwind of
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  Speaker 9: the macro environment related to the AI trade.
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  Speaker 4: Do you just think AI is seen as a threat
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  Speaker 4: to this industry?
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  Speaker 9: AI, it's basically a sector rotation right now. And so
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  Speaker 9: a lot of money is coming out from the MedTech
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  Speaker 9: side into the AI side. So anytime you see AI
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  Speaker 9: stocks pop, you see my MedTech stocks get cut.
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  Speaker 8: Stay with us. More from Bloomberg Intelligence coming up after this.
• 9:54
  Speaker 3: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 9:58
  Speaker 3: weekdays at 10 a.m. Eastern on apple carplay and android
• 10:01
  Speaker 3: auto with the bloomberg business app listen on demand wherever
• 10:04
  Speaker 3: you get your podcasts or watch us live on youtube.
• 10:09
  Speaker 4: Well united airlines reported some uh numbers here stocks up
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  Speaker 4: four percent here today but they reported weaker than expected
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  Speaker 4: earnings called out soaring jet fuel costs. CEO Scott Kirby
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  Speaker 4: spoke with Bloomberg Surveillance earlier to talk about what it
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  Speaker 4: will mean for airfares. Let's take a listen.
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  Speaker 10: We've passed about 72% of the increase in fuel price,
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  Speaker 10: but I think it's pretty remarkable demonstration of the industry changes,
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  Speaker 10: the resilience, and also decommoditizing air travel at United Airlines
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  Speaker 10: that while we're not earning as much in the second
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  Speaker 10: half as we did last year and as much as
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  Speaker 10: we were expecting to this year, because of the run-up
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  Speaker 10: in fuel, we're still solidly profitable and it portends better
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  Speaker 10: times ahead when the situation does normalize, and eventually it will.
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  Speaker 4: That was CEO Scott Kirby, United Airlines, speaking with Bloomberg
• 10:52
  Speaker 4: Surveillance earlier today. Scarlett, did I happen to mention that
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  Speaker 4: I'm a million-mile flyer for United Airlines?
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  Speaker 5: Just remind us of what that means and what happens
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  Speaker 5: and how you get treated when you get on board.
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  Speaker 4: Well, I've flown cumulatively a million miles United over my career,
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  Speaker 4: so I get, like, special little medallion and stuff. I
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  Speaker 4: got a little handshake and a call-out by the pilot.
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  Speaker 4: It was all very— Do you have to.
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  Speaker 5: Do anything to maintain that status, by the way?
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  Speaker 8: No.
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  Speaker 4: It's just there for life.
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  Speaker 5: You can do one mile a year from now on.
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  Speaker 4: Yes, but I'm doing a lot more because I am
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  Speaker 4: in my empty nester years, so we are traveling like crazy.
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  Speaker 4: George Ferguson also spends a lot of time on airplanes.
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  Speaker 2: Why?
• 11:23
  Speaker 4: Because he's a senior aerospace defense and airlines analyst for
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  Speaker 4: Bloomberg Intelligence. George, what'd you learn from the United Earnings
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  Speaker 4: Report here?
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  Speaker 2: Look, I think I learned that One thing we knew,
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  Speaker 2: they were having a hard time passing through all the
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  Speaker 2: fare increases they needed to manage higher fuel prices. They
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  Speaker 2: mean the US airline business. And look, United and Delta
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  Speaker 2: have reported so far, they're the two sort of best
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  Speaker 2: positioned companies. to capture this premium flyer, which should mean
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  Speaker 2: they're cushioned to a degree, and they're having a hard
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  Speaker 2: time pushing through the full increase they need. I think
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  Speaker 2: the low-cost carriers, some of the guys in the hybrids
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  Speaker 2: in the middle will also have a more challenging time.
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  Speaker 2: Scott's a big believer in differentiation. I personally think people
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  Speaker 2: largely fly with where they get the best price and
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  Speaker 2: they feel like they're not going to get banged up
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  Speaker 2: too much. So it'll be interesting to see as we
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  Speaker 2: get into 2027 if this differentiation makes a difference. And
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  Speaker 2: I guess the last thing I'd add quickly here is that.
