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Let's talk us a little c suite conversation here. We can do that with the hotel business. Mark Hopplomacian joins us. He's a president and chief executive officer of Hyatt Hotels, joining us via zoom. Hey, Mark, thanks so much for joining us here. I'm looking at your stock here, fifty two week high. For those that don't know, H is the symbol. It's cool to get that one of those single letter symbols there. That's always pretty cool for us
Wall Street, Folcus. I've got a market cap at fifteen point seven billion, stocks up about three tens a one percent today. Mark, talk to us about your recent earnings and kind of what was the messaging you needed to get across to your shareholders.
Of all, it's great to be back with you all, and thanks for having me. I think that the the clear message was really centered around the fact that the transformation of the company to asset lighter platform has now shown up in the numbers in a very material way. We had the highest pre cash flow that in the company's history. We also had the mix of our asset light earnings to our total earnings went up to seventy six percent five years ago.
That was in the in the mid forties.
Hey market, So, did describe for us what your asset light strategy is? Is that relying more on franchisease.
Yeah, so it's not really I wouldn't call it an asset light strategy. I would call it an asset light program. Where we were selling down. We had we had two major drivers of our of our of our earnings. One was from real estate that we owned hotels, and the other ones from management franchising hotels across the world. We're primarily a management business, not a franchise businesusiness, but that
those are the two businesses. So as we sell down real estate, the proportion that's coming from real estate sourced earnings has been dropping. We've concurrently reinvested in buying new platforms and new brands over the last five years, and that has driven up our management and franchising fees. At the same time, so the mix has shifted to much more in the management and franchise feed driven business, which is very low capital intensivity and high margin and high
free cash floats conversion. So that was probably the key message. The other thing that we did is we simplified our financial presentation because we have a business that's a subscription model membership business called Unlimited Ucation Club, and we sold the majority interest in that business to a third party which helped us simplify how we report our earnings and that was very well received by investors.
And Mark, that's you and the c suite managing all of that. What about the demand side of the business, What kind of pricing power do you have per room? And what's the demand situation.
Like actually demand, So we think about three different demand drivers. One is leisure, which has been the leader of the recovery through post COVID period. We think about group business, which is big meetings and conventions and things like that, and we also have business travel individual business travel. All three are showing signs of great momentum and positive outlooks.
So starting with leisure, in the first quarter of this year, our pace meeting our bookings are up eleven percent for our all inclusive resorts in the Pervian and.
Also up for our our resorts in the Americas.
But leisure travel has been really really solid in China. We had a record year for Lunar in New Year. The spending amongst Chinese, both inside of China and other destinations in Asia was at them all time high. So that's leisure in group. Our pace into this year, that is forward bookings are up eight percent, and so we're looking at another solid year of growth of growth in meetings, and I think corporations are increasingly resolved to make sure
that they prioritize those meetings. And then on business transient the US is lagging, but the overall business transient category demand around the world is about seven percent the low where it was pre pandemic, So we're getting closer and closer to being a parody. Europe is fully recovered, and then some China is fully recovered, and then some the United States is still lagging, and we're seeing signs of
positive signs of business transient travel increasing. So I would say across all three major category we're seeing positive trends into twenty four mark.
Could you talked to us about m and A and kind of growth via acquisition. How does that figure into your growth plans? What are you guys messaging to the street about your willingness to engage in em ande because I know you had to buy out recently of the Apple Leisure Group.
I want to see kind of your appetite is going forward.
Yeah, So over the past five years, we've invested about three point eight billion dollars in acquisitions, the biggest one being Apple Leisure Group at two point seven billion, and it's been tremendously beneficial to us because we've been able to expand our customer base in the most in the highest growth and most relevant to US categories, which is leisure, lifestyle and luxury. And so we've really done this in a very deliberate way to move the company in that direction.
In the fourth quarter, I think we had fifty seven percent of our total rooms revenue around the world was leisure focused, which is up twenty points from the mid thirties to the mid fifties pre pandemics on now, so that the mix in the company is tremendously shifted, but they also been very profitable and high value acquisitions. The fees per room that we are earning today are materially higher than they were five years ago before we made
these acquisitions and evolved the company. Even as we have grown our select service brands, so we are expanding in lower price points, but our overall feed growth per room has been growing, which is really I think part of the equation of actually driving share holder value on.
An accelerated basis.
In terms of our outbook, I think there will be more opportunities for MNA in the future, but probably smaller scale.
Mark Paul and I talked by the story yesterday for the Journal reported that hotel parking fees are spiking because of the fact that you know, you guys that on hotels have to pay more and rent interest rates have increased. Maybe there's a demand issue in certain pockets. You got to increase prices where you can talk to me about how expensive it is to run your business, like where a cost coming down?
Where cost going up?
You know, I think the primary look, first of all, let's start with the biggest cost category, which.
Is people, yeah, at our hotels and in.
Twenty twenty one non union markets, which is primarily in the South, the Sun Belt, the smile of the United States. I think our wage rates went up by twenty percent over the course of that year, and that started to mitigate or a millliarrate in twenty twenty two and twenty twenty three, but we experienced a massively acute situation in terms of supply of labor.
That's really that's evened out. We were in the mid teams.
