This is Bloomberg business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Hey, now to the other stock that's definitely on our radar. It is nearly two percent of the Nasdaq one hundred and more than ten percent of the New York Stock Exchange is Fang Plus Index. We're talking, of course, about Netflix soaring today up eleven point eight percent now to its highest in more than two years. And that's what happens when it shows it can do what it did during COVID and when we're all stuck at home binging
on Tiger King, Queen's dam Bit, Guilty Squid Games. Did you watch that one?
I did not?
Okay, you're just a little squamish, Okay, Yeah, and more. Just a reminder, Netflix reporting it's best quarter of growth since viewers were stuck at home in the early days of the pandemic.
All right, the company, you know the number, signing up thirteen point one million new customers in the final three months of twenty t one. Three, exceeding Wall Street's estimate of eight point ninety one million. So it was a big beat, and in fact, it beat projections in every region of the world. We've got a great guest him.
Yeah, Michael pact is joining us. He's managing director of Entertainment and Analysts at Wedbush Securities. He joins us on Zoom from Long Beach, California. Michael, good to have you with us. Good to talk to you again. I mean, this is a company you've been covering for more than a decade, and your view has certainly shifted. Let's talk about where your view is right now. You've got an
outperform on the stock. You've up your twelve month price target to six hundred and fifteen dollars from five hundred and twenty five. Not quite a street high, but you're among the highest according to the analysts that are tracked by Bloombergh.
Why the upgrade, Well, you know, we I've covered it for twenty years. In August, actually.
We had a sell on it from roughly ten dollars to six ninety so wrong for ten years and out and then I've graded at one eight and we put on the best Ideas list.
At three point thirty.
So what I'm seeing is what I criticized ten years ago, thirteen years ago on the downgrade to sell. I'm seeing them do what I said they needed to do, which is stop being fixated on adding subs at all costs and start focusing on profitable subs.
They're doing everything right. They're managing their spend properly.
They're shifting their budget more toward television away from movies.
You saw Scott Stupor left the other day.
They are shifting their budget more toward international production, which costs about half as much as domestic. They are far more international. And what you're seeing now is that subscribers are coming in at very very high margins. You're seeing operating profits expand materially literally.
Three hundred basis points a year, which.
Means they're going to make a lot more money than anybody thinks in the next several years. So they traded a twenty something multiple. We have a thirty multiple price target. Could I be at forty or fifty or sixty? Sure, it really depends on how faster.
Hey, Michael, we want to bring up a chart for all of our view viewers, and it shows just the blowout number of subscribers added in that last quarter. It looks like it could, you know, pull back a little bit in the next quarter in a big way. But as you are saying, it's not just the net number of subscribers, it's that the folks that they are signing up, they're making more money off of them.
Absolutely.
And you know, if you see that thirteen million number new subscribers, forty percent are signing up for the six ninety nine ad supported tier, but they're generating about sixteen dollars because the ad load is about ten bucks. So you know, they've shown that by lowering price and adding advertising, they're attracting people that couldn't afford fifteen dollars before. The balance of those people are largely coming from password sharing crackdown.
And you know there are people whose kids, their adult children or their parents.
Tim's brother included. We're just going to share that. We've shared that several times on it. I'm sorry Tim's brother again.
That has a double win.
You know, the people who shouldn't be using it or sign up on their own, people who you want to pay for My kids who are college grads, I'm paying for them. I pay for their cell phone, I'll pay for their Netflix subscription, so that expands average revenue per member, and it expands new members. You're seeing it all just dovetail nicely. And now they're doing something clever. They're adding gaming. They got they finally have figured out how to do it, and that makes the service stickier.
You're less likely to quit if you've been on the Netflix Personal last month.
Stuff like Grand Theft, Auto Trilogy gets people coming back.
Andy Michael, I mean you're also a gaming analyst. We should note, so you covered this stuff really closely. What is Netflix doing that the other companies are not doing that? You know, the Disney's aren't doing, the Paramounts aren't doing the Peacocks aren't doing Like, why is Netflix executing so much better?
First mover advantage is the biggest thing. They've kind of created. The fund that would buy licensed property, would license things like suit you know, from the other networks. The other guys, we're trying to go all proprietary all the time. The CBS content state on Paramount and NBC content state on Peacock, ABC state on Disney Plus, and they didn't have the critical mass to actually support giving away all that content
without collecting subscription revenues. Netflix says two hundred and sixty million subscribers, they can pay up.
They did this for WWE.
It's a perfect example of something that took away from USA network and now they're going global with it.
Their idea is, we're taking something.
That has an audience of fewer than a million people a week, and we're going to expand that.
To five million people.
And when they do that, they leverage their subscriber base, they can afford to pay more.
The network or.
In this case, WWE says, of course, I'm taking more money. So the other guys are being dumb, you know, Peacock, Okay, one hundred and ten million dollars for one game, so we can all see Taylor Swift one game dumb, really dumb.
I know they've got three million subscribers. All those people are going to quit another two weeks.
