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Bloomberg Intelligence: Hyatt CEO Sees Positive Trends · Bloomberg Intelligence

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Speaker 3: Let's talk us a little c suite conversation here. We
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Speaker 3: can do that with the hotel business. Mark Hopplomacian joins us.
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Speaker 3: He's a president and chief executive officer of Hyatt Hotels,
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Speaker 3: joining us via zoom. Hey, Mark, thanks so much for
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Speaker 3: joining us here. I'm looking at your stock here, fifty
0:39
Speaker 3: two week high. For those that don't know, H is
0:42
Speaker 3: the symbol. It's cool to get that one of those
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Speaker 3: single letter symbols there. That's always pretty cool for us
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Speaker 3: Wall Street, Folcus. I've got a market cap at fifteen
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Speaker 3: point seven billion, stocks up about three tens a one
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Speaker 3: percent today. Mark, talk to us about your recent earnings
0:54
Speaker 3: and kind of what was the messaging you needed to
0:56
Speaker 3: get across to your shareholders.
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Speaker 4: Of all, it's great to be back with you all,
1:01
Speaker 4: and thanks for having me. I think that the the
1:05
Speaker 4: clear message was really centered around the fact that the
1:09
Speaker 4: transformation of the company to asset lighter platform has now
1:15
Speaker 4: shown up in the numbers in a very material way.
1:17
Speaker 4: We had the highest pre cash flow that in the
1:19
Speaker 4: company's history. We also had the mix of our asset
1:26
Speaker 4: light earnings to our total earnings went up to seventy
1:29
Speaker 4: six percent five years ago.
1:32
Speaker 5: That was in the in the mid forties.
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Speaker 3: Hey market, So, did describe for us what your asset
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Speaker 3: light strategy is? Is that relying more on franchisease.
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Speaker 4: Yeah, so it's not really I wouldn't call it an
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Speaker 4: asset light strategy. I would call it an asset light program.
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Speaker 4: Where we were selling down. We had we had two
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Speaker 4: major drivers of our of our of our earnings. One
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Speaker 4: was from real estate that we owned hotels, and the
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Speaker 4: other ones from management franchising hotels across the world. We're
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Speaker 4: primarily a management business, not a franchise businesusiness, but that
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Speaker 4: those are the two businesses. So as we sell down
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Speaker 4: real estate, the proportion that's coming from real estate sourced
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Speaker 4: earnings has been dropping. We've concurrently reinvested in buying new
2:15
Speaker 4: platforms and new brands over the last five years, and
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Speaker 4: that has driven up our management and franchising fees. At
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Speaker 4: the same time, so the mix has shifted to much
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Speaker 4: more in the management and franchise feed driven business, which
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Speaker 4: is very low capital intensivity and high margin and high
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Speaker 4: free cash floats conversion. So that was probably the key message.
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Speaker 4: The other thing that we did is we simplified our
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Speaker 4: financial presentation because we have a business that's a subscription
2:45
Speaker 4: model membership business called Unlimited Ucation Club, and we sold
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Speaker 4: the majority interest in that business to a third party
2:52
Speaker 4: which helped us simplify how we report our earnings and
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Speaker 4: that was very well received by investors.
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Speaker 6: And Mark, that's you and the c suite managing all
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Speaker 6: of that. What about the demand side of the business,
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Speaker 6: What kind of pricing power do you have per room?
3:08
Speaker 6: And what's the demand situation.
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Speaker 4: Like actually demand, So we think about three different demand drivers.
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Speaker 4: One is leisure, which has been the leader of the
3:18
Speaker 4: recovery through post COVID period. We think about group business,
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Speaker 4: which is big meetings and conventions and things like that,
3:27
Speaker 4: and we also have business travel individual business travel. All
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Speaker 4: three are showing signs of great momentum and positive outlooks.
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Speaker 4: So starting with leisure, in the first quarter of this year,
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Speaker 4: our pace meeting our bookings are up eleven percent for
3:47
Speaker 4: our all inclusive resorts in the Pervian and.
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Speaker 5: Also up for our our resorts in the Americas.
3:57
Speaker 4: But leisure travel has been really really solid in China.
4:01
Speaker 4: We had a record year for Lunar in New Year.
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Speaker 4: The spending amongst Chinese, both inside of China and other
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Speaker 4: destinations in Asia was at them all time high. So
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Speaker 4: that's leisure in group. Our pace into this year, that
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Speaker 4: is forward bookings are up eight percent, and so we're
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Speaker 4: looking at another solid year of growth of growth in meetings,
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Speaker 4: and I think corporations are increasingly resolved to make sure
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Speaker 4: that they prioritize those meetings. And then on business transient
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Speaker 4: the US is lagging, but the overall business transient category
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Speaker 4: demand around the world is about seven percent the low
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Speaker 4: where it was pre pandemic, So we're getting closer and
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Speaker 4: closer to being a parody. Europe is fully recovered, and
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Speaker 4: then some China is fully recovered, and then some the
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Speaker 4: United States is still lagging, and we're seeing signs of
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Speaker 4: positive signs of business transient travel increasing. So I would
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Speaker 4: say across all three major category we're seeing positive trends
5:02
Speaker 4: into twenty four mark.
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Speaker 3: Could you talked to us about m and A and
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Speaker 3: kind of growth via acquisition. How does that figure into
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Speaker 3: your growth plans? What are you guys messaging to the
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Speaker 3: street about your willingness to engage in em ande because
5:14
Speaker 3: I know you had to buy out recently of the
5:16
Speaker 3: Apple Leisure Group.
5:17
Speaker 7: I want to see kind of your appetite is going forward.
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Speaker 4: Yeah, So over the past five years, we've invested about
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Speaker 4: three point eight billion dollars in acquisitions, the biggest one
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Speaker 4: being Apple Leisure Group at two point seven billion, and
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Speaker 4: it's been tremendously beneficial to us because we've been able
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Speaker 4: to expand our customer base in the most in the
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Speaker 4: highest growth and most relevant to US categories, which is leisure,
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Speaker 4: lifestyle and luxury. And so we've really done this in
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Speaker 4: a very deliberate way to move the company in that direction.
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Speaker 4: In the fourth quarter, I think we had fifty seven
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Speaker 4: percent of our total rooms revenue around the world was
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Speaker 4: leisure focused, which is up twenty points from the mid
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Speaker 4: thirties to the mid fifties pre pandemics on now, so
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Speaker 4: that the mix in the company is tremendously shifted, but
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Speaker 4: they also been very profitable and high value acquisitions. The
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Speaker 4: fees per room that we are earning today are materially
6:15
Speaker 4: higher than they were five years ago before we made
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Speaker 4: these acquisitions and evolved the company. Even as we have
6:21
Speaker 4: grown our select service brands, so we are expanding in
6:27
Speaker 4: lower price points, but our overall feed growth per room
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Speaker 4: has been growing, which is really I think part of
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Speaker 4: the equation of actually driving share holder value on.
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Speaker 5: An accelerated basis.
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Speaker 4: In terms of our outbook, I think there will be
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Speaker 4: more opportunities for MNA in the future, but probably smaller scale.
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Speaker 6: Mark Paul and I talked by the story yesterday for
6:48
Speaker 6: the Journal reported that hotel parking fees are spiking because
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Speaker 6: of the fact that you know, you guys that on
6:56
Speaker 6: hotels have to pay more and rent interest rates have increased.
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Speaker 6: Maybe there's a demand issue in certain pockets. You got
7:02
Speaker 6: to increase prices where you can talk to me about
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Speaker 6: how expensive it is to run your business, like where
7:08
Speaker 6: a cost coming down?
7:09
Speaker 8: Where cost going up?
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Speaker 4: You know, I think the primary look, first of all,
7:14
Speaker 4: let's start with the biggest cost category, which.
7:16
Speaker 5: Is people, yeah, at our hotels and in.
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Speaker 4: Twenty twenty one non union markets, which is primarily in
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Speaker 4: the South, the Sun Belt, the smile of the United States.
7:25
Speaker 4: I think our wage rates went up by twenty percent
7:29
Speaker 4: over the course of that year, and that started to
7:32
Speaker 4: mitigate or a millliarrate in twenty twenty two and twenty
7:36
Speaker 4: twenty three, but we experienced a massively acute situation in
7:42
Speaker 4: terms of supply of labor.
