Latest / Bloomberg Intelligence / Amazon Rushes Out Latest AI Chip to Take on Nvidia, Google

Transcript

Amazon Rushes Out Latest AI Chip to Take on Nvidia, Google · Bloomberg Intelligence

• 0:00
  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 Coarcklay 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.
• 0:23
  Speaker 2: A lot of news in the tech space. I guess
• 0:25
  Speaker 2: it's just every day. We have a lot of news
• 0:27
  Speaker 2: in the tech space. I want to jump out of me.
• 0:29
  Speaker 2: Is Amazon rush us out latest AI chip to take
• 0:33
  Speaker 2: on in Vidia and Google?
• 0:35
  Speaker 3: When that gets my attention, let me check in with
• 0:36
  Speaker 3: somebody who might know a thing or two about this stuff.
• 0:39
  Speaker 2: Man Deep Singh, senior tech industry analysts, Bloomberg Intelligence. He's
• 0:42
  Speaker 2: out there in San Diego. I don't know what's going
• 0:44
  Speaker 2: on in San Diego. I didn't get the invite, but
• 0:46
  Speaker 2: Man Deep's out there doing the.
• 0:47
  Speaker 3: Zoom thing, Man Deep.
• 0:49
  Speaker 2: Amazon chips, where do they stack up a relative to say,
• 0:53
  Speaker 2: an Nvidio or Google.
• 0:56
  Speaker 4: I mean, look, Amazon Reno is the largest cloud provide
• 1:00
  Speaker 4: with almost fifty percent share. And when it comes to
• 1:04
  Speaker 4: the GPUs, everyone so far except for Google has relied
• 1:09
  Speaker 4: on it media, you know, for training and what Amazon
• 1:15
  Speaker 4: is doing is really copying that Google playbook where they
• 1:20
  Speaker 4: want to use their own chips. It's just that they
• 1:23
  Speaker 4: haven't had that kind of success that Google has had
• 1:26
  Speaker 4: with TPUs, and they're trying to speed things up because
• 1:30
  Speaker 4: in the end, all these hyperscalers don't want to spend
• 1:34
  Speaker 4: you know, twenty to twenty five percent of their CAPEX
• 1:37
  Speaker 4: on procuring in videos chips, and that is what the
• 1:41
  Speaker 4: endgame is. I think Google so far is ahead in that,
• 1:46
  Speaker 4: but clearly Amazon is trying to catch up when it
• 1:49
  Speaker 4: comes to their own chips efforts.
• 1:51
  Speaker 5: Man deep, it feels like Amazon Google are becoming more
• 1:54
  Speaker 5: formidable competitors to Nvidia in this space. In Vidia the
• 1:57
  Speaker 5: AI darling. When you think about twenty twenty, who are
• 2:01
  Speaker 5: some of the winners in these AI arms race.
• 2:06
  Speaker 4: I mean, look, when you're running a cloud business, you
• 2:09
  Speaker 4: know you're trying to optimize things across the stack, and
• 2:14
  Speaker 4: that's where you know, a META is very different from
• 2:17
  Speaker 4: a Google or an Amazon, which have a big public
• 2:19
  Speaker 4: cloud business. I think what you're going to see is
• 2:24
  Speaker 4: focus more on capex efficiency. If Google can deliver you know,
• 2:29
  Speaker 4: a lot more with their ninety billion dollars in capex
• 2:32
  Speaker 4: in terms of training and printing and having a cloud business.
• 2:35
  Speaker 4: Everyone will be measured the same way, whether it's Amazon
• 2:39
  Speaker 4: or Meta, and that's where CAPEX efficiency will be a
• 2:42
  Speaker 4: much bigger focus in twenty twenty six than it was
• 2:46
  Speaker 4: in the past two years, where you know, there was
• 2:48
  Speaker 4: a gold rush going on in terms of getting these GPUs,
• 2:52
  Speaker 4: making sure you have chips for training your models. I
• 2:55
  Speaker 4: think we are moving into a phase where CAPEX efficiency
• 2:59
  Speaker 4: will be front end center going forward.
• 3:01
  Speaker 2: Mandy, if I see a Bloomberg News story Apple AI
• 3:05
  Speaker 2: head to leave.
