Latest / Bloomberg Intelligence / BI Weekend: Buffett Apple Stake, US Earnings

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BI Weekend: Buffett Apple Stake, US Earnings · Bloomberg Intelligence

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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Intelligence
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Speaker 1: with Alex Steinhl and Paul'sweenye.
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Speaker 2: The real app performance has been the US corporate high yield.
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Speaker 3: Are the companies lean enough? Have they trimmed all the fats?
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Speaker 2: The semiconductor business is a really cyclical business.
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Speaker 1: Breaking market headlines and corporate news from across the globe.
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Speaker 3: Do investors like the M and A that we've seen?
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Speaker 4: These are two.
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Speaker 2: Big time blue chip companies.
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Speaker 3: The window between the peak and cut changing super fast.
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Speaker 1: Bloomberg Intelligence with Alex Steinel and Paul'sweenye on Bloomberg Radio.
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Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
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Speaker 2: business stories impacting Wall Street and the global markets.
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Speaker 3: Each and every week we provide research and data on
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Speaker 3: some of the two thousand companies and one hundred and
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Speaker 3: thirty industries our analysts cover worldwide.
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Speaker 2: Today, we'll look at why the ride sharing company Uber
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Speaker 2: reported better than expected orders last quarter.
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Speaker 3: L as we'll look at earnings from one of the
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Speaker 3: world's biggest producers of heavy machinery, Caterpillar.
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Speaker 2: First, we begin with the diversified holding company Berkshire Hathaway.
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Speaker 3: The company recently slashed at steak in Apple by almost
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Speaker 3: fifty percent. Now it was part of a massive second
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Speaker 3: quarter sellings bree that sent billionaire Warren Buffets cash pile
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Speaker 3: to a record two hundred and seventy six point nine billion.
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Speaker 2: Dollars for more. Guest host Jessman and I were joined
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Speaker 2: by Matthew Palozola, Bloomberg Intelligence senior analysts Property and Casualty Insurance,
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Speaker 2: and Matthew began by discussing why Buffett may have decided
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Speaker 2: to trim mistake in Apple.
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Speaker 5: They kind of telegraphed a little bit that they were
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Speaker 5: probably going to sell more at their annual meeting in May.
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Speaker 5: Buffett had warned about tax rates going up potentially in
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Speaker 5: the future and maybe taking some gains off the table.
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Speaker 5: Tim Cook was actually sitting there and the audience was
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Speaker 5: kind of funny, and that they had sold I think
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Speaker 5: it was like ten to thirteen percent of their holdings
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Speaker 5: at that time, and they got questions on it, and
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Speaker 5: it just seemed body language wise that they would be
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Speaker 5: selling a little more. So I think tax rates, he
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Speaker 5: if it's been a little weary on exposure to China
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Speaker 5: for some company.
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Speaker 6: So I think those two played a.
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Speaker 7: Big role and actually had mentioned to you before when
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Speaker 7: we're off air, kind of trying to pick your brain
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Speaker 7: because Apple, if just for people to remind them, it
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Speaker 7: was underperformed the S and P five hundred tremendously in
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Speaker 7: the first quarter. It was one of its worst quarters
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Speaker 7: relative to the index, probably like the fourth or fifth
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Speaker 7: worse since the dot com bubble burst. But then it
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Speaker 7: bottomed in April and has been up close to thirty
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Speaker 7: percent since then, and so the S and P five
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Speaker 7: hundred that span has only been up about four percent.
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Speaker 7: So you were saying you didn't think even just the
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Speaker 7: rally that we've seen was as much of a factor
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Speaker 7: either as far as why they turn their stick.
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Speaker 5: Yeah, I don't think so. I mean, more buff it's
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Speaker 5: not out there trying to time the market one way
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Speaker 5: or another. And you know, he looks at these stock
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Speaker 5: investments as if he's, you know, buying the company. So
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Speaker 5: he also said at the annual meeting he expected Apple
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Speaker 5: to be their biggest holding at the end of this year.
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Speaker 4: It still is.
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Speaker 5: So, I mean, it was that stock was about forty
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Speaker 5: percent of their portfolio before this move. So I'm not
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Speaker 5: surprised to see him take some cost of.
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Speaker 2: How much cash did they have at Berkshire Hathaway today
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Speaker 2: and so any any ideas what they might do.
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Speaker 5: With it always a tough one, Paul. It's I think
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Speaker 5: at a two hundred and seventy eight billion dollars, which
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Speaker 5: I thought was a mistake when I first saw it,
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Speaker 5: because they were at like less than two hundred before
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Speaker 5: the sale of the apples, like brought in a lot
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Speaker 5: of cash. Higher interest rates have taken a lot of
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Speaker 5: pressure off them holding cash. I was calculating that just
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Speaker 5: a simple after tax return on the cash would help
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Speaker 5: their earnings by at least five percent next year, right,
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Speaker 5: so just holding it.
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Speaker 1: Will be okay.
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Speaker 5: They bought a big steak and chob that would be
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Speaker 5: an interesting megadal and not really predicting that would happen,
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Speaker 5: but just seeing that, I mean, I think the next
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Speaker 5: deal Buffett does probably something we don't even really understand
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Speaker 5: what it is, like, you know, makes unique parts for
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Speaker 5: some materials or something like that.
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Speaker 7: It's interesting too because at a certain point they're holding
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Speaker 7: an apple was so big that it took up basically
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Speaker 7: half of its portfolio. So for in your kind of view,
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Speaker 7: does it make sense to make a move like.
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Speaker 5: That, Yeah, I mean you know, I don't know if
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Speaker 5: anyone wants to have one stock makeup, you know, half
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Speaker 5: of their portfolio. He had said he would love to
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Speaker 5: have owned the whole company at one point or something. Also,
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Speaker 5: keep in mind Bank of America was also their second
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Speaker 5: biggest holding them and selling a lot of that in
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Speaker 5: the third quarter, So I do think he's really looking
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Speaker 5: at concentration.
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Speaker 2: So some reporting, I think it was in the Times
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Speaker 2: about Bill Gates and Warren Buffett relationship maybe not as
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Speaker 2: tight as before, any thoughts there.
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Speaker 5: So what has been happening is Buffett's part of the
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Speaker 5: Giving pledge where he gives away a bunch of his
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Speaker 5: wealth over time.
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Speaker 2: And I am not I'm going to spend every least dollar.