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Speaker 5: That's really that's evened out. We were in the mid teams.
7:48
Speaker 6: That's even out in that because we also talked about
7:50
Speaker 6: didn't we paul about cleaning services like not staffing housekeeping
7:54
Speaker 6: because it just can't find the workers.
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Speaker 8: So do you feel like you're at the right spot?
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Speaker 4: I would say that there are pockets where we still
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Speaker 4: have shortages, and I think part of that has to
8:06
Speaker 4: do with the nature of the workforce at this point.
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Speaker 4: So we've got a lot of the byproduct of not
8:17
Speaker 4: having a really advanced immigration policy in the United States
8:23
Speaker 4: and h t B visa program, is that for at times,
8:28
Speaker 4: especially over the summer, where you have peak demand, we
8:32
Speaker 4: don't have the right type type of labor that's willing
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Speaker 4: to take those jobs and uh and be happy to
8:39
Speaker 4: start their careers in those jobs. So I think this
8:43
Speaker 4: they go together. A lot of the a lot of
8:45
Speaker 4: the h t B people that come in on an
8:48
Speaker 4: hub visa which is a temporary work visa they come
8:51
Speaker 4: and they leave. Or the incidence of of immigration that
8:57
Speaker 4: allows us to hire people who are coming in into
9:00
Speaker 4: the workforce in the United States for the first time
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Speaker 4: has been has been under some pressure now. Having said that, overall,
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Speaker 4: our vacancy rates have gone from mid teens to mid
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Speaker 4: single digits, so down ten points, which is extraordinary, and
9:14
Speaker 4: that's over the last eighteen months. So we are having
9:18
Speaker 4: a better time finding labor, but there are definitely pockets
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Speaker 4: of constraints.
9:23
Speaker 7: Yep, hear that from a lot of folks in the
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Speaker 7: service business.
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Speaker 3: Hey, Mark, thanks so much for joining us, Mark Hopplomasian,
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Speaker 3: he's a president and chief executive officer at Hyatt Hotels,
9:31
Speaker 3: joining us from Chicago, Illinois via zoom. The company stock
9:36
Speaker 3: h is the ticker all time high today. So how
9:40
Speaker 3: about that they had some pretty solid numbers recovering from
9:43
Speaker 3: the pandemic. Look like we see a lot of other
9:45
Speaker 3: entertainment and leisure spaces.
9:48
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10:06
Speaker 3: All right, ma, go in the terminal. Then I click
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Speaker 3: on time series and I go, got ten years. And
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Speaker 3: I just look at the graph of M and A activity,
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Speaker 3: both in terms of dollar volume and number of deals.
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Speaker 3: And man, really, since like I don't know, mid twenty
10:20
Speaker 3: twenty two, there's been nothing going on in the MNA world.
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Speaker 3: My M and A banker buddies, I don't know what
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Speaker 3: they're living on these days. But let's check and see
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Speaker 3: where we are on the M and A space kind
10:29
Speaker 3: of where we can be going from here. I guess
10:30
Speaker 3: that's what happens when rates go up five hundred basis points.
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Speaker 3: Ted Smith joins us. He's co founder and president of
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Speaker 3: Union Square Advisors, joining us here in our Bloomberg Interactive
10:38
Speaker 3: Broker studio. So Ted, M and A activity, it's been
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Speaker 3: a little fallow over the last I don't know, eighteen
10:44
Speaker 3: months or so.
10:44
Speaker 7: What are you guys seeing out there in terms of activity.
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Speaker 9: We're starting to finally see a little bit of a
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Speaker 9: thought out there, Paul. I want to be careful not
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Speaker 9: to suggest that it's getting overcooked. Anytime soon, but starting
10:54
Speaker 9: to see the number of deals both and the quality
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Speaker 9: of deals start to come back. Strategical quirers are saying
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Speaker 9: they've kind of come out of their funk. They're ready
11:03
Speaker 9: to do things again where they hadn't been to your
11:05
Speaker 9: point for the last twelve to eighteen months. And private
11:07
Speaker 9: equity firms, which in technology where we apply our trade
11:10
Speaker 9: are so important, have a lot of capital to put
11:12
Speaker 9: to work, so they're anxious to Was.
11:14
Speaker 3: It just interest rates going up that everybody just step
11:16
Speaker 3: back or is it global macro? What kind of caused
11:19
Speaker 3: people to step back here? Because when I think about
11:21
Speaker 3: M and A, I think I have to have a
11:23
Speaker 3: board and a c suite that has confidence in their
11:25
Speaker 3: business to go out and make.
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Speaker 9: That kind of investment right. So on the strategic side,
11:29
Speaker 9: I think it was more macro. It was like, we
11:30
Speaker 9: don't know enough about where our business is going right
11:32
Speaker 9: now that we can take a risk on another business.
11:35
Speaker 9: I think in private equity land it was definitely, at
11:37
Speaker 9: least in part by interest rates, And it was also
11:40
Speaker 9: the fact that because even to your point in early
11:43
Speaker 9: twenty twenty two, there hadn't been a lot of capital
11:46
Speaker 9: returned to their limited partners, and so for every dollar
11:49
Speaker 9: that they're investing, they're also thinking should I be giving
11:51
Speaker 9: that back to my limiteds And so there's been a
11:52
Speaker 9: lot of tension in that part of the world.
11:55
Speaker 8: So I know tech might be your space, but just.
12:00
Speaker 6: Person so, I'm really interested in what's happening with Exon
12:03
Speaker 6: and Seinook trying to get in the middle of the
12:06
Speaker 6: deal between Chevron and hess And the broad question is like,
12:12
Speaker 6: are we going to see weird territorial fights like this
12:15
Speaker 6: in different sectors, where like one big company to stop
12:18
Speaker 6: another big company from buying a smaller company.
12:20
Speaker 8: Is that normal.
12:22
Speaker 9: I'm not sure that it's normal, but it's certainly not
12:24
Speaker 9: unheard of. And I think we think and again, in tech,
12:28
Speaker 9: we see a lot of semi normal or even abnormal
12:31
Speaker 9: potential buyers who see buying into the tech landscape as
12:35
Speaker 9: being something that will help increase their growth, increase their margins,
12:38
Speaker 9: put them into exposure of a sector that they previously
12:41
Speaker 9: had not been. So I think we'll see some more
12:43
Speaker 9: of that in tech, but more generally, to your question,
12:46
Speaker 9: I'm certainly no expert on the energy sector, but I
12:48
Speaker 9: think this is an environment where if you see that
12:50
Speaker 9: smaller company that can really make a difference in your
12:52
Speaker 9: business and accelerate intor granted growth. Buyers are not afraid
12:57
Speaker 9: to mix it up at this point because they've been
13:00
Speaker 9: on the sidelines for a while and they need to
13:01
Speaker 9: get back in.
13:02
Speaker 3: If I go to sand Hill Road with a really
13:05
Speaker 3: good idea, can I find any money? Will?
13:07
Speaker 10: They will?
13:07
Speaker 7: They invest in my company?
13:09
Speaker 11: They will?
13:10
Speaker 9: Valuations are obviously down from the peak in twenty twenty one.
13:13
Speaker 9: You're gonna ask a lot of questions about what's your
13:15
Speaker 9: AI strategy?
13:17
Speaker 8: You know, where where exactly they got to saw something
13:19
Speaker 8: for it?
13:19
Speaker 7: Right?
13:20
Speaker 8: Exactly?
13:20
Speaker 9: Where are you going from here? The capital is available,
13:23
Speaker 9: but it is certainly more limited than it was two
13:27
Speaker 9: years ago and before that. Investors are being much more
13:31
Speaker 9: diligent about what they're willing to put capital to work in.
13:34
Speaker 9: And again, AI is obviously hot. That's blinding glimpse of
13:37
Speaker 9: the obvious for your audience.
13:39
Speaker 7: But what's different?
