Latest / Bloomberg Intelligence / SpaceX’s $101 Billion Unlock Heaps Pressure on Battered Shares

Transcript

SpaceX’s $101 Billion Unlock Heaps Pressure on Battered Shares · Bloomberg Intelligence

• 0:02
  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
• 0:10
  Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
• 0:14
  Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg
• 0:17
  Speaker 1: Business App. Listen on demand wherever you get your podcasts,
• 0:21
  Speaker 1: or watch us live on YouTube.
• 0:24
  Speaker 2: SpaceX the stock down about eight and a half percent
• 0:26
  Speaker 2: right now, but at its low it was down about
• 0:29
  Speaker 2: twelve and a half percent, and that raises a lot
• 0:32
  Speaker 2: of questions about the results and what we learned. Alexis
• 0:36
  Speaker 2: mentioned a lot of AI spending. Let's bring in George Ferguson.
• 0:39
  Speaker 2: He's our senior aerospace, defense and airlines analysts joining us
• 0:42
  Speaker 2: from Princeton and George, it's tempting to chalk this up
• 0:46
  Speaker 2: to investors. We're not in the mood to hear of
• 0:48
  Speaker 2: plans for more spending when they're not seeing how the
• 0:52
  Speaker 2: spending is paying off trust yet. But is this kind
• 0:55
  Speaker 2: of decline that we're seeing in overreaction given the set
• 0:57
  Speaker 2: of results that SpaceX published.
• 1:00
  Speaker 3: Well, you know, we put.
• 1:01
  Speaker 4: Out a report right around the IPO time talking about
• 1:05
  Speaker 4: valuations for SpaceX right and we we don't tell people
• 1:09
  Speaker 4: to buy or sell, but we said was look you
• 1:12
  Speaker 4: had to get out to like twenty twenty nine and
• 1:15
  Speaker 4: projections for a lot of growth and revenue and then
• 1:18
  Speaker 4: turning profitable in twenty twenty eight just to start to
• 1:21
  Speaker 4: be able to compare to the other hyperscalers like Microsoft.
• 1:26
  Speaker 4: So look, I think that you know, the challenge here
• 1:30
  Speaker 4: is valuations are are living, you know, in the stratosphere
• 1:34
  Speaker 4: compared to some of their peers, and so you're challenge
• 1:38
  Speaker 4: to kind of see, you know, what's the advantage of
• 1:41
  Speaker 4: SpaceX over some of those other companies. Right, And so
• 1:43
  Speaker 4: I think there was selling going on in the stock
• 1:46
  Speaker 4: prior to earnings call yesterday, so you know, for days
• 1:51
  Speaker 4: and weeks before that, yesterday was a bit of a
• 1:54
  Speaker 4: you know, a turnaround where there was a bit of
• 1:56
  Speaker 4: a rally. But I think you're back to a sale.
• 1:58
  Speaker 4: It's still I think the same story they re sold us,
• 2:01
  Speaker 4: the story that we heard at the IPO.
• 2:04
  Speaker 5: So what I mean in terms of the actual revenues
• 2:07
  Speaker 5: and cash flows and so on from from the court
• 2:10
  Speaker 5: of the just reported they came in better than expected here,
• 2:13
  Speaker 5: So I mean they are delivering on kind of what
• 2:16
  Speaker 5: they're talking about. It's just a question of you so
• 2:18
  Speaker 5: much of evaluation hinges on. I guess Elon's vision longer term.
• 2:22
  Speaker 4: Yeah, I mean, you know again, it's on this AI vision.
• 2:25
  Speaker 4: But you know, when I looked at the numbers yesterday,
• 2:29
  Speaker 4: they were a bit better than consensus. Uh frankly, they
• 2:33
  Speaker 4: were on top of Bi's numbers, to be honest with you,
• 2:36
  Speaker 4: which so I'll blow our horn here for this. Maybe
• 2:39
  Speaker 4: we're better seers. I don't know, but you know again
• 2:42
  Speaker 4: we're you know, what we're talking about is, you know,
• 2:45
  Speaker 4: really strong revenue growth. And I think Elon Musk laid
• 2:48
  Speaker 4: out all the revenue opportunities in the call. But look,
• 2:53
  Speaker 4: I'm an old you know, industrial aerospace defense analyst. At
• 2:56
  Speaker 4: some point you got to give me profit, right you gotta.
• 2:59
  Speaker 4: And you know, you spend sixty billion dollars on these
• 3:02
  Speaker 4: companies that you've got ninety three billion dollars of cash
• 3:04
  Speaker 4: in your balance sheet, The spend is is large. They
• 3:08
  Speaker 4: doubled capex inside the AI business and that's still very
• 3:13
  Speaker 4: loss making. At some point you got to turn this
• 3:16
  Speaker 4: into a profitable enterprise. And right now the vision looks
• 3:20
  Speaker 4: like a lot of AI for you know, and and
• 3:24
  Speaker 4: capex for as far as the eye can see. And
• 3:27
  Speaker 4: I think that's it's hard for people to put their
• 3:29
  Speaker 4: arms on. Plus there is no guidance, right So yeah,
• 3:32
  Speaker 4: you know, so I don't even no one even gave
• 3:34
  Speaker 4: us a handle to try to hold on to right
• 3:37
  Speaker 4: now when we would start to see profits or you know,
• 3:42
  Speaker 4: at least losses starting to improve.
