Latest / Bloomberg Intelligence / BI Weekend: Nike, Carnival Earnings, EA Sale

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BI Weekend: Nike, Carnival Earnings, EA Sale · Bloomberg Intelligence

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Speaker 2: us a.
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Speaker 3: Look at why the AI cloud computing startup core Weave
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Speaker 2: But first we begin with the news from the athletic
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Speaker 2: footwear company Nike.
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Speaker 3: This week, the company said that efforts to roll out
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Speaker 3: new products, boost marketing efforts, and clear out old inventory
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Speaker 3: helped ease a long time sales slump.
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Speaker 2: Nick You said it's sales fell one percent on a
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Speaker 2: currency neutral basis in its most recent quarter, and that
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Speaker 2: was a smaller job that investors anticipated.
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Speaker 3: For the analysis, we were joined by Punam Goyel, senior
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Speaker 3: US e Commerce and retail analysts at Bloomberg Intelligence.
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Speaker 2: We first ask Poonam if Nike's turnaround plant is working.
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Speaker 4: It's working, Nike is able to pick up momentum. Sales
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Speaker 4: on a reported basis were up a one percent, Inventories
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Speaker 4: were down two percent. This is exactly what we wanted
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Speaker 4: to see. We wanted to see inventories aligned with sales.
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Speaker 4: So while the work isn't done and it's not over
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Speaker 4: and it's not a straight lineup, we do see momentum building.
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Speaker 4: What they're doing is working, the new products, the innovation,
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Speaker 4: the focus on wholesale, it's all coming together. There are
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Speaker 4: still some pitfalls. China is still sluggish and we'll need
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Speaker 4: to wait and see what happens there as well as
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Speaker 4: with its Converse brand.
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Speaker 3: Okay, so China's definitely an issue. Converse is work in progress.
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Speaker 3: When I look at the revenue line, the top line,
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Speaker 3: what I see is direct revenue fell four percent, wholesale
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Speaker 3: revenue rows seven percent. Just break that down for us
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Speaker 3: in terms of what that means direct revenue versus wholesale revenue.
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Speaker 4: Sure, so direct revenue composers of stores, which were actually
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Speaker 4: up one percent. So that shows us that the innovation
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Speaker 4: and the new products which are flowing through their own
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Speaker 4: stores is working. What made the DTC revenue go down
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Speaker 4: four percent was that digital was down twelve percent. No
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Speaker 4: surprise here if this is where they're clearing all that
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Speaker 4: access inventory, so this channel will be pressured for a
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Speaker 4: couple of quarters. Still, wholesale up seven percent a great,
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Speaker 4: great number. I mean, it just shows that coming back
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Speaker 4: into partnerships with folt Locker in a more meaningful way,
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Speaker 4: getting on Amazon dot Com, all these efforts are paying off,
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Speaker 4: and they're where the customer is. They're gaining their shelf
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Speaker 4: space back and the customers that are responding favorably.
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Speaker 2: You know, the Nike brand is such a powerful brand.
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Speaker 2: I think of it like Coca Cola or Apple. It's
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Speaker 2: so powerful. Yet some of those American brands in China
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Speaker 2: under pressure. And I'm wondering, just with the geopolitics, is
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Speaker 2: Nike a brand where that might be feeling some anti
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Speaker 2: American sentiment from consumers.
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Speaker 4: Well, that has happened in the past, there have been
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Speaker 4: boycotts against you know, US American brands. We don't think
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Speaker 4: that's the issue yet from what we're hearing, but we
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Speaker 4: do think that the issue is more product at Nike
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Speaker 4: in China, So they do need to ramp a product
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Speaker 4: and they do have a lot of access inventory there,
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Speaker 4: more so than they do in the US today, So
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Speaker 4: that's also a work in progress that they need to
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Speaker 4: get through.
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Speaker 5: Let's talk about profitability.
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Speaker 3: Margins declined due to higher discounts and then also the
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Speaker 3: higher tariffs in North America. I look at gross margin
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Speaker 3: forty two point two percent last year. At this time
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Speaker 3: it was more than forty five percent. Now the forty
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Speaker 3: two point two percent was better than estimated. How How
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Speaker 3: long is it going to take for Nike to turn
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Speaker 3: that around.
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Speaker 4: I think we have quite some time. They said that
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Speaker 4: they do still aspire to reach double digit EBIT margin
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Speaker 4: EBIT margins in the quarter that they just reported was
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Speaker 4: only at seven point one percent, So that's a long runway.
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Speaker 4: We don't think it's any time soon. And the hit
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Speaker 4: from tariffs is building, not reducing. They had expected a
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Speaker 4: billion dollars the last time they spoke to us, and
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Speaker 4: that one to one point five billion dollars and access
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Speaker 4: costs from teriffs.
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Speaker 2: How much are they passing along to the retailer versus
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Speaker 2: taking it in their margin, because I mean, Nike's probably
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Speaker 2: just a great example of how companies are trying to
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Speaker 2: deal with the tariffs.
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Speaker 4: Yes, I think they're doing this actually very smartly. They're
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Speaker 4: not increasing prices on products that are under one hundred dollars,
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Speaker 4: but they are taking prices up on sneakers that are
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Speaker 4: above that price point. So if you think about moving
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Speaker 4: prices up, it's very easy to say the price of
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Speaker 4: milk went up from three dollars to three point fifty.
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Speaker 4: But when you're looking at a pair of sneakers actually
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Speaker 4: a new launch, you have no comparison, So you can
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Speaker 4: go ahead and price up your new innovation and the
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Speaker 4: customer may not even recognize that there was a material
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Speaker 4: price increase, and that customer has a little bit more
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Speaker 4: flexibility to stretch their wallets at that price point.
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Speaker 3: Pam, if you are heading up on Holdings or Adidas
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Speaker 3: or Sketchers or you know, any of the Hoka, what
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Speaker 3: would you be thinking looking at this set of results.
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Speaker 4: So Sketchers, I think is in a different league than Nike.
