Latest / Bloomberg Intelligence / Tesla Stock Will Be Below $200 In Next 12 Months: Kudla

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Tesla Stock Will Be Below $200 In Next 12 Months: Kudla · Bloomberg Intelligence

0:05
Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
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Speaker 1: Along with my co host Lisa Abramowitz. Each day we
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Speaker 1: bring you the most important, noteworthy, and useful interviews for
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Speaker 1: Podcast on Apple Podcasts, SoundCloud and Bloomberg dot Com. A
0:30
Speaker 1: rally in the shares of Tesla after the company reports
0:34
Speaker 1: his first quarterly profit and a positive free cash flow. Uh.
0:39
Speaker 1: Here to tell us more about it is David Coudla.
0:42
Speaker 1: He is, of course, the chief investment strategist, founder and
0:44
Speaker 1: chief executive of Mainstay Capital and Bloomberg Markets. Brought to
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Speaker 1: you by Commonwealth Financial Network, the number one r I,
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Speaker 1: independent advisors satisfaction among financial investment firms five times in
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Speaker 1: a row. Learn more at Commonwealth and dot com and
1:05
Speaker 1: we turned out to Mr Coula to learn more about Tesla. So, David,
1:09
Speaker 1: are you a believer or are you still skeptical about Tesla?
1:14
Speaker 1: I am still skeptical skeptical about Tesla, and I am
1:20
Speaker 1: was very excited about the news yesterday very excited about
1:24
Speaker 1: the rally and after hours trading. Unfortunately, I was only
1:29
Speaker 1: able to short the stock at a high of three
1:31
Speaker 1: twenty one. Today. Maybe I'll have another chance to short
1:34
Speaker 1: it higher. It's trading about three twelve now. Um. But
1:38
Speaker 1: you know, we we expected with yearning announcement pull ahead,
1:42
Speaker 1: we'd have some good results, and we did even better
1:46
Speaker 1: than expected. But it's about the sustainability of those results,
1:49
Speaker 1: which we don't think they could maintain, and all that
1:53
Speaker 1: they did in the third quarter to generate these great
1:55
Speaker 1: results and as good as they are, best quarter by
2:00
Speaker 1: far in two years. Uh, you know, everything negative cash flow, negative,
2:04
Speaker 1: earnings negative in this whopping quarter and the stock is
2:07
Speaker 1: trading at three eleven. Yeah. Well, actually I was going
2:10
Speaker 1: to just say, what is your target? Because I'm looking
2:12
Speaker 1: right now. Bank of America, Mary Lynch. Their target is
2:16
Speaker 1: two hundred dollars underperform. Goldman Sachs target to sell. Cowen
2:21
Speaker 1: price target to fifty underperform. What's your price target? Our
2:26
Speaker 1: twelve month price target on the stock is one eight,
2:29
Speaker 1: and we think that longer term, the stock has to
2:31
Speaker 1: settle somewhere, uh, down between a hundred and a hundred
2:35
Speaker 1: and fifty and we and we say that just compare
2:38
Speaker 1: to stocks, compare to automakers general motors trading at a
2:44
Speaker 1: PE of about five or six. And if we take
2:48
Speaker 1: this number and extrapolate it a number which we don't
2:51
Speaker 1: think they can maintain in terms of earnings. UH. Going forward,
2:56
Speaker 1: Tesla is trading at would be trading at a price
2:59
Speaker 1: to earnings multiple at forty to fifty times, which is
3:03
Speaker 1: higher than any automaker anywhere in the world. And you know,
3:07
Speaker 1: we know that as we go forward, they have a
3:10
Speaker 1: debt repayment that Elon must said in the call last
3:13
Speaker 1: night would probably mean a flat you know, no earnings
3:16
Speaker 1: in the first quarter. They've got a Model Wide to fund,
3:19
Speaker 1: they've got a China Giga factory to fund, They've got
3:21
Speaker 1: other operations to fund. And we know, you know, when
3:25
Speaker 1: you pass through the numbers, UH, there was a little
3:29
Speaker 1: bit of accounting tomfoolery to to uh, to make a
3:32
Speaker 1: good number. Elon Musk has been managing this company, headlined
3:37
Speaker 1: to headline. In the second quarter, it was about being
3:39
Speaker 1: able to say they built five thousand vehicles in one week.