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Speaker 9: I think, can I compare this, because I've been doing
13:42
Speaker 9: this for a long time, I compare this to the
13:44
Speaker 9: you know, the dot com era. Investors got to the
13:48
Speaker 9: point really quickly where it wasn't just about it's AI,
13:52
Speaker 9: it's what's the defensible business model, what's the real enterprise
13:55
Speaker 9: use case and how are you going to make money
13:56
Speaker 9: with it? That came so much faster with AI than
13:59
Speaker 9: it did in the dot com era, and that's what
14:01
Speaker 9: you're seeing on Santo Road.
14:02
Speaker 7: Now, show me a full business plan that's going to
14:04
Speaker 7: make money.
14:05
Speaker 6: Well, how are valuations? Do you think that we're getting
14:07
Speaker 6: overpaid things getting overpaid to be bought? Like, how hard
14:11
Speaker 6: is it to come to price.
14:13
Speaker 9: Better than it was in late twenty two and twenty three,
14:15
Speaker 9: where we've had quite a bit of disparity, and that
14:17
Speaker 9: was one of the reasons for not getting a lot
14:19
Speaker 9: of M and A done with.
14:20
Speaker 6: Have the buyers come down or have the seller Like, yeah,
14:22
Speaker 6: the buyers come down, the seller's gun up or vice versa.
14:24
Speaker 7: Some of both.
14:25
Speaker 9: I do think that the obviously the market has improved
14:28
Speaker 9: overall over the course of late twenty three and twenty four,
14:31
Speaker 9: so valuations have ticked up off of their lows. But
14:34
Speaker 9: I also think seller expectations have tempered a bit. We've
14:36
Speaker 9: been in this valuation, this down more down valuation environment
14:39
Speaker 9: now for almost two years, and eventually you have to
14:42
Speaker 9: realize this is the new normal.
14:43
Speaker 3: Yeah, I think that this I guess the question I
14:46
Speaker 3: was asking a lot of IPO bankers is when is
14:49
Speaker 3: that stigma of, you know, a down round.
14:52
Speaker 7: When is that going to kind of ease up off
14:54
Speaker 7: the marketplace?
14:55
Speaker 3: Because I felt like I didn't want to be one
14:56
Speaker 3: of the first people to do an IPO at a
14:58
Speaker 3: down round or would do a down run in the
15:00
Speaker 3: private market.
15:01
Speaker 7: So but it maybe more deals we get done, Maybe
15:03
Speaker 7: that that that happens.
15:04
Speaker 3: So on the M and A space here, I mean,
15:08
Speaker 3: how are you targeting your business, what your target sheheet
15:10
Speaker 3: look like, what type of company are you calling on?
15:13
Speaker 9: So we focus on late stage private companies and public companies.
15:17
Speaker 9: We will represent either buyers or sellers. That's a little
15:20
Speaker 9: different than other boutiques who tend to focus only on sellers.
15:23
Speaker 9: We think it's important to be able to do both.
15:26
Speaker 9: But opportunities in the one hundred million of enterprise value
15:30
Speaker 9: all the way up to a billion and well beyond
15:31
Speaker 9: is where we where we do our work. Might characterize
15:35
Speaker 9: that as middle market, but there's a that's where you know,
15:38
Speaker 9: under the M and A curve that's where the greatest
15:39
Speaker 9: amount of area is. So there's a lot to do there.
15:42
Speaker 9: We focus mostly on enterprise technologies. So again I mentioned
15:45
Speaker 9: the enterprise use case for AI. A lot of our
15:48
Speaker 9: companies are then are selling two big companies themselves saying here,
15:51
Speaker 9: here's how I can make you more efficient, how I
15:53
Speaker 9: can help you drive more revenue. That's where we spend
15:56
Speaker 9: most of our time. And there's a there's a lot
15:57
Speaker 9: of great software companies in there.
15:59
Speaker 6: Well, okay, I was in say Soft, where I feel
16:00
Speaker 6: like there are gazillion software companies like this one reports
16:03
Speaker 6: and some reports like it could snowflake. I have no
16:05
Speaker 6: idea the difference as like a general market person like,
16:08
Speaker 6: are we going to have to see big consolidation within that?
16:11
Speaker 9: I think we will see more consolidation. I'm not sure
16:13
Speaker 9: it's going to be big to big. I think you're
16:15
Speaker 9: going to continue to see the larger players acquire small
16:19
Speaker 9: medium sized companies on a relative basis to their own
16:21
Speaker 9: market caps. And that's, you know, certainly, that's what we're
16:24
Speaker 9: counting on. We don't think because you touched up, Paul,
16:27
Speaker 9: we don't think we're going to see a surgeon IPO activity.
16:29
Speaker 9: It'll be busier this year than it was last year,
16:31
Speaker 9: but that's a very low bar. Obviously, Ultimately ninety five
16:34
Speaker 9: plus percent of venture backed companies that get to an
16:38
Speaker 9: exit get to an exit through EM and A.
16:39
Speaker 7: And that's that's been true for literally decades.
16:42
Speaker 3: One of the things that's new, at least since I
16:44
Speaker 3: was on the street, was this whole private credit market.
16:47
Speaker 3: How does that impact your business to technology industry? Because
16:51
Speaker 3: I would guess it's just another form of capital for
16:53
Speaker 3: your companies, that's right.
16:54
Speaker 9: So it's it's been a boom for our business. We
16:58
Speaker 9: brought in a team led by Mike Meyer Partner who
17:01
Speaker 9: owns our capital markets businesses that actually is now our
17:03
Speaker 9: CEO has done a great job with that. That's almost
17:05
Speaker 9: two trillion dollar asset class from private credit today and
17:09
Speaker 9: it's also available to technology companies earlier than it ever
17:12
Speaker 9: has been before. So to your point, we can go
17:15
Speaker 9: to our clients and say, let's talk about your capital needs,
17:17
Speaker 9: the cost of capital that you're looking for, the flexibility
17:20
Speaker 9: you're looking for, and let's look across the entire debt
17:22
Speaker 9: equity spectrum and find a solution for you. And you
17:25
Speaker 9: can go to the private credit markets and find that
17:27
Speaker 9: tailored solution much easier than you can in the public markets.
17:31
Speaker 8: What other ways are we financing deals here?
17:34
Speaker 9: Again, most of the large acquirers are going to finance
17:36
Speaker 9: at largely off their balance sheet. Okay, so I mean,
17:39
Speaker 9: obviously if it becomes a really large deal, you might
17:41
Speaker 9: see the bigger companies go into the market. But to
17:44
Speaker 9: the point that Paul made earlier, right, that's a lot
17:47
Speaker 9: more expensive now, and so they prefer not to do
17:49
Speaker 9: that if they don't have to. Occasionally we're seeing stock
17:53
Speaker 9: for stock deals those used to be de Reger not
17:55
Speaker 9: so much anymore amongst the larger buyers. But mostly this
17:59
Speaker 9: is still a cash buyer's market, and so if you
18:02
Speaker 9: don't have enough cash on hand, then you're going to
18:04
Speaker 9: have to go out and find it. And I think
18:06
Speaker 9: we'll start to see a return to equity based financing,
18:10
Speaker 9: convertible based financing again, a lot of the use of
18:12
Speaker 9: the private credit market with its flexibility. Will we'll back
18:15
Speaker 9: some of the M and A.
18:16
Speaker 7: That's going to happen this year.
18:17
Speaker 3: I'm guessing in your middle market size, you don't have
18:19
Speaker 3: to deal with regulators.
18:20
Speaker 7: Too much approving deals.
18:21
Speaker 3: But boy, across the industry, if I'm a big ticket
18:24
Speaker 3: M and a banker, I got to make sure I
18:26
Speaker 3: got the right lawyers give me the advice because I
18:28
Speaker 3: didn'tink the Department of Justice, the FTC, everybody's cracking down.
18:32
Speaker 9: It's true, and we think of it in terms of
18:35
Speaker 9: to whom are we going to be selling this company,
18:37
Speaker 9: because if you're one of the Big seven, you're gonna
18:39
Speaker 9: get scrutiny for almost every deal, right, and so we
18:42
Speaker 9: watch for that as as we bring opportunities forward and
18:46
Speaker 9: think about what that might look like.
18:47
Speaker 7: But you're right, it's really that group.