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Speaker 4: It's a little bit different. It's a value play, and
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Speaker 4: I think they don't compete directly like an Adidas or
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Speaker 4: an On or a Hoka would with them. Adidas is
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Speaker 4: doing really well on its franchise lifestyle shoes, and I
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Speaker 4: think Nike, what you've heard, was doing well in performance.
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Speaker 4: So two still very distinct categories. Though for On and Hoka,
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Speaker 4: I think it's a little bit of a different story
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Speaker 4: because Running was back on It's doing phenomenally well and
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Speaker 4: that is where hogaing On both took share from Nike.
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Speaker 4: So I would be just, you know, a little concerned
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Speaker 4: and just make sure that I keep my game on
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Speaker 4: when it comes to innovation, because at the end of
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Speaker 4: the day, product is what's going to drive how sales
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Speaker 4: momentum will go moving forward.
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Speaker 3: Our thanks to Punam goy Alva, senior US e Commerce
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Speaker 3: and retail analysts at Bloomberg Intelligence.
6:15
Speaker 2: We move next to some news in the media and
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Speaker 2: entertainment space. This week, we heard that Spotify CEO Daniel
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Speaker 2: Eck is stepping down after two decades at the company.
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Speaker 3: Spotify will leave the leadership of the music streaming company
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Speaker 3: in the hands of two trusted executives, their Gustaf Soderstrom,
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Speaker 3: Chief Product and Technology Officer and Alex Norstrom, chief business Officer.
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Speaker 3: This move will go into effect on January first.
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Speaker 2: For more, we were joined by Githa Rang and Athen,
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Speaker 2: Bloomberg Intelligence analyst on US Media. Well first asked Githa
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Speaker 2: to explain why CEO Daniel Ck stepping down.
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Speaker 6: Now, this is, you know, one of your classic cases
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Speaker 6: of the founder finally kind of establishing a really good
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Speaker 6: transition plan and handing it off to his you know,
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Speaker 6: to lieutenants here. So we're having a co CEO structure.
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Speaker 6: And really, I mean the first when I heard this,
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Speaker 6: I mean, this really kind of hearkens back to what
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Speaker 6: Reed Hastings did with Netflix, you know, kind of left
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Speaker 6: right at the peak, right when the companies, you know,
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Speaker 6: everything was kind of you know, all cylinders were firing
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Speaker 6: away and left it to Greg Peters and Ted Sorrandos
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Speaker 6: to kind of take charge, and it seems like Spotify
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Speaker 6: is in a very similar position. So they had a
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Speaker 6: couple of things that had to get done this year,
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Speaker 6: which was new contracts with all of the music labels.
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Speaker 6: It looks like Daniel Eck has you know, accomplished all
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Speaker 6: of that, and I think he's really kind of left
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Speaker 6: the company in a good position for for its next
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Speaker 6: phase of growth. And this is really, you know, a
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Speaker 6: huge story in the internet space, the possibility to get
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Speaker 6: to a billion users very very quickly. They already have
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Speaker 6: about seven hundred million.
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Speaker 3: Okay, so there are almost three quarters of the way there.
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Speaker 3: He's leaving on top as George Costanza wood in Seinfeld.
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Speaker 3: But my question, Keita is you talk about the new
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Speaker 3: phase of growth, how much of that will rely on
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Speaker 3: continued price increases. Unlike Paul, I do subscribe, and it's
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Speaker 3: alarming how frequently the price changes come.
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Speaker 6: Yeah, and it is going to keep coming, Scariot, There's
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Speaker 6: absolutely no doubt about it. I mean, this whole story
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Speaker 6: is kind of predicated on those price increases. Remember though,
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Speaker 6: that they never took up prices for the first ten
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Speaker 6: to twelve years, and then it started coming fast and furious.
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Speaker 7: Right.
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Speaker 6: We had one price increase in twenty twenty three, another
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Speaker 6: in twenty twenty four, We're going to have probably another
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Speaker 6: one in twenty twenty six. But if you kind of
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Speaker 6: look at all of the streaming services out there, you know,
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Speaker 6: Spotify is of course the leader in audio streaming. They
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Speaker 6: have a thirty five percent global market share in terms
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Speaker 6: of subscribers. You kind of look at their price, Let's
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Speaker 6: say in the US, it's twelve dollars for an individual plan.
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Speaker 6: You compare that to let's say the video leader Netflix. Again,
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Speaker 6: I go back to the Netflix example, They're priced at
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Speaker 6: eighteen dollars. So I think Spotify still has quite a
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Speaker 6: lot of runway when you kind of compare it to
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Speaker 6: the rest of the field. And the other thing that
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Speaker 6: I like to point out here is when you're kind
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Speaker 6: of subscribing to an audio service, it's typically only one
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Speaker 6: service that you're subscribing to, as opposed to a video service.
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Speaker 6: I think people really like their you know, if they
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Speaker 6: like Spotify, they're absolutely going to hold on to it
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Speaker 6: at any cost. And the other thing is, you know,
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Speaker 6: Spotify is adding new features all the time, so they
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Speaker 6: are like really getting down on you know, monetizing more
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Speaker 6: and more, but it's not They are innovating also constantly,
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Speaker 6: so I think I think people don't mind paying for it.
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Speaker 2: What's the biggest challenge to them on the cost side
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Speaker 2: of the business.
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Speaker 6: KEITHA music royalty is all. I mean, that's you know,
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Speaker 6: for every dollar that they make, they're paying out about
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Speaker 6: seventy cents in terms of musical royalties back to the labels.
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Speaker 6: So it is definitely a very you know, from that perspective,
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Speaker 6: the model is hard. But one of the things that
9:42
Speaker 6: they've done very well is, you know, they've obviously renegotiated
9:46
Speaker 6: a lot of the deals kind of try to provide
9:49
Speaker 6: investors with a lot more visibility into the cost space.
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Speaker 6: But more importantly for them, they're really trying to go
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Speaker 6: away from you know, licensed content to more owned content,
9:59
Speaker 6: so kind of going into you know, podcasts, going to
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Speaker 6: more non music content, where again they have a lot
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Speaker 6: more leverage, you know, whether it's audiobooks, whether it's video podcasts,
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Speaker 6: getting away from you know, just being a core music
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Speaker 6: service to more of kind of an global kind of
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Speaker 6: an audio service, and they're doing that really well, and
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Speaker 6: that's going to help them with their margin expansion story
10:20
Speaker 6: as they get better unit economics right.