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  Speaker 2: I think United found– the reason the stock really took
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  Speaker 2: a beating yesterday was that United found a good off-ramp
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  Speaker 2: to get a pullback from their commentary that they would
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  Speaker 2: recover all of the fair increases they needed to manage
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  Speaker 2: the higher fuel prices. I think this was a good
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  Speaker 2: juncture to reset expectations. Delta didn't do that, but I think–
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  Speaker 2: Scott saw it as a good opportunity and really put
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  Speaker 2: out a really high fuel price, like $ 4. 60 for this,
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  Speaker 2: for 4Q into next year. They really don't, they don't
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  Speaker 2: provide a lot of guidance. I think he kind of
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  Speaker 2: uses this as a nice off ramp to get out
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  Speaker 2: of that discussion when they're going to recapture.
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  Speaker 5: George, the way that these Airlines deal with higher fuel
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  Speaker 5: fares is to either raise ticket prices, so Paul has
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  Speaker 5: to pay more when he travels, or trim their flight schedules.
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  Speaker 5: What's the calculus between doing either of those? Which is
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  Speaker 5: more effective? Which provides immediate relief to its bottom line?
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  Speaker 2: Yeah, so this is a really hard equation for the airlines.
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  Speaker 2: And that's one of the challenges they're starting to have, right?
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  Speaker 2: And that is, you trim the flight schedules so you
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  Speaker 2: can get flyers to pay more. You need your competitors
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  Speaker 2: to do the same. Because if your competitors decide they
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  Speaker 2: just want to get market share, then you're just going
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  Speaker 2: to see fares stay low. And as you trim your
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  Speaker 2: flight schedules, you lose your economies of scale. You're flying
• 13:53
  Speaker 2: less available seat miles for the airline. And that means
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  Speaker 2: all your costs start to rise, especially your overhead, based
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  Speaker 2: on less capacity. And we're seeing a bit of it. Look,
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  Speaker 2: United didn't do a lot of cutting in 3Q, right?
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  Speaker 2: They flew 1.5% more available seat miles. If you look
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  Speaker 2: at seats... They put four and a half percent more
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  Speaker 2: seats into the marketplace. That's like double GDP growth, right? So,
• 14:20
  Speaker 2: and even there, if you look at every single expense
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  Speaker 2: item on their income statement, it's all rising faster than inflation,
• 14:28
  Speaker 2: even many of them, if you adjust it for the
• 14:30
  Speaker 2: increase in seats. And so this becomes the real challenge
• 14:34
  Speaker 2: is they need everyone else to come in and cut
• 14:36
  Speaker 2: capacity as well to see fares firm. And there's just
• 14:39
  Speaker 2: too many airlines in this business. Some that are just
• 14:41
  Speaker 2: trying to survive. But I think you're going to see
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  Speaker 2: this in the near term, this sort of combined cut capacity,
• 14:48
  Speaker 2: raise prices so you can cover costs.
• 14:51
  Speaker 4: George, I also want to talk to you about Boeing.
• 14:53
  Speaker 4: I'm seeing some reporting here from Bloomberg. Boeing won U.S.
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  Speaker 4: regulator approval for its 737 MAX 10 jet. What does
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  Speaker 4: that mean for Boeing?
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  Speaker 2: I think they're probably doing somersaults over there in Seattle.
• 15:05
  Speaker 2: And I mean, it's now headquarters is Washington, D.C. Look,
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  Speaker 2: that 737-10 is the primary competitor to the Airbus A321.
• 15:15
  Speaker 2: They're both the largest narrowbodies. They carry like 200 plus people,
• 15:20
  Speaker 2: depending on how you want to rack and stack people
• 15:22
  Speaker 2: inside an airframe. You know, airlines love those people movers.
• 15:26
  Speaker 2: Scott Kirby, a big buyer of the 737-10, couldn't get
• 15:29
  Speaker 2: him fast enough. Went to Airbus for an A321 order.
