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Each and every week, we provide in depth research and data on some of the two thousand companies and one hundred and thirty industries are analysts covered worldwide.
Today, as earning season rolls on, we'll take a look at results from some of the biggest names in food, travel, and entertainment.
Plus the cash stock While at Berkshire, Hathway grows through a record.
But first this week, Young Brands launched a strategic review for the pizza maker Pizza Hut. This comes after the company reported earnings that beat Wall Street estimates. For more, we were joined by Michael Halen, Bloomberg Intelligence senior restaurant and food service analyst, first to ask Michael for his take on the possible sale of Pizza Hut.
I think this was kind of a long time coming. It's really been a drag on the top and bottom line growth. Taco Bell is an absolute monster as putting up strong unit growth as well as same store sales growth quarter after quarter after quarter. KFC has had some well documented same store sales issues in the US, but that seems to be turning. They had a solid little quarter here with flat same store sales versus six straight quarters of decline, so that business seems to be accelerating
a little bit. And KFC unit growth overseas is phenomenal, absolutely phenomenal. They crush it overseas. Yeah, So Pizza Hut has been this drag on this business for quite some time. I think the street is is really excited about a potential divestiture here.
Any potential buyers out there that you can identify, No, we don't have.
We don't think any of the companies in the public market are going to be an acquirer of pizza hut.
Yeah.
We you know this this thing is, like I said, has struggled mightily. I mean we can see pete private equity. I think private equity would be a good fit, right, because it's going to take you know, management set on the call. It might take some of their markets two three years to get them back to like their rightful position as market leader in those countries they which they see as their rightful h you know position. I think
Dominos would have something to say about that. But you know, it's going to take a few years to turn around some of these markets, and private equity obviously looking at a five to seven year time horizon, would be a good fit.
All right, Mike, let's step back the restaurant space in general, getting through you know, earning season here. What are you learning about kind of the consumer out there from the restaurant perspective.
We heard from Wingstop and another fast casual chain that's struggling also partly been a victim of its own success, right, It's absolutely crushed it over the last six years, and it's lapping very very strong results from last year, but they talked some more about low income consumers and Hispanic consumer weakness and it broadening here in the third quarter. There's some optimism here, I think around the smart kitchens. So what's a smart kitchen they're so they're rolling out
some kitchen technology that's boosting operations. It's speeding up service times, you know, they're they're putting out consistent ten minute service times, which is fifty percent better than they were doing prior. Accuracy is better, Food's getting to customers hotter and fresher, and people are going to have a better experience. And so stores that have had this technology right now, it's in about two thirds of the US stores, it's going to be in all three thousand by the end of
the year. But stores that have this equipment and have had it the longest are outperforming on same source sales by five hundred basis points. So we think that's that's why the stock is up so much. People are now a little bit more confident in a positive twenty twenty six despite the decelerating trends here in the third quarter.
What's going on on the laborfront for restaurants I think quick service restaurants, you know, with the Southern border shut off, that was one of the industries that said we may have some labor problems associated with that. Have you heard from your companies about that?
Yeah, you know, our companies just talk about the fact that they use Everify and there and they do everything by the book, which you know, I think is predominantly the case. The impact that you know you're seeing a is with more of the independent restaurants. Okay, then be also kind of causes labor costs to go higher here for the public chains, right right, they're seeing another four to five percent you know, wage rate inflation this year.
That's been pretty common year in and year out since the pandemic.
All right, Thanks to Michael Halin, Bloomberg Intelligence Senior Restaurant and Food Service ANLS.
We move now to earnings from the fast food giant McDonald's. The company reported faster than expected US sales growth in the third quarter, and this comes as the restaurant looks to restore its reputation for affordable meals with new deals and promotions. We're joined by Red Brown, Bloomberg News earnings reporter.
I think in the context of the other results that we've gotten from a couple of other restaurants. I think it's really interesting. During the call, the McDonald's CEO CFO really talked about this bifurcation that they've been observing for the last two years between higher income diners and lower income people, and it seems like that trend is cantinuing, persisting,
potentially accelerating. It seems like, and specifically what I'm talking about is the higher income consumers seem to be coming down into McDonald's and shopping a bit more drawn in by the value that McDonald's has been pushing over the last couple of quarters. And we're seeing that across all of the fast food chains that's young as well, and
also burger king things like that. And then on the other side of that, companies like Chipotle and Cava, these kind of like middle tier that you know, twenty dollars bowls of food are struggling a little bit more. Is like people lose interest in that value proposition that they're offering.