• 3:44
  Speaker 6: So this is something that you say, you.
• 3:45
  Speaker 2: As a kind of an old school analyst, would be
• 3:47
  Speaker 2: looking for. And I suspect many investors in industrial companies
• 3:51
  Speaker 2: are looking for something similar.
• 3:53
  Speaker 6: But Elon Musk is trying to turn.
• 3:54
  Speaker 2: SpaceX into this next gen tech AI behemoth, and you know,
• 4:00
  Speaker 2: he casts his own spell over his shareholders. I just
• 4:04
  Speaker 2: wonder how much overlap is there between SpaceX's investor base
• 4:08
  Speaker 2: and Tesla's investor base, where he usually goes through this
• 4:11
  Speaker 2: playbook and does very well because they want to hear
• 4:14
  Speaker 2: about the hopes and dreams, and they're less concerned perhaps
• 4:16
  Speaker 2: with the immediate payoff the way that old school analysts
• 4:19
  Speaker 2: and industrial investors might be.
• 4:22
  Speaker 4: Yeah, like again, I you know, old school payoff. I
• 4:26
  Speaker 4: get it. This is not an old school payoff kind
• 4:28
  Speaker 4: of company, right, but give us again some guardrails, I think,
• 4:33
  Speaker 4: you know, or some you know, give us a middle
• 4:35
  Speaker 4: line to the road and let us know kind of
• 4:38
  Speaker 4: where we are in the trajectory where those those profits come.
• 4:41
  Speaker 4: And I think you saw it on the call, right,
• 4:43
  Speaker 4: Elon Musk showed up in the beginning to discuss his
• 4:47
  Speaker 4: version of the world and the company and look at
• 4:52
  Speaker 4: the tech is amazing, it's outstanding, right, and the vision
• 4:55
  Speaker 4: is grand. Right.
• 4:56
  Speaker 6: I love all of that.
• 4:58
  Speaker 4: The question always comes down to me, and I think
• 5:02
  Speaker 4: clearly to people in the markets. At what price? How
• 5:06
  Speaker 4: do we put a price on this opportunity? And there's
• 5:10
  Speaker 4: going to be a fight in the marketplace, like you said,
• 5:12
  Speaker 4: between the people that just love the vision and you know,
• 5:16
  Speaker 4: love the tech and others that say, when can you
• 5:19
  Speaker 4: bring some cash because you've got heavy investments coming on here.
• 5:22
  Speaker 5: Right, we also have a big lockup expiring tomorrow.
• 5:27
  Speaker 6: How do you think that's kind of weighing on the shore.
• 5:29
  Speaker 5: It's got a lot of stock out there potentially potentially
• 5:33
  Speaker 5: coming on the market tomorrow.
• 5:35
  Speaker 4: Yeah, yeah, I mean, look, you know, I think about
• 5:37
  Speaker 4: this sort of maybe, you know, through my own sort
• 5:40
  Speaker 4: of thought processes. I guess if I was internal, you know,
• 5:46
  Speaker 4: I don't know, you know, it depends how much of
• 5:47
  Speaker 4: your cop is wrapped in this? Would you start to
• 5:50
  Speaker 4: sell out? Do you feel bad because it's well below
• 5:53
  Speaker 4: the IPO price? Do you weigh out things? But the
• 5:55
  Speaker 4: trend definitely has been down. So that's I think a
• 5:58
  Speaker 4: really hard calculus people that have been locked up in this.
• 6:02
  Speaker 2: So how important do you think it is for Elon
• 6:04
  Speaker 2: Musk and his management team to get the stock back
• 6:07
  Speaker 2: above that one point thirty five IPO price? Do you
• 6:09
  Speaker 2: think that's something that they're concerned with?
• 6:13
  Speaker 4: Look, so, I think if I'm Elon Musk, I want
• 6:16
  Speaker 4: to be able to attract more investors to my shares,
• 6:19
  Speaker 4: and losing money isn't a great way to attract investors.
• 6:23
  Speaker 4: So I think they I think they absolutely want to.