3:42
Speaker 1: They only average a little over four thousand Model threes.
3:46
Speaker 1: They only averaged a little over four thousand model threes
3:49
Speaker 1: per week in the third quarter, after hitting that five
3:51
Speaker 1: thousand a week benchmark. Now he's got the headline of
3:55
Speaker 1: this great quarter. Um, you know, are our bare thesis
3:59
Speaker 1: is meant like some bears on on Tesla going bankrupt.
4:04
Speaker 1: It's just that it's someday that the stock comes down
4:06
Speaker 1: to reality and trades closer to where other automakers trade,
4:12
Speaker 1: even if it is a sustainable business and it's not
4:15
Speaker 1: going to be at three hundred or three fifty or
4:17
Speaker 1: four hundred dollars a share, how do you respond, David,
4:20
Speaker 1: to those investors or even those analysts who say that
4:23
Speaker 1: Tesla is not just an automobile company. Tesla is a
4:28
Speaker 1: technology company, and it will expand its offering to not
4:33
Speaker 1: just include automobiles sold through their own dealerships, but an
4:39
Speaker 1: attempt to lease automobiles for rides sharing or to compete
4:44
Speaker 1: against Uber and Lift, and also to provide charging that
4:50
Speaker 1: would really change the way people interact with their vehicles. Right, So, uh,
4:58
Speaker 1: I understand that that thesis that both talked about, But
5:01
Speaker 1: we've got now a ten year old company that drives
5:05
Speaker 1: more than of its revenue from selling automobiles less than
5:11
Speaker 1: ten percent of the revenue comes from those other businesses,
5:14
Speaker 1: whether it's solar panels or energy storage or UH solar
5:19
Speaker 1: roof shingles, all of those those other business activities in
5:23
Speaker 1: the energy division and solar divisions of the company. H
5:28
Speaker 1: As we look forward into the future of mobility, there
5:31
Speaker 1: is this assumption and Elon Musk talked about it last
5:34
Speaker 1: night in the conference call. There's this assumption by the
5:37
Speaker 1: Tesla bulls that that Tesla will just own the future
5:41
Speaker 1: of e V it will own the future of autonomous,
5:43
Speaker 1: it will own the future of ride sharing, it will
5:45
Speaker 1: own the future of robotaxis and autonomous Weymo is recognized
5:51
Speaker 1: as the industry leader UH. You know General Motors when
5:55
Speaker 1: when UH, When UM soft Bank UH passed on an
6:01
Speaker 1: investment in Tesla, they made an investment in General Motors
6:04
Speaker 1: Cruise division. When Honda, Japanese automaker wanted to look for
6:10
Speaker 1: their next generation of electric vehicle battery architecture, they bought
6:15
Speaker 1: it from GM. When they wanted to team up with
6:17
Speaker 1: somebody to work on autonomous, they did with GM. So
6:20
Speaker 1: there are a lot of competing technologies out there. I
6:24
Speaker 1: know there are those faithful UH people, followers of Tesla,
6:30
Speaker 1: but the future is going to look a lot different
6:32
Speaker 1: than what they might think and maybe what Elon Musk
6:35
Speaker 1: might might be preaching. David Coodla, thank you so much
6:38
Speaker 1: for being with us and sharing your views. David Coodla's founder,
6:41
Speaker 1: chief executive officer, and chief investment strategist of Mainstay Capital
6:45
Speaker 1: Bold call shares below two hundred and the next twelve
6:49
Speaker 1: months interesting to see. Right now shares up eight point
6:53
Speaker 1: four percent, trading just below three huh actually right now
6:57
Speaker 1: nearly three hundred and twelve dollars to share. There has
7:11
Speaker 1: been a report in the New York Times about President
7:14
Speaker 1: Trump's phone, his cell phone, his personal cell phone, uh,
7:18
Speaker 1: and the fact that he continues to use it and
7:21
Speaker 1: it makes him susceptible to hacking. He has denied this,
7:25
Speaker 1: so has the Chinese government. What do we make of this?