Hey, noticeant on Taylor sweat here. Hey having said that, Michael, that's fair we all do. Hey, listen, we've got just about a minute left here, so you obviously are a beat. You like the WWE deal that they just did, and they kind of front ran earnings yesterday in a big way, having said that what would make you turn bearish again on Netflix? And again just got about thirty forty seconds valuation.
I mean, if the stock gets to you know, much much more than it's worth, of course I would downgrade. I am very comfortable at six fifteen. I probably could be comfortable at a higher number if I see greater earnings growth that we have forecasts. But you know, if the stock ran to two thousand or five thousand, of course that.
Would doubt grade.
All right, Michael Pactor, Hey, you know what, it's okay that you pay for your kids Netflix. Okay, I'm just throwing it out there like that's fine. You're not the only one.
Your kids are older and you're paying for everything.
I just you know, I'm just wondering if the other streaming services are going to wise up soon to you know, crack down on password sharing the way Netflix has. Let's get the sense they are, but it's going to create a lot of changes in households.
Well, you know, talking with our Geeta Ringing ofth On yesterday, I mean this whole idea that Netflix has figured out how to pivot right from when they used to be what the little red boxes and that you put him in the box.
The DVDs you're talking about, the little red boxes hs's. They did never do it. They did never do it.
No, they were all DVDs.
It just feels like they did.
They love it a lot, all right.
You've got Netflix shares, folks, up almost twelve percent in the session. This is Bloomberg.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple car Play and then brought auto with a Bloomberg Business act or watch us live on.
YouTube once again. As you know, politics are front and center. As you know by now, former President Donald Trump put himself on the cusp of clinching the Republican presidential nomination after New Hampshire voters handled him a decisive victory in Tuesday's primary. We just talked about this with our Joe Matthew.
Yeah, President Trump form. President Trump, I should say, comfortably dispatched his only remaining challenger, former UN Ambassador Nikki Haley, a little more than a week after his romp in the Iowa caucus, has forced his other main rival, Florida Governor Ron De Santis, out of the race.
All right, So the back to back wins, putting the former president Donald Trump on track to deliver a knockout blow to Haley Nikki Haley next month in her home state of South Carolina. And then of course he turns to him his attention to an all but certain rematch with President Joe Biden.
Well, a voice we wanted to get to and hear from again the interview this hour, who was on with us at the beginning of the year to talk all about the firm's top risks predictions for twenty twenty four in a year that the organization labeled as one of a quote grave concern with us again as your Asia Group Chairman Cliff Cupchen on Zoom from Washington, d C. Cliff,
Good to have you back with us. Has your view changed at all over the last couple of weeks, given that it's increasingly looking like former President Trump will go head to head with President Biden.
He doesn't changed, but you know the movies we're watching the movie now. He's very, very powerful, and he made that clear in New Hampshire, though, I do think polling data for both Iowa and from New Hampshire shows you know, he's got a pretty low feeling. He's going to have trouble getting independence and he needs them to get over the top. But I think people are going to start to realize if they haven't already. You know, Hayley drops out,
I think she'd want a great campaign. I would be surprised if she makes it in South Carolina primary and twenty four to February, where.
She's going to get really beaten if she does, beaten badly.
So he's got the nomination, and I think what we wrote about is starting to happen.
Hey, Cliff, we were struck when we talked to you earlier this year at the kickoff to twenty twenty four that the number one risk in the report that you guys put out was the United States versus itself. And here's what you guys all wrote. The US presidential election will worsen the country's political dysfunction, testing American democracy to a degree the nation has an experience in one hundred and fifty years in undermining US credibility on a global stage.
Remind us how you guys came to that determination to call at the number one risk.
Because President Trump would put the erosion of US democracy on jet Ski's I mean, look, if he wins, I think it's more lucky than not.
That he will.
Do so called schedule left, turn civil servants into political appointees, get rid of the people he doesn't like, and then go ahead to weaponize the Department of Justice and the FBI, and that will probably hurt American democracy.
I think it will be another election.
American democracy is going to continue, but it will be severely tested like it hasn't been since the Civil War.
We've got another We've really got another civil war.
Trump wins, another civil war on our hands.
Yeah, what do you mean? What I mean?
What I mean by that is that I think we will probably see unrest, significant unrests in the major cities on both coasts.
That is the kind of you know, pulling it.
The tissue of what makes us an American democracy in the American democracy is a tissue part you know, well the body survived. I hate to be sort of metaphorical about that, right, Yeah, but we're in for a tough ride.
Hey, Cliff.
To be fair, and you know, there's lots of polls out there that say that most Americans aren't really happy about either choices at this point. And as we often say, in the investment world, the past performance is no guarantee of future results. So we don't really know what a second term would be like for either Donald Trump or Joe Biden. But for Donald Trump, and to be fair, his policies, whether it's China, immigration or something that continue
to be you know, talked about and dealt with. We understand that there are issues, significant issues even in the Biden administration, they have continued, so I guess, you know, to be fair, we don't exactly know what it would mean. But I wonder if you're saying that no matter who's in the White House, it's a test for democracy.