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Speaker 5: I'm not either, I don't have enough wealth to give away. So,
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Speaker 5: but he was giving a lot of his money annually
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Speaker 5: to the Bill Gates Foundation. What happened, I don't remember
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Speaker 5: when it was. I think it was probably the end
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Speaker 5: of last year. He had announced that he would when
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Speaker 5: he passes away, that his children are going to inherit
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Speaker 5: the share in a foundation to be used for charity.
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Speaker 5: I think I think before that the Gates Foundation was
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Speaker 5: I don't know if it was official, but was at
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Speaker 5: least thought was going to get some of that. I
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Speaker 5: don't know about the relationship between the two of them.
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Speaker 1: I just know.
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Speaker 5: That that was the case, and I think, you know
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Speaker 5: he's given tens of billions to the Gates Foundation over time.
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Speaker 2: Anyway, our thanks to Matthew Palisola, Bloomberg Intelligence Senior Analyst
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Speaker 2: for Property and Casualty Insurance.
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Speaker 3: We moved next to the media and entertainment company Walt Disney.
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Speaker 2: This week, Disney reported mixed third quarter results and weakness
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Speaker 2: had its fame theme parks all set its first ever
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Speaker 2: profit in streaming for more.
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Speaker 3: We were joined by gither On Ganatan, Bloomberg Intelligence analyst
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Speaker 3: on US media.
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Speaker 2: We first asked for Geitha's reaction to Disney's numbers.
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Speaker 8: As expected, there was weakness in the parts segment. But
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Speaker 8: I think what kind of spooking investors is not just
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Speaker 8: the magnitude. So they had expected kind of flatish profits
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Speaker 8: for the quarter that they just reported. They actually reported
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Speaker 8: a three percent profit decline. But I think I think
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Speaker 8: what is more disconcerting is that they expect to see
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Speaker 8: kind of this lingering weakness in the park segment, so
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Speaker 8: they're saying a mid single digit operating income decline again
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Speaker 8: in the next quarter, and they expect the softness to
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Speaker 8: last out a few more quarters. So obviously the consumer
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Speaker 8: is not going to come back in a big way
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Speaker 8: for at least another three four quarters. And I think
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Speaker 8: that is definitely creating some nervousness.
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Speaker 3: Did I tell you I canceled my Disney trip?
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Speaker 6: Whoa?
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Speaker 3: I was like, you know what, I don't want to
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Speaker 3: spend six grand on this. And I wasn't even like
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Speaker 3: going anywhere fancy. I was just like, this is ridiculous
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Speaker 3: for four days, no kidding.
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Speaker 2: Yeah, did you know? Did you tell your daughter this?
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Speaker 3: I didn't tell we were going to be good, So
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Speaker 3: I really saved myself on that one. Yeah. But we
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Speaker 3: know that the consumer is slowing, right, We got that
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Speaker 3: from Comcast, for example, in their parks. But they made
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Speaker 3: a profit in streaming. I mean, come on, isn't that
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Speaker 3: what we really care about?
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Speaker 8: That is streaming profitability has been a big focus. They
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Speaker 8: have turned the corner and it's obviously going to continue
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Speaker 8: to be a big earnings growth driver. Remember just yesterday
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Speaker 8: they actually raised prices or they're planning to raise prices
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Speaker 8: across all of their streaming tiers, including as much as
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Speaker 8: a twenty five percent hike on their ad supported tier.
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Speaker 8: So you know, this is going to become a significant
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Speaker 8: earnings growth driver going forward. And then one of the
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Speaker 8: things that we've really been complaining about with Disney, and
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Speaker 8: I think investors have also been a little bit worried about,
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Speaker 8: has been kind of their content engine.
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Speaker 9: But they're really kind of back with the bank.
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Speaker 8: So you know, obviously they had the huge success of
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Speaker 8: Inside Out too in the quarter that they just reported,
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Speaker 8: and then now you have Marvel's Deadpool and Wolverine, which
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Speaker 8: I think is your favorite Alex and that, Yeah, it
7:39
Speaker 8: is so Githa.
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Speaker 2: Going back to Alex's point, I mean, if somebody like
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Speaker 2: an ox steal cancels a Disney theme park trip concerned
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Speaker 2: about price, is there a fundamental concern that this is
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Speaker 2: just kind of outpriced themselves out of the market, that
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Speaker 2: they're starting to hurt demand.
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Speaker 8: Yeah, that definitely is is a huge concern right now.
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Speaker 8: Poland so I think what we're going to see is
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Speaker 8: they obviously are not going to be able to raise prices.
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Speaker 8: We were seeing something like a forty percent increase in
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Speaker 8: per capita spending, you know, across the park for many,
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Speaker 8: many quarters. But I think what they kind of did
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Speaker 8: was they over forecasted demand and under forecasted the reversal
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Speaker 8: from from that pent up pandemic demand, And so that
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Speaker 8: is what we really are going to see play out
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Speaker 8: over the next few quarters. Having said that, though, I mean,
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Speaker 8: you know, yes, the domestic park business is going to
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Speaker 8: see some softness, but they do have the cruise business,
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Speaker 8: which obviously is going to take off in a big way.
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Speaker 8: They have three new ships that are coming on board
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Speaker 8: over the next few quarters, So they are expecting some
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Speaker 8: of that softness in the domestic parks to kind of
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Speaker 8: get offset. But again it's going to be kind of
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Speaker 8: a wait and see.
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Speaker 3: Our thanks to keith I Mronggannath and Bloomberg Intelligence analyst
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Speaker 3: on US media, we moved.
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Speaker 2: To earnings from America's leading health solutions company see vs Health.
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Speaker 3: This week's CBS lowered it's twenty twenty four earnings outlook
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Speaker 3: for the third straight quarter.
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Speaker 2: The company also announced cost cutting measures to save two
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Speaker 2: billion dollars over several year. This comes to as healthcare
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Speaker 2: costs continue to soar.
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Speaker 3: For more, we were joined by Jonathan Palmer Bloomberg intelligence
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Speaker 3: and your healthcare analysts, and we first asked him for
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Speaker 3: his take on CBS's quarterly results.