7:28
Speaker 1: I don't know, but Clint Watts probably does. He's senior
7:31
Speaker 1: fellow at the Foreign Policy Research Institute, also senior Fellow
7:34
Speaker 1: at the Center for Cyber and Homeland Security at the
7:36
Speaker 1: George Washington University. Thank you so much, Clint for being
7:40
Speaker 1: with us. So what was your impression of this particular story?
7:45
Speaker 1: Do you believe it? I want to say no, but
7:49
Speaker 1: every time I say no in a story like this,
7:51
Speaker 1: it turns out to be a yes. So I think
7:54
Speaker 1: there are some important things in the article um to
7:58
Speaker 1: think about. And one was the notion that the Chinese
8:01
Speaker 1: government essentially identifies friends of President Trump and then goes
8:05
Speaker 1: to influence the friends to tell Donald Trump and his
8:08
Speaker 1: friends what to think about different issues. And whether that
8:12
Speaker 1: happens on a cell phone intercept or in reality through
8:15
Speaker 1: business associates, this is a very adept influenced strategy I've
8:20
Speaker 1: also seen. I think this is actually the second or
8:22
Speaker 1: third story that I've seen about the president's cell phone
8:26
Speaker 1: maybe not being secured or used in a secure way.
8:28
Speaker 1: If you remember back to the start of the Obama
8:31
Speaker 1: administration when President Obama was addicted to his BlackBerry, you
8:34
Speaker 1: know this has come back to the two cousin eight,
8:37
Speaker 1: and there was a lot of worry about how they
8:39
Speaker 1: would secure it. I think they eventually convinced him to
8:41
Speaker 1: not use it because of the security issue. I'm not
8:45
Speaker 1: sure that that sort of convincing has been done in
8:48
Speaker 1: in the White House. And and one thing just tangentially
8:51
Speaker 1: is we've also seen a White House where a lot
8:53
Speaker 1: of aids, a lot of people that work in the
8:55
Speaker 1: White not S are recording each other. So every time
8:58
Speaker 1: I have doubt about these stories that we would have
9:01
Speaker 1: on secure lines that could be intercepted, I do find
9:04
Speaker 1: uh that there are users in the White House of
9:07
Speaker 1: cellphones uh, making recordings, uh, using things sort of in
9:11
Speaker 1: a loose fashion, which could could lead to something being insecure.
9:15
Speaker 1: So I'm not convinced one way or another yet, but
9:17
Speaker 1: I think the approach, whether it's intercepting a cellphone conversation
9:21
Speaker 1: or trying to influence the president through his business associates, uh,
9:25
Speaker 1: that I think it's very true. Clint Watch, Do you
9:28
Speaker 1: believe that authorities will intercept those individuals or individual who
9:33
Speaker 1: is responsible for those packages containing crew pipe bombs and
9:37
Speaker 1: envelopes with white powder that were addressed to the Clinton's
9:41
Speaker 1: at their Chappaquad, New York home, or to Barack Obama
9:44
Speaker 1: in Washington, d C. Or indeed John Brennan att CNN
9:48
Speaker 1: New York Studios. Yes, I would actually expect him to
9:53
Speaker 1: do it fairly quickly. Um, if you look at the
9:57
Speaker 1: packages they intercepted overnight, it seems like that they know
10:00
Speaker 1: what to look for. They've gone through the US postal
10:02
Speaker 1: system and been able to identify other ones that have
10:05
Speaker 1: been distributed. This gives them very strong leads to go
10:08
Speaker 1: back to where was the point of origin for these
10:11
Speaker 1: packages when they were disseminated. The other thing that's interesting
10:14
Speaker 1: about to ask this case as opposed to the last
10:17
Speaker 1: reason one, which was Austin. If you remember we had
10:19
Speaker 1: bombings in Austin, this show is a very weak delivery system.
