Latest / Bloomberg Intelligence / ByteDance to Get About 50% of TikTok US Profit Under Trump Deal

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ByteDance to Get About 50% of TikTok US Profit Under Trump Deal · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 2: Let's go over to another interesting story today in the
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  Speaker 2: tech space. That's TikTok. It needs to be divested the
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  Speaker 2: US operations. Looks like there are some buyers out there now.
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  Speaker 2: The question is what are they going to pay for it?
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  Speaker 2: Man Deep Sing joins us US, a senior tech analyst
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  Speaker 2: a Bloomberg Intelligence Man Deep I saw the reporting this
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  Speaker 2: morning from Bloomberg about a fourteen billion dollar valuation and
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  Speaker 2: I was saying.
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  Speaker 3: What isn't it worth multiples of that?
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  Speaker 2: But then I see that there might be an arrangement
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  Speaker 2: where ByteDance is going to receive a lot of the
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  Speaker 2: profitability of the US operation. What's the latest that you know?
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  Speaker 4: So that profitability option is tied to the fact that
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  Speaker 4: you know, Bitedance still has to run the operations. So
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  Speaker 4: what they have done is created two separate entities. One
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  Speaker 4: entity will house the data, it will control the content
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  Speaker 4: and the algorithm. So they are going to recreate the algorithm,
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  Speaker 4: and that other entity that Buyedance is responsible for will
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  Speaker 4: actually run the day to day operations and you know,
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  Speaker 4: it will be responsible for showing the ads any e
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  Speaker 4: commerce that flows through TikTok And so from that perspective,
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  Speaker 4: it makes sense that they will keep half of the
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  Speaker 4: profits because guess what a company like Oracle, Yes, it
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  Speaker 4: can run the infrastructure the app but it doesn't have
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  Speaker 4: the expertise to you know, run the ad operations or
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  Speaker 4: do e commerce. At the end of the day, it's
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  Speaker 4: more infrastructure than applications. And so from that perspective, it
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  Speaker 4: makes sense that you know, by Dance is involved in
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  Speaker 4: running the operations.
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  Speaker 5: And we've also learned today that Byedance is expected to
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  Speaker 5: get about fifty percent of TikTok us is profit under
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  Speaker 5: this potential Trump deal.
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  Speaker 3: What do you make of that? This again according to
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  Speaker 3: Bloomberg reporting.
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  Speaker 5: It has not been confirmed and we all are waiting
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  Speaker 5: for things to be made official.
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  Speaker 3: Does that sound like a reasonable split?
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  Speaker 4: I mean, think of it this way. Oracle was getting paid.
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  Speaker 4: Let's say, you know, TikTok Us was generating about ten
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  Speaker 4: billion dollars in revenue Oracle was getting paid two billion
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  Speaker 4: dollars just for hosting the app and you know, storing
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  Speaker 4: the data, so it was a revenue generator or the
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  Speaker 4: Oracle contrat the TikTok contract for Oracle. Now that Oracle
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  Speaker 4: owns TikTok Us, that revenue gets converted into a cost,
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  Speaker 4: so and it could be at least a billion dollar
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  Speaker 4: in cost. So from that perspective, you know the fact
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  Speaker 4: that Oracle went from two billion in revenue from TikTok
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  Speaker 4: to you know, having one billion dollar extra in costs,
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  Speaker 4: it makes sense that they should get some sort of
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  Speaker 4: a deal when it comes to buying that asset. And
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  Speaker 4: so that's why that low price tag of fourteen billion
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  Speaker 4: that everyone is surprised about, there's a reason for that
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  Speaker 4: because you know, I mean, if Oracle has to own
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  Speaker 4: this thing, they need to have some sort of incentive
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  Speaker 4: because it's a three billion dollar delta to their gross profit.
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  Speaker 2: All right, So just to be clear here, what is
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  Speaker 2: your what will these new investors, what will they be buying?
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  Speaker 2: And is what they're buying? Is that fourteen billion dollars
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  Speaker 2: seem reasonable to you?