• 6:26
  Speaker 4: I don't know that they have a window here to
• 6:29
  Speaker 4: influence that, you know, for another quarter until they have
• 6:32
  Speaker 4: another sort of earnings called So I don't necessarily what
• 6:34
  Speaker 4: they do. I know there's rumors in the marketplace about
• 6:36
  Speaker 4: merging with Tesla. I can't say that I totally understand
• 6:39
  Speaker 4: all the logic there. I think they want to get it,
• 6:43
  Speaker 4: get it up. I think they want to be able
• 6:45
  Speaker 4: to come back to the markets, the equity markets and
• 6:47
  Speaker 4: issue Again, I'm not sure in the near term, though,
• 6:50
  Speaker 4: what you do to change some of the trajectory here.
• 6:53
  Speaker 5: George, you mentioned they've got you know, one hundred billion
• 6:55
  Speaker 5: dollars of cash on the bound sheet. How long is
• 6:57
  Speaker 5: that lasts you think before they do.
• 6:58
  Speaker 6: Have to tell a lot of markets.
• 7:00
  Speaker 4: Yeah, Look, I mean I think you got it was
• 7:02
  Speaker 4: like ninety three billion when I looked yesterday they got
• 7:05
  Speaker 4: this buy of sixty billion out there. I got to
• 7:07
  Speaker 4: figure out how they're going to fund that. You know,
• 7:10
  Speaker 4: there was I think it was fifteen billion in capex
• 7:14
  Speaker 4: during the quarter, you know, out to the AI businesses.
• 7:19
  Speaker 4: I think this is not a technical answer. It doesn't
• 7:21
  Speaker 4: seem like it's going to last long.
• 7:23
  Speaker 5: Yeah, And it's just I mean, it's a lot of cash,
• 7:25
  Speaker 5: but they have a lot of needs.
• 7:27
  Speaker 6: They have a lot of needs.
• 7:27
  Speaker 2: Are they going to go dip back into the bond
• 7:29
  Speaker 2: mark again, do you think, George?
• 7:32
  Speaker 4: Well, look, I think that's that's really going to get
• 7:34
  Speaker 4: predicated on whether or not they can maintain their investment
• 7:37
  Speaker 4: grade rating, right, because I think you want you don't
• 7:39
  Speaker 4: want to let that slip too much. And everyone I
• 7:42
  Speaker 4: talked to about the investment grade rating tells me it's
• 7:44
  Speaker 4: a function of the cash on the balance sheet, right,
• 7:46
  Speaker 4: because you don't have a company here that's sort of
• 7:48
  Speaker 4: a heavy cash generator. Yeah, and maybe the ability to
• 7:53
  Speaker 4: tap markets again. Yeah, I think Sara Wo'd rather go
• 7:57
  Speaker 4: to the debt market, but again, I don't know how
• 8:00
  Speaker 4: long that that remains open.
• 8:02
  Speaker 5: As your spending cat, I think the big thing is
• 8:04
  Speaker 5: going to be the farmer creditor. It's the it's actual
• 8:07
  Speaker 5: equity value that's underneath me supporting me. That's the only
• 8:10
  Speaker 5: thing that's the same thing it was with Tesla.
• 8:12
  Speaker 2: Yeah, and now you're looking to stalk again, We'll blow
• 8:14
  Speaker 2: that one thirty five IPO price.
• 8:15
  Speaker 4: Yep, yep.
• 8:17
  Speaker 6: Stay with us. More from Bloomberg Intelligence coming up after this.
• 8:24
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 8:27
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 8:31
  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 8:34
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 8:38
  Speaker 6: Man, you've seen joints us here.
• 8:39
  Speaker 5: Glottal Tech, research head for Bloomberg Intelligence Advanced micro Devices
• 8:43
  Speaker 5: A M. D. I thought the sales was good, but
• 8:49
  Speaker 5: people are calling in an underwhelming sales ATLEC. How can
• 8:51
  Speaker 5: a chip maker have an underwemer.
• 8:54
  Speaker 7: Well, I guess partly that has to do with the
• 8:57
  Speaker 7: valuation and where I think this has run up. But
• 9:02
  Speaker 7: you know, you're being compared against Nvidia, and that's where
• 9:06
  Speaker 7: Nvidia's data center sales is probably at this point, you know,
• 9:10
  Speaker 7: twelve thirteen times bigger than AMD's, even though AMD grew
• 9:14
  Speaker 7: you know, over one hundred percent and they guided to
• 9:17
  Speaker 7: triple digit growth going forward. But the fact that Nvidia
• 9:21
  Speaker 7: is still growing you know, seventy five percent at their rate,
• 9:25
  Speaker 7: which is twelve times bigger, it just goes to show
• 9:28
  Speaker 7: that right now, AMD is just holding share, it's not
• 9:33
  Speaker 7: you know, in any ways gaining share, and this market
• 9:35
  Speaker 7: is lifting all both, so AMD does have a role.
• 9:39
  Speaker 7: And the other thing that I noted last night is
• 9:42
  Speaker 7: so they have this new architecture coming up in the
• 9:45
  Speaker 7: second half, everyone seems to be holding off for that,
• 9:49
  Speaker 7: Like why would they buy something that's going to be
• 9:53
  Speaker 7: older generation three months from now. So that's the other thing.