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Speaker 3: And introducing premium tiers on top of that you have
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Speaker 3: to unlock in order to unlock some of the more
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Speaker 3: I don't know, high profile podcasts, you then have to
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Speaker 3: pay extra. Keith talk a little bit about AI because
10:34
Speaker 3: I keep reading about how AI generated music is a challenge,
10:37
Speaker 3: but in what way? And could it actually become an
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Speaker 3: opportunity as well for Spotify?
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Speaker 6: I think so. I think it is going to become,
10:46
Speaker 6: you know, an opportunity as we go. They're already actually
10:48
Speaker 6: using you know, a lot of AI features when it
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Speaker 6: comes to curation, you know, when it comes to music discovery,
10:54
Speaker 6: when it comes to providing better features, and they're already
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Speaker 6: and you just brought up the super premium tier and
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Speaker 6: a lot of that is actually going to be having
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Speaker 6: like an AIDJ type of a feature there, you know,
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Speaker 6: for both listeners as well as music creators. So I
11:10
Speaker 6: think it is definitely going to be you know, a
11:12
Speaker 6: good opportunity for them to present a much better product.
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Speaker 6: I mean, we've already seen AI being used by a
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Speaker 6: lot of the other platforms. Again, I go back to
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Speaker 6: Netflix because they've done this really well in terms of
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Speaker 6: you know, having a much better algorithm now to serve
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Speaker 6: up better content. And I think that's exactly what Spotify
11:28
Speaker 6: is doing in terms of its playlists as well.
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Speaker 2: Where's Apple in this audio game?
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Speaker 6: So just in terms of subscribers share, Paul, I mean Spotify,
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Speaker 6: as I said, leads with about thirty five percent share
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Speaker 6: of the market. Apple is really far behind. They have
11:42
Speaker 6: about a ten percent share, so very very hard for
11:46
Speaker 6: them to catch up in terms of in terms of
11:48
Speaker 6: subscribers at least.
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Speaker 3: Are Thanks to Getha Rong and Aathan, Bloomberg Intelligence analysts
11:52
Speaker 3: on US Media coming up a look at why the
11:54
Speaker 3: video game maker Electronic Arts has agreed to sell itself
11:57
Speaker 3: to a group of investors.
11:58
Speaker 2: You're listening to Bloomberg and Intelligence on Bloomberg Radio, providing
12:01
Speaker 2: in depth research and data on two thousand companies and
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Speaker 2: one hundred and thirty industries.
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Speaker 3: You can access Bloomberg Intelligence via Bigo on the terminal.
12:08
Speaker 3: I'm Scarlet Foo and.
12:09
Speaker 2: I'm Paul Sweeney. This is Bloomberg.
12:15
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
12:20
Speaker 1: on Bloomberg Radio.
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Speaker 2: We move next to the electronic gaming space.
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Speaker 3: This week, the video game maker Electronic Arts or, EA
12:28
Speaker 3: agreed to sell itself to a group of investors. They
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Speaker 3: include a firm managed by Jared Kushner and Saudi Arabia's
12:34
Speaker 3: Sovereign Wealth Fund.
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Speaker 2: The deal values EA at about fifty five billion dollars,
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Speaker 2: with the investors agreeing to pay two hundred and ten
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Speaker 2: dollars per share in cash. This makes it the largest
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Speaker 2: leverage buyout on record.
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Speaker 3: For more, we were joined by Nathan Natu Bloomberg Intelligence
12:47
Speaker 3: Technology Research Analysts.
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Speaker 2: We first asked Nathan to break down the EA's recent valuation.
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Speaker 7: The valuation is at a twenty to thirty percent premium
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Speaker 7: versus the last three quorder market cab before this deal
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Speaker 7: was now and it seems like, you know, it is
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Speaker 7: a premium deal, but actually, you know, EA has a
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Speaker 7: lot going for it. It is actually launching a new
13:10
Speaker 7: batterfield game, and there's a strong prospect for this game.
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Speaker 7: And actually the game is now in prely release, and
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Speaker 7: even then, he has already smashed all prior records set
13:20
Speaker 7: by the biggest game in that genre, and that genre
13:23
Speaker 7: is first person should and that game that's dominated that
13:26
Speaker 7: genre is called Duty from Microsoft. So Betterview six is
13:30
Speaker 7: looking to be a successful launch. And next year we
13:33
Speaker 7: have FIFA and obviously we know that EA has the
13:36
Speaker 7: biggest soccer game in the industry, and that's FIFA. What
13:39
Speaker 7: was called FIFA but now it's called EA Sports FC.
13:42
Speaker 7: And next year FIFA World Cup will be a special
13:44
Speaker 7: one because it will be hosted across three cities, including
13:48
Speaker 7: the US, and if people don't know, US is actually
13:51
Speaker 7: the biggest market in terms of revenue for all kinds
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Speaker 7: of sports games. So that's the second thing going for
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Speaker 7: EA that I think it's going to lead to at
13:59
Speaker 7: least two round circumstensus beat on EPs share. So I
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Speaker 7: think for e A, this is a this is actually
14:07
Speaker 7: a good deal, and we can talk about the common
14:09
Speaker 7: struggles faced by you know, game publishers and how these
14:13
Speaker 7: deals would make sense for e A as well as
14:15
Speaker 7: the the investors in this context.
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Speaker 3: So yeah, let's do that because you mentioned a bunch
14:20
Speaker 3: of the titles and these are you know, very valuable franchises.
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Speaker 3: These this is a top quality ip, whether it's E
14:27
Speaker 3: Sports FC, madd in NFL, the SIMS battlefield. What does
14:31
Speaker 3: ownership by private equity, by private investors allow e A
14:36
Speaker 3: to do that it can't do as a publicly traded company.
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Speaker 7: I think it's all down to funds. So publishers. Game
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Speaker 7: publishers in general have been have been facing two struggles.