18:50
Speaker 9: And let's face it, they have lived for a very
18:52
Speaker 9: long time on asking for forgiveness, not permission, and I
18:55
Speaker 9: think they're going to continue that activity. But by the way,
18:58
Speaker 9: it's not just the DJ here. We've seen a lot
19:00
Speaker 9: more activity and scrutiny out of Europe and the UK
19:02
Speaker 9: in particular, and we think that's going to continue for
19:04
Speaker 9: a while.
19:05
Speaker 3: Yeah, the UK, they get Brexit and then they realize, oh,
19:07
Speaker 3: we can have a seat at the table now.
19:09
Speaker 8: Yeah yeah, yeah, Iah ex Oktay.
19:10
Speaker 3: Very good, All right, Ted, thanks so much for joining
19:11
Speaker 3: us once again. Ted Smith, he is a co founder
19:14
Speaker 3: and president of Union Square Advisors. Joining us live here
19:17
Speaker 3: in our Bloomberg Interactive Brokers to you're talking about the
19:19
Speaker 3: world of tech, the world of deal making again. The
19:22
Speaker 3: past eighteen months, just looking at my MA function on
19:24
Speaker 3: the Bloomberg terminal, been much slower than maybe like the
19:28
Speaker 3: ten year average, And I guess that can happen when
19:30
Speaker 3: rates go up five hundred basis points.
19:34
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
19:37
Speaker 1: weekdays at ten am Eastern on Apple car Playing and
19:40
Speaker 1: broud Otto with the Bloomberg Business app. Listen on demand
19:43
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19:46
Speaker 1: YouTube PCE.
19:50
Speaker 6: I kind of felt like it was a bit of
19:52
Speaker 6: a nothing burger, Like it wasn't bad, it wasn't terrible,
19:56
Speaker 6: And I'm really wondering if we actually.
19:57
Speaker 8: Learned anything today on inflation.
20:00
Speaker 6: So good thing that Ira Jersey is here, Bloomberg Intelligence
20:03
Speaker 6: chief you as interest rate strategist.
20:05
Speaker 8: Iira, did I learn anything today?
20:07
Speaker 12: We didn't learn a whole lot from the PC report
20:10
Speaker 12: on inflation. I mean, obviously the headline numbers were as expected.
20:14
Speaker 12: There were some details here and there that were kind
20:16
Speaker 12: of interesting. Certainly the downward revisions for December turned a
20:20
Speaker 12: couple of heads here and there and helped contribute to
20:23
Speaker 12: the rally. What I found really interesting, and I think
20:26
Speaker 12: something that people have been talking about this the personal
20:30
Speaker 12: income number being so hot today. So that was up
20:32
Speaker 12: one percent, which was well above expectations, and that was
20:36
Speaker 12: driven in large part by two factors. One was massive
20:40
Speaker 12: increase in government spending, so basically Social Security payments in
20:44
Speaker 12: particular were increased a lot in January. Part of that
20:47
Speaker 12: was a cost of living adjustment, so that was up
20:50
Speaker 12: three and a half percent in one month's you know,
20:53
Speaker 12: that's massive and the most that we've had in the year.
20:57
Speaker 12: And the other was actually dividend payments. So dividend payments
20:59
Speaker 12: actually contributed about seventy five billion dollars to personal income
21:04
Speaker 12: in annually. That's an annualized rate in the in January,
21:07
Speaker 12: and that's a pretty big move do it normally it's
21:10
Speaker 12: significantly less than that every month. So take that with
21:13
Speaker 12: a little bit of a grain AsSalt too, and I
21:15
Speaker 12: think the market looked through that, and that's why treasuries
21:17
Speaker 12: have rallied a little bit since the since those data
21:21
Speaker 12: came out.
21:22
Speaker 3: So, ira would it be bad form to give the
21:25
Speaker 3: Federal Reserve a little pat on the back here in
21:27
Speaker 3: terms of their ability to bring inflation down?
21:31
Speaker 11: Well, maybe it might be a little bit early for that.
21:33
Speaker 12: You know, when you still have two point eight percent
21:35
Speaker 12: core inflation on a PC weighted basis, that's not at
21:39
Speaker 12: their target yet. But certainly, you know, anything sub three
21:42
Speaker 12: percent is better than five.
21:44
Speaker 11: Percent for sure.
21:46
Speaker 12: But when you look at some of the details there
21:49
Speaker 12: there still are pockets of inflation that are very hot,
21:52
Speaker 12: and they're in sectors that aren't particularly interest rates sensitive. Right,
21:55
Speaker 12: so there are sectors like services excluding housing, and if
22:00
Speaker 12: you consider those types of services, it's going to be
22:04
Speaker 12: hard for inflation to keep coming down. So the Fed
22:08
Speaker 12: obviously has tightened monetary policy quite a lot. There's certainly
22:13
Speaker 12: certainly some room maybe for inflation to continue to fall.
22:18
Speaker 12: So you know, we're going to continue to have this
22:19
Speaker 12: debate as will the Federal Reserve cut interest rates before midyear?
22:24
Speaker 12: If they don't cut by June, then are they going
22:26
Speaker 12: to be able to cut because of the election cycle,
22:28
Speaker 12: and you know, do they.
22:29
Speaker 11: Want to get in front of that.
22:31
Speaker 12: So so that debate is going to continue right up
22:34
Speaker 12: until the May and June meetings, I think, certainly into
22:38
Speaker 12: the June meeting if they don't cut in May. So
22:41
Speaker 12: so you know, that's why you're going to have these gyrations.
22:44
Speaker 12: But they're going to be probably bounded where you're going
22:46
Speaker 12: to see two year yields go from you know, four
22:48
Speaker 12: fifty to five percent and probably probably hover in that
22:51
Speaker 12: area depending on what the market's expectation for the Fed's
22:55
Speaker 12: next move is.
22:56
Speaker 6: Well, I wondered if we learned anything about the reaction
22:58
Speaker 6: function of the market, because it looks like what we
23:00
Speaker 6: learned is that we're going to sell the room or
23:02
Speaker 6: buy the news this time round.
23:03
Speaker 8: Is that fair to say, Well.
23:06
Speaker 12: The selling really came because European rates were selling off overnight,
23:10
Speaker 12: and you know, so it was just a global rate
23:12
Speaker 12: sell off a little bit. But the rally back I
23:15
Speaker 12: think that there was it was pretty clear that some
23:18
Speaker 12: people were short and thinking, hey, if we get a
23:20
Speaker 12: you know, zero point four print on headline inflation, then
23:23
Speaker 12: that could be mean that we get meaningfully higher treasury yields.
23:28
Speaker 12: With that not happening, I think that's the reason why
23:31
Speaker 12: you had that pullback. That was a little bit of
23:32
Speaker 12: a relief rally there in terms of the in terms
23:37
Speaker 12: of the market reaction. So so you know, we knew
23:41
Speaker 12: that that inflation was going to kind of be within
23:43
Speaker 12: the range that it was just because PC doesn't diverge
23:46
Speaker 12: that much directionally from CPI. So so the forecasts were
23:50
Speaker 12: obviously reasonably good going into some of these numbers.
23:55
Speaker 7: All right, what do we look forward next? What's the
23:57
Speaker 7: market now? Looking forward?
23:58
Speaker 8: May we just like snooze until May or something?
24:02
Speaker 11: Well, I don't know if it's going to be a
24:03
Speaker 11: snows fest.
24:03
Speaker 12: I mean we are our duration scorecard that we put
24:06
Speaker 12: out this morning and basically saying should you position long, short,
24:09
Speaker 12: or neutral? The Bloomberg Treasury Index says you should be
24:13
Speaker 12: neutral because it's very things are that there's nothing particularly
24:17
Speaker 12: rich or cheap about the market given the incoming data
24:20
Speaker 12: that we've received. But next week's data it could be
24:23
Speaker 12: market moving. Right ism new orders and the ism manufacturing
24:28
Speaker 12: report that we get next week that is often market moving.
24:31
Speaker 12: Plus we have payrolls coming up, right, So in order
24:33
Speaker 12: to get the Fed Reserve to think that they're going
24:36
Speaker 12: to cut early and aggressively, you really need to have
24:39
Speaker 12: the employment situation deteriorate much more than it has. So
24:43
Speaker 12: that's one reason why that will continue to be a
24:45
Speaker 12: key focus report for the market.