So I think McDonald's, obviously the biggest name in the space, really kind of hammers that point home for this earning season, and I think that's kind of the thing like the main takeaway for me at the moment, And.
Of course McDonald's is leaning into this idea that it offers value at a difficult time for a lot of consumers. It's got a lot of deals and promotions to maintain that reputation. Does that cost it in any way or do the same source of sales kind of back that up that this works.
I think it's a little early before they've seen that benefit from it quite yet, Like they have seen a little bit of pressure on the profitability because the company is so committed to this, like getting restoring the value reputations kind of the language that they use with their customers that they're actually supporting the franchisees. They're giving them marketing, they're helping them make up some of that losses that they will make they will have from offering these discounts
on the menu. So McDonald's committed to this. It sounds like they're committed to this in the long term because they do want to get people back in the stores. It doesn't it's kind of remains to be seen whether or not the foot traffic is actually benefiting such that it is driving the bottom line as well. But they see, it is so important to kind of refreshing or kind of reintroducing the brand proposition to people that they're willing
to commit to this. Take a little bit of that short term pain for the long term benefits.
What are they saying about their cost structure here? Actue beef prices much higher over the last year or two. What are they saying about there's some of their cost to get sold here.
Well, the one thing they call it on the cost of good soul before we get into the beef issue is the marketing, So they are kind of bumping up the marketing. They saw around a twenty percent jump in their their SGNA expense because of that. But on the beef thing, McDonald's is the largest buyer of beef yep, so that scale kind of allows them to take it. They can take advantage of the scale and and you know,
and negotiate strong contracts when it comes to beef. Obviously, beef inflation has been hitting all of these companies, but not in a way that the companies are like outsized. Negatively impact thus far, but definitely something to watch as the beef prices continue to go higher.
And the improvement here, especially for its US comparable sales really comes at a timely point because for a while the company had been laggered when it came to comparable sales at least domestically.
Yeah, definitely, And it does speak to the kind of strategic changes that they've they've made, like they did act maybe a little bit late in the game. Burger King has been rolling out their value offerings for a little over a year, butmc Donald's has like acted and acted swiftly, like you know, it's it's a big deal, I think to get the buy in from the franchise ease of McDonald's,
like they had almost a consensus. It's very rare that you see almost like a high ninety percentage of franchisees willing to take the prices because they're the ones that are dealing with this at the end of the day. But I think, you know, McDonald's acting fast, acting boldly to kind of get back into the green.
I've noticed, really really in the last several years, so much more technology in the stores, Like you can a lot of them don't even have people practically taking your order. It's all done electronically. What are they saying about their investments in technology, maybe even AI how's that impacting that business?
Yeah, for McDonald's, like they it was. There's quite a bit of talk about their their digital offerings for this quarter. All of these companies, so so between McDonald's, Young which has KFC, Taco Bell, and a couple other brands under that umbrella, are all really pushing the digital for that exact reason to get the cost down. You know, McDonald's just rolled out their Monopoly program. And when I was a kid, Monopoly was the peel off on the cops.
It was very exciting. Now it's completely digital, right, So, like that's another way of their kind of drive people into the app to beet people to shop through there. This is where a lot of promotions are that'll help also drive foot traffic. So it's two it's helping in two ways. It's helping people get in chop more and also helping on the cost front.
Our Thanks to Red Brown, he is a Bloomberg News earnings reporter.
Moving next to the hospitality industry, this week, Cruse, company in the Reach and Cruise line, reported earnings that missed expectations. For more on this, we were joined by Brian Egger, Bloomberg Intelligence Senior Gaming and lodging analyst.
People are still cruising, the bookings are higher. I think that there was a bit of a change in their strategy related to the Norwegian Cruise Line brand, trying to get more families and kids and all that could talk about that, but that does have some slightly dampiting impact on you'll growth for the fourth quarter.