• 3:06
  Speaker 3: This doesn't feel right to me. What's going on with
• 3:08
  Speaker 3: Apple and AI? And should I?
• 3:10
  Speaker 2: Am I reading too much into this? Seems like there's
• 3:11
  Speaker 2: a lot of turnover there.
• 3:13
  Speaker 4: I mean, look for a good reason, because Apple, when
• 3:17
  Speaker 4: you think about the back seven players, has trailed in
• 3:21
  Speaker 4: terms of having an AI strategy making those investments. And
• 3:25
  Speaker 4: right now we are seeing even you know, just yesterday
• 3:28
  Speaker 4: Deep Seek release their latest model by Dance is talking
• 3:32
  Speaker 4: about a model that can be run on your operating system.
• 3:36
  Speaker 4: So there is so much going on at the hardware
• 3:39
  Speaker 4: and at the operating system layer that you feel like
• 3:42
  Speaker 4: Apple is missing out one because they don't have any
• 3:46
  Speaker 4: AI models of their own and also in terms of
• 3:49
  Speaker 4: their partnerships, they haven't been that upfront about, you know,
• 3:53
  Speaker 4: whether it's Open AI or Google in terms of making
• 3:57
  Speaker 4: changes to their operating system. So even so the hardware
• 4:00
  Speaker 4: sales haven't really suffered because of that. I mean, when
• 4:03
  Speaker 4: you look two years out, if Apple doesn't have a
• 4:06
  Speaker 4: good AI strategy, a good model that works natively on
• 4:11
  Speaker 4: the operating system, I think you will start to see
• 4:14
  Speaker 4: an impact on the hardware sales.
• 4:16
  Speaker 3: Stay with us more from Bloomberg Intelligence coming up after this.
• 4:23
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 4:27
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 4:30
  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 4:33
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 4:37
  Speaker 2: Cyber Monday it's a thing, a lot of people spending
• 4:40
  Speaker 2: a lot of money at the click of a button.
• 4:42
  Speaker 3: Let's get some of the data here.
• 4:43
  Speaker 2: Put him Goyle, senior US e commerce and retail analysts
• 4:46
  Speaker 2: for Bloomberg Intelligence joints US here. Put them talk to
• 4:50
  Speaker 2: us about cyber Monday. What were some of the trends
• 4:52
  Speaker 2: you guys saw. There's more and more people if you
• 4:55
  Speaker 2: need to shop online.
• 4:57
  Speaker 6: Yeah, so people definitely came online to shop. But the
• 5:00
  Speaker 6: results came out this morning. According to Adobe, sales were
• 5:04
  Speaker 6: fourteen point two five billion dollars. That's just slightly ahead
• 5:09
  Speaker 6: of the fourteen point two billion estimated, so a seven
• 5:11
  Speaker 6: point one percent gain. So I'd say, you know, overall,
• 5:15
  Speaker 6: things were largely to me as expected, maybe slightly better.
• 5:19
  Speaker 6: We saw deals over Cyber Monday, which drew customers, but
• 5:23
  Speaker 6: in all honesty, Paul, you know, we looked at eighty
• 5:26
  Speaker 6: one brands online yesterday and what we found was that
• 5:30
  Speaker 6: the majority of them, the deals were in line to
• 5:33
  Speaker 6: last year. So we did see retailers pull back on
• 5:37
  Speaker 6: discounting because there's just more costs that are built into
• 5:40
  Speaker 6: this year from tariffs.
• 5:43
  Speaker 5: Consumers buying what were they buying up a Cyber Monday,
• 5:47
  Speaker 5: and what is that telling you about the health of
• 5:49
  Speaker 5: the consumer. Was it big ticket items? Were they trading
• 5:51
  Speaker 5: down to private labels?