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  Speaker 6: Yes?
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  Speaker 4: So the other minority investors, whether it's silver Lake and
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  Speaker 4: We still don't know all the minority investors who are
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  Speaker 4: involved here, but clearly you know, I imagine they're not
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  Speaker 4: responsible for the day to day operations. And if TikTok
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  Speaker 4: Us was generating about ten billion dollars plus in add
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  Speaker 4: an e commerce revenue, that's why they want buy Dance
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  Speaker 4: to continue owning those operations, running those operations, because they
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  Speaker 4: don't want that ten billion to go to five billion
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  Speaker 4: over the next six months. And so that's why they
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  Speaker 4: are getting that forty five or fifty percent of profitability
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  Speaker 4: for TikTok Us, even though they will become a twenty
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  Speaker 4: percent owner of the TikTok Us asset. After this, stay
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  Speaker 4: with us.
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  Speaker 3: More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 5: The President has planned to impose a one hundred percent
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  Speaker 5: tariff on branded drug imports. You talked about this most
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  Speaker 5: Favored Nation status for US consumers. Drug companies, of course,
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  Speaker 5: are up in arms and they've been trying to find
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  Speaker 5: ways to get around it to get an exemption. So
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  Speaker 5: let's bring in Sam Fizzelli. He is director of Research
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  Speaker 5: for Global Industries and senior pharmaceuticals analysts for Bloomberg Intelligence.
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  Speaker 5: And Sam, the reporting that are colleagues over at Bloomberg
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  Speaker 5: News have done indicate that the drugmakers are not all
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  Speaker 5: that concerned about this tariff plan for pharmaceutical companies because
• 5:08
  Speaker 5: they have all made plans to invest big time in
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  Speaker 5: the US.
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  Speaker 7: They have, indeed, and you know, scot it. This has
• 5:16
  Speaker 7: been something that's been going on for since the announcement
• 5:20
  Speaker 7: of We're going to punish you somehow tariff's most Favored
• 5:26
  Speaker 7: Nation or whatever other mechanism that's been put forward unless
• 5:30
  Speaker 7: you bring your manufacturing here. So it's the same rhetoric,
• 5:34
  Speaker 7: it's the same story. And some of the companies of
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  Speaker 7: pleasure were just adding up. We just published the list
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  Speaker 7: of things that farmer companies have said. Fifty billion here,
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  Speaker 7: forty five billion, there's sixty billion there, numbers at least,
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  Speaker 7: and they look good on a piece of paper. And
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  Speaker 7: a lot of them already have manufacturing there. Some of
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  Speaker 7: them have started making new sites. Maybe they would have
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  Speaker 7: done it anyway, because you need manufacturing for the new
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  Speaker 7: products that you have because they're slightly different, et cetera. So,
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  Speaker 7: but but I think the reason you see pretty much
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  Speaker 7: everything's green on my screen for in the large farmerland
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  Speaker 7: except for Nova Nordays. You know, the top performer is
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  Speaker 7: glackso which is the UK market is still open. Actually,
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  Speaker 7: so I think it's because of that.
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  Speaker 4: It's because people know.
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  Speaker 7: Well, actually, this isn't going to happen on tariff is
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  Speaker 7: not going to happen because they've done what the president
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  Speaker 7: is looking for.
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  Speaker 2: Sam, what is all this just generic? I mean, just
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  Speaker 2: all this talk about terrorists, as on pharmaceuticals, the restricted
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  Speaker 2: funding to American universities in your circles where people are
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  Speaker 2: working day in, day out, trying to develop new drugs,
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  Speaker 2: new therapies, what's the feeling in that community.
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  Speaker 7: The feeling is thorough confusion because on the one hand,
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  Speaker 7: you want skilled workers in these skilled jobs in the US.
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  Speaker 7: On the other hand, you know, allowing them to come
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  Speaker 7: from overseas on I don't have any hands I need here.