I think this year will test democracy and that's sort of the front the front loaded part of what of what we were saying that this will be a very nativistic, very visceral campaign. And yeah, to be fair, I think some of the President Trump's former President Trump's policies we were good for markets and one could even say constructive in my.
Own view, he was.
I think Biden's been tough around China in many ways than Trump was. But I think this country is so polarized right now a that if Trump's elected, you'll have Democrats really not buying that he's legitimate president because he should have been in jail. And you know, b I think he's going to bring in uh, you know, the Heritage Foundation, that there's a lot of think tanks out there going to staff him. But I think I think more loyalists, far right people than he had the first
time running. So I know, you know, I think there was a good chance that we're going to get more extream policies than we got the first.
And to be fair, there's certainly several cases, many cases and ongoing litigation with the former president that we're kind of waiting ultimately for the outcome to see what happened. So just to kind of put.
That center, he faces ninety one felony charges in four separate cases. They range from conspiring to defraud the US in his efforts to overturn the twenty twenty election loss to falsifying business records to cover a phush money paid to an adult film actress. So they really run the gamut.
What I want to ask you is, how can we all as Americans, we are the voters, ultimately, we pay taxes, we employ everybody who's down there in Washington. How can what's the role that you think Americans need to play in this division or trying to fix this division.
Yeah. Sure, that's a great question and what I love answering. So look, put up a little short. When I was on vacation recently, I was in West Virginia and called I won't say the county, but the executive committee of a Republican Party of conservative county. Met them with my fifteen year old son for lunch, and I think I told you guys, it's fascinating discussion with some West Virginians who felt like they had seceded into the United States
of America. Hey, b I was the first first person from Washington they had ever talked, and they didn't want to seceed from United States of America. So I think there is a national conversation that we really need to have. I feel lonely when I call for that because the Democrats aren't calling for it and the Republicans aren't going for it. But I think this kind of national town hall would be a really constructive thing to try.
Because Americans are good people. I think we're just really polarized.
Oh go ahead, Carol, I just want to mention on AP News Alert United Autoworkers Union endorsing President Joe Biden for reelection as a Democrat works to win over the rank and file, so we know he has been many would say a friend to organized labor. We've seen him out there certainly supporting them.
Well, CLI, speaking of business, I mean that's what you do at Eurasia Group. You advise businesses about how to handle the political climate, the geopolitical climate of the US and of the world. One, what are you hearing from CEOs right now about a potential Trump second term? And two how are you advising them to navigate it?
The Well, what we're hearing is a lot of interest in you know, what a Trump two point zero would do on tariffs and on protecting certain sectors generally. Is there a trade to be made on uh ten percent universal tariff that kind of issue, or on revoking p M t R in trade bird trade status from China?
Firstly.
Secondly, there is a lot of concern in c suites and corporate boardrooms about issue of instability, on whether America's status is the ultimate safe haven for capital in the world, and capital is a coward you know, goes words comfortable?
Is that?
And I continue to be the United States if if Trump it's elected. I think there's a lot less there's an assumption that Biden two point zero would be like like Biden one pose. I got a lot less questions about Biden being reelected I do about Trump. A lot interests in Trump, though.
Is there just in thirty seconds does it seem to be that executives are supporting Trump to a different degree than they were the first time around? Just thirty seconds left?
I think that a lot of previous Trump voters are going to scratching their heads and saying, look, I prefer what this guy would do in.
On markets.
I prefer deregulation.
I like that.
But am I going to have to put up with a degree of instability and lack of confidenceness country that is going to hurt my bottom line? If you look triple net so, I think there's a lot there's more doubt, I would say, even among formerly pro Trump Republicans.
All right, we're going to leave it on that note. So glad we got some time with you, Cliff, Thank you so much. Happy New Year again. Cliff Cupchain, chairman at Erase your group on zoom from Washington, DC.
You're listening to the Bloomberg Business Week podcast. Listen live each weekdays starting a two pm Eastern on Applecar Play and Android Auto with the Bloomberg Business Ad. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
So I wonder if US consumers are kind of loving the outlook and how they're feeling about the world.
Well, you may recall last week, US consumer sentiment soared in early January to the highest since twenty twenty one, that far exceeded expectations, short term inflation expectations, also slipping to a three year low. So I'd say, yeah, feeling pretty good.
Yeah, at least by that mesh, that was a big number, right, kind of surprise the world, or at least folks here in the US. So consumers upbeat and on that. Our next guest and our team is out with a new consumer stress index. So let's get to it and really find out how stressed out cannsumers or or they might not be. Is Katie Thomas. She's head of the Carnie Consumer Institute. She's on Zoom from Pittsburgh, Pennsylvania. That Institute. By the way, it's a think tank of global strategy
and management consultancy. Folks, Katie, good to have you here with Tim and myself on Bloomberg BusinessWeek. First of all, give us some background on the index. How you determine what needed to go into it, right, and this is the first read on it? Or give me some background here.
Yes, so thanks Carol. Great to be back with you and Tim, And yes, exactly, this is our inaugural Consumer Stress Index, and really it is our take on consumer sentiment, but a little bit more expansive. So we were inspired by consumers increasingly being labeled as unpredictable because the behavior for a while up until recently wasn't tying out to traditional sentiment metrics. And really our challenge was two things.