• 5:53
  Speaker 6: Yeah, what we saw. So we saw electronics still being
• 5:56
  Speaker 6: very powerful this holiday season. The Apple air pods were
• 5:59
  Speaker 6: cited to be among one of the top sellers. We
• 6:02
  Speaker 6: also saw the PlayStation in high demand. People were shopping
• 6:05
  Speaker 6: for fashion apparel, they were buying for the home across
• 6:09
  Speaker 6: the news that we read, what we've seen sneakers, you know,
• 6:12
  Speaker 6: athletic where was probably a little lore than expected. But
• 6:16
  Speaker 6: once again, that's not really an item that you often
• 6:20
  Speaker 6: put under the tree as much as you buy for yourself,
• 6:22
  Speaker 6: So we think that could pick up.
• 6:26
  Speaker 2: I'm thinking about some of the folks that really do
• 6:28
  Speaker 2: a good job online, Walmart, Target, How are those guys,
• 6:32
  Speaker 2: how are they performing?
• 6:34
  Speaker 6: Yeah, so Walmart and Target, we think both actually had
• 6:37
  Speaker 6: a good holiday season, but in terms of promotional activity,
• 6:40
  Speaker 6: we think they were largely in line with last year.
• 6:43
  Speaker 6: That said, we were in the store on Black Friday.
• 6:45
  Speaker 6: We monitored their deals online over the weekend and say yesterday,
• 6:48
  Speaker 6: and we think their deals were good, but they weren't
• 6:52
  Speaker 6: aggressive or more aggressive i should say than last year,
• 6:56
  Speaker 6: which is in a way a good thing because they'll
• 6:58
  Speaker 6: help their margins or margins this holiday quarter won't suffer
• 7:03
  Speaker 6: because retailers had to discount more aggressively than they did
• 7:06
  Speaker 6: last year.
• 7:07
  Speaker 5: How are you thinking about the retail sector going into
• 7:10
  Speaker 5: next year? Do you expect that the strength will continue?
• 7:14
  Speaker 6: I think it'll be tough. You know, we've seen shoppers
• 7:17
  Speaker 6: come out to shop for events. Durven buying, whether that's
• 7:20
  Speaker 6: back to school or holiday or birthdays or events they're
• 7:24
  Speaker 6: coming out and their spending. But once we exit holiday,
• 7:29
  Speaker 6: there is really no catalyst in January to shop. So
• 7:33
  Speaker 6: we do think that you will kind of see the
• 7:36
  Speaker 6: normal lull that you see after the holidays also creep
• 7:39
  Speaker 6: into twenty twenty six. But next year it's really going
• 7:42
  Speaker 6: to be more about what happens with pricing. We've seen
• 7:46
  Speaker 6: retailers be able to hold prices study or raise them
• 7:49
  Speaker 6: just slightly into the back half from tariffs, But next
• 7:52
  Speaker 6: year will they have to implement bigger price increases because
• 7:57
  Speaker 6: all the inventory will likely be impacted by some sort
• 8:00
  Speaker 6: of tariff into next year.
• 8:02
  Speaker 2: That's kind of where I want to go put on
• 8:03
  Speaker 2: just lastly here, I mean, I don't know how to
• 8:05
  Speaker 2: think about the tariff impact because it seems like we
• 8:08
  Speaker 2: haven't really seen it too much at the consumer level,
• 8:12
  Speaker 2: And maybe that means that, you know, the retailers the
• 8:14
  Speaker 2: distributors that they've kind of taken it in their margin,
• 8:17
  Speaker 2: and the tariff is what it is. That doesn't look
• 8:19
  Speaker 2: like there's gonna be a second round of teriffs next year,
• 8:22
  Speaker 2: So the tariffs are what they are in the economy,
• 8:24
  Speaker 2: but you're saying that maybe there still could be some
• 8:26
  Speaker 2: impact next year.
• 8:28
  Speaker 6: Well, if you think about when the tariffs were implemented,
• 8:30
  Speaker 6: it really affected the back half of this year, right,
• 8:33
  Speaker 6: so when you go into the first half of next year,
• 8:35
  Speaker 6: you're up against comparisons where there really wasn't a tariff impact.
• 8:39
  Speaker 6: So that's one thing that you have to deal with.
• 8:41
  Speaker 6: The second thing is is that prices are going up.
• 8:44
  Speaker 6: I'm not you know, we did see select price increases.