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Speaker 7: First one is gamers attention spend and playtime are increasingly
14:49
Speaker 7: getting limited. The reason is people are sticking to brands
14:54
Speaker 7: or franchises that they have played for a long time.
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Speaker 7: And in fact, new Zoo published data saying that a
15:00
Speaker 7: percent of playtime tend to go back to the sixty
15:03
Speaker 7: or so titles, leaving only eight percent of playtime for
15:07
Speaker 7: brand new IP. And this is actually in favor of
15:09
Speaker 7: EA because we mentioned those valuable IP. In fact, if
15:13
Speaker 7: we look at global unit sales, EA has topped twenty
15:18
Speaker 7: has four of those top twenty selling IP globally, he
15:22
Speaker 7: has four out of the twenty. So that is actually
15:25
Speaker 7: a pretty enticing deal thing for companies like private equity
15:29
Speaker 7: because you know, profit generation is key, and what this
15:33
Speaker 7: means that is that EA has franchises that can bring
15:36
Speaker 7: in recurring revenue. We talked about EA Sports FC, we
15:39
Speaker 7: talk about MED and MFL and they actually revived a
15:42
Speaker 7: new franchise, College Football, and you know, it was one
15:45
Speaker 7: of the best selling titles in the US last year.
15:48
Speaker 7: So recurring revenue is key here. And the second struggle
15:51
Speaker 7: that I was going to go into is development cost
15:54
Speaker 7: is really high, especially in the US, So that means
15:57
Speaker 7: that we publishers actually have a cost is advantage when
16:01
Speaker 7: compared to Eastern developers. For example, you know, salaries for
16:04
Speaker 7: game engineers in China is more than half the level
16:09
Speaker 7: in California, and personnel cost game engineers is a huge
16:13
Speaker 7: part of developing a game. So you know, tens and
16:16
Speaker 7: actually launched a new game in the same genre as
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Speaker 7: Better Few six and that's Deltalk Force is doing really well.
16:23
Speaker 7: And what that costs disadvantage is stopping EA from is
16:27
Speaker 7: continuously to push out a stronghalence of content to essentially
16:32
Speaker 7: extending the shelf life of any game, and Eastern developers
16:35
Speaker 7: can do that better because of that cost edge.
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Speaker 3: Our thanks to Nathan Native, Bloomberg Intelligence technology research analyst.
16:42
Speaker 2: We move next to some news in the energy industry.
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Speaker 3: This week, the energy company Exon Mobile said it plans
16:47
Speaker 3: to cut about two thousand jobs globally as part of
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Speaker 3: its long term restructuring plan.
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Speaker 2: The reductions represent about three to four percent of Xcellon's
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Speaker 2: global workforce and are part of the company's ongoing efficiency drive.
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Speaker 3: For the analysis, we're joined by Vincent Pas, Bloomberg Intelligence,
17:01
Speaker 3: senior equity research analyst of oil and gas.
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Speaker 2: First ask Vincent for his take on this Exon news.
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Speaker 8: Well, I think it's part of managing through the cycle.
17:10
Speaker 8: Right in prior cycles, the sector was exposed to more
17:14
Speaker 8: extreme volatility, higher highs, lower lows. The industry is trying
17:21
Speaker 8: to manage through what seems to be a rather clouded
17:26
Speaker 8: backdrop right now. So we're sitting here and you got
17:31
Speaker 8: NAT gas somewhere around three point thirty Henry Hubb. You
17:33
Speaker 8: got WTI in the low sixties. You have OPEC bringing
17:37
Speaker 8: back on capacity and maybe even speeding up that capacity.
17:43
Speaker 6: Ads.
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Speaker 8: You have a more clouded, broader economic backdrop across the globe.
17:49
Speaker 8: You have geopolitical issues, so lots of uncertainty, and not
17:53
Speaker 8: only Exon. Exon's probably going to cut somewhere about two
17:57
Speaker 8: three four percent of its global workforce, its affiliate a
18:01
Speaker 8: much more substantial cut, roughly about twenty percent over the
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Speaker 8: next two years or so. You're seeing it at Conico Phillips,
18:09
Speaker 8: You're seeing it at Chevron, even BP, the major European
18:14
Speaker 8: energy conglomerate. You're seeing it across the board. And so Paul,
18:18
Speaker 8: as you know, when you're not growing revenue, right, you're
18:20
Speaker 8: not getting the revenue increase on price, you're not growing
18:23
Speaker 8: production because your investor base does not want to see
18:26
Speaker 8: that production growth. You are looking at very steady revenue,
18:31
Speaker 8: maybe even declining revenue. You have to manage that netback
18:34
Speaker 8: from the cost perspective, and you have to support that
18:37
Speaker 8: cash flow stream. And so you're doing it via these
18:40
Speaker 8: cost cuts over a number of years too, maybe even
18:43
Speaker 8: three years, to sort of bring that cost structure in
18:47
Speaker 8: line with a new reality of uncertainty in the marketplace,
18:50
Speaker 8: to reduce that volatility.
18:52
Speaker 3: Well, there's cost cuts, and then there's exon mobiles cost cuts.
18:54
Speaker 3: Since twenty nineteen, it's trimmed thirteen and a half billion
18:58
Speaker 3: dollars in annual cost That is more than all the
19:00
Speaker 3: other big oil companies combined. How much more room is
19:04
Speaker 3: there for Exxon to slash expenses.
19:07
Speaker 8: Well, it bought Pioneer, so it has a relatively sizable workforce.
19:14
Speaker 8: In general, it doesn't necessarily mean that those cuts are
19:16
Speaker 8: going to come there, but there are ways you cut
19:20
Speaker 8: you gain efficiency. In this technological era where we have
19:24
Speaker 8: advancements across the energy value chain. You will consistently and
19:30
Speaker 8: continually seek out ways to get efficiency, to bring down
19:36
Speaker 8: that cost structure and to bring unit costs in line
19:40
Speaker 8: with a very anemic outlook for global energy prices in general,
19:45
Speaker 8: and also a very clouded outlook for the global economy too.