10:24
Speaker 1: You know, there wasn't much reconnaissance done and the packages
10:27
Speaker 1: are are rendered to law enforcement and they're not exploded.
10:32
Speaker 1: This gives you tremendous amount of human forensics to look for.
10:36
Speaker 1: You can actually look at how they were constructed, if
10:39
Speaker 1: they had ever maybe tried to test these before. And
10:42
Speaker 1: so I imagine right now there's actually quite a bit
10:44
Speaker 1: of evidence. I think it's ten packages that I have
10:48
Speaker 1: seen have been intercepted or picked up. There's they've been
10:52
Speaker 1: routed to UH targets to make sense based on UH
10:56
Speaker 1: certain ideological mindset. So they're going to you know, descend
11:00
Speaker 1: on that fairly quickly. I think they actually have a
11:02
Speaker 1: lot of evidence to go on, as opposed to some
11:04
Speaker 1: like in the Austin bombings back in March, when the
11:07
Speaker 1: devices are exploding when they are are delivered you know,
11:12
Speaker 1: directly by the assailant or set up in an I e. D. Fashion.
11:15
Speaker 1: That's much tougher to go on. So Clint, do you
11:17
Speaker 1: have any sense of why the packages didn't explode and
11:21
Speaker 1: whether they were intended to explode or more intended as
11:24
Speaker 1: a warning. Yeah, just looking at it, you know, just
11:29
Speaker 1: from the pictures I've seen. Usually look for a few things. One,
11:33
Speaker 1: what is the actually the explosive material, and if this
11:36
Speaker 1: is mostly black powder from what I've heard, or or
11:38
Speaker 1: other things just packed into a pipe, that is usually
11:42
Speaker 1: your least sophisticated. If you remember back to the terrorism
11:45
Speaker 1: era with al Qaeda and the Zazi case for example,
11:49
Speaker 1: we were worried about peroxide based explosives. Um plastic or
11:53
Speaker 1: military grade would be even more sophisticated. But the other
11:56
Speaker 1: part of the device with the triggering device is that
11:59
Speaker 1: a remote that needed pressure debtonated. None of these went off,
12:02
Speaker 1: which means these could just have a device trapped to
12:05
Speaker 1: the outside that never could have you know, detonated the
12:08
Speaker 1: device at all. What we do know those these were
12:11
Speaker 1: explosive devices, That's what you know. We've seen that from
12:13
Speaker 1: several reports now and that they could have exploded. So
12:17
Speaker 1: I think the danger is there. I think the signal
12:20
Speaker 1: has definitely been sent, but it's not the most sophisticate,
12:23
Speaker 1: sophisticated bomb maker that you might encounter. Clint, I'm wondering,
12:26
Speaker 1: from your experience in the U. S. Army and as
12:29
Speaker 1: an FBI Special Agent on Joint Terrorism, I'm just wondering,
12:34
Speaker 1: do you think that the risk from domestic domestic terrorism
12:38
Speaker 1: has increased more than it has been in recent years.
12:44
Speaker 1: I don't even think it's increased more now. That is
12:47
Speaker 1: definitely the case. Domestics should be our main focus as
12:49
Speaker 1: opposed to international. But even going back about six years,
12:54
Speaker 1: you could see this train coming. If it wasn't for ISIS,
12:57
Speaker 1: and they're sort of spectacular attacks, success attacks overseas um
13:01
Speaker 1: rallying a lot of Americans to join online, we would
13:05
Speaker 1: probably be more focused already on domestic extremism. To me,
13:09
Speaker 1: it's is far outpacing international extremism. UM. That doesn't mean,
13:15
Speaker 1: you know, in this case, we couldn't. This could be
13:17
Speaker 1: an international extremist for some reason, trying to cloak themselves.