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Speaker 10: Yeah, so this is the third consecutive downward revision to earnings,
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Speaker 10: and it started with four Q earnings and one Q
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Speaker 10: than two Q. And really it all comes back to
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Speaker 10: higher medical costs. And so if you think about CVS,
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Speaker 10: there's three legs at the stool. Here, there's the ETNA business,
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Speaker 10: which is there big and sure, there's a PBM care mark,
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Speaker 10: and the pharmacy that we all think about. The pharmacy
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Speaker 10: stable there's some pressure and consumer the PBM's doing pretty well.
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Speaker 10: But the medical business, the benefits business, is seeing all
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Speaker 10: these revisions downward as people are visiting their doctor more.
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Speaker 3: So basically this is like if I own CVS Medical,
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Speaker 3: I go to my doctor, I pay my forty buck
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Speaker 3: cope or whatever, and then they bill CBS for that.
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Speaker 10: Well, so the insurer this is on the Medicare side,
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Speaker 10: the Medicare van plan. So a lot more seniors are
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Speaker 10: visiting their doctors and that trend we saw it at
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Speaker 10: the end of last year and we thought it would
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Speaker 10: maybe subside by the midpoint of this year, but it's
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Speaker 10: still elevated. Going into the back half and it's causing
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Speaker 10: a lot of trouble for CBS.
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Speaker 3: Sorry, no, I was gonna say, but don't think it
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Speaker 3: reimbursed by the government. Like how does that work though?
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Speaker 10: Well, so, the way the plans work is they bid
10:12
Speaker 10: a certain amount and then that's how they get paid.
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Speaker 10: And so if the trend trends higher, they don't make
10:17
Speaker 10: quite as much money based on what they bid initially
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Speaker 10: on the plans.
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Speaker 2: So what can the company do to kind of Yeah,
10:24
Speaker 2: so there's.
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Speaker 10: A couple of things they can do. They can exit markets.
10:27
Speaker 10: They can ratchet down the benefits that they're providing, so
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Speaker 10: Medicare advantage is a little bit different than traditional medicare,
10:32
Speaker 10: and that they can offer things like dental and vision.
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Speaker 10: They can ratchet some of those extra benefits down, but
10:38
Speaker 10: it takes time because these are planned cycles, so like
10:40
Speaker 10: we won't see any benefit until next year.
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Speaker 3: This is like the whole issue with people living longer, right,
10:46
Speaker 3: Like you have people living longer they're on medicare, right,
10:49
Speaker 3: and then this is kind of what happens. How do
10:51
Speaker 3: we solve for this though? Long term? How does a
10:54
Speaker 3: company solve for this longer term?
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Speaker 10: Yeah, I think it's getting a better handle around the
10:58
Speaker 10: trends and how they price they're offering. Interestingly enough, CVS
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Speaker 10: just let go of the executive who's in charge of
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Speaker 10: this benefits and the CEO and CFO are stepping in
11:08
Speaker 10: to run the day today. So there's a lot of
11:11
Speaker 10: work to be done in a lot of wood to chop.
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Speaker 3: There may be a dumb question who are CBS's competitors,
11:16
Speaker 3: considering they're in so many businesses.
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Speaker 10: Well, on the pharmacy side, it's Walgreens, it's Walmart, it's
11:21
Speaker 10: cost Co. On the PBM side, it's Signa's express Scripts,
11:26
Speaker 10: United Health's Optum, and then it's the whole smattering of
11:29
Speaker 10: insurers from Humanity and United Health.
11:31
Speaker 2: Signa elevance political risk, Johnathan, I know your industry cares
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Speaker 2: who's in the White House, who's in Congress. What's the
11:39
Speaker 2: feeling from the healthcare steg.
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Speaker 10: Yeah, we generally are our regulatory analyst in Washington, Dwayne
11:45
Speaker 10: Wright doesn't see too much risk through this election cycle.
11:48
Speaker 10: You know, everybody talks about drug prices. Biden put in
11:50
Speaker 10: the IRA that's come to pass. There's a lot of
11:54
Speaker 10: saber rattling around PBMs, but usually nothing actually happens at
11:57
Speaker 10: the end of the day. It's more about the headline
11:59
Speaker 10: risk there, so we're not too worried about the regulatory
12:02
Speaker 10: landscape going into the election cycle.
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Speaker 2: What's the best part of your space, what's the name
12:06
Speaker 2: or the area that people are most enthused about.
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Speaker 10: Yeah, So on the healthcare technology side, there's a lot
12:11
Speaker 10: of interest there. You know, AI's kind of creeped into everything,
12:14
Speaker 10: and there was recently an IPO of a company called
12:17
Speaker 10: tempest Ai that does diagnostics and provides data to drug manufacturers,
12:22
Speaker 10: so they're kind of marrying those two data sets in
12:24
Speaker 10: a very interesting way.
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Speaker 2: Our thanks to Jonathan Palmer, Bloomberg Intelligence senior healthcare analysts.
12:29
Speaker 3: Coming up, we're going to break down why Google recently
12:31
Speaker 3: lost an antitrust lawsuit in the US.
12:33
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Speaker 2: one hundred and thirty industries. You can access Bloomberg Intelligence
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12:42
Speaker 3: I'm Paul Sweeney and I'm Alex Steele, and this is Bloomberg.
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Speaker 6: Now.
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13:06
Speaker 3: We move now to earnings from the right sharing company
13:08
Speaker 3: Uber Technologies.
13:09
Speaker 2: Uber reported better than expected orders in the second quarter,
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Speaker 2: with continued strength and demand for right share and delivery
13:14
Speaker 2: services for more.
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Speaker 3: We were joined by Mandeep Saying, Bloomberg Intelligence, senior tech
13:18
Speaker 3: industry analyst.
13:19
Speaker 2: We first asked Mandy first, key takeaway from Uber's results.
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Speaker 4: Good print, solid top line growth. I think the fact
13:26
Speaker 4: that we're talking about a business that's generating forty billion
13:30
Speaker 4: dollar rund rate in a year. I mean, clearly they
13:33
Speaker 4: have the scale. The question for me when it comes
13:35
Speaker 4: to Uber five years down the line, you know, long
13:39
Speaker 4: term play, how disrupted their business model is going to
13:42
Speaker 4: be from the rollout of autonomous vehicles and robo taxis
13:46
Speaker 4: and Scott's right to help you to talk about it. But
13:50
Speaker 4: when you look at Veimo and how successful they've been
13:53
Speaker 4: in the three cities that they've launched, I mean, the
13:56
Speaker 4: part of the call was about how Uber is integrating
13:59
Speaker 4: Vemo inside their app.