One was that we were looking a little bit too narrow on very specific economic and financial metrics, and the other piece was we weren't getting their input in a broader sense. So again it was very much like how do you feel about the not what's going on in your life, what are the other things that are perhaps stressing you out? Or in fact, we found the opposite, which is that consumers have this optionality that has allowed them to navigate some of these stresses a little bit
better than perhaps we were giving them credit for. So it's really this comprehensive point of view on consumers and their stress.
What's the optionality that they have that you're referring to.
So when you think of something like, you know, we talked a lot, of course over the last couple of years about food inflation. When you talk to consumers, you realize, in fact, they feel like there's more flex there than you may think. So, yes, certainly they acknowledge the rising prices, but there's a lot of options in terms of where you shop, what brands you buy. You can try new brands,
you can try different pack sizes, you can make. Maybe there's something you eliminate, you go out to eat a little bit less, but it's not all that upsetting you to you in the grand scheme of things, or similarly with interest rates, it's you know, yes, I acknowledge that I can feel the strain of these, but I don't feel like I'm unable to do anything about it.
I'm curious to Katie, like, certainly in the investment world, our economic world, sometimes we create, something's created and they do back testing to see how great an indicator it is of whatever. And I'm just curious, is that what you guys did with this index? Were you able to.
Not fully because of just the way that we built it. So we did the best we could. But in building out the index, so we have these five pillars, so we have consumer wallet and finances, but then health at education, innovation and technology, food in the environment, and geopolitics and government and some of those statistics just aren't as well tracked as economic statistics, as well as our consumer inputs
in overlays. So we asked consumers forty survey questions and unfortunately can't go back in time, so we're optimistic that our research will only get better with age.
Why did you think it was important though, to do it right now at this specific time here. You could have done it a couple of years ago. You could have done it prevent Like, I'm just curious.
Yeah, I think truly, we felt like coming out of the pandemic, this is the most we've heard CEOs, even in calls, kind of say very fuzzy things about the consumer and not always wanting to fully admit unpredictability, but saying things like, oh, we're getting mixed data on the consumer, and it was really coming out of the pandemic and trying to understand as people's behaviors settled back down and again really those gaps that for a while the consumer
sentiment numbers were down, but consumers were still spending, but if you talk to them, they were blue. But in reality they were still out there and just trying to rationalize some of those inconsistencies.
So answer the question for us, based on this research that you guys recently did at Carney, how is the consumer doing?
You know, right now, they're actually doing pretty okay. So in the US we have a baseline of one hundred since twenty nineteen, so we did do We backed the macroeconomic data till twenty nineteen as our foundational starting point, and the consumer right now is just about one oh three. So you know that was they're feeling okay. There's some stressors, but a lot of that, frankly, is driven by geopolitics
and government. So one of the things we looked at when we talked about this optionality was does a consumer feel like with some of these stressors they're able to respond to or impact them at all? With things like global conflict or political polarization. Those are things that are weighing on them that they feel like they have very little control over, unsurprisingly, So that's something that I heard
you you all mentioned the election coming into this. That's something we'll be keeping an eye on the next few quarters as we see how that impacts the overall stress.
So if you say, overall, Katie, the consumer is doing pretty well, it seems to me that there's this disconnect between how consumers feel and how they say they're feeling well, at least when it comes to politics. Because what we do see over and over again, at least in the polling that Bloomberg has done in recent months in several swing states, is that when it comes to how consumers feel about the economy, it does seem like foreign President
Trump is polling higher than President Biden. And we're trying to understand that disconnect at a time when well, the economy, by many measures, including your own, is actually doing pretty well. How do you explain that?
Yeah, I mean there are some of these data points I agree with you, you know him, we're trying to validate as well, because there are studies that show that when you actually do a party line split on how people feel about the economy. The negative numbers are very
much being driven by Republicans. So you're seeing whether yeah, so you're seeing whether that's you know, because they're in you know, perhaps just an echo chamber of kind of affirming you know, these affirming things are perhaps even you know, intentional sandbagging of those numbers as we think about where we're at politically in this country. I mean, that's part
of what's driving some of this. And so that's why our aim with some of our questions was almost to ask very objective questions that didn't allow for that that again focused on this optionality as opposed to just focusing on the feeling, because otherwise you do end up with the say do gap you describe?
Well, it is right, exactly, so interesting this idea that right, you say one thing but you do something completely opposite. So then all right, how good are the data points? Having said that, so, twenty four thousand consumers in twelve countries are who you spoke to, and so what did they find as the thing that was most stressful?
Yeah?