So this is the idea that they're broadening their customer base, not just targeting the super high income consumer, which by all accounts is doing just in this economy, whereas the lower income consumer and the mass consumer perhaps is struggling with rates staying fairly elevated and a lot of question marks over their job prospects. What is Norwegian Cruise Lines strategy here, certainly compared to its peers like Carnival and Royal Caribbean.
I think it's twofold. I think number one, to try to attract more of a family audience, increase the core customer base of the Norwegian Cruise Line brand, and also by having more shorter duration cruises, maybe with homeports closer to where people live, that could result the longer term and kind of more efficient operations and some you know, more savings on the net cruise costs for net unicost side, but it remains to be seen, and I think that's
why there's a little bit of caution, because the near trim effect will be a slightly dampening impact on the overall mix of yields. You know, caverns filled with children or families may have a slightly lower combined revenue yield than a different type of customer.
Audience, typically the cruiser. They're pretty loyal people, Brian, how did they typically react or how did they spend during what could be maybe a little bit softer economic environment.
So if you judge by the current environment, the overall bookings pace, I think for the third quarter overall was up twenty percent. The out for next year is quite good with at least modest field growth, you know, so I think we're seeing still a pretty steady pace of consumer demand. Obviously, that could always change if we see a more severe economic downturn, But the overall pace in terms of bookings demand, notwithstanding this kind of tweak and marketing strategy, has been quite good.
Our thanks to Brian Eggert, Bloomberg Intelligence senior gaming and lodging.
Analysts coming up inside one of the biggest deals of the Week, Kimberly clarkbind can you the maker of til and All?
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It was a merger Monday this week in the consumer goods space, Kimberly Clark announced plans to by ken View, the maker of tile On, in a forty billion dollar cash and stock deal.
A combination would create a company with thirty two billion dollars in revenue and become the second biggest seller of health and wellness products for more. We were joined by Diana Gomez, Bloomberg Intelligence senior equity research analyst.
So it is surprising in many ways from the perspective of Kimberly Clark, I must confess it shows that ken View really has a lot of work to do to turn around the business since it split from Jane Jay about two years ago and the third quarter miss just
added up to a pile of disappointing results. Obviously, there there's a ton of law hanging fruit, let's say, in terms of efficiencies that can be gained in terms of plugging the great iconic, well known trusted brands from Canview into Canview's system that is running at a more efficient level at the moment, but it will there is septicism there because we are talking about revenue synergies as well as cost synergies, and this will be quite a complex
new company. At the point when Kimberly Clark was just simplifying as they were, they are aiming to close the transaction on their international business that includes segments like tissue by mid twenty twenty six, and now this merger expected to close around the same time, just seems to complicate the picture a little bit. The file andal, yes, and we know ow Kenvy has been dealing with some crisis in the last months with tailan Ore and then with talk all suits outside the.
US as well, So I'm glad you went there. The tailan Al situation. The Trump administration has been attacking Thailand a overall. Do you think that's something that might complicate this deal. Could regulators step in and hold things up or raise questions that will just drag things out.
Quite different questions, I would say, but great questions. So in terms of thailan O, the legal risk is there. They can View was already fighting in the courts some lawsuits, but we now have Texas State wawsuit on top on
top of it, the Humbroway Quarks price. When we walk in terms of for instance, UH and a bit to enterprise, you multiple and I'm taking twenty twenty five, twenty six, twenty twenty five, sorry that they will report, so that will come at about fourteen times, whereas historic call transactions in the consumer health space were in the range of
sixteen to twenty times. So fourteen times comes built all that so really reflecting not only the struggles of can View where their organic growth is still declining, but also that viability risk with lawsuits that are ongoing. And that's a new lawsuits that can be added as well. In terms of the say anti trust competition regulatory approval, as I see it, they don't really overlap directly, but it
really depends on a country, region by region basis. Because we know the US stands can be very different from the European Commission one.
Yeah, I'm should we expect more consolidation and consumer product space? Do you think.
Yes?
So that's a team that I've been watching very closely. Obviously, we had other large former groups with significant consumer health businesses, so we are talking not only over the counter medicines but also the more personal care that deals with wellness. Sonofi decided to sell it to private equity, so at least for the next few years. That is that buyer is still considering while not considering, as management says, puts it.