• 15:33
  Speaker 2: Still has 737-10 on the books. Dead today. I'm getting
• 15:37
  Speaker 2: this call. Excited to get that airplane. If you look
• 15:40
  Speaker 2: at Airbus, I think the majority of their backlog for
• 15:44
  Speaker 2: narrowbodies is that A321. Boeing, there's 2,000 of them in
• 15:48
  Speaker 2: their backlog that we see. We think there's more that
• 15:51
  Speaker 2: could be converted on 5,000, 6,000-plus backlogs. It is in
• 15:58
  Speaker 2: high demand by airlines because it lowers economies. It provides
• 16:02
  Speaker 2: bigger economies and helps lower per seat prices. So it
• 16:06
  Speaker 2: was good to see Boeing get that. That keeps them
• 16:08
  Speaker 2: very competitive with Airbus.
• 16:10
  Speaker 8: Stay with us. More from Bloomberg Intelligence coming up after this.
• 16:17
  Speaker 3: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 16:21
  Speaker 3: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 16:24
  Speaker 3: Auto with the Bloomberg Business App. Listen on demand wherever
• 16:28
  Speaker 3: you get your podcasts or watch us live on YouTube.
• 16:32
  Speaker 4: Netflix reported results last night. Revenue growth came in a
• 16:35
  Speaker 4: little bit below forecast, stock trading off about 5% here today.
• 16:38
  Speaker 4: It's hitting a 52-week low here today. We're off about 30%
• 16:44
  Speaker 4: year to date. The leadership team says the streaming service
• 16:48
  Speaker 4: recent price increase has gone well, and the company is
• 16:52
  Speaker 4: seeing good results. Speaking on Netflix earnings call, co-CEO Ted
• 16:55
  Speaker 4: Sarandos repeated that the U.S. is not growing as fast
• 16:59
  Speaker 4: as legalism.
• 17:00
  Speaker 11: Our content around the world is largely working, as you
• 17:03
  Speaker 11: heard a couple examples there from Greg, but we see
• 17:05
  Speaker 11: titles across Latin America, EMEA, APAC, driving engagement, subscriber growth, revenue,
• 17:11
  Speaker 11: and profit.
• 17:12
  Speaker 10: Now, the U.S.
• 17:13
  Speaker 1: Is also working.
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  Speaker 11: It's just not growing as fast as it could or
• 17:16
  Speaker 11: as fast as we'd like.
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  Speaker 4: All right. That was Netflix co-CEO Ted Sarandos. He was repeating, again,
• 17:22
  Speaker 4: that the U.S. is not growing as fast as they
• 17:24
  Speaker 4: would like here. We're seeing that in the Price action
• 17:27
  Speaker 4: today in the stock is trading down about 5% here.
• 17:29
  Speaker 4: Geetha Ranganathan, she is the media analyst for Bloomberg Intelligence. Geetha, again,
• 17:35
  Speaker 4: the street looks a little bit disappointed in these results here,
• 17:38
  Speaker 4: just judging by the stock price movement here today. What
• 17:41
  Speaker 4: did you take away from the earnings release?
• 17:44
  Speaker 12: I think the biggest source of disappointment, Paul, was really
• 17:47
  Speaker 12: the advertising outlook. So they had initially guided for $ 3
• 17:51
  Speaker 12: billion in advertising. Remember, this is a nascent business for Netflix,
• 17:55
  Speaker 12: but obviously there's a lot of anticipation that this will
• 17:59
  Speaker 12: end up becoming a major growth driver as subscription growth
• 18:03
  Speaker 12: starts to kind of mature and slow down. But the
• 18:05
  Speaker 12: fact that they pulled guidance down for the advertising revenue
• 18:08
  Speaker 12: by about 10 percent for this year, which then weighed
• 18:11
  Speaker 12: on the 4Q guidance as well as the 2026 overall
• 18:15
  Speaker 12: revenue guidance, I think definitely kind of spooked investors a
• 18:19
  Speaker 12: little bit.
• 18:21
  Speaker 5: So how do they solve for that? How do they
• 18:23
  Speaker 5: get more people to subscribe to the ad tier?
• 18:25
  Speaker 12: Is it?
• 18:26
  Speaker 5: Moving people from the premium tier to the ad tier
• 18:29
  Speaker 5: because that will pay off more down the road? Or
• 18:32
  Speaker 5: is it you just have to sign up new people?
• 18:34
  Speaker 5: Or is it a further crackdown on people who might
• 18:37
  Speaker 5: be sharing their passwords?