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  Speaker 7: On the other hand, I'm going to borrow your handfull.
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  Speaker 7: We've got the situation where we have science that's being
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  Speaker 7: defunded to a degree. Now we have to be careful
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  Speaker 7: there because there's particular pressure on certain certain types of research,
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  Speaker 7: certain types of science. But the Natural Science Foundation, the NIH,
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  Speaker 7: those are all the sources of these PhDs and biomedical
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  Speaker 7: engineering that are required to run these manufacturing facilities. They're
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  Speaker 7: being impacted. So what happens over the long run, ron
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  Speaker 7: if you can't bring the workers from overseas because of
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  Speaker 7: the H one bibs are issue, if you can't generate
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  Speaker 7: them internally, what happens in five or ten years, who's
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  Speaker 7: going to run these places? Therefore, confusion, So this I'm
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  Speaker 7: trying to get my head around. Is the US still
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  Speaker 7: for innovation or against innovation? I don't know what the
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  Speaker 7: answer to that is.
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  Speaker 5: It seems like we're for innovation, but everyone here doing
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  Speaker 5: it has to be American.
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  Speaker 3: I don't know. That's one interpretation of it.
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  Speaker 7: Scot I buy that, and it has been the case.
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  Speaker 7: And you have some of the most imniveritives, some of
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  Speaker 7: the best people there, no question about it. But you
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  Speaker 7: still need the basic science and the funding to give
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  Speaker 7: them to that bachelor's degree, master's degree, PhD degree to
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  Speaker 7: become the experts to continue to run these things. That's
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  Speaker 7: where I'm getting a bit confused that it's just me.
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  Speaker 2: It's been explained to me by someone who runs a
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  Speaker 2: major university medical center that realizes that has a very
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  Speaker 2: large research capability, that it's roughly two thirds of the
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  Speaker 2: funds company the US government and one third comes from
• 8:46
  Speaker 2: the university and other private sources. And that's kind of
• 8:50
  Speaker 2: been in place for eighty years, that structure, and one
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  Speaker 2: can argue that structure has worked pretty well for humanity.
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  Speaker 4: Is where we are?
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  Speaker 2: Is there a belief that that's at risk?
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  Speaker 7: I think there is, You know, you might you might
• 9:04
  Speaker 7: want to listen to some of my podcasts recently. I
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  Speaker 7: did one with Elisa Huni on the Angals of Healthcare podcasts.
• 9:10
  Speaker 7: I did one with the CEO of Mark Foundation. Who
• 9:13
  Speaker 7: are the people who have either been involved in running
• 9:17
  Speaker 7: the NIH, running R and D centers that's Elias or
• 9:21
  Speaker 7: the Mark Foundation who does finances very early stage cancer,
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  Speaker 7: translational cancer research. They are all seeing it happen around them,
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  Speaker 7: and of course they are the sorts of people who
• 9:34
  Speaker 7: can to a degree fill the gap. But you're dealing
• 9:38
  Speaker 7: with billions of dollars. We need the philanthropy moneies from
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  Speaker 7: the top ten folks to come in to fill this
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  Speaker 7: gap that the NIH budget cut is leaving, the NSF
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  Speaker 7: budget cut is leaving. That's where I'm worried, and maybe unfairly,
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  Speaker 7: maybe it all comes out and people are still able
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  Speaker 7: to fund the research that leads to the innovations that
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  Speaker 7: we're looking for my fingers across the hoop.
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  Speaker 4: That's the case. Stay with us.
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  Speaker 2: More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: weekdays at ten am. He's done on Apple, Cocklay and
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• 10:19
  Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
• 10:24
  Speaker 5: Boeing is one of the big gainers here, and there
• 10:26
  Speaker 5: is a report that the company will regain more powers
• 10:29
  Speaker 5: from regulators to conduct final safety checks. This is initially
• 10:33
  Speaker 5: reported by The Wall Street Journal. The FAA has since
• 10:35
  Speaker 5: come out and made it clear that this is the
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  Speaker 5: plan starting September twenty ninth. So let's bring in George Ferguson.