24:47
Speaker 6: Lots of people have the steepeners on. Then there was like,
24:50
Speaker 6: oh gosh, the steepeners didn't make me money. I got
24:51
Speaker 6: to take that off. And then it was like, now
24:53
Speaker 6: we're going to say with the steepeners, what do I
24:55
Speaker 6: do with the steepener?
24:55
Speaker 7: Can somebody define steepener for this equity person?
24:58
Speaker 11: Oh?
24:58
Speaker 8: Okay, so let me try as like the person. Okay.
25:01
Speaker 6: It basically means when long end yields go higher than
25:04
Speaker 6: short end yields, and the idea is the Fed's gonna cut,
25:07
Speaker 6: so you're gonna buy the front end and then yields
25:09
Speaker 6: in the back and go up.
25:10
Speaker 8: Irah am I right? Did I pass?
25:11
Speaker 12: So that is a that is a bear steepener. A
25:14
Speaker 12: bull steepener would be if say, front end yields rallied
25:17
Speaker 12: a lot and yields went down and long term yields
25:21
Speaker 12: just went down slower or didn't move at all.
25:23
Speaker 11: So so you can get a steepener either bull or bear.
25:25
Speaker 12: But basically it's it's that long term yields don't move
25:29
Speaker 12: as much as or stay higher than front end yields do.
25:34
Speaker 12: That that's basically the.
25:37
Speaker 11: Definition of a steepener.
25:38
Speaker 12: You know a lot of people thought that it would
25:40
Speaker 12: be a bull steepener because they were expecting you know,
25:42
Speaker 12: we were just think about it a month ago, we
25:44
Speaker 12: were thinking that the Federal reserve, the market was priced
25:46
Speaker 12: with a federal reserve to cut interest rates by one
25:49
Speaker 12: point five percent this year. So that's one reason why
25:52
Speaker 12: a lot of people were in those steepeners, because they
25:54
Speaker 12: thought the two year yields, instead of being a four
25:56
Speaker 12: point seven percent, they'd have a three handle now and
25:59
Speaker 12: they don't. And so that's one reason why you've continued
26:02
Speaker 12: to see the curve kind of reinvert a little bit here.
26:06
Speaker 12: I don't know where we are at the moment, but
26:08
Speaker 12: probably thirty nine or forty basis points inverted between the
26:11
Speaker 12: two year and the ten year. You know, we've been
26:14
Speaker 12: we've had the call for quite a while that we
26:17
Speaker 12: thought that the curve would remain inverted for most, if
26:19
Speaker 12: not all, of this year and certainly the first half,
26:22
Speaker 12: and that seems to be playing out pretty well.
26:24
Speaker 11: And that was predicated.
26:25
Speaker 12: On on our view that the Fed woulden't cut more
26:28
Speaker 12: than three times this year. And now now we're priced
26:31
Speaker 12: for three cuts, so you know, we have to reevaluate that.
26:34
Speaker 11: Call right now, you know, based on the incoming data.
26:37
Speaker 6: Obviously, thirty nine basis points is where we are. So
26:39
Speaker 6: basically we just learned Paul. Is that IRA's right?
26:42
Speaker 11: Right?
26:43
Speaker 8: Ira said the stuff.
26:44
Speaker 6: He's been saying this since I don't know, last summer
26:46
Speaker 6: and no one's listening, and now we're listening.
26:48
Speaker 8: The markets up.
26:50
Speaker 7: Oh, Paul, very good, Hey, Ira? I mean what I mean?
26:55
Speaker 3: It's interesting here? What it is it May or June?
26:58
Speaker 3: Do we care whether it's May or June? When they
27:00
Speaker 3: start cutting rates? I feel like they gotta do it
27:02
Speaker 3: before we get too much into the election season.
27:05
Speaker 7: But I don't know.
27:06
Speaker 12: Yeah, big picture, it really doesn't matter. You know, it
27:09
Speaker 12: matters to people who are trading June, who are trading
27:13
Speaker 12: you know what we call, you know, very short term
27:15
Speaker 12: interest rate contracts that people who are in money market
27:19
Speaker 12: instruments like T bills, they care whether it's May or June, right,
27:22
Speaker 12: because there's some incremental few basis points of pickup that
27:25
Speaker 12: you can get depending on what they do. But you know,
27:28
Speaker 12: big picture, you don't care. Ten year yields don't really care.
27:30
Speaker 12: Two year yields do care. So if they go, you know,
27:34
Speaker 12: the I think the big challenge is if they don't
27:37
Speaker 12: go by June, what is there what is their propensity
27:41
Speaker 12: to move in July or September? Right, around the political
27:45
Speaker 12: party conventions and then obviously in the middle of the
27:47
Speaker 12: election season. You know, we don't have a lot of
27:51
Speaker 12: experience with this because there's only a presidential election every
27:54
Speaker 12: four years. But at least to date, the Federal Reserve
27:57
Speaker 12: has never started a new activity, whether it's hiking or cutting,
28:01
Speaker 12: in the middle of an election season. They've continued policies
28:05
Speaker 12: that they that they started prior to an election period,
28:09
Speaker 12: but they've never you know, they've never started at say,
28:11
Speaker 12: the September before an election. But you know, so that's
28:15
Speaker 12: one reason why, like, if one reason why I think
28:18
Speaker 12: they it would behoove them if they were thinking about
28:20
Speaker 12: cutting at all, they should just cut one time and
28:23
Speaker 12: then they can skip a few meetings. So an outcome
28:25
Speaker 12: that would not surprise me at all is if the
28:27
Speaker 12: Federal Reserve were to cut in June and then wait
28:30
Speaker 12: to cut again until after the election, and then if
28:33
Speaker 12: they have to because the economy deteriorates meaningfully, then they
28:36
Speaker 12: can cut again in July or September and just say, well,
28:38
Speaker 12: there's a continuation of the policy that we started a
28:41
Speaker 12: couple of months ago. Because you know, the unemployment rate's
28:43
Speaker 12: gone up and inflations come down, like whatever whatever reasons
28:47
Speaker 12: that they espouse for their initial cut.
28:49
Speaker 6: You know what we had Bruce Richards on a marathon
28:51
Speaker 6: asset management yesterday on television. He called that the two
28:54
Speaker 6: step yeah, which I was like, okay, I kind of
28:56
Speaker 6: get that right, Like you move a little and then
28:57
Speaker 6: you pause, and you move little and.
28:59
Speaker 8: Then you pause. Hey, Ira, thanks a lot, Ira Jersey.
29:01
Speaker 8: He is a chief US rate strategist at Bloomberg Intelligence.
29:05
Speaker 6: He lost me after that, like two steps. I don't
29:06
Speaker 6: know where you go after the two step, but you know,
29:08
Speaker 6: but that idea you move a little and then you hold.
29:10
Speaker 7: Okay, I mean yeah, I mean may or June.
29:12
Speaker 3: I don't think again, as Iris said, I don't think
29:13
Speaker 3: the market, generally speaking, cares that much. I'm you know,
29:16
Speaker 3: as an equity investor, having the anticipation of RAID cuts
29:19
Speaker 3: is as good as having them, in my opinion, just
29:22
Speaker 3: turn right now.
29:23
Speaker 8: Yeah.
29:23
Speaker 6: And they actually talk about that in terms of the
29:24
Speaker 6: lag of monetary policy, that if it's just the expectation
29:27
Speaker 6: of stuff, that changes what the lag of monetary policy
29:30
Speaker 6: actually is because by the time you feel it, you're
29:33
Speaker 6: already anticipating those cuts.
29:35
Speaker 7: That's being said, I like to refinance the mortgage.
29:38
Speaker 8: Yeah, I know, I know, not yet, not yet.
29:42
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
29:46
Speaker 1: weekdays at ten am Eastern on.
29:48
Speaker 2: Applecar Play and Android Otto with the Bloomberg Business.
29:51
Speaker 1: You can also listen live on Amazon Alexa from our
29:54
Speaker 1: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
30:00
Speaker 6: It was interesting to get their earnings out yesterday from
30:02
Speaker 6: Paramount because there was a little bit of good and
30:05
Speaker 6: a little bit of bad. Right, you know, fifteen percent
30:07
Speaker 6: decline in TV advertising, so that feels like that's not great,
30:10
Speaker 6: but then streaming subscribers went up. I was one of
30:13
Speaker 6: those people, so real well comparing it's my weird addiction.