13:20
Speaker 1: I think that's unlikely. Uh. And so just based on
13:23
Speaker 1: the targets and impact. It looks like it's it's towards
13:26
Speaker 1: domestic extremism, but we should also look at a sort
13:28
Speaker 1: of a wild card hypothesis too, which is, if you
13:31
Speaker 1: want to create panic in the United States, particularly in
13:35
Speaker 1: these very divisive times of an election period, it's also
13:37
Speaker 1: an opportunity for a foreign government UH an intel service
13:43
Speaker 1: to create a provocation which stirs peer and panic in
13:46
Speaker 1: the audience space too. I think that's highly unlikely, but
13:49
Speaker 1: we shouldn't entirely rule that out, and I'm sure that's
13:51
Speaker 1: what the invest investigation the FBI is pursuing right now
13:54
Speaker 1: is trying to determine. Clint Clint Watts, Thank you, Senior Fellow,
13:59
Speaker 1: Foreign Policy Search Institute, also Senior Fellow at the Center
14:03
Speaker 1: for Cyber and Homeland Security at the George Washington University.
14:07
Speaker 1: You can follow him on Twitter at Selected Wisdom, and
14:11
Speaker 1: his most recent book is Messing with the Enemy, Surviving
14:15
Speaker 1: in a Social media world of hackers, terrorists, Russians, and
14:19
Speaker 1: fake news. Yesterday Wall Street hated big Tech. Today it
14:34
Speaker 1: loves it, and we're looking at green on the screen,
14:36
Speaker 1: led by Twitter shares up nearly eighteen percent after reporting
14:41
Speaker 1: earnings that beat expectations. Amazon and Alphabet parent company of Google.
14:45
Speaker 1: Such a report earnings after the bell, but those shares
14:47
Speaker 1: also climbing higher up give or take about four percent.
14:51
Speaker 1: Scott Kessler joining US now head of equity research for
14:53
Speaker 1: cf are, a Research in New York. Scott, let's just
14:57
Speaker 1: start with Twitter because we actually have data to look through.
15:00
Speaker 1: Can you talk about how they outperformed and what this
15:03
Speaker 1: means about sort of some of these big tech companies
15:06
Speaker 1: and social media companies being responsible when it comes to
15:09
Speaker 1: having members that count or users that count. Thanks. Yeah, Um, look,
15:15
Speaker 1: I mean when you see a stock like this moving
15:17
Speaker 1: in by the way, I mean, Twitter is no stranger
15:20
Speaker 1: to post earnings um volatility. I mean it's a stock
15:24
Speaker 1: that moves quite a bit after their report results. Um.
15:27
Speaker 1: This time, it seems they are performed pretty nicely. I
15:31
Speaker 1: think most notable was the revenue increase, which was far
15:36
Speaker 1: above the consensus. They reported about seven fifty eight million
15:41
Speaker 1: dollars in revenue and folks were looking for about seven
15:44
Speaker 1: million dollars in revenue. And I think there are a
15:46
Speaker 1: number of factors that contributed to that, but most obviously
15:50
Speaker 1: as they're continuing to focus on their strategy of health
15:55
Speaker 1: on the platform as well as providing a good experience
15:59
Speaker 1: for both users and marketers. And then in addition to that,
16:03
Speaker 1: I think we would be remiss if we didn't acknowledge
16:06
Speaker 1: that they might have been benefiting to some extent from
16:09
Speaker 1: some of the challenges that Facebook has been going through recently.
16:13
Speaker 1: Scott Kessler, can you speak to the video aspect of
16:16
Speaker 1: Twitter's strategy? And also as a disclaimer, Bloomberg of course
16:20
Speaker 1: provides at TikTok, the twenty four hour streaming network for
16:25
Speaker 1: business and financial news for Twitter, tell us about video
16:29
Speaker 1: and how that plays into their future. Yeah, so him,
16:33
Speaker 1: I think it's pretty clear that UM over the last
16:36
Speaker 1: year or so, Twitter is kind of refocused its strategy
16:40
Speaker 1: to some extent, and one of the big kind of
16:43
Speaker 1: UM thrust for them from a growth perspective is video.