19:50
Speaker 2: So Vince kind of looking out, you know, one in
19:53
Speaker 2: two years, what is the view of the companies you
19:55
Speaker 2: talk to about energy prices, oil and gas? Is it
19:58
Speaker 2: still going to be a challenge market here?
20:00
Speaker 8: It looks like it. It looks like it's going to
20:02
Speaker 8: be a very challenge market, especially for the WTI side,
20:05
Speaker 8: for the oil side of the equation. On natural gas, Paul,
20:08
Speaker 8: I know you and I have talked about this numerous times.
20:10
Speaker 8: You have a structural growth trajectory for natural gas here
20:15
Speaker 8: in the US via export LNG, whether it's seaborne energy
20:19
Speaker 8: or whether it's pipeline gas into Mexico to help fuel
20:24
Speaker 8: their economy as well.
20:26
Speaker 9: You have the AI build out, which will be a
20:30
Speaker 9: which will digest significant amounts of energy, and that's beneficial
20:35
Speaker 9: for natural gas.
20:36
Speaker 8: But on the oil side, you have very anemic growth.
20:41
Speaker 8: You have your transportation fuels having to compete with alternative
20:47
Speaker 8: and renewable fuels, so there's a greater competition there. The
20:51
Speaker 8: growth trajectory and the outlook for the demand side on
20:55
Speaker 8: the liquid fuels seems to be very clouded and seems
21:00
Speaker 8: to be somewhat less secure relative to the natural gas
21:05
Speaker 8: side of the house.
21:06
Speaker 3: Our thanks to Vincent Piazza, Bloomberg Intelligence, senior equity research
21:10
Speaker 3: analyst on oil and gas.
21:11
Speaker 2: Staying with energy, Bloomberg Intelligence recently put out a report
21:14
Speaker 2: on its outlook for nuclear power in twenty twenty six.
21:17
Speaker 3: It's titled AI driven Power Demand set to spark three
21:20
Speaker 3: hundred and fifty billion dollar build cycle. This deep dive
21:23
Speaker 3: describes why nuclear remains a favorite power source for artificial intelligence.
21:27
Speaker 2: For more, we were joined by Scott Levine, Bloomberg Intelligence
21:30
Speaker 2: senior Energy Services Analysts. I first asked Scott to talk
21:33
Speaker 2: about what the energy industry is doing to prepare for
21:35
Speaker 2: what seems to be an insatiable need for power.
21:38
Speaker 10: Nuclear really has two very big positives going for it.
21:44
Speaker 10: Number One, it's a emissions free power source, and the
21:49
Speaker 10: hyperscillers that are really behind the investments care about that deeply, right,
21:54
Speaker 10: and so they've favored, you know more renewable sources heretofore
21:59
Speaker 10: like when in solar, But what those lack are you know,
22:03
Speaker 10: twenty four by seven base load characteristics and for a
22:07
Speaker 10: data center to be up twenty four to seven, that's
22:10
Speaker 10: not going to do it right. So nuclear checks both
22:13
Speaker 10: of those boxes, and those are two very big positives
22:17
Speaker 10: and the reasons that you're seeing folks like Microsoft and
22:20
Speaker 10: Meta come out in favor of nuclear power.
22:23
Speaker 2: And yeah, so what's the how much does nuclear provide
22:27
Speaker 2: today in the US versus where you think it might
22:29
Speaker 2: be in twenty five years.
22:31
Speaker 10: Yeah, so today it's a little bit below twenty percent
22:33
Speaker 10: of the grid, which we're saying we'll return to about
22:38
Speaker 10: in our you know, base case scenario twenty percent of
22:41
Speaker 10: the grid by twenty fifty. That may not seem like
22:44
Speaker 10: much two percentage points, right, but it you know, will
22:47
Speaker 10: equate to or amount to a three hundred and fifty
22:49
Speaker 10: billion dollar investment.
22:51
Speaker 11: To get there.
22:51
Speaker 10: So those are big numbers. And in addition that, we're
22:54
Speaker 10: talking about adding sixty some odd gigawatts to the grid,
22:59
Speaker 10: and you can think about each full sized nuke being
23:03
Speaker 10: one gigawatt, so that's basically building sixty generating units as
23:08
Speaker 10: our base case. So those are big numbers to get
23:11
Speaker 10: you from eighteen to twenty percent over a twenty five
23:13
Speaker 10: period of time.
23:14
Speaker 2: I tell you, I went in this report that you
23:16
Speaker 2: and your team put together Section five Small modular reactors.
23:19
Speaker 2: That's where I wanted to go to because.
23:20
Speaker 9: I had that.
23:21
Speaker 2: We've had some people come into the studio over the
23:22
Speaker 2: last few years and just talk to us about the
23:24
Speaker 2: science and engineering and the possibilities to be small modular reactors.
23:28
Speaker 2: Tell us what they are and what role they could
23:31
Speaker 2: play going forward.
23:32
Speaker 10: Yeah, so really these are and none of these have
23:35
Speaker 10: been built in the US yet, right, So this is
23:37
Speaker 10: very much an emerging technology play. But basically you're talking
23:42
Speaker 10: about is taking a full sized nuke. You're driving down
23:44
Speaker 10: the highway. You see a big, cool tower, a bunch
23:46
Speaker 10: of smoke coming out the top of it. These are
23:48
Speaker 10: much much smaller, right, and so the idea here would
23:52
Speaker 10: be that these are much more flexible, and so if
23:54
Speaker 10: you have more disparate data centers located throughout the country,
23:58
Speaker 10: you can power these and with these smaller units. Right,
24:03
Speaker 10: And we're talking about you know, some of these are
24:05
Speaker 10: smaller versions of what's already in operation today, which is
24:08
Speaker 10: a light water reactor. And then some of these types
24:12
Speaker 10: of units are different types of technologies. You have gas
24:16
Speaker 10: cooled reactors as opposed to water, you have molten salt
24:20
Speaker 10: cooled reactors as opposed to water, and these use different
24:24
Speaker 10: types of technologies, different types of fuels still remain to
24:29
Speaker 10: be licensed improven.