30:17
Speaker 8: I have to Survivor. I know, which is because I
30:19
Speaker 8: was paid for years.
30:20
Speaker 6: I know, too late, but I know I'm paying my
30:23
Speaker 6: twenty money to Survivor.
30:25
Speaker 8: It's still a million.
30:26
Speaker 6: They didn't adjust aipulation, but one time it was two
30:28
Speaker 6: million and they did Survivor All Stars.
30:31
Speaker 8: But that was back twenty nineteen.
30:33
Speaker 6: But point is I was paying twenty five bucks a season,
30:35
Speaker 6: so I just did the Paramount plus thing. But I
30:37
Speaker 6: think I'm gonna add more because the ads are.
30:39
Speaker 8: Just so annoying. Really, Yeah, and I'm gonna be one
30:42
Speaker 8: of those people that they love.
30:43
Speaker 6: Yes, anyway, let's go to geta because she knows much
30:46
Speaker 6: more than I do on this. It wrong enough then
30:48
Speaker 6: and she covers US Media Bloomberg Intelligence senior industry analyst,
30:52
Speaker 6: hey Geet Debt. So there was like a little bit
30:53
Speaker 6: of good, a little bit of bad. What's my broader
30:56
Speaker 6: takeaway from that?
30:58
Speaker 13: Yes, you're absolutely right at like streaming was definitely a
31:02
Speaker 13: key positive, and you're absolutely right in terms of the
31:05
Speaker 13: subscriber numbers, those came in slightly ahead of estimates. The
31:08
Speaker 13: bigger positive was the r poo trends. So remember Wall
31:12
Speaker 13: Street has now kind of shifted its focus away from
31:14
Speaker 13: subscribe just subscriber growth to revenue growth as well as profitability,
31:19
Speaker 13: and they kind of scored pretty well on the revenue
31:21
Speaker 13: growth metrics as well. So urpoo increased about thirty percent
31:24
Speaker 13: through the year, and that's on the back of a
31:26
Speaker 13: price increase. And then the next thing, of course you
31:30
Speaker 13: look at was profitability and their losses narrowed, so they're
31:32
Speaker 13: obviously taking a step in the right direction. I think
31:35
Speaker 13: what investors are kind of really cheering though, is that
31:37
Speaker 13: they did articulate some kind of strategy to kind of
31:41
Speaker 13: get to profitability, and they outlined a timeframe as well.
31:45
Speaker 13: So twenty twenty five is when they're expecting paramount plus profitability,
31:48
Speaker 13: which is definitely I think good news. The question is,
31:51
Speaker 13: I'm not sure whether it's enough.
31:54
Speaker 11: Yep.
31:54
Speaker 3: I mean the stock is a four point three percent today,
31:56
Speaker 3: that's a good news. Of bad news is looks down
31:58
Speaker 3: twenty two percent year to day eight, and it's down
32:00
Speaker 3: for about forty five percent over the last year. And Keith,
32:02
Speaker 3: before we move forward here, we have a big discussion
32:04
Speaker 3: internally here in the studio. Do you prefer the pronunciation
32:07
Speaker 3: of your first name githa thh or Geeta with a
32:10
Speaker 3: T It's it's th.
32:14
Speaker 8: Boom told you John Tucker, thank you for schooling than
32:17
Speaker 8: she told me years ago.
32:18
Speaker 3: I was forget See, I've known Keith and I have
32:21
Speaker 3: worked together for fifteen years, you know, and she just
32:23
Speaker 3: doesn't bother to correct me anymore.
32:25
Speaker 7: So I figured, you know, if it's I'm.
32:27
Speaker 8: Going to stick validating us.
32:28
Speaker 7: What was the interview with Paul?
32:30
Speaker 10: Like?
32:30
Speaker 11: Was it intimidating when he interviewed you for your job?
32:33
Speaker 7: I begged keith to join me. I begged Keitha to
32:36
Speaker 7: join me. She did and it was the best thing
32:38
Speaker 7: we ever did, So Keitha.
32:40
Speaker 3: I guess the bigger picture here with Paramount is what
32:43
Speaker 3: does the ownership here want to do with the company.
32:46
Speaker 3: It appears by all accounts that they're just not big
32:49
Speaker 3: enough to compete against some of these big technology companies,
32:52
Speaker 3: some of these big media companies like a Netflix, like
32:54
Speaker 3: a Disney and boy, there's a lot of speculation around Paramount.
32:57
Speaker 7: Did they address that at all?
32:59
Speaker 13: They didn't. I mean the one thing though, that you know,
33:02
Speaker 13: I think Bob Beckish got out of the way was
33:04
Speaker 13: they are going to do something that is good for
33:07
Speaker 13: all shareholders. He kind of underlined that because there has
33:10
Speaker 13: been this constant, you know, question about whether you know,
33:13
Speaker 13: Sherry Redstone is kind of just going to cash out
33:15
Speaker 13: and leave everybody else hanging, and so he wanted to,
33:18
Speaker 13: you know, kind of get that out of the way.
33:20
Speaker 13: But again, you know, I think the focus is going
33:23
Speaker 13: to come, you know, the M and A options. Paul
33:25
Speaker 13: and We've discussed this seemed to be shrinking at this point.
33:27
Speaker 13: You know, Warner Brothers Discovery obviously said they're no longer interested.
33:31
Speaker 13: Other firms have kind of come taken a look. Apollo
33:33
Speaker 13: being one of them, said not interested. The only interested
33:36
Speaker 13: party right now is sky Dance, controlled by David Ellison,
33:40
Speaker 13: but again he's really not there's really no natural buyer
33:43
Speaker 13: for all of the assets. He's not interested in controlling
33:46
Speaker 13: some TV networks. He's only really looking at the studio.
33:49
Speaker 13: So again, I'm not sure that Paramount Management necessarily wants
33:53
Speaker 13: to do kind of a part parts sale here. So
33:57
Speaker 13: I think they're going to kind of go back and
33:59
Speaker 13: focus on fundamentals. I think some of that those the
34:02
Speaker 13: unrealistic M and A expectations are kind of going to
34:04
Speaker 13: subside a little, but we're going to go back to fundamentals,
34:06
Speaker 13: I think for the time being.
34:07
Speaker 6: Well to that point, then did they buy themselves some time?
34:10
Speaker 6: Because I could make an argument that, okay, well the
34:12
Speaker 6: slowing and ad sales and maybe that's an industry wide thing. Okay,
34:15
Speaker 6: other players are getting hit they did as streaming subscribers,
34:18
Speaker 6: so they have some time now that they might not
34:20
Speaker 6: have had twenty four hours ago. Is that a real
34:22
Speaker 6: statement or no?
34:24
Speaker 13: I think so. I definitely think so, because with streaming,
34:27
Speaker 13: what we're going to see is We're going to see
34:28
Speaker 13: some sustained momentum in those ARPUH increases, so they're doing more,
34:33
Speaker 13: you know, international price increases. They've kind of integrated Showtime
34:37
Speaker 13: into Paramount and with that they've been able to take
34:40
Speaker 13: some price increases. So we're going to kind of see
34:41
Speaker 13: that play out so pretty much most of twenty twenty four.
34:45
Speaker 13: The question is what happens after twenty twenty four, But
34:48
Speaker 13: they definitely have bought themselves sometime.
34:50
Speaker 7: So what is the outlook for the studio here?
34:54
Speaker 10: Geita Studio.
34:57
Speaker 13: Unfortunately, for twenty twenty four looks really bleak. So the
35:01
Speaker 13: big movie, of course that everybody was kind of looking at,
35:03
Speaker 13: was Mission Impossible. That's been pushed out to twenty twenty five.
35:07
Speaker 13: We do have a few movies here and there. I mean,
35:09
Speaker 13: you have Quiet Plays that's coming out in June. There's
35:11
Speaker 13: obviously some anticipation building there. But again, in general, Paul,
35:15
Speaker 13: the box office outlook for twenty twenty four is just
35:18
Speaker 13: pretty weak, and that's just because of all of those
35:21
Speaker 13: Hollywood strikes. Has pushed out a lot of movies into
35:24
Speaker 13: twenty twenty five. It's kind of going to shave off
35:26
Speaker 13: I think at least two billion dollars off of the
35:28
Speaker 13: box office.