• 18:39
  Speaker 12: I think it's a little bit of all of the above, Scarlett,
• 18:42
  Speaker 12: but what they actually highlighted in terms of the delay,
• 18:46
  Speaker 12: and they said that this is really just a timing issue.
• 18:49
  Speaker 12: It's not that there's any structural problem with the ad business.
• 18:53
  Speaker 12: They just haven't been able to ramp up some of
• 18:57
  Speaker 12: the ad product capabilities and some of the integrations that
• 19:00
  Speaker 12: they were hoping to get done by this point. And
• 19:03
  Speaker 12: so remember, again, they are the latest or they do
• 19:07
  Speaker 12: not have the first mover advantage that so many of
• 19:10
  Speaker 12: our traditional media companies have. You take a Disney with
• 19:12
  Speaker 12: Disney Plus or Peacock, all of those products or even
• 19:17
  Speaker 12: Paramount Plus, HBO, all of those products have had success.
• 19:21
  Speaker 12: advertiser relationships in place for their traditional TV business, which
• 19:24
  Speaker 12: they then extended to their digital ad business. Netflix does
• 19:27
  Speaker 12: not have that advantage. So they really have to kind
• 19:29
  Speaker 12: of build this whole business from scratch. They have to
• 19:31
  Speaker 12: build the advertising relationships. They have to build the technology,
• 19:35
  Speaker 12: the ad stack, the tech stack. So there's a lot
• 19:37
  Speaker 12: of different components here. And so it looks like things
• 19:40
  Speaker 12: are progressing a little bit slower than what the street
• 19:43
  Speaker 12: was basically expecting.
• 19:45
  Speaker 4: Talk to us about programming expense, Geetha. I mean, at
• 19:47
  Speaker 4: the beginning stages, of this company, it was like the
• 19:50
  Speaker 4: street was like, hey, you can spend as much as
• 19:51
  Speaker 4: you want because you're driving subscriber growth. And then it became, well,
• 19:55
  Speaker 4: maybe you want to dial that back because we need
• 19:56
  Speaker 4: to focus on profitability. But where are we now? It
• 19:59
  Speaker 4: seems like they're increasing spending and maybe there's concerns that
• 20:02
  Speaker 4: they're not getting the return on that spending.
• 20:05
  Speaker 12: Yeah, this is really a big source of concern for
• 20:08
  Speaker 12: the street, Paul. So, you know, this year, for instance,
• 20:11
  Speaker 12: they took up their programming budget by about 10 percent,
• 20:15
  Speaker 12: which is really a pretty high, considering that in the
• 20:18
  Speaker 12: past they've only taken it up by about six to
• 20:20
  Speaker 12: seven percent. I mean, at the end of the day,
• 20:21
  Speaker 12: as you just pointed out, keeping that programming expense increase
• 20:26
  Speaker 12: under control is really important for their operating leverage, for
• 20:29
  Speaker 12: their operating margin story. And remember, Netflix has gone from
• 20:33
  Speaker 12: becoming just a subscriber story to really a profit and
• 20:37
  Speaker 12: a margin story. And so when you have that programming
• 20:40
  Speaker 12: cost increase by the amount that it's increasing, And what's
• 20:43
  Speaker 12: worse is the fact that they really, even with that
• 20:46
  Speaker 12: increase in programming costs, they've really not been able to
• 20:51
  Speaker 12: produce any big breakout show or any home run, as
• 20:56
  Speaker 12: they call it, which would really drive engagement. So I
• 20:59
  Speaker 12: think what's really worrisome is the fact that you're having
• 21:02
  Speaker 12: a major step up in programming costs. But you're not
• 21:05
  Speaker 12: necessarily having that return on investment, as you just pointed out,
• 21:08
  Speaker 12: and that is going to weigh on revenue growth in
• 21:13
  Speaker 12: the future.
• 21:13
  Speaker 5: And it's resulting in people being taken out as well, right?