16:48
Speaker 1: So they highlighted UM a number of UM new agreements
16:53
Speaker 1: with respect to their Live initiative, and their live initiative
16:58
Speaker 1: is you know, really at the core of a company
17:00
Speaker 1: is about which is really about UM getting people information
17:04
Speaker 1: and content exactly when they want. If you use a
17:08
Speaker 1: search engine, if you use UM some type of news portal,
17:13
Speaker 1: you might have to wait until it's surfaced with an
17:15
Speaker 1: algorithm or someone can actually report on it. Um. Twitter,
17:19
Speaker 1: I think for a lot of people is really the
17:21
Speaker 1: go to source when it comes to breaking news, and
17:24
Speaker 1: so they've really capitalized on that by um, I think
17:28
Speaker 1: focusing on video as an opportunity, and they've done well.
17:32
Speaker 1: They've signed a lot of agreements, I think importantly though,
17:35
Speaker 1: they've gained some traction and you can charge more for
17:39
Speaker 1: the video advertising than the run of the mill um
17:42
Speaker 1: advertising that Twitter might have been uh, you know, involved
17:46
Speaker 1: with predominantly over the last number of years. All right, Scott,
17:49
Speaker 1: Let's shift for focus a little bit to Amazon and
17:51
Speaker 1: Alphabet both expected to report earnings after the bell today.
17:54
Speaker 1: Amazon shares up nearly fift year to date, pretty massive run.
17:59
Speaker 1: Do they have to actually know that they're able to
18:00
Speaker 1: generate a big profit this time or do people still
18:02
Speaker 1: not care? You know? What's interesting about these companies? And
18:06
Speaker 1: I can put everyone from Amazon to Twitter um in
18:12
Speaker 1: this kind of bucket of companies where people absolutely want
18:16
Speaker 1: to see the growth. But growth is by far um
18:19
Speaker 1: the most important thing. But then when you can throw
18:22
Speaker 1: in um profitability or significant profitability, especially when you might
18:27
Speaker 1: surprise people, and I think Amazon has done that. I
18:30
Speaker 1: think Tesla did that yesterday. I think that the magnitude
18:34
Speaker 1: of Twitter's beat was pretty significant. Even a company like
18:37
Speaker 1: Microsoft that reported yesterday, they're upside in terms of the
18:43
Speaker 1: UM revenue and earnings numbers versus expectations. Those give people
18:48
Speaker 1: confidence and that's really what I think a lot of
18:51
Speaker 1: investors are looking for right now. Scott Tesler, do you
18:55
Speaker 1: believe that Amazon, with its variety of revenue streams, whether
19:00
Speaker 1: the Amazon Web Services or it's hardware sales, it's online offerings,
19:06
Speaker 1: and of course the actual store itself, do you believe
19:10
Speaker 1: that Amazon is set for another round of growth? Well, Pim,
19:16
Speaker 1: what I can say is, um, we have another team
19:19
Speaker 1: member here to Nomobile who covers Amazon, and so my
19:23
Speaker 1: thoughts on the company are more broad. But I think
19:25
Speaker 1: it's fair to say, and we've been positive on the
19:27
Speaker 1: stock for UM years at this point. Um, Yes, there
19:31
Speaker 1: are a lot of levers for growth. UM. They seem
19:34
Speaker 1: to be doing a very good job at moving into
19:36
Speaker 1: new categories. But I would also say that there are
19:41
Speaker 1: competitors everywhere and they're looking to take share from Amazon.
19:45
Speaker 1: I think in the court e commerce market it's pretty
19:48
Speaker 1: challenging and it's becoming challenging and some of the cloud
19:51
Speaker 1: services offerings as well. But there are other areas that
19:55
Speaker 1: they're moving into where they're the upstart, they're kind of
19:58
Speaker 1: trying to take share, and so it'll be interesting to
20:01
Speaker 1: see how that plays out in the context of what
20:03
Speaker 1: they report later, especially from a cost and expensive perspective.