• 8:46
  Speaker 6: In fact, you know, Nike came out and said that
• 8:48
  Speaker 6: they're directly raising prices but un select goods. And I
• 8:51
  Speaker 6: think that's the approach that most retailers have been taking
• 8:53
  Speaker 6: is we'll raise prices where we can, and where we
• 8:56
  Speaker 6: know we can't, will absorb it or we'll offset it
• 8:59
  Speaker 6: otherwise through a fit season supplier kickbacks. So that's what
• 9:02
  Speaker 6: we'll continue to see happen next year. But there is
• 9:05
  Speaker 6: still some pressure. Now. We'll see what happens next week
• 9:09
  Speaker 6: right where the court ruling could be that the tariffs
• 9:12
  Speaker 6: are just unwarranted and are unlawful. And if that happens,
• 9:16
  Speaker 6: then I think we have some positive surprises and for
• 9:19
  Speaker 6: us next year.
• 9:20
  Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.
• 9:27
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 9:31
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 9:34
  Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
• 9:38
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 9:42
  Speaker 2: We are waiting for a huge m and a trade
• 9:45
  Speaker 2: to be announced Warner Brothers Discovery, with an enterprise value
• 9:48
  Speaker 2: of about.
• 9:48
  Speaker 3: Ninety billion dollars. It's up for sale.
• 9:52
  Speaker 2: Second round bids for the company we're due yesterday. We
• 9:57
  Speaker 2: understand that it's Netflix, it's Comcasts, and it's of course
• 10:00
  Speaker 2: it's Paramount sky Dance and all that kind of stuff there.
• 10:02
  Speaker 2: So Githa rang A Nathan. She is the senior media
• 10:05
  Speaker 2: analysts for Bloomberg Intelligence. Keith, what's the latest there in
• 10:08
  Speaker 2: Warner Brothers Discovery, because it seems like this is a
• 10:11
  Speaker 2: company that wants to be sold and be sold quickly.
• 10:15
  Speaker 7: Yeah, absolutely, Paul. I mean, things seem to be definitely intensifying.
• 10:19
  Speaker 7: So the second round bids were due yesterday. The reporting
• 10:22
  Speaker 7: so far seems to suggest that Netflix has mostly a
• 10:26
  Speaker 7: cash bid. That's a little bit of a surprise, given
• 10:29
  Speaker 7: that you know, when you compare Netflix with both comcasts
• 10:32
  Speaker 7: and paramounts guidance. Obviously that stock has the most value.
• 10:37
  Speaker 7: You know, they're treating it almost thirty times forwardy, but
• 10:40
  Speaker 7: compared to a Comcast, which trades it about five times.
• 10:42
  Speaker 7: So obviously, I mean, you know, it just goes to
• 10:44
  Speaker 7: show that Netflix is very, very interested. There was obviously
• 10:48
  Speaker 7: some you know, speculation earlier whether they were a serious
• 10:51
  Speaker 7: bidder or not.
• 10:52
  Speaker 8: I think this kind of puts that to rest. The
• 10:55
  Speaker 8: offers this time are.
• 10:56
  Speaker 7: Binding, means if the board likes something that it sees,
• 10:59
  Speaker 7: they can absolutely go ahead and bring this whole process
• 11:02
  Speaker 7: to a conclusion pretty quickly. So right now, just waiting
• 11:05
  Speaker 7: to hear on the actual numbers. We haven't heard any
• 11:10
  Speaker 7: any reporting on the actual bid numbers themselves. Warner Brothers,
• 11:13
  Speaker 7: of course looking for thirty dollars a share.
• 11:15
  Speaker 5: Githa Bank of America has a note that calls the
• 11:17
  Speaker 5: bidding war for Warner Brothers quote industry realignment. Is that
• 11:21
  Speaker 5: a fair characterization? And how do you see this bidding
• 11:24
  Speaker 5: war transforming the industry?
• 11:26
  Speaker 8: Absolutely agree with that.
• 11:28
  Speaker 7: I mean, you know, you have Warner Brothers, which is
• 11:31
  Speaker 7: one of the most iconic studios in Hollywood. You know,
• 11:35
  Speaker 7: you have a great streaming service in HBO Max. You
• 11:38
  Speaker 7: just look at the Warner Studio this week at the
• 11:41
  Speaker 7: I mean sorry, this year at.