But buyer still has their consumer health business and they could be walking into either listing it or further consolidation within the current employers.
Our Thanks to Diana Gomez Bloomberg Intelligence here equity research journalists, we.
Also got earnings in the media space as well.
Warner Brothers Discovery, the parent of HBO and CNN, reported third sales that missed analyst estimates, providing a glimpse into the company's businesses as it puts itself up for sale. For details, we caught up with KEITHA. Rung Andathan Bloomberg intelligence analysts on US media.
So fundamental Scarlett really don't measure all that much at this point. Especially yes, the TV networks business, as we know now for many many quarters, has been severely challenged. We saw a twenty percent slump in TV advertising, We
saw a twenty percent decline in TV EBITDA. This was kind of well expected, and this really speaks to why they need to separate themselves, why they need to separate the low growth or rather the no growth TV assets from one part from the part of the business that's actually growing, which is studio and streaming. That part of the business actually posted really good numbers. We saw the studio Warner Brothers has actually been having a very very
successful run in the box office this year. They have about a twenty seven percent share of domestic box office and we've seen that kind of translate into really strong IBIDA numbers. So we saw studio and streaming actually put up really really good numbers, and that again speaks to why so many different parties, including a Netflix, including a Comcast, are interested in going after those studio and streaming assets.
So right now, again fundamentals don't matter that much. It's really all about the M and A.
And I'm actually surprised KEITHA that maybe we haven't had some more news on the MNA front because we've seen, you know, the m and A environment is very very active with the market. It's very receptive to m and A. Here we have a willing seller in terms of David Zaslov and the board of directors here, who do you how do you think this is going to play out? Is something to make a bid for the entire company or just maybe the good pieces for it.
We're having all possible permutations and combinations here, Paul. So we know that Paramounts Guidance is actually interested in all of the company, including the TV networks. They've already made three bids. The highest one was for twenty three and a half dollars per share for Warner Brothers Discovery. All of that was turned down, so they obviously have to come up with a much better offer now. The other bidders, and the two that are most often mentioned are Netflix
and Comcast. They are the ones that are only interested in the studio and streaming assets, no interest at all in the TV linear network business. We know that Netflix has started looking into the books of Warner Brothers Discovery. This doesn't necessarily mean that they have to come out with a bid. I mean, remember this. You know zaslav Is, as you just mentioned, he's a very very tough negotiator.
He's a deal maker. He is going to make sure that they really get paid well for the streaming and studio assets if they sell that, and we expect, you know, a price tag somewhere in the ballpark of about seventy five to eighty billion. So you know, whoever makes a big bid has to cough up a huge chunk of change for this asset.
So we keep talking about how it's Netflix, Comcast and Paramount Skuidance. Could there be another bidder that emerges from the shadows.
Absolutely, I mean you can never rule out big tech. You know, Amazon obviously has shown some interest in the past. They bought the MGM studio. We're not necessarily sure whether they've actually taken a look at the Warner brother assets.
But again, Scarlett, as you kind of think about the whole media landscape and you kind of think about the various assets out there, This is kind of a once in a lifetime, kind of a generational opportunity for anybody who wants to get big in media to really go after Warner I mean, they have some of the best ip out there. They have a streaming business that has performed really well. Hbo Max is a name that resonates across the globe. So you know, anybody and everybody should
really be taking a look at this asset. So I wouldn't be surprised if we have some kind of a dark horsepitter here.
Oh.
Thanks to KEITHA. Wrong Andathan Bloomberg Intelligence, US media analyst.
We also got earnings reports this week from two of the world's biggest ride share companies, Uber and Lyft.
Men Deep Singh Joints is here research head of Bloomberg Intelligence on tech stories. Talk to us about that segment of the economy, the ride sharing, the outsourcing, you know, the third party delivery. Are people still spend money on that stuff?
They are and all these companies, I mean, Uver reported over twenty percent growth, door Dash reported twenty five percent top line growth. Even though the stock reaction was negative, that was primarily because they plan to spend more money
next year on building their tech stack. I think what the playbook here is to expand in more geographies as well as branch out into other areas of last mile delivery and in the case of door Dash, their experimenting with you know, delivering food without a career human person involved, and also expanding into restaurant point of sale devices. I mean they're developing technology where you can pay using a
DoorDash hardware and point of sale device. So clearly there is a lot that these companies are doing beyond you know, the original all business that they.