35:29
Speaker 6: So presumably we're going to look through that, right, I mean,
35:31
Speaker 6: presumably they're going to recoup that and they'll be pent
35:33
Speaker 6: up in twenty twenty five.
35:36
Speaker 13: That is the big question, right, Yes, we've seen kind
35:39
Speaker 13: of box office demand, you know, in general, kind of
35:42
Speaker 13: come back, but it's still about twenty percent below pre
35:45
Speaker 13: pandemic level. So the big question is, Okay, when all
35:48
Speaker 13: of those big titles kind of hit the screens in
35:50
Speaker 13: twenty twenty five, are we kind of going to see
35:52
Speaker 13: a bigger resurgence. The jury is still out. I think yes,
35:56
Speaker 13: it's definitely going to be better than twenty twenty four. Is
35:58
Speaker 13: it going to be as good as it was? You know,
36:00
Speaker 13: and it's heyday? I'm not so sure.
36:02
Speaker 3: So, Gith, how about the CBS television network and the
36:06
Speaker 3: Viacom cable networks? You know, one point that was such
36:09
Speaker 3: a big part of this company. Here, talk to us
36:12
Speaker 3: about the advertising the television advertising market. What's kind of
36:15
Speaker 3: the forecast for the next several years. Is it a
36:18
Speaker 3: growing business? Is it a declining business?
36:22
Speaker 13: It's a melting ice cube, Paul, just like you know,
36:25
Speaker 13: just like the whole PayTV ecosystem, so you know, this
36:29
Speaker 13: is this used to be back in the day about
36:30
Speaker 13: a sixty billion market. It's shrunk. It's going to probably
36:33
Speaker 13: hit about forty five billion by the end of next year.
36:36
Speaker 13: And really, you know, this is just kind of a
36:38
Speaker 13: progression of where all the eyeballs are moving. So they're
36:41
Speaker 13: moving away from the linear TV networks to streaming, and
36:43
Speaker 13: so we're seeing kind of those ad dollars follow those
36:46
Speaker 13: eyeballs and going from you know, the TV medium to
36:50
Speaker 13: what is now called connected TV, which is really all
36:53
Speaker 13: the streaming platforms and you know, you're using all your
36:55
Speaker 13: connected TV devices, the rokus and the Google sticks and
36:58
Speaker 13: all of that to kind of television, and that's where
37:01
Speaker 13: all of the advertising is moving as well. Unfortunately, Paramount
37:04
Speaker 13: doesn't have too much of a presence there. Yes, they
37:06
Speaker 13: do have you know, Pluto TV, which is their solution,
37:10
Speaker 13: but it's not going to be able to kind of
37:12
Speaker 13: offset the leakage that we're seeing in the television ecosystem
37:17
Speaker 13: and that is really a problem for all of these
37:19
Speaker 13: media companies, for Paramount a little bit more so.
37:21
Speaker 8: But here's the thing.
37:22
Speaker 6: If they wind up just doing advertising on streaming, like,
37:26
Speaker 6: isn't it going to be eventually kind of shake out
37:28
Speaker 6: the same.
37:30
Speaker 13: So that has been kind of their hoole spiel. I mean,
37:33
Speaker 13: of course they're saying that, you know, they can reclaim
37:36
Speaker 13: some of those lost dollars. The problem is the digital
37:39
Speaker 13: ad space is getting really really crowded as well, and
37:42
Speaker 13: so you know, again it depends on who has the
37:45
Speaker 13: most watch time. Netflix dominates. They have about two and
37:48
Speaker 13: a half hours of viewing time every day. Disney Plus
37:51
Speaker 13: is you know, follows very closely. And now the biggest
37:55
Speaker 13: blow really to all of these players has been Amazon
37:58
Speaker 13: because they just came out about a month ago and
37:59
Speaker 13: they introduced advertising on their Prime video service and that
38:04
Speaker 13: is really kind of shaking up the whole digital ad market.
38:08
Speaker 13: So if you're a subscale player, chances are you're not
38:11
Speaker 13: going to really be able to make a dent even
38:13
Speaker 13: within the digital ad space.
38:15
Speaker 1: Wow.
38:15
Speaker 3: Interesting, all right, Githa, thanks so much for joining us there.
38:18
Speaker 3: Githa Raganathan, analyst on US media for Bloomberg Intelligence. Githa
38:22
Speaker 3: Raganathan joining us from the headquarters of Bloomberg Intelligence, done
38:27
Speaker 3: in Princeton, New Jersey. Boy, I don't you know that
38:29
Speaker 3: melting ice cub that's not good.
38:31
Speaker 8: Yeah, just do. That sentence wasn't good.
38:32
Speaker 3: Yeah, that's not good for them. And but I just
38:34
Speaker 3: don't know what they do. I don't know what the
38:35
Speaker 3: endgame is here.
38:37
Speaker 6: What's funny is this is a total side note, but
38:39
Speaker 6: my daughter grew up without commercials because.
38:41
Speaker 8: We never had linear TV.
38:42
Speaker 6: We had to like Netflix, right, And now she's experiencing
38:45
Speaker 6: commercials because all these streaming players have commercials, and so
38:48
Speaker 6: now she like quotes all these She's nine, by the way,
38:51
Speaker 6: so she can quote all these commercials now from and
38:54
Speaker 6: she like likes them and wants to be with them,
38:55
Speaker 6: and she rails.
38:56
Speaker 8: Against car commercials.
38:58
Speaker 6: Really, I don't know what that is. She's like, who
39:00
Speaker 6: needs all these cars?
39:01
Speaker 7: This is ridiculous.
39:02
Speaker 8: I don't want to see this.
39:04
Speaker 6: So I feel like I'm gonna have to pay up
39:06
Speaker 6: for the non commercial one.
39:07
Speaker 7: Now, yeah, a lot of people do, a lot of
39:09
Speaker 7: people do well.
39:11
Speaker 6: It just shaves time too, right, And they're only and
39:14
Speaker 6: that that block between segments is only going to get
39:16
Speaker 6: more and more.
39:16
Speaker 7: I'm thinking, yep.
39:17
Speaker 3: And if you're on broadcasting cable television, what are the advertisers.
39:21
Speaker 3: They're not the car companies, they're not Coca Cola, they're healthcare.
39:25
Speaker 3: You need this drug for this problem.
39:27
Speaker 8: As my husband loves, He's like, I have all these problems.
39:30
Speaker 8: It's like I don't want to see this on TV exactly.
39:32
Speaker 8: That such a good point.
39:35
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
39:39
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39:41
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39:44
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39:53
Speaker 8: Another sock weer're watching here is Hewlett Packard. So this
39:56
Speaker 8: is HPQ.
39:57
Speaker 6: This is the company that makes PCs and printers reported
40:01
Speaker 6: or that stocks down by about one percent. It reported
40:04
Speaker 6: earnings that quite frankly, just show that there's still a
40:06
Speaker 6: slowdown in the PC market. They seemed relatively more constructive
40:10
Speaker 6: in the back half, but still I got some questions.
40:13
Speaker 6: There's no one else to bring to and talk to
40:15
Speaker 6: about it. Then, as Woojin Ho, Bloomberg.
40:17
Speaker 8: Intelligence Senior Technology analyst, Wujin what was your biggest takeaway here?
40:21
Speaker 14: Yeah, Look, the first quarter results were pretty week if
40:25
Speaker 14: you if you look at the first quoter PC numbers, Uh,
40:28
Speaker 14: they fell below consensus expectations, and you know, the the
40:33
Speaker 14: the fact that they were able to maintain guidance on
40:35
Speaker 14: the revenue side for PCs as well as EPs side.
40:39
Speaker 10: They're really hoping for that second half, as you were saying, Alex.
40:42
Speaker 7: And give us the drivers here, wouge for that second half.
40:46
Speaker 7: What has to happen?