• 11:42
  Speaker 8: The box office.
• 11:43
  Speaker 7: They've had an absolutely phenomenal run. So they're leading with
• 11:47
  Speaker 7: about a twenty eight almost thirty percent share of domestic
• 11:51
  Speaker 7: box office. So this is a huge studio that could
• 11:54
  Speaker 7: obviously or a huge company even that could you know,
• 11:57
  Speaker 7: completely reshaped the media landscape. And it is transform transformative
• 12:01
  Speaker 7: in many, many ways. So if you think about you know,
• 12:03
  Speaker 7: Paramount sky Dances streaming assets right now, with Paramount Plus,
• 12:07
  Speaker 7: they have about seventy million subscribers. You add HBO Max,
• 12:10
  Speaker 7: you get over two hundred million. Same is true for Comcast.
• 12:14
  Speaker 7: You know, these are this is kind of an existential deal,
• 12:17
  Speaker 7: I would say for both those companies, and absolutely transformative.
• 12:21
  Speaker 7: So you know, you take Warner Brothers and Paramount sky
• 12:24
  Speaker 7: Dance for instance, if those two companies combine, that basically
• 12:27
  Speaker 7: then becomes the second largest media company after Disney. So again, huge,
• 12:33
  Speaker 7: huge things that stake here for all of these three bidders.
• 12:38
  Speaker 2: How about valuation here, The company has said in the
• 12:41
  Speaker 2: past that they would like thirty dollars share. The stock
• 12:44
  Speaker 2: is trading at just north of twenty four dollars to share.
• 12:47
  Speaker 2: John Malone, the company's chair emeritus and of course one
• 12:51
  Speaker 2: of the biggest deal makers and media and telecom over
• 12:53
  Speaker 2: the last fifty years, he says that number is quote possible.
• 12:58
  Speaker 2: How do you think valuations can shake here? What's the
• 13:00
  Speaker 2: price that's going to clear? Do you think?
• 13:03
  Speaker 7: I think it's definitely going to be above twenty eight dollars.
• 13:05
  Speaker 7: Part so we know that, you know, when all of
• 13:07
  Speaker 7: this had started, Warner Brothers was trading at about twelve
• 13:11
  Speaker 7: dollars a share. We're already up to twenty four dollars.
• 13:14
  Speaker 7: We know that in the last bidding round, Paramount Guidance
• 13:16
  Speaker 7: offered close to about twenty four dollars, which was rejected. Now,
• 13:21
  Speaker 7: if you just think about the two parts of the
• 13:23
  Speaker 7: business for Warner Brothers Discovery, you have the TV network's
• 13:26
  Speaker 7: business again throwing out a lot of cash, but not
• 13:28
  Speaker 7: necessarily big interms of valuation. I mean, this is a
• 13:31
  Speaker 7: melting ice cube. You know, the multiple that you would
• 13:34
  Speaker 7: slap on this part of the business would be maximum
• 13:36
  Speaker 7: about a four or five x. But then you think
• 13:38
  Speaker 7: about the streaming and the studio assets. Now that is
• 13:42
  Speaker 7: where you have your scarcity asset. You have a lot
• 13:44
  Speaker 7: of the IP sitting there. You have a streaming business
• 13:47
  Speaker 7: that is that is turned profitable, that could become extremely
• 13:50
  Speaker 7: profitable over the next few years, and so that's where
• 13:53
  Speaker 7: most of the valuation is going to be. And you know,
• 13:56
  Speaker 7: we ran some numbers. We think that just the streaming
• 13:59
  Speaker 7: and the studio of the business alone could be worth
• 14:02
  Speaker 7: about twenty eight dollars. So when you think about that
• 14:04
  Speaker 7: thirty dollars per share that you know, John Malone says,
• 14:07
  Speaker 7: as possible, we absolutely think yes.
• 14:10
  Speaker 5: Etha, Can you please talk to us a little bit
• 14:11
  Speaker 5: about what some of the long term strategic advantages will
• 14:15
  Speaker 5: be for Warner Brothers when this deal closes. Whoever the
• 14:17
  Speaker 5: you know, the final winner is.