14:01
Speaker 11: What is Wemo?
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Speaker 4: Wemo is Google's autonomous driving unit. I mean they have
14:07
Speaker 4: about three hundred cars in San Francisco, similarly in a
14:10
Speaker 4: couple of other cities Arizona, and what they have shown
14:14
Speaker 4: is their technology is ready for primetime. I mean, they
14:17
Speaker 4: have to get regulatory approvals to do it at scale,
14:20
Speaker 4: but that changes the unit economics completely. Right now, we
14:23
Speaker 4: are talking about a business model where cost per mile
14:27
Speaker 4: is like five to seven dollars. Weimo can at scale,
14:31
Speaker 4: they can do it three or four times cheaper. So
14:34
Speaker 4: suddenly the take rate model gets to disrupted. Now again
14:38
Speaker 4: it's not hit primetime, but that's what Tesla is striving for,
14:41
Speaker 4: and the risk for Uber and Lyft is they will
14:43
Speaker 4: get disintermediated.
14:45
Speaker 3: Okay, So it's not the fact that Uber would just
14:48
Speaker 3: go get a bunch of robotaxis and use them and
14:50
Speaker 3: eventually payoff over time because they're not paying drivers. It's
14:54
Speaker 3: not that scenario.
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Speaker 4: It's not that scenario because both these companies want to
14:59
Speaker 4: roll out the robot axies themselves as opposed to using
15:02
Speaker 4: an Uber and even if Uber was to get involved,
15:06
Speaker 4: their take rates would be way lower than thirty percent.
15:08
Speaker 4: Right now, they are getting thirty percent of every ride.
15:12
Speaker 4: Let's say it's a fifty dollars ride, Uber makes at
15:14
Speaker 4: least thirty percent. That's a pretty healthy take rate, you know,
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Speaker 4: autonomous driving equation. First, Tesla wants to go solo. They
15:21
Speaker 4: don't want to partner with any of the right sharing guys.
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Speaker 4: That's one risk Vemo is on Uber. But my senses
15:28
Speaker 4: they also want to kind of broaden out their reach
15:32
Speaker 4: and they will deploy their technology themselves. And in fact,
15:35
Speaker 4: Alphabet allocated five billion dollars in capex this quarter on
15:39
Speaker 4: Vemo's rollout.
15:40
Speaker 2: So all right, I mean, all right, it's bad enough
15:42
Speaker 2: that I get in the car with somebody I've never met,
15:44
Speaker 2: a total stranger that's crazy enough to think about.
15:48
Speaker 6: Am I getting in.
15:48
Speaker 2: A car that's a robo taxi? Is that really going
15:52
Speaker 2: to be a thing?
15:52
Speaker 4: And so when I mean, these vehicles are monitored.
15:55
Speaker 12: So by the way, I have.
15:56
Speaker 2: A vest with scooter by the way, so I don't
15:58
Speaker 2: necessarily need them for the shore.
15:59
Speaker 4: But go ahead, but just go to San Francisco right now.
16:02
Speaker 4: You can order a Veimo ride. You can, you can
16:05
Speaker 4: and just get that experience. I think every consumer who
16:10
Speaker 4: has taken a Mo ride loves that experience. Uber talked
16:13
Speaker 4: about they acknowledged the thread on their call, but they
16:16
Speaker 4: also think the rollout will be slow, and they are
16:18
Speaker 4: positioning themselves by seeking all these partnerships. They're partnering with
16:22
Speaker 4: BYD for one hundred thousand vehicles, that was big news
16:25
Speaker 4: last week.
16:26
Speaker 3: Well, then why would it be exclusionary, Like if Tesla
16:29
Speaker 3: rolls it out themselves. It just means more competition. It
16:32
Speaker 3: doesn't mean it's exclusionary like with Lyft. Like you guys
16:35
Speaker 3: price compare with Lyft, there's room for more than.
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Speaker 4: Just one there is, but then it goes back to
16:40
Speaker 4: being the scale player and having that thirty percent take rates.
16:44
Speaker 4: The reason why Uber has done much better than Lyft
16:47
Speaker 4: is because it's a scale player and it can charge
16:50
Speaker 4: that thirty percent take rates because it has the liquidity
16:53
Speaker 4: in its marketplace, the supply demand matching, the best ETAs,
16:56
Speaker 4: the most options that it can offer to its riders.
17:00
Speaker 4: So like marketplaces are all about scale, the moment you
17:03
Speaker 4: have more than three or four competitors right now, it's
17:06
Speaker 4: a duopoly. And still we see how badly Lyft is
17:09
Speaker 4: doing relative to Uber. If you have more competition, that's
17:12
Speaker 4: not good news. But again this is for the route.
17:14
Speaker 4: This quarter was solid. Nothing goes wrong for Uber until
17:18
Speaker 4: this Robotaxi rollout plays out. So we're talking a few quarters.
17:22
Speaker 2: Out scenario market cap for Uber one hundred and thirty
17:24
Speaker 2: two billion, market cap for Lyft four billion. What happened well?
17:29
Speaker 4: I mean, Uber clearly has the scale and door Nash
17:32
Speaker 4: has done similarly very well on the food delivery side.
17:35
Speaker 4: So you've got two scale players when it comes to
17:38
Speaker 4: right sharing and food delivery, and they have the most supply.
17:43
Speaker 4: I mean, one challenge with this business model is gross
17:46
Speaker 4: margins can never be as attractive as your software companies,
17:50
Speaker 4: and that's what we keep finding with Uber. It's like
17:52
Speaker 4: there's still a forty percent gross margin business at an
17:55
Speaker 4: aggregate level.
17:56
Speaker 3: Our thanks to Man Deep Saying, Bloomberg Intelligence senior tech
17:59
Speaker 3: industry analyst.
18:00
Speaker 2: We moved to big tech and Google. This week, a
18:03
Speaker 2: US district court judge rule that Google illegally monopolized the
18:06
Speaker 2: search market through exclusive deals.
18:08
Speaker 3: This handed the US government a win in its first
18:10
Speaker 3: major antitrust case against a tech giant in more than
18:13
Speaker 3: two decades.
18:14
Speaker 2: For more, we were joined by Jennifer Ree, a Bloomberg
18:16
Speaker 2: Intelligence senior litigation analyst.
18:18
Speaker 3: We first asked jen to explain what exactly the accusation
18:21
Speaker 3: against Google was.