Have, you know, having you know, when you spend time in England and you go pay for meal, the car never leaves your presence. They just tap it on some machine and ball here. They take it, They put it in a little folder, they take it away for five.
Minutes, and that's what you pay twenty person for.
You don't know where it's going. And that's what I'm surprised. We're so behind here in Yos about that at point.
We've always been kind of behind this, you know that that's been our calling card.
The way to think about it is, there are so many legacy systems that anytime you have new technology, even everyone is talking about AI agents and whatnot, it has to sit on top of a lot of legacy technology. And like the promise of AI is it can rewrite a lot of that legacy code and migrate into the you know, the modern technology. But we have yet to come across you know, real proof points of that.
So when you're talking man Deep, I noticed that you talked a lot about how these companies are spending, they're investing, and I'm curious about the reception that gets from investors because initially in the big AI build up, everyone was excited about these plans. But now more and more everyone's like, oh, I'm not so sure that's a great idea that you're spending so much, whether it's on AI or whether it's on new products and internal platform like it is with
door Dash. Why do you think investors are now more skeptical about this idea of companies spending, Well.
Just because we've seen you know, Uber and all these companies really struggle with free cash flow initially, I mean in the zerp era, you know, these companies burned a lot of cash. Now they have gotten to a point where the business model does generate you know, seven to eight billion dollars in free cash flow for Uber and even for door Dash it's twenty percent ebit dumb margins.
So the fact that they're talking about spending again, it makes you think Okay, if you're an investor, you waited all this while for these companies to get mature and you know, start delivering on cash, and now they're talking about another investment cycle. And that's where you know, in the case of Uber, it's their hand is forced by Veimo launching on ten cities and really expanding it potentially Tesla.
I think in the case of DoorDash, they feel, you know, making acquisitions will help them expand their geographic footprint, and then obviously they want to expand their text tech to more areas.
Our thanks to man deep Seeing, Bloomberg Intelligence global tech research head coming up, Berksher's cash pile sorted almost three hundred and eighty two billion dollars.
That is a fresh record for Warren Buffett's company will bring you details.
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You can always access Bloomberg Intelligence via big on the terminal. I'm Scarlet Foo.
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Berksher Hathway reported it's cash pile reached over three hundred and eighty one billion dollars in the third quarter, a record. This comes as Bercher Hathway declined to buy back its own shares for the fit straight quarter.
So we brought in Matthew Palizola, Bloomber Intelligence, senior analysts of P ANDC Insurance. We began by asking Matthew to break down Berkshire's most recent quarter.
The interesting thing is the stock has underperformed the market by like thirty percent since Buffett announced that he was stepping down in May, and they haven't bought back any stock over that entire period.
Yeah.
Does that turned my mic on? I say, why?
Yeah? So Buffett used to have a rule when the stock was above one point two times priced to book, they wouldn't buy it back. They kind of kicked that out and they said, we're just going to buy it back whenever we see intrinsic value below. So, you know, I don't to me it begs question. I mean, maybe he sees the stock as kind of fully valued, even down.
You know, year to date, even with the lagging performance as well. So does that change when Greg Able, the handpicked successor to Warren Buffett, takes the reins officially at the end of the year.
You know, Scarlett, he walks a fine line between putting some sort of stamp on the company maybe over time, and then kind of respecting the ethos of Berkshire and how they've operated. I would hope something happens. I mean, they did a ten billion dollar deal in the fourth quarter, they bought the oxycam business from Occidental. They just don't
have things that can move the needle very much. Even in the quarter, their net stock buys and sells or a negative six billion dollars, so they were negative on other equities as well.
Yeah, there were net seller stocks for twelfth straight quarter, and that cash and equivalents was at a record high at the end of September. Is that a signal that they're waiting for the market to tank, that they see a correction, Maybe not tank that might be too strong. They see a correction or consolidation in the nearer terment are ready for it.
They're always ready for it.
You know.