20:07
Speaker 1: Everyone's looking at UM cost going up because of UM
20:11
Speaker 1: the US Postal service contract and UM increasing expenses related
20:16
Speaker 1: to that. All right, thanks very much for spending time
20:19
Speaker 1: with us. Scott Kessler is the head of equity research
20:21
Speaker 1: for c f r A Research, and he can be
20:25
Speaker 1: followed on Twitter at Kessler c f r A. I'll
20:30
Speaker 1: just say that where the tech companies go is really
20:32
Speaker 1: where the market is probably going to go in the
20:34
Speaker 1: near term. Anyway, they've been the real driver, right so
20:37
Speaker 1: if these are disappointing earnings, it'll be an interesting day.
20:41
Speaker 1: Right now, though shares a Twitter higher by more than
20:44
Speaker 1: seventeen per cent. You're listening to Bloomberg Markets. I'm pim
20:49
Speaker 1: Fox along with my co host Lisa abron Woods. We
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Speaker 1: that will occur Saturday night, how that's brought to the
21:46
Speaker 1: entire lottery industry, and who's benefiting from that business wise. Sure, so,
21:50
Speaker 1: there is a bit of a trend the watery operators
21:53
Speaker 1: that basically tighten y odds somewhat, which brings in more play,
21:56
Speaker 1: results in less frequent but much harder jackpots, and that
22:00
Speaker 1: in turn attracts more lottery ticket sales. And watery ticket
22:04
Speaker 1: sales for multi state games have grown in about a
22:06
Speaker 1: four and half percent, Ray Brannam over the last number
22:09
Speaker 1: of years. Brian, the companies behind this technology i GT
22:15
Speaker 1: International Game Technology and Scientific Games. Right, this is basically
22:20
Speaker 1: a duopoly because there's been a lot of consolidation in
22:23
Speaker 1: this industry. Yeah, that's true. I g T is nearly
22:26
Speaker 1: eight of US watery sales. Side games is about twelve percent.
22:29
Speaker 1: There's a company called Intra lot that's tem percent. But
22:32
Speaker 1: you're absolutely right, it is effectively duopoly. Okay, so it's
22:37
Speaker 1: just the states. Are the companies that run the lotteries
22:41
Speaker 1: for the states or the duopoly that make the money.
22:44
Speaker 1: But are there any other companies that sort of benefit
22:47
Speaker 1: as people get into the mood to plunk down money
22:50
Speaker 1: that they may most likely will never see again. So
22:52
Speaker 1: the way, well, there's the states themselves, if you will
22:55
Speaker 1: get South Carolina with a big winner or New York State. Basically,
22:59
Speaker 1: thirty cents on a dollar spent goes to various state
23:03
Speaker 1: education funds. The lottery companies themselves basically get a small
23:07
Speaker 1: percent one or two percent of the lottery ticket sales
23:10
Speaker 1: in return for basically either running these facility management contracts
23:14
Speaker 1: or a lottery management agreement. So the lottery players do
23:17
Speaker 1: get a piece of the action, if you will, when
23:19
Speaker 1: people buy tickets. Brian, is this also a case of
23:23
Speaker 1: being able to adjust the odds. That is something that
23:27
Speaker 1: happened back in two thousand, fifteen and seventeen the Powerball
23:31
Speaker 1: and Mega Millions lotteries slightly tighten the odds. I mean,
23:34
Speaker 1: it is true that the resulting higher payouts and less
23:39
Speaker 1: less chance of winning results in a little more excitement,
23:41
Speaker 1: more media attention, and that does result in an elevator
23:44
Speaker 1: level of ticket sales, which, if it's a secular trend,
23:47
Speaker 1: would benefit UM, the I D T s and side
23:49
Speaker 1: games of the world. You know, I gotta say, do
23:52
Speaker 1: you buy lottery tickets? Him? Do you buy lottery tickets? Brian?
23:56
Speaker 1: On a regular basis? On a regular basis, I do not. Um.