24:30
Speaker 2: So a lot of it's very.
24:31
Speaker 10: Much on the com But the technology in each of
24:35
Speaker 10: those areas holds promise, so we'll see, and each of
24:40
Speaker 10: them has pros and cons right, and so we'll see
24:44
Speaker 10: over the next five years the technology shakeout and see
24:47
Speaker 10: which ones end up being at the top of the
24:49
Speaker 10: stack for the US. But each of them have a
24:52
Speaker 10: lot of money behind them and a lot of support
24:54
Speaker 10: from a lot of depocketed players.
24:57
Speaker 3: Our thanks to Scott Levine, Bloomberg Intelligence, senior Energy Star
25:00
Speaker 3: VERSUS analyst, coming up a look at why the cruise
25:02
Speaker 3: company Carnival raised its full year earnings forecast.
25:05
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
25:08
Speaker 2: research and data on two thousand companies and one hundred
25:10
Speaker 2: and thirty industries.
25:11
Speaker 3: You can access Bloomberg Intelligence via Bigo on the terminal.
25:14
Speaker 2: I'm Scarlet Foo and I'm Paul Sweeney. This is Bloomberg.
25:26
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
25:30
Speaker 1: on Bloomberg Radio.
25:32
Speaker 2: We moved to some news in the tech space this week.
25:35
Speaker 3: We heard that the AI cloud computing startup core Weave
25:38
Speaker 3: has signed a deal to supply Meta with as much
25:40
Speaker 3: as fourteen point two billion dollars worth of computing power.
25:43
Speaker 2: As part of the deal, core Weave will provide Meta
25:45
Speaker 2: with access to Nvidia's latest GB three hundred AI chips.
25:49
Speaker 3: So for more, we were joined by Honor A. Rana,
25:51
Speaker 3: Bloomberg Intelligence tech analyst. We first asked anaog how this
25:54
Speaker 3: deal benefits core.
25:55
Speaker 11: Weave corviv is basically is a is a company that
26:01
Speaker 11: takes all these GPUs and rents it out to people
26:03
Speaker 11: for whatever they want to use. So they do get
26:06
Speaker 11: the dips on the most latest equipment that is sold
26:10
Speaker 11: by Nvidia, and then the clients can And now I
26:13
Speaker 11: did show that Meta is buying directly from Nvidia as well,
26:16
Speaker 11: but in this case they're just going and outsourcing the
26:19
Speaker 11: entire infrastructure for an amount of fourteen billion dollars, which
26:22
Speaker 11: you know may be a very small piece of it
26:25
Speaker 11: has overall capex for AI infrastructure, but it's still a
26:28
Speaker 11: start that they are now leasing capacity rather than building
26:31
Speaker 11: it in house.
26:32
Speaker 2: So how should we think about this in the overall
26:34
Speaker 2: growth of AI. I mean, this feels like incremental spending
26:38
Speaker 2: to me, but I'm not sure if it's just shifted
26:40
Speaker 2: somewhere else. Do you when you see announcements like this
26:42
Speaker 2: from core we've how do you kind of welded in
26:45
Speaker 2: or you know, kind of weave it into the larger picture.
26:48
Speaker 11: So every company, every hyperscale cloud provider right now, you know,
26:52
Speaker 11: whether that's Microsoft or whether that's Meta or any other
26:56
Speaker 11: company that's out there that is spending a lot on
26:58
Speaker 11: capital expenditures, on spending their AI capabilities. They have two options.
27:02
Speaker 11: They can either build it themselves and they can go
27:04
Speaker 11: to a specialized vendor like core Weave and rent it
27:07
Speaker 11: from them or lease it from them. Microsoft has said
27:10
Speaker 11: that they are really into expanding their leasing capacity or
27:14
Speaker 11: capabilities down the road, which is good for companies like
27:17
Speaker 11: core Weave. Their job is to build this only this
27:20
Speaker 11: infrastructure and rent it out to whoever wants it.
27:23
Speaker 3: My other question when it comes to core Weave, and
27:26
Speaker 3: you know all this, all these deals it's making with
27:29
Speaker 3: these cloud providers, is that they're also raising a lot
27:34
Speaker 3: of money. Core Weave is tapping the debt market, or
27:37
Speaker 3: there's there's there's expectations that it may tap the debt market.
27:42
Speaker 3: Is there going to be enough demand to meet, you
27:44
Speaker 3: know what, what it wants to sell.
27:48
Speaker 11: So here is the case. When it comes to a
27:50
Speaker 11: customer like Microsoft or Meta, which all of us know
27:53
Speaker 11: have a lot of cash flow coming in. If they
27:55
Speaker 11: have signed let's say a five year deal, seven a deal,
27:58
Speaker 11: you kind of know that the money is good. It's
28:00
Speaker 11: much easier to raise capital. Then then let's say from
28:03
Speaker 11: a brand new company that may not have that amount
28:05
Speaker 11: of cash flow coming in. So I would say, I mean,
28:07
Speaker 11: you would you know, one should not be concerned that
28:10
Speaker 11: Meta is not good for that money. I don't think
28:12
Speaker 11: that's going to be, you know a concern for anybody
28:14
Speaker 11: who's giving them the bonds of their debt for that Yeah.
28:18
Speaker 2: Meta raised twenty nine billion dollars in a financing package
28:20
Speaker 2: for a massive data center in Louisiana. Oracle raise eighteen
28:24
Speaker 2: billion dollars in bonds as it builds infrastructure for Open AI.
28:28
Speaker 2: So the markets are open for this kind of trade.
28:30
Speaker 5: It seems like yeah, apparently they are.
28:33
Speaker 3: And the other thing with Corewave, of course is that
28:36
Speaker 3: it has an increased commitment from open AI. It's got
28:39
Speaker 3: this big customer in Microsoft I think makes up seventy
28:43
Speaker 3: one percent of its revenue. How diversified is Corewave's customer
28:46
Speaker 3: base right now?