Buffett has always said, we're not looking to time the market. We're just looking for good companies. He's also been you know, when I talk to people that the thought is, is he just hoarding money for greg Abel and kind of setting the company up and just handing it over. He's said he's not doing that, so you know, unfortunately I don't. They don't talk to investors, so we don't can't really pick his brain besides at the annual meeting, so we
don't exactly know what's going on there. I think he's just extra conservative in his old age.
I guess. All right, And here's my cynical Wall Street perspective. When mister Buffet passes three percent dividend yield, massive stock buyback, do you think that's a scenario. I think.
Dividend yield, hopefully you know, some sort of dividend, maybe special dividends. The buyback, I think will also kind of weigh on what able sees the intrinsic value, So I don't I would say probably hopefully dividend. I would say maybe more steady buyback. There's also they can't buy back a ton of shares on volume, because you know, there's rules on how much they can buy back and how active they can be in the market, so that limits them a little bit.
That's planned b get it. Don't you have to split the stock like a gajillion to one.
They have the A shares and the B shares, but there's I don't have all the exact roles. But they've talked about we can only buy back so much at a time. They bought back none. So I think a steady buyback plus some returns of capital and forms of I would hope special dividends. They maybe they don't want to be beholden too a regular quarterly dividend.
Yeah makes sense. Okay, so that's something we'll watch for when that eventually happens. In the meantime, how are the businesses of Berkshire Hathway performing, especially insurance?
Yeah, so all good.
In the quarter, the insurance business made much more money than the year ago, but that was because they had a bunch of large losses in the year ago. They also had this favorable reserve development, which means they write business and those losses come in better or worse than they expect over time, and that was those losses were coming in better than they expected. So that is it's a good thing, but it's not a super high quality source of earnings.
Beat.
So the insurance business performed well on those two things, which aren't super high quality in my opinion. The underlying business and the insurance doing well. The problem is is hard for it to get much better next year. The underwriting side. The prices in that are going down, so I think it's tough to see the insurance underwriting doing better next year. It's also tough to see the investments
doing better next year. And we're talking about really just the fixed income investment, so like the equities, who knows what happens, but in terms of the interest income, we saw that decline in the quarter as well.
The business fundamentals of the underlying businesses, did they move the stock historically? Not really, So it's tough because I asked the one fundamental question. That's enough. Let's get back to the main point of the story here. It's also my job too, But is there an activist investor who's ever oh, good question, one word about this company?
So historically there have been investors very vocal about it. I don't have names, but no one's ever been able to move the new buffets always the majority shareholder, so there's really been no one who's ever been forcing them to do anything. And so why would they even listen?
And can you do that with a company that has an A class year and B class year with this what is.
His voting control? I haven't done it, man, I don't.
I don't, I don't know off the top of my head, I thought it was something like sixty percent of the shares or something like that, and other insiders will hold more. So there's almost no way of wrestling control from him. The A shares and the B shares they did so the A shares are are several hundred thousand dollars, and then they instituted the B shares and they're they're going to peg to each other, so they can't.
You can't.
You couldn't buy up the B shares and kind of take control either.
They've come up with all kinds of rules to make sure that all the things you just proposed can't happen.
He's not a dumb guy.
But yeah, still exactly right. It's been an extraordinary run. Is there a sense that the law of large numbers over the last several years, if not the last decade, is kind of caught up to this name? Yeah for sure.
I mean they they bought a company for twelve billion dollars Allegheny and it barely moves the needle. They bought this oxycam for a ten billion, barely moves the needle. They bought like twenty billion of Chevron stock two years ago. It didn't even come up at the annual meeting. People didn't even ask about it. I was sitting there. I couldn't believe it, said, no one's going to ask about this. So, you know, there's just things that are are tough for
them to move. The new from having so much money, they're making those investments in Japan, which I think are interesting. So they invest in the trading houses in Japan. It's hard to for me to know a ton about those businesses. Some of them are like mini Berkshires. Maybe this is stuff that they kind of do in the future. Also the energy business. Greg Abil's an energy guy. Aon is
an insurance broker. They talked about last week this huge opportunity with the hyperscalers, needing, risk transfer services and other things. So like those are things that fit right into Berkshi's wheelhouse, right, the risk transfer and the energy businesses. So those are opportunities for them in the future.