Absolutely, you know, we talked about geopolitics government that's really across countries. Right now, You think obviously Israel and Gaza, Ukraine, and you know all the different impacts of that. If you're in Europe, you're feeling perhaps and that's you know, what we were building with this index too, was the
interconnectivity of those five pillars. So in Europe you're feeling this stress perhaps of Ukraine, but also the impact on your energy prices and similarly, you know that's really and again it goes back to that struggle for control and just the lack of it. But what we're really tracking for looking forward and for our brands and clients is what does that mean? So comes up to top it's like, you know, purchasing behavior, How is that affecting how people
are purchasing things. Brand boycotts we've seen in the US more and more lately, So it's really working through some of those risks and helping to prioritize.
From politics perspective, what stresses.
People out.
In the US.
It usually is just that general feeling of polarization, like there's no path for Whard, there's no path of together just.
At the Eurasi Yeah, I mean, he's he's very concerned about the divide in the country. He's concerned about a civil war breaking out exactly.
I mean, I think that's really what we feel from people is just like far and away, those were the highest numbers we saw and just really weighing down on folks. And it's this generalized anxiety. You know, you can split a lot of these metrics as well into more generalized and then personal things, right, my personal finances, my personal situation with healthcare and education. You know, when it comes to politics, it's this like kind of shared sense of discomfort.
You know, it's interesting too, and you get In a release that was also put out, the initial baseline Baseline report, excuse me, surfaced some interesting conclusions. For example, while stressors stressors associated with the consumer wallet pillar were most frequently cited, seventy percent of respondents did not listen as their primary concern, Like how do you cross that one?
Well, that was the one.
Honestly, one of our early big gives me big unlocks of this of this work was that you know, we have those five pillars and consumer wallet and finances did win. But the rest, you know, twenty percent of people said geopolitics and government. You know, another roughly fifteen to twenty percent said both health and education and food in the environment.
So it's sort of one of those things like I'm not worried about interest rates as much as I'm worried about my food access or right now, I'm going through a healthcare situation and that's weighing me down more than you know, again, like even wages or as long as I'm employed, that's actually not my top concern right now.
And that's exactly the kind of thing we wanted to uncover here, of just how people's kind of full plate was working in their mind and where those kind of trade offs and give and take was occurring.
All right, So you all consult, you advise, you have clients who reach out to you. First of all, what are you hearing from your clients?
No, I think that it's really just this comprehensive view that really excites them because it just brings on a lot of discussion around any kind of topic that may be on their mind. So one thing, for instance, we've been chatting with with some of our food manufacturers is thinking about the impacts of ozempic and other GLP ones, and so even this helps to frame a discussion around that's not just a conversation about food or basket size.
It affects the healthcare system, it affects how people feel about their like physical and lifestyle choices, even their mental health, and so it really helps to draw some connectivity amongst these major topics that a lot of our clients were talking about.
So it's interesting, Katie, because I think Tim think about some of the stories that we've done over the past year, certainly on a this ozepic craze, these new class of diet drugs, whether it is you know, clothing manufacturers, airplanes, airplane seats, airplane seats like airplanes, this being bullish for airlines because people way less so they use less fuel, people shopping differently in terms of obviously food and so
on and so forth. I mean, it's kind of real, and it sounds like, you know, Katie, what you are hearing. That's true that companies are thinking about how they have to adjust their strategies.
Absolutely. I mean there's always, you know, many aspects that it addresses and just downstream implications as well. For instance, the one that came up the lowest of consumer stress
here was innovation and technology. So that's just ultimately not bubbling up in the US in most countries, but in particular in the US, people aren't as worried about generative AI as they are about again, some of the other things like putting food on the table, which makes sense, but there are still downstream implications there where it may not feel as immediate, but it still could have an
impact on their job, on their life. So it's really trying to carve out all of these different key items that are really in acting a consumer at a macro level, but also that our clients need to think about.
Hey, we've been spending a lot of time this week talking about the biggest risks that the economy is facing this year. In your opinion, based on this research, what do you think that is?
You know, I do think one is going to be managing through the US election and other elections around the world and how we kind of navigate that and the resulting impact of consumers, you know, kind of reacting to that, and what we're working on is drawing that directly to consumer purchase behavior. So you know, our next run of this will be in March already we're hoping to see some changes there and see how some of these things
may flow through. And then I do think from an immediac sense, We're still this year going to be keeping an eye on some of those financial metrics, so you know, keeping an eye on hous and cost, interest rates, how those continue to evolve, and making sure people still feel like that they have that optionality because if that goes away, that's when we'll see stress levels tick up.
All right, we're going to leave it on that note. Hey, listen, Katie, so great to spend some time with you and do a deep dive on this. Katy Thomas is head of the Carney Consumer Institute. Jowning us on Zoom from Pittsburgh.
This is Bloomberg Business Week inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news as it happens. Bloomberg Business Week with Caro Messer and Tim Steneveek on Bloomberg Radio.
All right, everybody, we are staying with Earning. It's just a quick headline IBM crossing fourth quarter revenue seventeen point three eight billion versus an estimate of seventeen point twenty nine billion. So I just want to mention that and we'll continue That stock is up about four percent in the aftermarket. Let's go back to Tesla because it's down
about four percent in the aftermarket. Numbers just out and I think the real concern is about the outlook and what we might see ultimately tim here this year.