28:48
Speaker 11: See when you see the core piece's first biggest customer
28:50
Speaker 11: was Microsoft. Microsoft didn't have the capacity to run a
28:53
Speaker 11: lot of their AI workloads, so they went to Corewave. So,
28:56
Speaker 11: you know, frankly speaking, I understand that's seventy percent. But
28:59
Speaker 11: you know, this is an area where everybody needs capacity,
29:02
Speaker 11: so you know, for us it is an issue, but
29:05
Speaker 11: it's not like, you know, it's not a deal breaker
29:07
Speaker 11: when it comes to the quality or even you look
29:09
Speaker 11: at the fundamentals of somebody like a Corevieve. Now what's
29:12
Speaker 11: happening is other cloud providers are going to them and say,
29:15
Speaker 11: whatever access capacity that you have, you know, we will
29:17
Speaker 11: take that as well.
29:18
Speaker 2: Are there other companies that are going to come public
29:21
Speaker 2: here like core weave, these neo cloud companies.
29:25
Speaker 11: Yeah, I mean, I'm sure a lot of them are
29:28
Speaker 11: caring up for it. Coreweve is probably the biggest one
29:31
Speaker 11: that's out there, you know, We saw Microsoft signing another
29:34
Speaker 11: deal recently with the Nebius, I believe, and you know
29:37
Speaker 11: that was a very similar arrangement where Microsoft is going
29:41
Speaker 11: to them and saying, Okay, for the next several years,
29:43
Speaker 11: this is the kind of money that I or the
29:45
Speaker 11: capacity that I want from you, and this is how
29:48
Speaker 11: I'm going to give you the money to fund it.
29:50
Speaker 3: Basically, So an RAG when you look at these kinds
29:54
Speaker 3: of deals and you know, fourteen billion dollars here, ten
29:57
Speaker 3: billion dollars somewhere else, what gets your attention in terms
30:01
Speaker 3: of you know, I need to look into this a
30:02
Speaker 3: little bit more versus this is just one in a
30:05
Speaker 3: long string of deals that these companies will continue to sign.
30:09
Speaker 11: The biggest thing you want to think about is what
30:12
Speaker 11: are these companies doing these deals for. So, say somebody
30:15
Speaker 11: like a Microsoft, are they giving a lot of their
30:18
Speaker 11: inference workloads or the outcome of chart GPT running on
30:21
Speaker 11: Microsoft's cloud workloads, or are they giving model training workloads?
30:26
Speaker 11: Because there is a there is a there is a
30:28
Speaker 11: narrative out there in the market that the long tail
30:31
Speaker 11: of the AI revenue comes from people using apps, which
30:34
Speaker 11: we you know, think of this as infriance revenue. Compared
30:37
Speaker 11: to the model training revenue, which make ups and down
30:40
Speaker 11: depending on what kind of technological advancement we see in
30:44
Speaker 11: you know, software development.
30:45
Speaker 2: Our Thanks Dona rod Rana, Bloomberg Intelligence Technology Analysts.
30:49
Speaker 3: We move next to the cruise industry, the cruise company
30:52
Speaker 3: Carnival this week raising it's full year earnings forecast.
30:55
Speaker 2: Carnival cited a record pace for forward bookings and improving
30:58
Speaker 2: net yields, but shares of the company felt after the news.
31:01
Speaker 3: For more on this, we were joined by Brian Egger,
31:03
Speaker 3: Bloomberg Intelligence, Senior Gaming and Lodging Analysts.
31:06
Speaker 2: First, Brian, why investors see Carnival's earnings forecast as conservative?
31:10
Speaker 12: I think there are two ways in which maybe they're
31:13
Speaker 12: being perceived as conservative. The one is that their yield
31:16
Speaker 12: growth guidance for the fourth quarter, while it's certainly very
31:19
Speaker 12: solid in there in the mid fores, you know, with
31:22
Speaker 12: a little bit below consensus, maybe the street got a
31:25
Speaker 12: little bit heav itself. The second thing is, for all
31:27
Speaker 12: their optimism about bookings and direction of yields, they are
31:32
Speaker 12: very conservative and how they're deploying capital. They've only got
31:34
Speaker 12: about one percent annual yield growth for this year in
31:37
Speaker 12: the next two years. So they're growing very effectively, but
31:40
Speaker 12: they are also very measured in how they deploy capacity.
31:44
Speaker 12: So all this is really good, but they do mention
31:46
Speaker 12: that you know, they can afford to they can really
31:48
Speaker 12: be judicious on expense growth because they're only growing capacity
31:52
Speaker 12: at a very modest pace.
31:54
Speaker 3: Is that a bad thing to be conservative? How does
31:56
Speaker 3: Carnival compare with Norwegian or Royal Caribbean.
31:59
Speaker 12: Yeah, so if you look at Norwegian World Caribbean, they're
32:01
Speaker 12: anticipating or actually scheduling about a mid single digit, call
32:05
Speaker 12: it five percent ish level of annual capacity growth for
32:09
Speaker 12: twenty twenty six, twenty seven to twenty eight. You know,
32:12
Speaker 12: it's closer to one percent for Carnival, maybe two percent
32:14
Speaker 12: in twenty twenty eight. So they're just taking a more
32:17
Speaker 12: conservative tack. And I think they're equally long term optimistic
32:22
Speaker 12: about their ability to penetrate the vacation market, but they're
32:24
Speaker 12: going about it in a much more measured way. And
32:26
Speaker 12: then that sense it could strike people as conservative.
32:29
Speaker 2: Talk to us about capacity. I mean, if they added
32:31
Speaker 2: a couple of ships, would they sell them out?
32:33
Speaker 11: Yeah?
32:34
Speaker 12: I mean certainly, their their auquancy is back to pre
32:36
Speaker 12: pandemic levels. Their yell growth against that capacity increase is positive,
32:41
Speaker 12: and we were looking at we've seen steadily increasing yield
32:44
Speaker 12: expectations throughout twenty twenty five and they've got the free
32:48
Speaker 12: cash leot But I think they just want to build
32:50
Speaker 12: this out slowly, you know, and maybe strike people some
32:52
Speaker 12: people as being too slowly.