Our thanks to Matthew Paulazola, Bloomberg Intelligence Senior and for P and C Insurance.
We move next to earnings from the entertainment space. This week, Spotify reported active users and sales beat expectations in the third quarter, but ad.
Supported revenue declined six percent from a year ago because of pricing pressure for more. We were joined by Githa Rong Andathan Bloomberg Intelligence analysts on US media.
I actually like the Spotify numbers, you know, the big numbers that we always look for are, of course, the user metrics. We want to see them kind of do well on both monthly active users, which are basically the free listeners, as well as the premium subscribers, which is basically, you know, everyone paying about twelve dollars a month for a Spotify subscription, and both those numbers came in well ahead of guidance. The other number that we look for
in Spotify results is gross margin. This has been you know, a constant point of debate, but Spotify has done really well in terms of expanding their gross margin. They again delivered numbers ahead of guidance both for you know, third quarter as well as ahead of forecast for the fourth quarter. In terms of guidance, so fundamentals seem to be really strong. I think the one concern, Paul, that has really kind of emerged with Spotify over the past few months is
pricing power. You know, are they going to keep you know, being able to increase prices? And this is something that has dominated the conversation for not just Spotify, but of course for any streaming company. We've seen Netflix, as you just pointed out, demonstrate really good pricing power. I think Spotify has very good pricing power as well, but people are really waiting for the next big US price hike to really gain more confidence in the story.
Keith, what's the competitive landscape for Spotify out there? Because as we think about the video business, it's Netflix and then a kind of a big drop down to Disney and then a bigger drop to kind of everybody else fighting it out. What's the landscape for in the audio business.
It's actually very similar, Paul. In fact, you know, Spotify just leads by a wide, wide margin. So if you just look at both the global audio streaming market in terms of subscribers, they have about a thirty three percent share globally they have close to almost a forty percent and share in the US market, so way ahead of their competitors. So obviously gives them a lot of I think, you know, again we come back to pricing power. Gives them definitely a lot of pricing power in the market.
So what's on the cost structure for them? What are the real levers for them? It seems like you know, the I know at Netflix said they got to write big, big checks to you know, either license content or you know, create their own content. What's it like on the Spotify side.
Yeah, you bring up an excellent point, Paul, And this has kind of again been one of the pain points for Spotify because again, this is a music streaming service. They don't own any of you know, the music music itself. That's all kind of controlled by the labels. And as you well know, content is king. So this is really where Spotify has a lot of trouble because for every dollar that they earned, about seventy cents goes back to
the music label, So they have very little leverage. They've been trying to kind of change that whole dynamic, that whole equation come up with more of their content. So a big investment area for them has been, you know, podcast has been audiobooks where they kind of get better, you know, profit dynamics. It has worked well. But actually one of the things that we're kind of looking for next year is we're going to see a step up
in all of the royalty costs. And that's again something that the street and investors are a little bit nervous about because we need to see how, you know, Spotify kind of manages their whole margin expansion story as those royalty costs go up, So the amount that they're paying all of the music labels, the warners, and the universals of the world is going to go up slightly. But we still think that they're in good shap. They've been adding a ton of new features to all of their tiers.
They're probably going to debut some new tiers. Again. All of that bills to that whole pricing, power and monetization story.
And how is Apple as a competitor here, because anytime I see a company that's even remotely in competition Apple, I get nervous.
So Apple, you know, if you're just kind of looking at it, And in terms of share, they are way below Spotify, both globally as well as in the US market, so not much of a competitor from a share standpoint. In fact, they've even priced their products slightly lower. Some of the you know, some of the noise around Spotify and Apple has been you know in terms of the iOS and whether you know, Spotify can kind of get better terms and they've managed to do that as well.
So some of the changes on the iOS system have actually helped Spotify in terms of getting a better market share and getting better economics. Actually, so Apple Music not too much of a worry for Spotify.
Oh thanks to Githa Rong and Nottan Bloomberg Intelligence US media analyst. That's this week's edition of Bloomberg Intelligence on Bloomberg Radio, providing in research and data on two thousand companies and one hundred and thirty industries.
And remember you can always access Bloomberg Intelligence via b I go on the terminal. I'm Scarlett Foe and.
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