Okay, so these numbers are worth repeating. Fourth quarter revenue coming in below estimates twenty five point one to seven billion versus estimates of twenty five point eight seven billion. Fourth quarter free cash flow hello, two point six billion. That was higher than estaments at one point four to five billion. Fourth quarter gross margin, though that took a real hit Carol, seventeen point six percent versus estimates of eighteen point one percent.
All right, Tesla to start in a next generation platform production at its gigafactory in Texas, teams to work in a launch of a next generation vehicle at Tech Texas, and continue to make progress on a next generation platform. So a lot of stuff that that is to come. So let's get to it, because we've got a great roundtable. Red Brown is Bloomberg News earnings reporter. He covers the numbers and will give us some more insight into what we just got. Ross Gerber is with us President CEO
of Gerber Kawasaki Wealth and Investment Management. They have about two point two billion in assets under management, including about eighty four million dollars worth of Tesla stock. You folks know him well, he owns Tesla's, he invests in the company, he sells at times. I do want to start with you, Ross, are you concerned stock still doubt about two point seven percent in the aftermarket. But when Tesla says twenty twenty four volume growth may be notably lower than twenty twenty three,
I don't know. Does it worry you a little bit? Does it make you want to sell any stock?
Well, I don't want to talk about our trading because I'm not allowed to. But if you look at our you know my fun GK. We've been selling the stock over the last several months as well as if you look at our public filings, we've been lowering our position over the last several months. So there's a lot of clients of mine who are very upset with some of the things Elon said and sold their stock in the two fifty, two hundred and fifty dollars range that are probably pretty happy they did that today.
Russ, stick with this for a minute, because you've been pretty critical of Elon Musk lately, which has been a marked a mark difference from how you've been over the past few years. I mean, you were among the biggest Tesla bulls out there, but now you're concerned. You write
that Elon's becoming the Kanye of business. Is this what's hitting the company's stock or is this a bigger question about what we were talking about earlier with evs, EV demand falling and what we're seeing from Ford, what we're seeing from GM. Is it a bigger issue outside of el Con?
I think Elon's created the issue for evs across the board more than like it's an ev issue. But you know, the bottom line is, and you see it in the numbers, and this is what we were kind of waiting to see, is that margins continue to go lower. They're basically not able to sell cars unless they lower prices because Elon refuses to advertise.
And then the advertising he's.
Doing are trips with his child to Auschwitz and you know, anti Semitic and racist comments all the time, and him you know, basically using X as a platform for every political debate possible that he could get himself into, which is exactly how you not sell cars, so so god forbid. They actually got him off Twitter and advertised maybe Tesla's problems would be solved.
Interesting, Hey, I want to bring you in red brown things that you're seeing and noticing. We've been breaking down the earnings with our TV colleagues. The key point that you're focusing on.
Well, I think of the production target notably lower volumes for next year. It does raise some questions about this strategy of continuing to lower prices. They lower prices just last week again in Europe, so it seems like that is going to be the strategy going forward, but it doesn't seem to be kind of paying dividends in the company's view going forward in terms of actually selling cars.
Still.
Yeah, and Tesla les bullish on it's cyber truck, noting in the investor deck that it's ramp time will be longer than for the other models given its manufacturing complexity. So it's also adding that, all right, Ross, so can definitely, you know, respect your different tone here in Tesla. So I don't know, how do you think about this company
going forward? Is it a case that it's hard to kind of remove the man and the creator from kind of the company, But how do you do that or do you do that at some point?
Well, what I've been saying is that the Tesla story has just changed from what the story was a few years ago before Twitter. As long as investors are comfortable with that story, then the long term for Tesla of the story is still intact, whether it be charging energy ev you know, Tesla's the prime player in this climate change.
Revolution that they began.
And the real issue is the company is being mismanaged now by the CEO who's demanding a massive compensation package but won't do any of the things that the company needs to really like resolve.
Their sales and margin issues.
So I think as we move forward as investors, it's really about what is the right valuation for Tesla, Because Tesla has been the highest value of the mag seven or one of the highest valued tech stocks for years, you know, and before he bought Twitter, you know, traded one hundred times multiple of future earnings. Today it's trading at sixty times multiple of future earnings. But now that future earnings number is definitely in doubt, and does it
really deserve a higher multiple than Nvidia and Microsoft? And I think that that's what's hurting the stock irrelevant of the company.
Stock still down about two percent. Hey, Tesla also noting ross that they have reached the quote natural limit of cost town of our existing electric vehicle lineup. It's kind of corporate speed.
But what does that mean euphemism for we can't lower prices anymore?
Right, It's like we have reached maximum efficiency of production and so basically every time we discount, it's just going to cost shareholders more. Now, the good news is this is great for Earth because people are getting cheaper and cheaper you.
Know, evs, which you know are great.
The bad news is it's coming from shareholders pockets, and so if you're a shareholder, you know it's time to really assess, like does this company deserve a sixty multiple afford earnings? And I think that's what investors are going to be doing over the next several months.
Okay, I want to bring back in red round because he's been watching the numbers come out red. What else sticks out to you? I know, the looking at the production numbers certainly sticks out any anything else in these numbers. Here we're seeing shares down about two percent as we speak.