• 14:20
  Speaker 7: I think for the final winner you know, off the
• 14:22
  Speaker 7: Warner Brothers asset. One thing is that it obviously completely
• 14:26
  Speaker 7: transforms the business in terms of you know, increasing revenue,
• 14:29
  Speaker 7: increasing scale, increasing EBITDA. But I think the big thing
• 14:33
  Speaker 7: that everybody is looking for really is the synergy number.
• 14:36
  Speaker 7: And if you think about you know, paramounts guidance, which
• 14:39
  Speaker 7: is really looking to acquire all of Warner Brothers, so
• 14:42
  Speaker 7: not just the studio and streaming, but also the linear networks.
• 14:45
  Speaker 8: The synergies are going to be sizable.
• 14:46
  Speaker 7: We think it could be anything upwards of five to
• 14:49
  Speaker 7: six billion dollars. And that's really where you know, a
• 14:52
  Speaker 7: lot of this is going to kind of flow down
• 14:55
  Speaker 7: to the bottom line. Of course, you know, there's always
• 14:57
  Speaker 7: this question about how much of synergies can be extracted,
• 15:00
  Speaker 7: but actually Warner Brothers Discovery themselves have kind of provided
• 15:03
  Speaker 7: us with an excellent template. They've done a fantastic job
• 15:06
  Speaker 7: when it comes to extracting synergies both with the Scripts
• 15:09
  Speaker 7: transaction as well as with the most recent Warner Brothers
• 15:11
  Speaker 7: and Discovery merger. So we think if you know, they
• 15:14
  Speaker 7: lay out a good plan, it can definitely be done.
• 15:17
  Speaker 7: And so synergies really is the name of the game here,
• 15:19
  Speaker 7: apart from, of course, monetizing all of the IP because
• 15:23
  Speaker 7: they do have some of the best brands in the.
• 15:24
  Speaker 3: Business, Comcast. How credible are they?
• 15:28
  Speaker 2: I mean, we know the Roberts family, Brian Roberts loves
• 15:31
  Speaker 2: to do deals, rarely goes more than five or six
• 15:33
  Speaker 2: years without doing a big deal.
• 15:35
  Speaker 3: Here, how do you handicap them here?
• 15:40
  Speaker 7: You know, Paul so it you know, industry sources seem
• 15:43
  Speaker 7: to suggest that Warner Brothers Discovery actually wants Comcasts to
• 15:46
  Speaker 7: be the winner. And I think a lot of this
• 15:49
  Speaker 7: has to do with the fact that, you know, David
• 15:51
  Speaker 7: Zaslov obviously has this history with NBC. He used to
• 15:54
  Speaker 7: work there. He obviously knows Brian Roberts extremely well. But
• 15:57
  Speaker 7: I think they're all davids. Ozlav also kind of sees
• 16:00
  Speaker 7: this as a path for him to ultimately run NBC.
• 16:02
  Speaker 7: He doesn't necessarily want to exit Hollywood just yet, which
• 16:05
  Speaker 7: is what would happen if he's sold to either paramount
• 16:08
  Speaker 7: S Guidance or to Netflix. So I think in many
• 16:10
  Speaker 7: ways he does want to kind of sell to Comcast. Again,
• 16:13
  Speaker 7: it's going to come down to whether Comcast can put
• 16:15
  Speaker 7: up the money, because they are right now in a
• 16:18
  Speaker 7: very very tricky, precarious situation. Their cable business is struggling.
• 16:23
  Speaker 7: They you know, the stock is trading at historical lows
• 16:26
  Speaker 7: five times ebit, so really really in a tough spot,
• 16:31
  Speaker 7: and they have to come up with a majority cash
• 16:33
  Speaker 7: bid that you know, so we're looking at something like
• 16:35
  Speaker 7: about sixty billion dollars. This has to be debt financed,
• 16:39
  Speaker 7: and so you kind of think about all of that
• 16:40
  Speaker 7: incremental interest expense for them, Paul, I mean this is
• 16:43
  Speaker 7: going to be dilute up to free cash flow, and
• 16:45
  Speaker 7: I don't think investors are going to like it.
• 16:48
  Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.