24:00
Speaker 1: Do you know that two thirds of Americans gamble and
24:04
Speaker 1: that last year they spent nearly seventy three billion dollars
24:08
Speaker 1: on traditional lottery tickets and that is equal to more
24:11
Speaker 1: than two hundred dollars a person. Is there evidence that
24:16
Speaker 1: people are more likely to increase that amount if the
24:20
Speaker 1: total jackpot is bigger but they have fewer chances? In
24:23
Speaker 1: other words, is this like a get rich quick kind
24:26
Speaker 1: of scheme? Or is there enjoyment and sort of you know,
24:29
Speaker 1: see what you get chances if you get ten bucks, great,
24:32
Speaker 1: if you get one out of three hundred and three million,
24:37
Speaker 1: that's correct, So it's power. What happens, um is that
24:41
Speaker 1: although the jack pots are quite large and the odds
24:44
Speaker 1: of winning become infinitestinally small, nevertheless that the headline of
24:49
Speaker 1: that jackpot size and the associated excitement does bring in
24:52
Speaker 1: a little bit more play. And I think that's exactly
24:54
Speaker 1: what the lottery operators, as well as the wattery equipment
24:57
Speaker 1: suppliers White to White to observe. And is it worth
25:01
Speaker 1: noting that the companies behind the lottery and gaming and
25:05
Speaker 1: slot machines I G T and Scientific Games, these are
25:10
Speaker 1: international businesses, the internationally you know. I G T is
25:14
Speaker 1: actually fifty owned by an Italian conglomerate, the Augustini, and
25:18
Speaker 1: they get a large percentage of the watery business in
25:20
Speaker 1: Italy itself. And look at I G and Scientific Games.
25:23
Speaker 1: They age get about their business from kind of the
25:26
Speaker 1: North American lottery business, and of that a certain percentage
25:31
Speaker 1: goes to these multi state draw games which have become
25:34
Speaker 1: ever more popular. Yeah, you know, I'm gonna be a
25:36
Speaker 1: Debbie downer here for a second. But the sort of
25:39
Speaker 1: traditional belief is that lotteries are taxes on the poor.
25:42
Speaker 1: That's sort of something that a lot of people will
25:44
Speaker 1: say because people who are lower income are more likely
25:47
Speaker 1: to buy tickets. That is sort of the feeling. Is
25:49
Speaker 1: that true? I mean, that regressive scenario maybe maybe accurate.
25:53
Speaker 1: I think one one thing I have read is that
25:56
Speaker 1: as the jack bots get larger, uh, some of more
25:59
Speaker 1: affluent individuals would not be drawn to a smaller jackpot,
26:02
Speaker 1: might be more inclined to play. That being said, the odds,
26:05
Speaker 1: of course at one out of three hundred point to
26:08
Speaker 1: five million to one are not exactly making that a
26:13
Speaker 1: rational expectation of winning. But nevertheless, there is a little
26:16
Speaker 1: bit more excitement in the jackpots attract attention. So I
26:19
Speaker 1: think he's just said yes, but it's everybody. And honestly,
26:25
Speaker 1: I mean I know a lot of people who of
26:27
Speaker 1: all types who bought for this particular And there are
26:31
Speaker 1: forty four states that have watteries and and basically in
26:34
Speaker 1: terms of the contracts I g. T s and twenty
26:36
Speaker 1: five of them, and scientific games is about ten of them.
26:38
Speaker 1: So it is, with the exception of four continental states,
26:41
Speaker 1: a very popular activity. Well, we're very glad you didn't win,
26:44
Speaker 1: because We're very glad to have had you here. Brian
26:47
Speaker 1: Edgar is our senior Gaming and Lodging analyst for Bloomberg Intelligence,
26:52
Speaker 1: telling us all about the one and a half billion
26:55
Speaker 1: dollar Powerball winner and the technology behind it. Thanks for
27:02
Speaker 1: listening to the Bloomberg P and L podcast. You can
27:05
Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or
27:09
Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm on
27:12
Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
27:16
Speaker 1: It's one before the podcast. You can always catch us
27:19
Speaker 1: worldwide on Bloomberg Radio