18:22
Speaker 9: Google basically was found to be a monopolist in general
18:25
Speaker 9: search services, and I think that's probably no surprise, right
18:28
Speaker 9: we all use Google. I think they have eighty or
18:31
Speaker 9: ninety percent of the search queries and market share. But specifically,
18:36
Speaker 9: what was found to be illegal was Google paying many
18:39
Speaker 9: other third parties, including Apple, Mozilla, Samsung, other OEMs to
18:45
Speaker 9: set Google Search as the default search engine at all
18:48
Speaker 9: the access points that where you need to access the Internet,
18:51
Speaker 9: so for instance, behind a browser, behind Mozilla Firefox, or
18:54
Speaker 9: behind Apple Safari. And so what the judge said is well,
18:58
Speaker 9: by placing Google as the default, this really blocks out
19:01
Speaker 9: all the other competitors, the search engine competitors. And at
19:05
Speaker 9: the end of the day, they can't get better if
19:07
Speaker 9: they can't get to customers, because search engines get better
19:10
Speaker 9: based on the number of searches done, and Google's got
19:13
Speaker 9: all those searches locked up. And that was anti competitive
19:16
Speaker 9: because it was exclusionary and probably hindered innovation, might have
19:20
Speaker 9: hindered choice and you know, possibly hindered equality.
19:24
Speaker 2: Are there some remedies that might be really owners on Google.
19:29
Speaker 9: The remedies have yet to be hashed out, and you know,
19:31
Speaker 9: that process could take six months, it could take even
19:34
Speaker 9: another year before we know what they are. And then
19:37
Speaker 9: Google will likely appeal and can seek to stay any
19:39
Speaker 9: remedy pending the appeal. And if that happens, you're looking
19:42
Speaker 9: at several years before there's any impact at all. But
19:45
Speaker 9: at the end of the day, the remedies could be onerous.
19:48
Speaker 9: First of all, the DOJ will seek structural change. I
19:52
Speaker 9: don't think they could win it here, but one of
19:54
Speaker 9: the requests they might have of the judge is to
19:56
Speaker 9: break apart parts of Google's business. Again, I think that's
19:59
Speaker 9: all long shot here. I don't think it'll happen. I
20:02
Speaker 9: think it's more likely that what the judge will say
20:04
Speaker 9: is Google, you can't pay anymore to have that default position.
20:08
Speaker 9: And maybe the judge will say, Google, you have to
20:10
Speaker 9: share some of your data with some of these other
20:12
Speaker 9: search engines or maybe some other new nascent search engine
20:15
Speaker 9: that comes into being after this remedy phase is finished.
20:18
Speaker 3: Okay, So if that's the case, I wonder does this
20:21
Speaker 3: change if President Trump wins the White House or is
20:24
Speaker 3: this kind of like locked in.
20:26
Speaker 9: You know, it's such an interesting issue right now. Alex
20:29
Speaker 9: because one might have said, if an administration changes from
20:34
Speaker 9: democratic to Republican, it could change and there might be
20:37
Speaker 9: more of a likelihood of a settlement. But you have JD.
20:40
Speaker 9: Vance as president former President Trump's vice presidential pick, and
20:44
Speaker 9: he actually is aligned with the idea of breaking up Google.
20:48
Speaker 9: He's pretty anti big tech. I don't know how much
20:50
Speaker 9: he would influence the policy decisions of a Trump DOJ
20:55
Speaker 9: or FTC, but if he did, he would be all
20:58
Speaker 9: in on continuing to go after Google. So I think
21:02
Speaker 9: that possibility of some kind of a settlement that's easier
21:05
Speaker 9: on Google happening down the road is low.
21:07
Speaker 4: Jen.
21:08
Speaker 2: I think if you stopped any person on the street,
21:09
Speaker 2: they would say, I.
21:10
Speaker 6: Got no problem with Google.
21:11
Speaker 2: They're actually, it's great, It's changed my life for the better.
21:15
Speaker 2: Is this one of those issues where there it's a
21:17
Speaker 2: solution in search of a problem here, and does that
21:19
Speaker 2: factor into remedies?
21:22
Speaker 9: You know, it's exactly you're thinking like a lawyer now,
21:25
Speaker 9: because there's a lot of commentary when this case was
21:30
Speaker 9: brought that the DOJ brought the case but they really
21:32
Speaker 9: don't have a solution, and they brought it before they
21:35
Speaker 9: knew what the solution would be. We're going to get
21:37
Speaker 9: into what they're going to suggest the solution. But Paul,
21:40
Speaker 9: exactly why you said, you know, people love Google, and
21:43
Speaker 9: this is exactly why I think the judge wouldn't do
21:45
Speaker 9: something structural, because he's not going to want to mess
21:47
Speaker 9: that up. People like Google. Google's essentially a free product,
21:51
Speaker 9: at least for people, not for advertisers, and it functions
21:54
Speaker 9: very well. And despite having a monopoly position, the judge
21:57
Speaker 9: did acknowledge that Google continues to innovate in the search area.
22:01
Speaker 9: So I think because of the desirability for consumers of
22:05
Speaker 9: the Google search engine, we're not going to see something structural.
22:08
Speaker 9: But I do think obviously the judge is going to
22:10
Speaker 9: have to impose some remedy because he found that the
22:12
Speaker 9: company is acting anti competitively.
22:14
Speaker 3: This is a weirdly unfair question to ask you, is
22:17
Speaker 3: big tech too big? Like do we have a big
22:20
Speaker 3: tech problem?
22:22
Speaker 9: Well, I think that's what the current administration thinks. Yes,
22:25
Speaker 9: But you know, there's a disalignment here with our Supreme Court,
22:29
Speaker 9: because our Supreme Court has ruled over and over that
22:31
Speaker 9: it's not illegal in the United States to have a monopoly,
22:34
Speaker 9: and in fact, that's what we want all companies to
22:36
Speaker 9: work toward because that's what will cause them to innovate
22:39
Speaker 9: and try to gain market share by lowering their prices.
22:42
Speaker 9: So at the end of the day, just being big
22:44
Speaker 9: isn't illegal. The problem is the conduct of a company
22:47
Speaker 9: that's really big, and that's really what the DOJ and
22:50
Speaker 9: FDC are going after.
22:51
Speaker 2: Right now, How about other tech companies, what does this
22:53
Speaker 2: mean for them?