• 16:55
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 16:58
  Speaker 1: weekdays at ten am on Apple Coarclay, and Android Auto
• 17:02
  Speaker 1: with the Bloomberg Business app. Listen on demand wherever you
• 17:05
  Speaker 1: get your podcasts, or watch us live on YouTube.
• 17:09
  Speaker 2: We have some news this week, big news for New
• 17:11
  Speaker 2: York City, getting three casino licenses for the city, one
• 17:15
  Speaker 2: in the Bronx.
• 17:17
  Speaker 3: Two in Queens.
• 17:18
  Speaker 2: This is to build like real casinos, not just the
• 17:21
  Speaker 2: you know, some of the gaming stuff. This is real
• 17:23
  Speaker 2: time stuff and it's big for the greater New York
• 17:28
  Speaker 2: City metro area here. So we want to break it
• 17:30
  Speaker 2: down with Briannegger, Senior Gaming and Launching analyst for Bloomberg Intelligence.
• 17:35
  Speaker 3: So let's step back.
• 17:36
  Speaker 2: Brian talk to us about kind of what the licenses
• 17:38
  Speaker 2: represent and kind of where do we go from here.
• 17:42
  Speaker 9: Sure, so this is a fairly protractive process, involving ultimately
• 17:46
  Speaker 9: di selection of three recipients. By the way, the only
• 17:48
  Speaker 9: three left in the running after a few others were
• 17:50
  Speaker 9: eliminated and dropped out, and really it authorized resort casinos
• 17:56
  Speaker 9: for the downstate New York area, mostly in New York City.
• 17:59
  Speaker 9: And as it turned out, as you mentioned, the three
• 18:02
  Speaker 9: casino qualified casino applicants, if you will, really are are
• 18:08
  Speaker 9: in New York City, but outside the Borough of Manhattan itself.
• 18:13
  Speaker 5: Brian, just looking at your note on these license approvals,
• 18:17
  Speaker 5: you write that they face a narrow path to decent
• 18:20
  Speaker 5: returns on investment. Can you please talk to us a
• 18:22
  Speaker 5: little bit more about that idea?
• 18:24
  Speaker 9: Sure? So, what we assume for those resorts is they
• 18:27
  Speaker 9: will get what I would call a gaming revenue premium
• 18:30
  Speaker 9: and room rate premium of ten twenty percent to other
• 18:35
  Speaker 9: kind of high end urban area resorts such as the
• 18:39
  Speaker 9: Burgat and Atlantic City wins Encore in Boston. However, are
• 18:44
  Speaker 9: concerned if in terms of the return prospects are that
• 18:47
  Speaker 9: development costs are quite high and perhaps some of the
• 18:50
  Speaker 9: targeted non gaming contribution elements might be a bit ambitious.
• 18:54
  Speaker 9: So for that reason, when we work the numbers, we
• 18:57
  Speaker 9: came up with something like a ten percent return on investment,
• 19:00
  Speaker 9: which is certainly a bit less than most operators would
• 19:04
  Speaker 9: expect to attain in these regional markets.
• 19:07
  Speaker 2: So I'm thinking here, I mean again, I'm just thinking
• 19:10
  Speaker 2: about Steve Cohen's I was looking at his plans yesterday
• 19:13
  Speaker 2: for in conjunction with his city field.
• 19:16
  Speaker 3: He obviously he owns the Mets.
• 19:17
  Speaker 2: City field is out there, the national tennis centers out.
• 19:21
  Speaker 3: There the world.
• 19:23
  Speaker 2: You know that we had the world's fair situations, so
• 19:25
  Speaker 2: there's a ton of opportunity out there.
• 19:28
  Speaker 3: It seems like these are going to be.
• 19:29
  Speaker 2: More retail hotel than casino. How do you think the
• 19:35
  Speaker 2: mix of revenue is going to be there?
• 19:37
  Speaker 9: So there certainly is. I think when we work the numbers,
• 19:40
  Speaker 9: we assume that with respect to either food and beverage
• 19:45
  Speaker 9: or retail entertainment revenue, those will be fairly sizeable chunks
• 19:49
  Speaker 9: of the overall revenue PI probably cumuatively close to half,
• 19:53
  Speaker 9: which is true of many kind of gaming resorts in
• 19:59
  Speaker 9: attractive environment where you get a lot of non gaming revenue.