32:54
Speaker 2: Hey, not for nothing. The CEO get paid a lot
32:56
Speaker 2: of money here, Josh Weinstein. Fourteen million in cash vitation
33:00
Speaker 2: for Countary. You're twenty four to fourteen million in stock
33:02
Speaker 2: twenty eight million to drive a cruise ship round. That's
33:05
Speaker 2: not too bad.
33:05
Speaker 5: Nice job if you can get it right.
33:07
Speaker 3: So here's my question to you, Brian, how do Royal
33:10
Speaker 3: Caribbean or arrange and cruise and Carnival?
33:12
Speaker 5: How do they grow their market?
33:14
Speaker 3: Are they stealing from each other or is there still
33:16
Speaker 3: a big base from which to grow.
33:18
Speaker 12: There's definitely a penetration oportunity. I mean, just back up
33:20
Speaker 12: for a second on Carnival. You know their goal is
33:22
Speaker 12: to become investment grade. So part of the conservativism I
33:25
Speaker 12: think you're seeing, which may be a headscratch, want to
33:27
Speaker 12: get an investment grade, and I think that's probably priority one.
33:31
Speaker 12: Shifting some of the enterprise value from bondholders to equity holders.
33:35
Speaker 12: That being said, yes, they see opportunity to grow a
33:38
Speaker 12: relatively underpenetrated overall vacation market, but they're going about it
33:43
Speaker 12: with kind of balance sheet being front center if that
33:46
Speaker 12: helps it all.
33:48
Speaker 2: The only thing I know about the cruise business is
33:49
Speaker 2: what I learned from Disney, who got into the business
33:52
Speaker 2: fifteen twenty years ago, and it's been a great business
33:55
Speaker 2: for them. How do you stratify the cruise market? Now,
33:58
Speaker 2: I'm going to be the very very top, but how
34:01
Speaker 2: does the cruise industry kind of stratify itself?
34:03
Speaker 12: Yeah, I mean I think they, I think convincingly argue
34:07
Speaker 12: that they are relatively affordable form of vacations, the package product.
34:11
Speaker 12: The value is very good for the consumer, but it
34:14
Speaker 12: runs across different tiers from luxury side you know, Seaborn,
34:18
Speaker 12: wind Star Oceania Region seven Seas to the more mass
34:22
Speaker 12: market like Carnival Cruise Line, So they run the gamut,
34:25
Speaker 12: but the overall spectrum tends to be generally, you know,
34:29
Speaker 12: relatively affordable and part of that package vacation product people
34:33
Speaker 12: buying cruises beforehand, buying stuff on the cruise. With a
34:36
Speaker 12: good share of wallet left over that works to their favor.
34:39
Speaker 5: How brand loyal are cruising fans?
34:42
Speaker 3: I mean, if you are a Carnival person, are you
34:44
Speaker 3: a Carnival person for life?
34:45
Speaker 12: Yeah, there's certainly some brand loyalty. And remember they've they've
34:49
Speaker 12: got kind of as an industry. They've companies got two goals.
34:52
Speaker 12: One is to drive bookings for their particular brand, and
34:55
Speaker 12: they do that through new hardware with all the bells
34:58
Speaker 12: and whistles. The other is to drive the overall awareness
35:01
Speaker 12: of the value of cruising relative to other forms of vacationing.
35:04
Speaker 12: And so you know, they've kind of got that dual mandate.
35:08
Speaker 2: So you're sitting on the Jersey Shore Sunday after in
35:11
Speaker 2: around five.
35:11
Speaker 5: So you're Sweeney's sitting on there. Okay, go ahead, all this.
35:15
Speaker 2: Every Sunday during the summer, you'd see this massive cruise
35:18
Speaker 2: ship coming out of New York Harbor. I think it's
35:20
Speaker 2: the Star of the Seas.
35:22
Speaker 12: Yeah, that's a new one.
35:23
Speaker 2: Yeah, I mean, things massive, and they filled that thing up.
35:26
Speaker 12: Oh just remember and that's a that's a Royal Caribbean ship.
35:29
Speaker 12: But I will point out that one of the things
35:31
Speaker 12: Carnival's pointing to is, you know they've reached the thirteen
35:33
Speaker 12: percent return on invested capital this year, so they're kind
35:36
Speaker 12: of getting to that double digit return base that they targeted.
35:39
Speaker 12: So there are Their argument would be that they fill
35:42
Speaker 12: it up, they get good pricing and relative that their
35:44
Speaker 12: investments are getting you know, solid low teens or turns
35:48
Speaker 12: on incremental invested capital with an opportunity to take that higher.
35:52
Speaker 12: So as long as they can get that return, I
35:54
Speaker 12: think they can convincingly say we're getting there. But obviously,
35:57
Speaker 12: in the case of Carnival through relatively conservative capital to
36:00
Speaker 12: point I.
36:01
Speaker 2: Mean Star of the Sea, Icon of the Seas, they
36:04
Speaker 2: have a massive passenger capacity with the ability to hold
36:07
Speaker 2: over seventy six hundred passengers and a large crew. And
36:11
Speaker 2: for somebody who doesn't like people like me.
36:13
Speaker 12: That that's a tough it's not the miss anthrop's favorite
36:17
Speaker 12: vacation activity. But you know, they do get good economies
36:20
Speaker 12: by field peoples and.
36:22
Speaker 2: How big things.
36:23
Speaker 3: Well, I'm always talking with my friend who suggests that
36:25
Speaker 3: instead of retiring to a nursing home or retirement community,
36:28
Speaker 3: just go on a cruise trip.
36:29
Speaker 8: I've heard that.
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Speaker 2: I've heard that too, you know, you know, it's a
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Speaker 2: big cruises Charlie Pellett and he doesn't like cruise the Caribbean.
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Speaker 5: Hers cruises like adventurous places.
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Speaker 2: Yeah, like I'm going to I'm cruising to Turkey and
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Speaker 2: I don't know Antarctica. Yes, that's what Charlie.
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Speaker 12: People pair a premium for those. Yeah.
36:45
Speaker 3: Thanks sreic to Brian Egger, Bloomberg Intelligence senior Gaming and
36:48
Speaker 3: Lodging analysts.
36:49
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