22:54
Speaker 9: You know, I think it's atmospherics because there are different facts,
22:58
Speaker 9: different issues, different markets, in different market positions. You know,
23:01
Speaker 9: the case against Amazon against Meta, case against Apple, they're
23:05
Speaker 9: quite different, and these cases rest on the facts and
23:08
Speaker 9: the specifics. But what this does do, at least for Google,
23:11
Speaker 9: we have one more case coming up, a big one
23:13
Speaker 9: against its ad tech stack that's going to trial this September.
23:17
Speaker 9: And now Google's been found to have monopolized two different
23:20
Speaker 9: parts of its business. It's play store and now Search.
23:23
Speaker 9: So psychologically, you know, it could influence a judge to think, well,
23:28
Speaker 9: they've been found to engage anti competitively in two areas,
23:30
Speaker 9: why not in a third as well?
23:32
Speaker 3: You know, Paul, this goes to your ara too. I
23:34
Speaker 3: was reading that big tech's AI problem is just going
23:37
Speaker 3: to buy smaller companies and getting their talent right, and
23:40
Speaker 3: I wonder if that has to kind of go away
23:42
Speaker 3: now because if you have this kind of DOJ.
23:44
Speaker 2: Yeah, it's interesting. I mean, I think what I understand
23:47
Speaker 2: from people like gen is that some of these big
23:49
Speaker 2: tech comies that their hands are really tied in terms
23:51
Speaker 2: of big deals at least.
23:52
Speaker 9: Yeah, Jen, do you think, oh, absolutely, their hands have
23:55
Speaker 9: been tied for the last three years. Things could change
23:58
Speaker 9: a little bit with the new administration. I think there
24:00
Speaker 9: is no doubt no matter who's elected, there will be
24:03
Speaker 9: some change in the leadership positions the decision makers at
24:07
Speaker 9: the Department of Justice and Federal Trade Commission, and that
24:09
Speaker 9: could change things. But I do think big tech is
24:12
Speaker 9: still going to have a lot of trouble going forward
24:14
Speaker 9: trying to do any kind of a big deal.
24:16
Speaker 2: Thanks to Jennifer Ree, Bloomberg Intelligence senior litigation.
24:18
Speaker 3: Analysts coming up on the program a conversation with the
24:21
Speaker 3: CEO of Energy Vault on storing energy.
24:24
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing INFF
24:27
Speaker 2: research and data on two thousand companies in one hundred
24:29
Speaker 2: and thirty industries. You can access Bloomberg Intelligence via b
24:32
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24:34
Speaker 3: I'm Paul Sweeney and I'm Alex Steele, and this is Bloomberg.
24:42
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24:46
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24:56
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25:00
Speaker 3: We move next to Caterpillar, one of the world's biggest
25:02
Speaker 3: producers of heavy machinery.
25:04
Speaker 2: The company is seen as a bell weather for industrial activity,
25:07
Speaker 2: and this week Caterpillar reported second quarter earnings that showed
25:10
Speaker 2: resilience that's despite growing worries about the global economy. To
25:13
Speaker 2: help recap, we were joined by Christopher Cilino, Bloomberg Intelligence
25:16
Speaker 2: senior US machinery analyst. We first asked Chris what he
25:19
Speaker 2: made of Caterpillar's most recent quarter.
25:21
Speaker 11: I think there are a lot of positives to take
25:23
Speaker 11: away from this report, and I think investors could probably
25:26
Speaker 11: you breathe a little sigh of relief. The margins were
25:30
Speaker 11: really quite impressive. I mean they were up more than
25:32
Speaker 11: one hundred basis points, even with the softer top line.
25:35
Speaker 11: This quarter with better than expected profitability really across all
25:39
Speaker 11: of its businesses with particular strengths, and the Energy and
25:43
Speaker 11: Transportation unit again that really continues to be a big
25:46
Speaker 11: driver for them. We saw dealer inventories come down kind
25:49
Speaker 11: of a little bit more than we normally seasonally would,
25:52
Speaker 11: which is a positive sign. And then also the backlog
25:55
Speaker 11: improved sequentially, which I think will probably help alleviate some
25:58
Speaker 11: of those fears around the more or severe slow down
26:02
Speaker 11: and inventory build, which has been a big concern among investors.
26:05
Speaker 2: Chris talk about geography or the any pockets of strength
26:08
Speaker 2: or notable weakness around the world.
26:11
Speaker 11: Yeah, so if you think, you know, Europe has been
26:14
Speaker 11: weak for KAT for quite some time, We're starting to
26:17
Speaker 11: hear of some potential green shoots over there, but you know,
26:20
Speaker 11: I think KAT kind of dispelled some of those that
26:23
Speaker 11: it's a little too early for talk of a recovery there,
26:27
Speaker 11: so kind of bouncing along the bottom. China obviously continues
26:32
Speaker 11: to be at pretty depressed levels. You know, historically China's
26:36
Speaker 11: been five to ten percent of consolidated revenue at KAT
26:40
Speaker 11: will be well below that five percent lower end of
26:43
Speaker 11: the band this year. And then North America, while you know,
26:46
Speaker 11: some of the retail numbers this quarter were a little
26:49
Speaker 11: bit softer than they had anticipated, particularly with some of
26:52
Speaker 11: the rental dealers not maybe restocking as much as they
26:55
Speaker 11: had anticipated. That continues to probably be the resilient area
27:02
Speaker 11: of the business for Caterpillar this year. But i'd also
27:05
Speaker 11: call out actually Latin America was surprisingly strong this quarter
27:09
Speaker 11: on the back of Brazil.
27:11
Speaker 2: So how much visibility does a company like Caterpillar have,
27:15
Speaker 2: Chris and what are they saying about their visibility?
27:18
Speaker 11: Yeah, so the backlog increased sequentially here about two and
27:22
Speaker 11: a half percent in the quarter, were almost at twenty
27:26
Speaker 11: nine billion dollars. That gives them roughly, you know, three
27:29
Speaker 11: months of coverage, a little bit longer. It was longer
27:33
Speaker 11: le time. Products like some of the energy and transportation products,
27:37
Speaker 11: those have much longer lee time, but I think of
27:40
Speaker 11: it as roughly three months. Orders did come down a
27:43
Speaker 11: touch in the quarter, but you know, we saw some
27:46
Speaker 11: sequential improvement. There no signs of really kind of a
27:49
Speaker 11: more precipitous decline, which I think has been a concern
27:54
Speaker 11: just given some of the prints that we've seen from
27:56
Speaker 11: some other machinery names that really brought down their construction
28:00
Speaker 11: outlooks for the year. That really doesn't seem to be
28:02
Speaker 11: the case here.