Yeah, I mean, it's just it's I think everything that we're seeing right here from the numbers is that this is kind of the cost you pay for the game that they're playing. Of continuing to cut these prices. They You're seeing a bigger and bigger disconnect between their top line growth and their earnings growth.
Right.
They did hit record revenue that's going to get lost in the shuffle here today, but it came at the expense of over forty percent drop in their earnings, right, So it's not it doesn't seem like it's the path forward.
I think.
I think Ross is hitting on some interesting topics here as well as kind of where does the growth come from? A lot of the share price is predicated on some of these sort of pie in the sky initiatives, be it AI huge question marks over that with whether or not Elon does that inside the company or not, so hopefully get some more insights on that when the call, when the call goes later.
Today, Ross, what is the number one question on that call today? In your view?
I think from my perspective, it's kind of what we're hitting on right now, which is where's the growth coming from? If you're not going to grow cars by a lot, you know like this is not a good thing. So I think my concern is forty six eighty. And this is the story behind the story, which is one of the scaling issues they're having with cyber and Semi is that forty six eighty is just not working as quickly
as they had hoped. And they planned all of production in Texas around forty six eighty originally, and they've now had to pivot, and so this has caused extra costs, lots of complexity issues, and I don't think they've mastered forty six eighty at or even close for scaling and any mass level. And this is a huge detriment to Tesla moving forward because they have to get this technology right to ramp cyber and semi, which is where growth will come from.
Hey, twenty seconds, really quickly, What do you mean forty six eighty really quickly.
These are the new cells that.
They built for EVS and these new cells are seven times more powerful, much more efficient, large, faster, and they're wonderful, but they haven't been able to scale them as quickly as they had hoped.
All right, good stuff as always, so appreciate it. I know you've had a busy day. Our thanks to Ross Gerber, President CEO Gerbert Kawasaki Wealth and Investment Management, and then of course our thanks as well to our Red Brown. He's Bloomberg News earnings reporter right here in studio. Tesla shares back down about three point seven percent. We're seeing in the stock fall here in the aftermarket.
Brom A journal, Now about you let me drive?
No, no, no, no, pleasing to jug.
Hory please, I'll do the driving, gravels.
Let's wait, I.
Want to try it.
It's a good question, good time.
This is the drive to the globe. Dot com t me a thing.
We'll buy around to yell it.
Don on Bloomberg Radio.
All right, TikTok. Everybody just got about eighteen minutes, seventeen and a half minutes. Good keill it. Yeah, I'm watching them. Time continues as you speak, It.
Does, it does, and there's like a little bit of a delay too. Yeah, it gets to our listeners. You know, it's got to go through the tubes, fly.
Through the air for Kevin seventeen minutes away.
Okay, Well that means it's time for drive to the clothes. For that, we go to Bryan ben Kronkite portfolio manager, at all Spring Global Investments. He joins us from Wisconsin this afternoon. Brian, good to have you with us. I want to know what worries you, because it doesn't seem like investors are worried about a lot right now. We're seeing a lot of records today, meta platforms, Microsoft, We're seeing Netflix surge.
What's going on? Yeah, good to be with you again today.
But I think the market really has embraced the optimism that comes with a typical monetary loosening policy. Right we're not even quite through the tightening in my mind, and the Fed has given us a reason to believe in a preemptive cut that's going to lead to stewing the economy. And we've had a classic playbook of buying cyclicals, buying beta, buying operating leverage, and that's played out. The stocks have
rallied coming into the beginning of this year. Now we're starting to see that fade a little bit.
Do you think the Fed? Don't you think, Briant? The Fed has been kind of rating everybody in. Although the Fed talk of saying wait a minute, slow down, you know, higher for longer, hire for longer.
It was interesting, right, So they came out at the end of the year, giving you reason to be optimistic about the cuts. And I guess this is our what sixth iteration of the market trying to push the FED into this early early cut pattern that we're looking for now. But every time they come back and they walk us back and saying, oh wait, the data is still coming in. We're still not done yet. The risk is still that
we haven't gone far enough. That's my view. My view is the market now is embttered a lot of optimism and the reality is we're not done yet. We're not sure what's going to happen, and so I don't want to own businesses today, and I don't want to buy sectors today that are reliant on the generosity of the FED. I want to buy businesses that are controlling their own destiny. They're navigating the markets by investing in growth.
I want to get to some of those businesses in just a minute. But before we do that, I just want to know what you think the FED is going to do in terms of cuts this year. How many do you think the FED will do, if any?
I think the reality is they have no idea, and I certainly have no idea, right I think they need to figure out what's happening still with inflation, does it sustainably come down where it is? What happens with labor markets, That's probably the biggest one. If we move too early from a monetary loosening standpoint and labor markets haven't resolved themselves, MU stupply demand situation, and wage growth then moves higher again.
That's really bad.
It's really bad from a sentiment standpoint, and once sentiment and expectations getta control, the wheels come off very quickly. So my view is the FED has no idea and they're gonna be very careful about being active during an election cycle. So they came out early saying this might happen, But the reality is they don't know yet, and I don't know yet, So guessing at it, I think, is a feudal effort.