• 9:56
  Speaker 7: When you announce a new architecture. That doesn't happen with Nvidia,
• 10:00
  Speaker 7: by the way, because everyone feels their supply constraint within
• 10:03
  Speaker 7: Vidia gear. But for someone like AMD, you've said, you know,
• 10:07
  Speaker 7: you've got a much better chip coming three months down
• 10:10
  Speaker 7: the line. So I feel there is some hold up
• 10:14
  Speaker 7: in that aspect, Like no one wants to commit big
• 10:17
  Speaker 7: when they know there's another something better coming through.
• 10:20
  Speaker 2: So that strategy only works if you're the market leader,
• 10:22
  Speaker 2: not if you're the number two. And it feels like
• 10:25
  Speaker 2: Intel has intell It feels like AMD has been number
• 10:27
  Speaker 2: two for a long time. It's the number two to Intel,
• 10:29
  Speaker 2: it's now bigger than Intel. It's now the number two
• 10:31
  Speaker 2: to Invidia. But as we've said, there's not enough supply
• 10:34
  Speaker 2: to meet all this demand. So AMD should be in
• 10:37
  Speaker 2: a good position. Is it because all the other companies
• 10:40
  Speaker 2: have come out and decide to make their own ships
• 10:42
  Speaker 2: go proprietary, that AMD's kind of left on the outside.
• 10:45
  Speaker 7: I think that's also a long term factor when it
• 10:49
  Speaker 7: comes to AMD's prospects, you know, three years, five years
• 10:53
  Speaker 7: from now. I mean every hyperscaler has ambitions to make
• 10:57
  Speaker 7: their own chip. Google has done that success, others wanted
• 11:01
  Speaker 7: to do the same. So from that perspective, I mean, yes,
• 11:04
  Speaker 7: AMD has a deal with open Ai and Tropic. They
• 11:08
  Speaker 7: have committed to Meta as well. In fact, they ended
• 11:10
  Speaker 7: up giving some equity to Meta for that six gigawatt commitment.
• 11:14
  Speaker 7: That just goes to show they're not playing from a
• 11:17
  Speaker 7: position of strength like n videos. So they really have
• 11:21
  Speaker 7: to course this these hyperscale, especially the new ones like
• 11:25
  Speaker 7: Open AI and Entropic, and make sure they end up
• 11:28
  Speaker 7: using AMD chips and not just you know, other chip makers.
• 11:32
  Speaker 7: So overall, I think the print was great. The valuation
• 11:36
  Speaker 7: is rich, so they sort of meta expectations they didn't wow,
• 11:40
  Speaker 7: and then that's why you see that sort of reacting.
• 11:42
  Speaker 5: All right, we were just chatting with George Ferguson about
• 11:44
  Speaker 5: SpaceX and he was gonna the angle from the satellite side,
• 11:47
  Speaker 5: which is good. I know you just published something regarding
• 11:51
  Speaker 5: the AI part of the story here because the socks
• 11:53
  Speaker 5: down another eight percent today. Can't find a bid here.
• 11:57
  Speaker 5: If you're buying this thing, you're buying it for the
• 11:59
  Speaker 5: AI play you are.
• 12:01
  Speaker 7: And it's amazing how much they have pivoted to AI.
• 12:04
  Speaker 7: In fact, they gave a one hundred billion dollar revenue
• 12:08
  Speaker 7: run rate number by the end of this year. So
• 12:11
  Speaker 7: this company is going from about eighteen billion at the
• 12:14
  Speaker 7: time of IPO to one hundred billion dollar run rate
• 12:17
  Speaker 7: in a span of six months. And that's for the
• 12:20
  Speaker 7: AI business all AI driven, and that's where seventy percent
• 12:24
  Speaker 7: of that like, they could be the biggest neocloud out
• 12:27
  Speaker 7: there by the end of the year simply because they
• 12:31
  Speaker 7: have that ramp up in CAPEX. And that's where you know,
• 12:35
  Speaker 7: the investors may find holes in.
• 12:38
  Speaker 6: How are they going to raise money?
• 12:40
  Speaker 7: If you are hyperscaler, you have the balance sheet to
• 12:42
  Speaker 7: do two hundred billion dollars in CAPEX. I mean what
• 12:46
  Speaker 7: SpaceX literally implied last night is they will do two
• 12:48
  Speaker 7: hundred billion dollars in capex twenty twenty seven. But investors
• 12:53
  Speaker 7: are not buying it because they don't have the balance
• 12:55
  Speaker 7: sheet unlike the hyperscaler. So are you doing a debt ras,
• 12:59
  Speaker 7: are you doing an equity raise? How are you raising
• 13:01
  Speaker 7: the funding? Or maybe Nvidia is doing the backstop because
• 13:05
  Speaker 7: they said we will rely solely on Nvidia chips for
• 13:09
  Speaker 7: this buildout, and in fact that's why AMD is down
• 13:11
  Speaker 7: because they could have said, you know, we'll give it
• 13:14
  Speaker 7: a md A ten percent shares that didn't happen with
• 13:17
  Speaker 7: SpaceX plans last time.