28:03
Speaker 3: So that's sort of their top line. How did they
28:05
Speaker 3: manage their cost profile, margins, et cetera.
28:09
Speaker 11: Margins were phenomenal, and I think that's my takeaway. Yeah,
28:13
Speaker 11: I mean, if you look at energy and transportation one,
28:16
Speaker 11: pricing continues to be the biggest driver of the margin
28:19
Speaker 11: performance for the enterprise overall. But if you look into
28:23
Speaker 11: the energy and transportation unit margins well ahead of the
28:27
Speaker 11: street that is pricing and a little bit favorable mix.
28:32
Speaker 11: You also have lower freight costs, you have lower material costs.
28:36
Speaker 11: Execution here continues to be quite good, So I'd expect
28:39
Speaker 11: that strength really to continue throughout the balance of the year.
28:42
Speaker 11: And as you alluded to earlier, you know, they well
28:45
Speaker 11: the Caterpillar doesn't give explicit guidance. They're basically telling us
28:48
Speaker 11: that this year is going to be a lot stronger
28:50
Speaker 11: than they had anticipated, with margins above their long term framework.
28:53
Speaker 11: Earnings are going to be stronger than they had anticipated
28:56
Speaker 11: even coming into the quarter. So certainly, the margin performance
29:00
Speaker 11: it was quite good.
29:01
Speaker 2: Chris, How about the competitive landscape out there? Who does
29:03
Speaker 2: KAT compete with and how's that share game going globally?
29:08
Speaker 11: It's primary. You know, there's a number of regional players,
29:11
Speaker 11: Kamatsu being the biggest one over in Japan, but they're
29:15
Speaker 11: a big competitor here in the United States, particularly on
29:18
Speaker 11: the mining side, but also construction. You have Volvo CNH
29:24
Speaker 11: Industrial and then obviously Deer here in the United States
29:28
Speaker 11: that kind of round out more of the local construction piers.
29:32
Speaker 11: There's a number of other players in Asia, whether it
29:35
Speaker 11: be a Hatachi and a few others, but it's really
29:40
Speaker 11: Caterpillar is the market leader and really can think about mining,
29:44
Speaker 11: it's essentially a doopoly and the mining truck business with
29:46
Speaker 11: them in Kamatsu.
29:48
Speaker 3: When we take a look at what Caterpillar tracks like,
29:51
Speaker 3: I'm thinking I like looking at it because it feels
29:53
Speaker 3: like a nice global growth barometer. Is it a global
29:56
Speaker 3: growth barometer?
29:57
Speaker 4: Like?
29:57
Speaker 3: If earnings grow at Caterpillar and their outlook is does
30:00
Speaker 3: that mean the global GDP is good? What's your correlation
30:03
Speaker 3: for that?
30:04
Speaker 8: Yeah?
30:04
Speaker 11: No, you're you're absolutely right. It is a global economic
30:08
Speaker 11: bell weather. You know, half the business is still here
30:10
Speaker 11: in North America, but you think of it roughly twenty
30:13
Speaker 11: percent Emia and twenty percent Asia. And then Latin America,
30:17
Speaker 11: like I said, down around roughly ten percent of the business,
30:20
Speaker 11: but it certainly is is a bell weather for economic growth.
30:25
Speaker 11: And you know, North America continues to be probably one
30:28
Speaker 11: of the more resilient regions globally because of all this
30:31
Speaker 11: infrastructure spending that we have that has certainly kind of
30:34
Speaker 11: offset some of the weakness on the commercial side of
30:37
Speaker 11: the business. And then obviously it seems like we're you know,
30:40
Speaker 11: kind of approaching a bottom on the residential side, so
30:42
Speaker 11: maybe that provides a tailwind as we move into twenty five.
30:46
Speaker 2: Our thanks to Christielino, Bloomberg Intelligence Senior US Machinery antallys.
30:49
Speaker 3: Let's move now to my favorite space. Energy. So how
30:52
Speaker 3: to store energy is huge because if you want to
30:55
Speaker 3: diversify what energy you're using, like wind, solar, and hydrogen,
30:58
Speaker 3: you really need big, big batteries to be to store it.
31:00
Speaker 3: And storing energy for long periods of time has proved
31:03
Speaker 3: to be very difficult and expensive.
31:05
Speaker 2: One company that's trying to change that is Energy Vault
31:08
Speaker 2: nysee ticker NRGV.
31:12
Speaker 6: Earlier this week, we were.
31:13
Speaker 2: Joined by Energy Vault CEO Rob Pconi, and we first
31:16
Speaker 2: asked Rop to describe what exactly his company does.
31:19
Speaker 6: So we broadly focus on energy storage and we focus
31:23
Speaker 6: on it with varying technologies and software. So we do
31:27
Speaker 6: shorter duration energy storage using latimon. We do long duration
31:32
Speaker 6: energy storage meaning things to get sort of in a six, eight, twelve,
31:35
Speaker 6: even twenty four hour so full day types of storage
31:38
Speaker 6: with a unique gravity solution where we lift in lower
31:43
Speaker 6: blocks or will shift water from different heights. And we
31:47
Speaker 6: also do ultralong duration meaning multi day storage using green
31:52
Speaker 6: hydrogen and microgrids.
31:54
Speaker 12: Who are your customers, rob Our main customers are first
31:59
Speaker 12: and four almost utilities, so we can sell directly to utilities,
32:03
Speaker 12: and we also sell to independent.
32:05
Speaker 6: Power producers, so the ones that will for example, build
32:09
Speaker 6: out solar wind and pair storage with that and have
32:12
Speaker 6: long term contracts with utilities. And the third group are
32:16
Speaker 6: the large industrial users. So our investors include people like
32:20
Speaker 6: Saudi Aramco a HP, the largest mining group in the world,
32:25
Speaker 6: and groups that are looking to make their own clean
32:27
Speaker 6: energy transition or that have desires to make streen hydrogen
32:31
Speaker 6: for example, where you can make that using solar an electoralizer,
32:34
Speaker 6: but you need long duration storage. So because our technologies
32:39
Speaker 6: focus across a series of durations, we can actually meet
32:43
Speaker 6: a lot of those needs and hence serving those three
32:45
Speaker 6: market segments.