• 20:01
  Speaker 9: I think the same will be true here. The question
• 20:04
  Speaker 9: is will it be enough and will be margins which
• 20:07
  Speaker 9: we take to be about thirty percent, be sufficient to
• 20:10
  Speaker 9: get a good return. But certainly, you know the logic
• 20:12
  Speaker 9: of having a nexas city field makes a lot of sense.
• 20:15
  Speaker 9: You know, the other locations, valleys at a golf course in
• 20:18
  Speaker 9: the Bronx, you know, the resorts world in Queen's pretty
• 20:22
  Speaker 9: much expanding and existing facility all have their merit. The
• 20:25
  Speaker 9: question is will be enough to get a decent return.
• 20:28
  Speaker 9: But certainly some of these locations have rational prospects.
• 20:32
  Speaker 5: What does this victory for these three companies mean for
• 20:35
  Speaker 5: their competitors like Sands, MGM, When where do they go
• 20:39
  Speaker 5: from here?
• 20:40
  Speaker 9: So it'd be queer. You know Sans exited this process
• 20:43
  Speaker 9: back in April. When exited in May it's Hudson, York
• 20:48
  Speaker 9: project because of community opposition at MGM in October because
• 20:52
  Speaker 9: of the licensed terms. But bear in mind that they
• 20:54
  Speaker 9: do have other prospects. You know, win is developing a
• 20:57
  Speaker 9: UAE resort of its own, MGM is building in Osaka, Japan.
• 21:02
  Speaker 9: They all can buy back in their own stock, So
• 21:04
  Speaker 9: I think they're weighing this particular opportunity relative to other
• 21:09
  Speaker 9: development prospects.
• 21:11
  Speaker 2: All right, so we're gonna get the licenses by year end.
• 21:16
  Speaker 2: What's the timetame? Have anybody any of these three licensed
• 21:19
  Speaker 2: winners lay out of timetable for getting a shovel in
• 21:21
  Speaker 2: the ground.
• 21:22
  Speaker 3: And maybe even opening the doors.
• 21:24
  Speaker 9: So I think it'll vary by operator, but the expectations
• 21:28
  Speaker 9: that these resorts will generally open by twenty thirty or so.
• 21:32
  Speaker 9: It'll take a few years to develop. There's always the
• 21:34
  Speaker 9: possibility of construction challenges, but that's the target. And of course,
• 21:39
  Speaker 9: our related to concerns since you mentioned MGM was MGM
• 21:44
  Speaker 9: Bally's Caesars o operate casinos in Atlantic City, and you know,
• 21:48
  Speaker 9: the proximity to Alantic City of resorts with casino elements
• 21:53
  Speaker 9: at this caliber certainly presents a potential competitive challenge to
• 21:57
  Speaker 9: Atlantic City itself.
• 21:58
  Speaker 3: ACI. That's tough, tough.
• 22:01
  Speaker 2: That is tough because I would see, you know, on
• 22:03
  Speaker 2: the Parkway, Brian, I know you see it too. We
• 22:05
  Speaker 2: have for years, for twenty thirty years, we've seen the
• 22:08
  Speaker 2: limousines from New York City going down the Parkway to AC.
• 22:12
  Speaker 2: That's going to get impacted, isn't.
• 22:13
  Speaker 9: It It will? I think you know, some operators, Forgata,
• 22:17
  Speaker 9: for example, a hard rock may hold up better than others.
• 22:21
  Speaker 9: But you know, there's always a challenge when you've got
• 22:23
  Speaker 9: this much additional gaming capacity, with resort elements opening up
• 22:28
  Speaker 9: in relative close proximity to a to a key Atlantic
• 22:32
  Speaker 9: city feeder market.
• 22:33
  Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
• 22:38
  Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,
• 22:42
  Speaker 1: ten am to noon Eastern on Bloomberg dot com, the
• 22:45
  Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You
• 22:49
  Speaker 1: can also watch us live every weekday on YouTube and
• 22:53
  Speaker 1: always on the Bloomberg terminal