• 13:19
  Speaker 6: Is that feasible that they're going to rely solely on
• 13:20
  Speaker 6: Nvidia for the.
• 13:21
  Speaker 7: Buildoutdo if Nvideo is doing the backstop and saying they
• 13:25
  Speaker 7: need the funding. In this case of SpaceX, the biggest
• 13:29
  Speaker 7: apprehension is how is this company going to find the
• 13:33
  Speaker 7: funding for two hundred billion dollars in capex, which Elon
• 13:36
  Speaker 7: must said we'll have ten gigawatt capacity by end of
• 13:39
  Speaker 7: twenty twenty seven. That definitely amounts to two hundred billion
• 13:42
  Speaker 7: dollars plus just in purchases of Nvidia chips and other components.
• 13:47
  Speaker 7: How are you going to raise that funding? So that's
• 13:49
  Speaker 7: where Nvidia comes in with you know, its balance sheet
• 13:52
  Speaker 7: and saying we're supporting all the neo clouds, we will
• 13:55
  Speaker 7: support SpaceX.
• 13:57
  Speaker 5: What is neocloud again?
• 13:59
  Speaker 7: I mean it's just you know, renting your data centers
• 14:02
  Speaker 7: with GPUs with power. So it's not a commodity business.
• 14:07
  Speaker 7: Don't think right now all these Eventually it may become one,
• 14:11
  Speaker 7: but right now, sourcing the power, getting these servers online
• 14:16
  Speaker 7: and getting it.
• 14:16
  Speaker 6: Ready, it's there's a ton of demand.
• 14:19
  Speaker 7: There's a ton of demand, and it's not commoditized in anyway.
• 14:22
  Speaker 6: Stay with us. More from Bloomberg Intelligence coming up after this.
• 14:30
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live
• 14:33
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 14:36
  Speaker 1: Auto with the Bloomberg Business app, Listen on demand wherever
• 14:40
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 14:44
  Speaker 2: It's really earnings power that is driving the stock market
• 14:47
  Speaker 2: certainly today with the S and P five hundred making
• 14:50
  Speaker 2: yet another record high.
• 14:51
  Speaker 6: If we close at these levels.
• 14:52
  Speaker 2: It'll be the second straight record close, and earnings is
• 14:56
  Speaker 2: behind all that. So let's talk to Getha Rung and
• 14:58
  Speaker 2: Athen our analyst on US Media in Princeton, about the
• 15:01
  Speaker 2: latest earnings from Walt Disney Company, the entertainment giant. And
• 15:06
  Speaker 2: there's a lot to like in this earnings report. The
• 15:09
  Speaker 2: stock is up about two and a half percent right now.
• 15:12
  Speaker 2: Is the entertainment division which saw sixty four percent rise
• 15:15
  Speaker 2: in profit that kind of drove everything? Or is it
• 15:19
  Speaker 2: once again the parks and cruises the experience's arm which
• 15:22
  Speaker 2: saw a smaller increase in profit but really has become
• 15:25
  Speaker 2: the crown jewel of Disney's empire.
• 15:28
  Speaker 3: Yeah, absolutely, Scarlett, And it's actually a bit of both.
• 15:32
  Speaker 3: So you know, the experiences division of the theme parks division,
• 15:35
  Speaker 3: as you just pointed out, makes up less than forty
• 15:37
  Speaker 3: percent of total company revenue, but almost sixty percent of profit.
• 15:42
  Speaker 3: So really it is the crown jewel, as you rightly
• 15:45
  Speaker 3: alluded to it. And you know, again the profit there
• 15:48
  Speaker 3: was really strong, and I think coming in investor expectations
• 15:51
  Speaker 3: were really really low. Profits were up twenty percent. Remember
• 15:56
  Speaker 3: consensus was at about ten and a half percent increase.
• 15:58
  Speaker 3: So again, really strong number, and what it really did
• 16:02
  Speaker 3: was elaid fears because Comcast, which just reported a few
• 16:05
  Speaker 3: weeks ago, talked about weakness and a slowdown, a demand
• 16:08
  Speaker 3: slow down in their Universal theme parks, especially in Orlando,
• 16:12
  Speaker 3: and now seeing Disney come out with such strong numbers
• 16:15
  Speaker 3: really shows that, you know, they're executing really well and
• 16:19
  Speaker 3: demand continues to be strong as they head into fiscal
• 16:22
  Speaker 3: the fiscal fourth quarter as well. But then, as you
• 16:24
  Speaker 3: you know again said, streaming, which is part of that
• 16:27
  Speaker 3: entertainment division, is really the growth catalyst for this company,
• 16:32
  Speaker 3: and it's all about streaming profitability and how far and
• 16:35
  Speaker 3: how far ahead they can get on operating margin for
• 16:39
  Speaker 3: the streaming business. And they prove that they did a
• 16:41
  Speaker 3: really good job of this quarter, and there's there's obviously
• 16:45
  Speaker 3: a lot more growth levers going forward.