• 21:23
  Speaker 5: is a former chairman of Walt Disney Television. Dan Lin,
• 21:25
  Speaker 5: who is the head of the Netflix's film division, also
• 21:28
  Speaker 5: leaving the company. Does a change in personnel usually lead
• 21:32
  Speaker 5: to the development of blockbusters? Or blockbusters are just kind
• 21:35
  Speaker 5: of random, Geetha. I mean, everyone wants blockbusters. Movie studios
• 21:39
  Speaker 5: are always chasing them, but you can't predict them. You
• 21:42
  Speaker 5: can't manufacture them.
• 21:44
  Speaker 12: Absolutely right, Scarlett. I mean, Paul always would say, like,
• 21:47
  Speaker 12: you know, media is such a hit-driven business, but it
• 21:49
  Speaker 12: is so, so difficult to predict the I mean, the
• 21:53
  Speaker 12: thing that, you know, we get with Peter Rice and
• 21:56
  Speaker 12: Ted Sarandos actually brought this up in the call yesterday
• 21:58
  Speaker 12: is that he has some some really good content and
• 22:02
  Speaker 12: talent relationships. And we've seen. So what we got with
• 22:06
  Speaker 12: Bella Bajoria was was that she really went, you know,
• 22:09
  Speaker 12: very broad in terms of content. She tried to get.
• 22:12
  Speaker 12: something for everybody on the platform. So whether it's, you know,
• 22:15
  Speaker 12: live programming or reality TV or, you know, sports, all
• 22:21
  Speaker 12: kinds of different things, you know, international content, that was
• 22:24
  Speaker 12: her big thing. She really built up that business. But
• 22:27
  Speaker 12: the fact that they really haven't had any huge, you know,
• 22:31
  Speaker 12: sleeper hit this year, I think has really been weighing
• 22:34
  Speaker 12: on the management team and which has kind of finally
• 22:37
  Speaker 12: led to her removal from You know, with Peter Rice,
• 22:40
  Speaker 12: I think he's known he's always had this track record
• 22:43
  Speaker 12: of really less is more and really being more focused
• 22:48
  Speaker 12: on prestige shows, prestige, you know, movies. And so it's
• 22:53
  Speaker 12: going to be interesting to see if he can come
• 22:54
  Speaker 12: and kind of work that magic here at Netflix. Although
• 22:57
  Speaker 12: we do think that, you know, the turnarounds always take
• 23:00
  Speaker 12: a little bit of time. But absolutely, I think if
• 23:03
  Speaker 12: Netflix can deliver that one big hit like a K-pop
• 23:07
  Speaker 12: Demon Hunters, like a Squid Game, I think the sentiment
• 23:10
  Speaker 12: really changes.
• 23:11
  Speaker 4: Geetha, how many streaming services do people have on average now?
• 23:14
  Speaker 4: It's been 10 years or something.
• 23:17
  Speaker 12: It's about three and a half, three to four. Yeah,
• 23:21
  Speaker 12: that's the average.
• 23:22
  Speaker 4: Yeah, see, I don't know.
• 23:24
  Speaker 5: It's so easy to cancel it these Right, unless for
• 23:26
  Speaker 5: some reason it's tied into one of your other payments,
• 23:29
  Speaker 5: like your cell phone carrier offers you a special deal
• 23:33
  Speaker 5: or you get the home internet service as well. Geetha,
• 23:36
  Speaker 5: is Netflix doing enough of that, teaming up with different
• 23:39
  Speaker 5: partners to make sure that it's attractive for people to
• 23:42
  Speaker 5: sign up to Netflix?
• 23:44
  Speaker 12: They have done a lot of these partnerships, Scarlett, especially
• 23:48
  Speaker 12: in areas outside the U.S. And it has helped them.
• 23:53
  Speaker 12: But I think we're kind of hitting a wall here
• 23:56
  Speaker 12: because there's only so much that you can do to
• 23:59
  Speaker 12: kind of really get that whole subscription momentum going. Again,
• 24:04
  Speaker 12: it's going to be something much more drastic, dramatic that
• 24:09
  Speaker 12: they do in terms of revamping their content offering, maybe
• 24:12
  Speaker 12: doing more short form type of content, you know, to
• 24:15
  Speaker 12: compete with the likes of Instagram and Snap and TikTok.
• 24:18
  Speaker 8: So we'll have to wait and watch.
• 24:21
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