All right, So let's get to what I care about is when you actually somebody comes in with names and I want to know kind of where you would be committing money. Names, Carol, we get names, So let's get to it. You like, because we're gonna actually get sl Green a big place player in the market, especially New York commercial office real estate we're going to get those earnings after the closing bell. Cb are group, you like talk to us about that one.
Yeah, CBI is a great business. We've owned for a long time, but recently have increased our position because we like what they're doing to navigate an otherwise very challenging time. Investors punished the stock as rates roles because there was a lack of price discovery. Buyers didn't want to sell properties at the lower rates that the higher levels that sellers wanted in vice versa, and so there was no transaction volume, and so the earnings of CBR fell as
leasing and sales transactions dried up. But the reality is that's only half their business. The other half is a very high recurring cash flow business and they're using that cash flow and their great balance sheet to invest in the future. They recognize the macro slows down their business today, but the reality is, as a LAUNCHERM investor, what are they doing to drive much higher earnings power over the
next two, three, four years. And what they're doing is going out there and hiring from the best talents and the best markets across the country. And as the great stabilized and transactions pick up, they're going to have a much higher market share, and as they're buying backstock, the per share earnings and cash flow power we think will double versus prior peak in just a few short years.
That to me is a really interesting opportunity when the market's being very punished punishing their stock today.
So is it a bet on lower rates which are good for the real estate names and an economy that's growing.
Is that the bet you don't need that.
You don't need that to win here? What we that would help right that would accelerate their value creation. But what we're doing right now is we're building a base of talent. We're building an opportunity set. The market's misspricing today. So when rates do stabilize, not fall, but when they stabilized, there will be more transaction volume and commercial real estate everything from offices to hotels to medical properties.
But that's what I'm saying. Longer term, the bet is on that you've got an environment that's growing in terms of economic growth. But a lower rate environment doesn't have.
To be lower, it needs to be stabley because when they're stable buyers and sellers, no expectations are and they meet I don't really care if they're selling their proppy for five hundred million or four hundred and fifty million, CBRE gets their cut and they're going to have a lot of cash off that I just need to stabilize and even one will then come to the table again.
That's because they're on the service side of it, right, Is that why you say that they just get their.
No, that's a transaction side.
That's a transaction.
Transaction remains stable growing. They're growing that double digits right now. But the focus from the market is on the transaction side.
Again.
Lower rates accelerates, it puts fuel on the fire. But we don't need to win well the next three years. We need a stable, predictable rate market and buyers themselves will come back to the table and transact.
All right, So I'm want to move on to another stock.
K Doctor Peer, get aeg from real estate too.
How about some seven up Carol? How's that Arci Cola, Big Red of course, Kurig, Doctor Pepper, Snapple Tea, Canada Dry Green Mountain Coffee. The list certainly goes on with Curig Doctor Pepper. Why are you bullish on this company?
I'm bullsh not because they've done a really good job managing two very different businesses. There's a cold business, which you talked about some Moost great brands. On the soda side, we're seeing tremendous pricing power. You're seeing demand stay stable, and they've navigated the pandemic and all the way past that really effectively. What the market doesn't like right now is how the hot side, the coffee side's been behaving
at home. Consumption skyrocketed during the pandemics for obvious reasons, and it has come down a little bit. So volume growth in the pod side has slowed and also had issues with their pricing relative to their costs. In many industries, including the coffee manufacturing industry, costs and manufacture have gone up, but the contractual pricing agreements they have take time to roll through, and so margin's compressed in a pretty material way.
We're almost through that now, Okay.
So I was going to say, if you look at the stock, it's really been in a rut since the end of twenty twenty one, down about almost ten percent. It really kind of hasn't been able to kind of move. It's basically where it was a couple of years ago. So you're saying all of that is done, and we should see some upside here.
Right around the corner.
In my mind, it's also a function of what we've seen with the staples in general, and people get excited with the economy, why would you buy a consumer staple? Right, money has flown out of this category, but as it does for macro reasons. From a micro standpoint, it's our chance of stock pickers to really add alpha, and so in my mind, we're going to start to see one of a quarter or two here, we start to see that margin inflection on the coffee side, which should drive
higher earning. Think get the market focusing on the true cash part of business longer term.
All right, Well, fun to talk names as always, and good get your macro as well. Bryant, thank you so much. Be well, Bryant van konk Bryant van Cronkite. Excuse me, portfolio manager at all Spring Global Investments, joining us from a nominee Falls, Wisconsin. Interesting. I love talking names.
I don't know how many times they've fed is going to cut rates this year?
Well, I think that's a silly parlor game, partner. They're gonna do what they're gonna do. They're gonna watch the data.
But that is why.
I mean, that's literally what people are betting. It's betting on right now.
I think it's gonna be a while. Yeah, I know, but I still think it's a silly I'd much rather play what is it? Tesla Bingo?
No, you.
Get out your Bingo card, get out your Bingo guards.
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