• 16:47
  Speaker 7: KEITHA.
• 16:47
  Speaker 5: This is the second straight quarter of better than expected
• 16:50
  Speaker 5: profitability for the CEO, Josh Tomorrow, who succeeded Bob Ayger
• 16:55
  Speaker 5: in that role in March. Talk about big shoes to Phil.
• 16:58
  Speaker 5: What's the early read from investors on mister Tomorrow.
• 17:02
  Speaker 3: I think they're really liking all what they see. You know,
• 17:06
  Speaker 3: Josh obviously has a very clear strategy. He's He's made
• 17:10
  Speaker 3: some pretty big changes. So just today, for instance, they
• 17:13
  Speaker 3: announced that they got rid of their fifty percent stake
• 17:15
  Speaker 3: in A and E Global Media. They got about one
• 17:17
  Speaker 3: point two billion dollars in cash and they're going to
• 17:19
  Speaker 3: deploy that towards share repurchases. Then again, you have this
• 17:24
  Speaker 3: new deal. They had to get out of their Sora
• 17:26
  Speaker 3: deal after obviously soa shut down, but now they have
• 17:29
  Speaker 3: today they announced this new deal with TikTok So. Again,
• 17:32
  Speaker 3: Josh is I think, really kind of taking a hard
• 17:34
  Speaker 3: look at all of the different businesses. He obviously knows
• 17:37
  Speaker 3: that they need to reduce their exposure to you, linear TV,
• 17:42
  Speaker 3: but you know, they're doing all that they can in
• 17:45
  Speaker 3: terms of streaming, and of course he is a Parks veteran,
• 17:47
  Speaker 3: so he knows exactly, you know, how that business works.
• 17:51
  Speaker 3: But it also looks like he's positioning Disney Plus to
• 17:54
  Speaker 3: become this major hub for the entire Disney ecosystem, something
• 17:59
  Speaker 3: almost akin to Amazon Prime for all things Disney, starting
• 18:03
  Speaker 3: in spring of twenty twenty seven. And so I think
• 18:04
  Speaker 3: that's going to be pretty exciting for the company.
• 18:07
  Speaker 6: Yeah, that sounds very strategic.
• 18:09
  Speaker 2: How do you think about how that's going to change
• 18:11
  Speaker 2: the entertainment industry and how other media companies respond to
• 18:15
  Speaker 2: that kind of positioning.
• 18:17
  Speaker 3: Yeah, So, I mean Disney has a really unique hand
• 18:20
  Speaker 3: to play here, Scarlett. I mean, they have theme parks,
• 18:22
  Speaker 3: which really other than Comcast, nobody else has. Obviously, they
• 18:26
  Speaker 3: have this great movie and studio business, and of course
• 18:29
  Speaker 3: that they're streaming business too, And the one thing that
• 18:32
  Speaker 3: they have or they do better than everybody else is
• 18:35
  Speaker 3: ESPN and sports. They have huge, huge exposure there to
• 18:38
  Speaker 3: all of the Marquee sports rights. So you know, again,
• 18:41
  Speaker 3: it's all come down to one thing in the streaming world,
• 18:44
  Speaker 3: which is engagement, and if they can build on that
• 18:47
  Speaker 3: engagement and keep you within that Disney ecosystem for everything,
• 18:51
  Speaker 3: I mean, whether you're buying a theme park ticket or
• 18:53
  Speaker 3: wanting to watch a movie or wanting to watch a
• 18:54
  Speaker 3: show on Disney Plus or Hulu, I mean, right there,
• 18:58
  Speaker 3: that's a major differentiator versus peers.
• 19:01
  Speaker 5: So Githa Paramount also reported numbers here. I'd love to
• 19:05
  Speaker 5: get a sense of kind of what the company's saying
• 19:07
  Speaker 5: these days about their I guess stalled merger with Warner
• 19:13
  Speaker 5: Brothers Discovery and how they plan to operate as an
• 19:16
  Speaker 5: single entity over the next twelve months.
• 19:19
  Speaker 3: So their numbers yesterday, Paul were actually pretty decent, and
• 19:22
  Speaker 3: a lot of that was just the cost savings from
• 19:24
  Speaker 3: the sky Dance, you know, acquisition. So it's it's pretty
• 19:27
  Speaker 3: clear that once they are able to get their hands
• 19:30
  Speaker 3: on Warner Brothers and they're able to close on that transaction,
• 19:32
  Speaker 3: they're obviously going to do all that they can to
• 19:36
  Speaker 3: deliver on those six billion and synergies. But it's really
• 19:39
  Speaker 3: been a very long and arduous road and it's not
• 19:42
  Speaker 3: looking easy at all. So one of the things that
• 19:45
  Speaker 3: I think people still are extremely concerned about is leverage.