• 10:43
  Speaker 5: He is our go to authority on aerospace. He's the
• 10:46
  Speaker 5: senior aerospace, defense and Airlines analysts for Bloomberg Intelligence.
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  Speaker 3: George.
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  Speaker 5: It would appear that this is big news given the
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  Speaker 5: stock market reaction.
• 10:54
  Speaker 3: Was it unexpected? Was it expected?
• 10:57
  Speaker 8: You know, I think it was expected, But I think
• 11:00
  Speaker 8: you always breathe a sigh of relief when it actually happens. Right,
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  Speaker 8: Gooing needs to have this cap lifted, the production cap lifted,
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  Speaker 8: in order for it to push to higher build rates
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  Speaker 8: next year.
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  Speaker 6: That's a big part of the turnaround strategy. Right. That means.
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  Speaker 8: Building more airplanes, you know, diffusing their high overhead costs
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  Speaker 8: over more built. That means better cash generation, better profitability.
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  Speaker 6: Everything hinges on them cranking up build rates.
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  Speaker 8: And so I think if you're an investor in the stock,
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  Speaker 8: you know, you're again breathing a side of relief because
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  Speaker 8: this is one obstacle maybe had a little bit of
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  Speaker 8: a difficult time sort of cuffing. And it seems like
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  Speaker 8: the FA is comfortable, And I think it's a good sign.
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  Speaker 8: It means the FA must see progress and quality and
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  Speaker 8: stability and builds. And so I think it again, I
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  Speaker 8: think it's if you're an investor, I think you breathe
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  Speaker 8: a sigh of relief when you see it.
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  Speaker 2: Yeah, I'm calling it that. I'm calling this thing is too.
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  Speaker 6: He and George.
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  Speaker 2: I think they've finally gotten all the bad stuff behind
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  Speaker 2: them here. Hopefully that continues to play out when they're
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  Speaker 2: making deliveries these days. How much is that of existing
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  Speaker 2: inventory versus coming right right off the line.
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  Speaker 8: Yeah, it bounces around month to month, but I think
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  Speaker 8: in the last month we saw we saw five or
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  Speaker 8: six airplanes at least that we think came out of inventory.
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  Speaker 8: You know, what we typically look at as we look
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  Speaker 8: at first flight date, and if there's a first flight
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  Speaker 8: date on the airplane that's prior to twenty twenty five,
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  Speaker 8: we're pretty sure it's coming out of inventory, you know.
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  Speaker 6: So the majority are going through the factory.
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  Speaker 8: But again they're getting rid of that what they call
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  Speaker 8: the shadow factory, that inventory at a decent clip.
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  Speaker 6: Now. I'm hoping we hear an update during three Q.
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  Speaker 8: It got a bit hard to keep track of how
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  Speaker 8: much inventory they had, but it seems like they're getting
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  Speaker 8: pretty depleted. They're running that inventory off pretty well, which
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  Speaker 8: would be another big positive for this company.
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  Speaker 5: Well, speaking in positives, the company does report earnings in
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  Speaker 5: October twenty third, and these are the kinds of news
• 13:05
  Speaker 5: events that lead to a productive earnings conference call where
• 13:10
  Speaker 5: the management can point to all these sides of progress
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  Speaker 5: and talk about how they're going to move forward and
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  Speaker 5: build on this momentum. What are you looking for the
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  Speaker 5: company to say when it does hold its earnings report
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  Speaker 5: earnings call.
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  Speaker 6: Yeah, so.
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  Speaker 8: We would probably love to hear some targets for twenty
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  Speaker 8: twenty six, for build rates, for cash generation, for reduction
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  Speaker 8: to that shadow factory. I'm just not totally short management's
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  Speaker 8: ready to give that out yet. Kelly or Berg seems
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  Speaker 8: to play a little bit conservative whole things back a
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  Speaker 8: little bit, but we'd love to hear what their expectations.