40:48
Speaker 14: Well, there's a there's a couple of things, right. You
40:51
Speaker 14: have a macro improvement and better consumer dollars. You have
40:55
Speaker 14: the second half seasonality that's going to drive it up
40:57
Speaker 14: back to school for the consumer side.
40:59
Speaker 3: Uh.
40:59
Speaker 14: But there's also a big Windows eleven upgrade cycle that's
41:02
Speaker 14: coming in and which is supposed to be a tailwind.
41:06
Speaker 14: But I do have some doubts for for one big reason,
41:10
Speaker 14: corporate I spending has been fairly weak and that really
41:13
Speaker 14: needs to cooperate in the second half for.
41:17
Speaker 10: The PC numbers to materialize. For hp.
41:21
Speaker 8: Do my homework for me. We have the CEO of
41:23
Speaker 8: HPQ tomorrow in the morning. Yeah, and we're going to
41:26
Speaker 8: run it on the closed Show. What are the best
41:28
Speaker 8: questions to ask?
41:29
Speaker 6: Because I'm really interested in kind of when they see
41:31
Speaker 6: the trough really materializing, how how long that trough actually
41:35
Speaker 6: may last.
41:37
Speaker 14: Yeah, So I think we are getting closer to the trough, right.
41:40
Speaker 14: I think next quarter is going to be the trough
41:44
Speaker 14: in terms of a PC revenue side. If we think
41:48
Speaker 14: about it from from this perspective, you want to ask
41:52
Speaker 14: along the lines of why are they so bullish on
41:55
Speaker 14: the second half? If I do my if looking at
41:58
Speaker 14: the back of the envelope math, it looks like they
42:00
Speaker 14: need about ten percent second half growth versus first half growth.
42:05
Speaker 14: Typically it's about five percent second half growth versus first half,
42:09
Speaker 14: So it's going to be well above seasonality.
42:12
Speaker 10: So some of those.
42:12
Speaker 14: Drivers maybe, as they said on the call, is higher pricing,
42:17
Speaker 14: so PC prices are going to come up as as
42:20
Speaker 14: as well as you know, possibly possibly some timing on
42:26
Speaker 14: the incremental contribution to to aipcs.
42:30
Speaker 10: And I opened a tend door box.
42:31
Speaker 3: I believe because I'm just looking at the PGO function
42:35
Speaker 3: which kind of breaks down kind of their revenue where
42:37
Speaker 3: it comes from. Commercial is a big part of their business.
42:41
Speaker 3: Talk to us about the buying cycle on on the
42:43
Speaker 3: commercial side of the enterprise side.
42:44
Speaker 7: Which is it every two to three years? Is it predictable?
42:47
Speaker 14: And where are we Yeah, so, so we're actually on
42:51
Speaker 14: the beginning and the beginning or the start of the
42:56
Speaker 14: PC refresh cycle from the pre COVID times right, Typical
43:02
Speaker 14: refresh cycles for PCs are about four years and then
43:07
Speaker 14: we get new ones. Now this lies into my concern.
43:12
Speaker 14: If the pieces are running okay and the budgetary dollars
43:16
Speaker 14: are the corporate dollars are still fairly tight, you know,
43:21
Speaker 14: I would like to say that they would like to
43:23
Speaker 14: hold on to those PCs for another six months to
43:26
Speaker 14: a year, and that would fall into fiscal twenty twenty five.
43:30
Speaker 14: The other thing that concerns me in terms of this
43:33
Speaker 14: particular PC cycle is the emergence of aipcs.
43:39
Speaker 10: We don't know, Wait.
43:41
Speaker 8: Real quick, what's an AIPC.
43:43
Speaker 14: Well, an AIPC is a PC that has specific artificial
43:49
Speaker 14: intelligence chips provided by Intel or a MD and can
43:54
Speaker 14: run AI functionality. That's actually there's a lot of hype
43:59
Speaker 14: on AIPC starting from CEES even last year, and we're
44:03
Speaker 14: going to start seeing the ramp up at the second
44:05
Speaker 14: half of this year and materialize even more in twenty
44:09
Speaker 14: twenty five. So my issue with the AIPC wrap up cycle.
44:15
Speaker 14: I do think it's going to materialize. It's just that
44:17
Speaker 14: there's no application ecosystem to help support it right now,
44:20
Speaker 14: and if there's going to be buying decisions coming up
44:23
Speaker 14: at the end of this year, I may want to
44:25
Speaker 14: delay a quarter or two to see what the AIPC
44:29
Speaker 14: can actually do and is it right?
44:32
Speaker 10: Doesn't fit into my corporate workflow, that's interesting.
44:36
Speaker 3: So I'm looking at the stock absolutely unchanged on it
44:39
Speaker 3: over the past year.
44:40
Speaker 7: I look at the A and R functions.
44:42
Speaker 3: I got eight buys, eight holds in three cells the street.
44:46
Speaker 3: There's no conviction on this name here. When you talk
44:49
Speaker 3: to clients, what are they saying about it?
44:52
Speaker 11: Yeah?
44:52
Speaker 14: And then it sounds about right right, So so the
44:55
Speaker 14: bulls are looking forward to that second half PC upgrade cycle.
45:00
Speaker 14: Have to look past twenty twenty four to get that
45:02
Speaker 14: PC upgrade cycle to happen, And it's going to happen
45:05
Speaker 14: in twenty five, right regardless, because Windows is going to
45:09
Speaker 14: shut down Windows ten. Microsoft is gonna shut down Windows ten,
45:12
Speaker 14: and it's going to really push that upgrade cycle regardless.
45:16
Speaker 14: My main concern is twofold, and I'm going to step
45:19
Speaker 14: away from the PC segment for our moment here. That
45:23
Speaker 14: printer segment is a cash goal. It's a twenty percent
45:26
Speaker 14: nineteen to twenty percent operating margin business, and they really
45:32
Speaker 14: can't sell the hardware. And if you can't sell the hardware,
45:35
Speaker 14: you're not going to be able to sell the higher
45:37
Speaker 14: margin supplies. So over the long term, the concern for
45:42
Speaker 14: me is is that diminishing hardware sales is going to
45:46
Speaker 14: impact the demand for supplies because no one's printing anymore,
45:49
Speaker 14: everyone's digitizing, and then it's going to affect the long
45:52
Speaker 14: term profitability.
45:53
Speaker 8: Interesting.
45:54
Speaker 6: I just wonder though, for the refresh cycle, Like I
45:57
Speaker 6: hear you on the profitability part in the printer PERP
45:59
Speaker 6: and the refresh cycle, I mean, how dependent do you
46:02
Speaker 6: think will actually be on that. I'm still waiting for
46:04
Speaker 6: the iPhone.
46:05
Speaker 8: Supercycle that I've been hearing in bouts in twenty sixteen.
46:09
Speaker 14: Yeah, well, I want you to think about it this way, Alex.
46:13
Speaker 14: We came off of a terrible, terrible twenty twenty three
46:17
Speaker 14: from from a uni volume perspective, right, and we're probably
46:21
Speaker 14: still going to be bouncing along historic lows from unit volumes.
46:25
Speaker 14: And you know, people have not been upgrading their PCs
46:29
Speaker 14: and laptops for the last two three years since the
46:32
Speaker 14: beginning for COVID, so we're starting to get some tired
46:35
Speaker 14: PCs out there, and again more importantly for the corporate side,
46:39
Speaker 14: we have the Windows eleven forced upgrade and that is
46:44
Speaker 14: going to force our upgrade cycle. Now.
46:45
Speaker 2: Now, to.
46:47
Speaker 14: Give you a data point, normalized normalized volumes on an
46:53
Speaker 14: annual basis is roughly around two hundred and sixty to
46:56
Speaker 14: two hundred and seventy million PCs, and we're probably going
47:00
Speaker 14: to be running around two hundred and sixty two million
47:02
Speaker 14: for this year, so we're still below average trend. And
47:07
Speaker 14: I think there's scope in twenty five that we are
47:09
Speaker 14: going to get above to sixty five million units.
47:13
Speaker 10: Nahpiece is going to benefit from that as well.
47:16
Speaker 6: All right, Rich, thanks a lot, which and hoo a
47:17
Speaker 6: Bloomberg Intelligence senior technology.
47:19
Speaker 8: And a listener.
47:20
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