• 19:47
  Speaker 3: We know it's going to be about six and a
• 19:48
  Speaker 3: half times at closing whenever that happens, and then the
• 19:52
  Speaker 3: other thing that you have now is kind of the
• 19:53
  Speaker 3: sticking fee, right, and so that's because this deal is
• 19:56
  Speaker 3: going to get delayed by.
• 19:57
  Speaker 6: At least two full quarters.
• 20:00
  Speaker 3: It was supposed to close on September thirtieth, it's going
• 20:02
  Speaker 3: to be maybe closer to a March end of March timeframe.
• 20:06
  Speaker 3: We're going to see it close to almost about one
• 20:08
  Speaker 3: point three billion dollars in ticking fees and guess how
• 20:11
  Speaker 3: that's going to be funded more share issuance. So we're
• 20:15
  Speaker 3: looking at massive dilution here, I mean paramount share, paramounts,
• 20:18
  Speaker 3: guidance share. You know, a number of shares outstanding right
• 20:22
  Speaker 3: now is one billion. It's going to go to close
• 20:24
  Speaker 3: to about five billion when all of this is said
• 20:27
  Speaker 3: and done. So this is just, you know, it just
• 20:30
  Speaker 3: is not a very very encouraging outlook at all from
• 20:34
  Speaker 3: an investment perspective.
• 20:35
  Speaker 2: Stay with us more from Bloomberg Intelligence coming up after this.
• 20:42
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 20:46
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 20:49
  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 20:53
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 20:56
  Speaker 5: One of the most read articles on the Bloomberg Terminal
• 20:59
  Speaker 5: and a long time is to do with Lulu Lemon
• 21:03
  Speaker 5: and the management team there and some of their product
• 21:06
  Speaker 5: challenges that they have, and it seems like Lululemon pants
• 21:09
  Speaker 5: are everywhere, but it's been a journey. Lily Meyer Joints
• 21:13
  Speaker 5: is here, Retai reporter for Bloomberg News. Lily, what was
• 21:15
  Speaker 5: your focus here when doing this story on Lululemon.
• 21:18
  Speaker 8: Yeah, so, the story chronicles how the company that basically
• 21:24
  Speaker 8: invented leggings as we know it today got to this point.
• 21:28
  Speaker 6: Where they're really struggling.
• 21:30
  Speaker 8: You know, they have an influx of competitors, they have
• 21:33
  Speaker 8: a CEO who's starting in September. They've been without a
• 21:36
  Speaker 8: CEO for several months, and until recently, they had a
• 21:39
  Speaker 8: founder who was really criticizing many of their moves.
• 21:44
  Speaker 6: So how did they get here?
• 21:46
  Speaker 5: What happened here? Because we've had a lot of reporting
• 21:49
  Speaker 5: on Lululemon over the years here a Bloomberg.
• 21:52
  Speaker 8: Yeah, so, you know, lul Lemon was founded by Chip Wilson,
• 21:56
  Speaker 8: who is a executive from Vancouver, and he came up
• 22:04
  Speaker 8: with this idea. He was going to yoga classes to
• 22:08
  Speaker 8: help with the back problem he was having and saw
• 22:10
  Speaker 8: it that many of the people in the class didn't
• 22:12
  Speaker 8: really have, you know, the athletic wear that they needed,
• 22:16
  Speaker 8: and the company has since you know, gone public, become
• 22:20
  Speaker 8: a fourteen billion dollar company, gone through multiple executives, and
• 22:24
  Speaker 8: through throughout the way, they've had these problems with sheerness
• 22:29
  Speaker 8: in their leggings. So in twenty third.
• 22:31
  Speaker 6: Sheerness yes like see through?
• 22:33
  Speaker 5: Yes, not good?
• 22:34
  Speaker 7: Right?
• 22:34
  Speaker 8: Yeah, So in twenty thirteen they had their first big issue,
• 22:37
  Speaker 8: they had to pull almost twenty percent of their women's
• 22:42
  Speaker 8: pants from stores. That led to management changes, and just
• 22:48
  Speaker 8: recently earlier this year, they had another issue with sheer leggings.
• 22:51
  Speaker 5: Okay, so new management we have, I guess In April,
• 22:55
  Speaker 5: the company has selected Heidi O'Neill, a former top executive
• 22:58
  Speaker 5: at Nike, to be its next CEO. What do we
• 23:02
  Speaker 5: know about miss O'Neil and maybe what her agenda or
• 23:05
  Speaker 5: what her strategy is going to be here.
• 23:07
  Speaker 6: Yeah, so Heidi is a really interesting pick. She was
• 23:09
  Speaker 6: a top executive.