32:46
Speaker 3: So let's go back to the gravity storage solution thing.
32:50
Speaker 3: So this is from an article here at boomer from
32:52
Speaker 3: a few years ago, but it describes it and I
32:53
Speaker 3: feel like accurately and pretty well. An electric crane hoists
32:57
Speaker 3: up blocks of concrete and stacks them into a tower
33:00
Speaker 3: when power is plentiful, when power is needed, it uses
33:03
Speaker 3: gravity to take the structure apart brick by brick, and
33:07
Speaker 3: the weight of the descending blocks converts kinetic energy into electricity.
33:11
Speaker 3: That sounds really hard and complicated.
33:15
Speaker 6: You know what, gravity has been around for a while.
33:17
Speaker 6: I tell people it's not an idea, it's the law.
33:20
Speaker 6: So the whole physics of moving weights up and down
33:24
Speaker 6: has been around. But you're right to do that in
33:26
Speaker 6: a way that's economical to do that now with software
33:29
Speaker 6: where we can automate that entire process and dynamically look
33:33
Speaker 6: at the timing and dynamically accelerate and accelerate that lifting
33:37
Speaker 6: and lowering. And also we actually don't use concrete, so
33:41
Speaker 6: we avoid it because it's not really sustainable. It's one
33:44
Speaker 6: of the contributors. I think seven to eight percent to
33:47
Speaker 6: greenhouse gases. So we actually have a material science team
33:51
Speaker 6: and worked with SEMX to use dirt and even waste
33:54
Speaker 6: materials like coal ash, even concrete debris are the things
33:57
Speaker 6: that would go into land fills. We can utilize that
34:02
Speaker 6: to make these large blocks that are twenty five metric tons,
34:04
Speaker 6: So we try and avoid materials that are not sustainable
34:08
Speaker 6: to make those very same blocks.
34:11
Speaker 2: So how is I guess your business changing to try
34:15
Speaker 2: to meet the changing sources and uses of energy these days?
34:20
Speaker 6: About it? It's a great question, and it is one
34:23
Speaker 6: of the challenges. It's definitely focused globally on countries wanting
34:27
Speaker 6: to achieve energy independence, and to do that you need
34:31
Speaker 6: to be able to produce locally. Hence our gravity solution
34:35
Speaker 6: that's more long duration, of course, is ideal because you
34:38
Speaker 6: can produce most of that from local materials, local labor.
34:41
Speaker 6: I mean it's construction, you're building a building. When you
34:44
Speaker 6: get to the short duration, which is most of the
34:46
Speaker 6: market today, and we know about lithium ion, so that's
34:48
Speaker 6: two to four hours, that's this time shifting people trying
34:52
Speaker 6: to manage you're relying on the rare metals, which I
34:55
Speaker 6: believe Paul, what you're referring to and that's where through
34:58
Speaker 6: mechanisms like the IR that was put in place in
35:01
Speaker 6: the US, they're trying to get that localized. And to
35:04
Speaker 6: deal with that, you have to come up with mechanisms
35:07
Speaker 6: to try to bring some of that production local as
35:10
Speaker 6: much as you can in terms of getting content, and
35:12
Speaker 6: that's been a big focus area and leveraging technologies like hydrogen.
35:17
Speaker 6: For example, gree hydrogen can be made sustainably. We're using
35:21
Speaker 6: that to back up the city of Calistoga in northern
35:24
Speaker 6: California and near Napa to provide a sustainable backup solution
35:28
Speaker 6: for two to four days that otherwise would have taken
35:30
Speaker 6: natural gas. So it's a combination of technologies you really
35:34
Speaker 6: have to use to solve this issue of reliance on
35:38
Speaker 6: either you know, a few countries in the world or
35:40
Speaker 6: a few rare word metals.
35:43
Speaker 3: So if I just look at your stock, it's had
35:45
Speaker 3: a tough road since it's spack, right. I mean, clearly
35:48
Speaker 3: there was a lot of enthusiasm in the beginning. You
35:50
Speaker 3: had a nice pop, and that's been really tough. In
35:52
Speaker 3: the last earnings estimate and the last earnings for second quarter,
35:55
Speaker 3: the headline is revenue missing estimates. How do you how
35:59
Speaker 3: do you manage this at this time? It's expensive to
36:02
Speaker 3: probably get all this done, even though the demand we
36:04
Speaker 3: know is still there.
36:07
Speaker 6: Yeah, the demand is high, and the capital markets have
36:09
Speaker 6: been very challenging, in particular if you go back to
36:13
Speaker 6: mid twenty twenty two, when the interest rate environment changed
36:15
Speaker 6: and really fundamentally, I think the risk appetite for new
36:19
Speaker 6: emerging growth companies like ours really soured and changed. And
36:24
Speaker 6: for us, we focused on execution, and you know, we
36:27
Speaker 6: had one hundred and forty eight million in our first
36:29
Speaker 6: year revenue twenty twenty two, our second year almost three
36:32
Speaker 6: hundred and fifty millions. We more than doubled the size
36:35
Speaker 6: of the company. But at the end, investors are really
36:37
Speaker 6: focused on cash flow and minimizing risk. We've guided that
36:41
Speaker 6: that's going to happen next year, So in our third
36:44
Speaker 6: full year of revenue, we're going to be cash flow
36:46
Speaker 6: positive and even at positive. And I think until that happens,
36:50
Speaker 6: a lot of investors are on the sidelines. And what
36:52
Speaker 6: we can do is what we're doing, which is executing
36:55
Speaker 6: per customers and in different regions of the world, we
36:57
Speaker 6: announced new deals. In Australia, we announced a large gravity
37:01
Speaker 6: project in Italy at a coal mine, and I think
37:04
Speaker 6: filling up that order book Alex is going to be fundamental,
37:07
Speaker 6: so investors see it's not about if, it's just about
37:10
Speaker 6: when and as we fill that order book, then when
37:12
Speaker 6: that catflow roadmap becomes very clear, which we're getting there
37:16
Speaker 6: at twenty twenty five, which is what we guided, I think,
37:18
Speaker 6: then we'll see investor free entering the star that was.
37:21
Speaker 3: Energy Vault CEO Rob Paconi.
37:24
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