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  Speaker 6: Are right now.
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  Speaker 8: I think what you have in the marketplace is is
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  Speaker 8: just a bunch of analyst views without company guidance to
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  Speaker 8: sort of tether some of those views.
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  Speaker 6: On build rates. If you look at some of.
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  Speaker 8: The eb numbers on the Bloomberg terminal for Boeing, the
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  Speaker 8: spread is pretty wide in that.
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  Speaker 6: So we'd like to hear about that. We want to
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  Speaker 6: hear as well. The defense business, you know, looks like
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  Speaker 6: it's turning around too, I think, which just you know,
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  Speaker 6: adds to.
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  Speaker 8: It adds to some of the gains the companies should
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  Speaker 8: be able to make in profitability. They won the F
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  Speaker 8: forty seven program. We'd love to hear some commentary there
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  Speaker 8: too on how they're rolling off some of those fixed
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  Speaker 8: price contracts that have really clipped them. We think they've
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  Speaker 8: turned the corner there too, and defense how to be
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  Speaker 8: profitable and cash generative going into.
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  Speaker 6: Twenty twenty six too, So love commentary on that, George.
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  Speaker 2: One of the headwinds you called out for Boeing over
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  Speaker 2: the last several years is the you know, the lack
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  Speaker 2: of you know, enough skilled laborers to get these planes
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  Speaker 2: off the assembly nine. As it's a lot more complicated
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  Speaker 2: than than building an automobile, you pointed out. And during
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  Speaker 2: the pandemic a lot of high skilled industries lost some
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  Speaker 2: other high skilled people, and that certainly includes the aerospace industry.
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  Speaker 2: What's the status of that as the industry looks to
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  Speaker 2: continue to rebuild.
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  Speaker 6: I mean, I think it's improving, right, And I think
• 15:10
  Speaker 6: one of the things you can look.
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  Speaker 8: To is the you know, the job situation in the
• 15:15
  Speaker 8: country in the US is definitely switched up from the
• 15:18
  Speaker 8: world where there were more job opportunities than there were
• 15:22
  Speaker 8: job seekers. We've turned that around to now there's more
• 15:25
  Speaker 8: job seekers than opportunities. That's not so good for the workers,
• 15:29
  Speaker 8: but it is good for the companies. I think it
• 15:31
  Speaker 8: means more stability. You don't have people that join Boeing
• 15:35
  Speaker 8: or more importantly join their suppliers and then have a
• 15:38
  Speaker 8: bid away pretty quickly, get trained and leave because training
• 15:43
  Speaker 8: and aerospace takes a while. So you invest in a
• 15:45
  Speaker 8: person and to have them stick around for six months
• 15:48
  Speaker 8: and leave means you never really get the productivity and
• 15:51
  Speaker 8: even probably knock down some of the productivity of your
• 15:54
  Speaker 8: existing workers to train them. So I think that's an
• 15:57
  Speaker 8: indicator that they're labor force is probably going to become
• 16:02
  Speaker 8: more stable. And like I said, I think, you know,
• 16:05
  Speaker 8: Boeing WI law for a wage and a benefit package
• 16:08
  Speaker 8: that pulls people into that business.
• 16:10
  Speaker 6: There's a lot of people coming.
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  Speaker 8: To these businesses, to aerospace that hadn't done this work
• 16:15
  Speaker 8: before because there was a lot of baby boomers that retired.
• 16:18
  Speaker 8: The more concerning part is the supply chain and the
• 16:22
  Speaker 8: backfill and the supply chain. And I think again this
• 16:25
  Speaker 8: indicates that we're getting more stability. You know the FAA confidence, Yeah,
• 16:30
  Speaker 8: indicates there's more stability in that supply chain. And given
• 16:34
  Speaker 8: this change in sort of the labor supply demand situation,
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  Speaker 8: I think it bodes well for keeping those people and
• 16:41
  Speaker 8: improving productivity.
• 16:42
  Speaker 6: In the business.
• 16:44
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