• 23:10
  Speaker 8: At Nike under its previous CEO, John Donaho, who presided
• 23:15
  Speaker 8: over a period of Nike's history where you know, they
• 23:19
  Speaker 8: cut ties with many of their wholesale partners, they went
• 23:22
  Speaker 8: too deep into lifestyle sneakers, and Heidi led product and
• 23:27
  Speaker 8: led Nike's direct to consumer push.
• 23:29
  Speaker 5: So talk to us about this founder here I mean,
• 23:33
  Speaker 5: he didn't go quietly into the night.
• 23:34
  Speaker 2: Did he.
• 23:35
  Speaker 5: He's still pretty active on social media, kind of taking
• 23:39
  Speaker 5: potshots at the company, it seems like, right.
• 23:41
  Speaker 8: Yeah, So he launched a proxy campaign against the company
• 23:45
  Speaker 8: last year, advocating for changes.
• 23:47
  Speaker 6: He criticized the management, the.
• 23:49
  Speaker 8: Board, you know, the CEO left shortly after, and in
• 23:55
  Speaker 8: May he reached a settlement with Lulu. So the settlement
• 23:58
  Speaker 8: is granting him two boards, so he'll have a bit
• 24:02
  Speaker 8: of a foothold in that sense. And he also is
• 24:05
  Speaker 8: going to get quarterly meetings with Heidi when she starts,
• 24:08
  Speaker 8: and in return, he has to stay quiet for eighteen months.
• 24:12
  Speaker 5: Eighteen months?
• 24:13
  Speaker 6: What do we know about?
• 24:14
  Speaker 5: Does he support this selections new CEO Heidy O'Neil.
• 24:18
  Speaker 8: He was pretty critical about the CEO process. He you know,
• 24:23
  Speaker 8: criticized the way it happened. He took some shots there.
• 24:29
  Speaker 8: But he also reached out to Heidi, congratulated her on
• 24:33
  Speaker 8: the role, said he looked forward to meeting her soon.
• 24:35
  Speaker 8: So it'll be really interesting to see what these quarterly
• 24:38
  Speaker 8: meetings are like between them.
• 24:40
  Speaker 5: So is it for Lululemon? Is it a product story?
• 24:44
  Speaker 5: Is it a promotional story? Where do most people think
• 24:48
  Speaker 5: the challenge or is it maybe just a competitive story.
• 24:50
  Speaker 5: I don't know, what do people think? This is the issue?
• 24:52
  Speaker 8: Yeah, it's kind of all so on the product side,
• 24:55
  Speaker 8: you know, new competitors like Aloe and Viewori have come in.
• 24:58
  Speaker 8: They've launched product that customers have found really exciting, customers
• 25:02
  Speaker 8: have switched over and Lulu product some of it has
• 25:05
  Speaker 8: fallen short. You know the get Low laggings that came
• 25:07
  Speaker 8: out in January and had to they had to pause
• 25:11
  Speaker 8: sales on because they were see through Lula and pushed
• 25:14
  Speaker 8: into sneakers, which hasn't really panned out.
• 25:16
  Speaker 6: They had this collaboration with.
• 25:17
  Speaker 8: Disney which they got a lot of critique over.
• 25:20
  Speaker 6: So it's a product story.
• 25:21
  Speaker 8: You know, she has to win over shareholders as well
• 25:25
  Speaker 8: and went over the street.
• 25:27
  Speaker 5: So it's I guess when I talked to like Scarlett
• 25:30
  Speaker 5: fou or Alex Steele or anybody, I kind of get
• 25:33
  Speaker 5: the same story, which is they love Lululemon, but it's
• 25:37
  Speaker 5: just too expensive for a lot of people. So it's
• 25:40
  Speaker 5: a premium product at a premium price. But I don't
• 25:43
  Speaker 5: know that's kind of the feedback I get. Yeah, I
• 25:46
  Speaker 5: mean that does a company acknowledge that I don't know.
• 25:48
  Speaker 6: If they've really acknowledged that.
• 25:50
  Speaker 8: I mean, I think their price points have remained pretty
• 25:53
  Speaker 8: stable for many years, but obviously they're on the more
• 25:57
  Speaker 8: premium side, which adds more pressure when the product, you know,
• 26:00
  Speaker 8: doesn't meet customers expectations. And addition to allo and viewery,
• 26:05
  Speaker 8: they've also gotten more competitors on the lower end, so
• 26:07
  Speaker 8: you know, people are buying likings from Target, they're buying
• 26:09
  Speaker 8: likings from Old Navy, and so that's taken some of
• 26:12
  Speaker 8: their share as well.
• 26:14
  Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spotify,
• 26:19
  Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,
• 26:23
  Speaker 1: ten am to noon Eastern on Bloomberg dot com, the
• 26:27
  Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You
• 26:31
  Speaker 1: can also watch us live every weekday on YouTube and
• 26:34
  Speaker 1: always on the Bloomberg terminal.