That's even out in that because we also talked about didn't we paul about cleaning services like not staffing housekeeping because it just can't find the workers.
So do you feel like you're at the right spot?
I would say that there are pockets where we still have shortages, and I think part of that has to do with the nature of the workforce at this point. So we've got a lot of the byproduct of not having a really advanced immigration policy in the United States and h t B visa program, is that for at times, especially over the summer, where you have peak demand, we don't have the right type type of labor that's willing to take those jobs and uh and be happy to
start their careers in those jobs. So I think this they go together. A lot of the a lot of the h t B people that come in on an hub visa which is a temporary work visa they come and they leave. Or the incidence of of immigration that allows us to hire people who are coming in into the workforce in the United States for the first time
has been has been under some pressure now. Having said that, overall, our vacancy rates have gone from mid teens to mid single digits, so down ten points, which is extraordinary, and that's over the last eighteen months. So we are having a better time finding labor, but there are definitely pockets of constraints.
Yep, hear that from a lot of folks in the service business.
Hey, Mark, thanks so much for joining us, Mark Hopplomasian, he's a president and chief executive officer at Hyatt Hotels, joining us from Chicago, Illinois via zoom. The company stock h is the ticker all time high today. So how about that they had some pretty solid numbers recovering from the pandemic. Look like we see a lot of other entertainment and leisure spaces.
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All right, ma, go in the terminal. Then I click on time series and I go, got ten years. And I just look at the graph of M and A activity, both in terms of dollar volume and number of deals. And man, really, since like I don't know, mid twenty twenty two, there's been nothing going on in the MNA world. My M and A banker buddies, I don't know what they're living on these days. But let's check and see where we are on the M and A space kind
of where we can be going from here. I guess that's what happens when rates go up five hundred basis points. Ted Smith joins us. He's co founder and president of Union Square Advisors, joining us here in our Bloomberg Interactive Broker studio. So Ted, M and A activity, it's been a little fallow over the last I don't know, eighteen months or so.
What are you guys seeing out there in terms of activity.
We're starting to finally see a little bit of a thought out there, Paul. I want to be careful not to suggest that it's getting overcooked. Anytime soon, but starting to see the number of deals both and the quality of deals start to come back. Strategical quirers are saying they've kind of come out of their funk. They're ready to do things again where they hadn't been to your
point for the last twelve to eighteen months. And private equity firms, which in technology where we apply our trade are so important, have a lot of capital to put to work, so they're anxious to Was.
It just interest rates going up that everybody just step back or is it global macro? What kind of caused people to step back here? Because when I think about M and A, I think I have to have a board and a c suite that has confidence in their business to go out and make.
That kind of investment right. So on the strategic side, I think it was more macro. It was like, we don't know enough about where our business is going right now that we can take a risk on another business.
I think in private equity land it was definitely, at least in part by interest rates, And it was also the fact that because even to your point in early twenty twenty two, there hadn't been a lot of capital returned to their limited partners, and so for every dollar that they're investing, they're also thinking should I be giving that back to my limiteds And so there's been a lot of tension in that part of the world.
So I know tech might be your space, but just.
Person so, I'm really interested in what's happening with Exon and Seinook trying to get in the middle of the deal between Chevron and hess And the broad question is like, are we going to see weird territorial fights like this in different sectors, where like one big company to stop another big company from buying a smaller company.
Is that normal.
I'm not sure that it's normal, but it's certainly not unheard of. And I think we think and again, in tech, we see a lot of semi normal or even abnormal potential buyers who see buying into the tech landscape as being something that will help increase their growth, increase their margins, put them into exposure of a sector that they previously
had not been. So I think we'll see some more of that in tech, but more generally, to your question, I'm certainly no expert on the energy sector, but I think this is an environment where if you see that smaller company that can really make a difference in your business and accelerate intor granted growth. Buyers are not afraid to mix it up at this point because they've been on the sidelines for a while and they need to get back in.
If I go to sand Hill Road with a really good idea, can I find any money? Will?
They will?
They invest in my company?
They will?
Valuations are obviously down from the peak in twenty twenty one. You're gonna ask a lot of questions about what's your AI strategy?
You know, where where exactly they got to saw something for it?
Right?
Exactly?
Where are you going from here? The capital is available, but it is certainly more limited than it was two years ago and before that. Investors are being much more diligent about what they're willing to put capital to work in. And again, AI is obviously hot. That's blinding glimpse of the obvious for your audience.
But what's different?
I think, can I compare this, because I've been doing this for a long time, I compare this to the you know, the dot com era. Investors got to the point really quickly where it wasn't just about it's AI, it's what's the defensible business model, what's the real enterprise use case and how are you going to make money with it? That came so much faster with AI than it did in the dot com era, and that's what you're seeing on Santo Road.
Now, show me a full business plan that's going to make money.
Well, how are valuations? Do you think that we're getting overpaid things getting overpaid to be bought? Like, how hard is it to come to price.
Better than it was in late twenty two and twenty three, where we've had quite a bit of disparity, and that was one of the reasons for not getting a lot of M and A done with.
Have the buyers come down or have the seller Like, yeah, the buyers come down, the seller's gun up or vice versa.
Some of both.
I do think that the obviously the market has improved overall over the course of late twenty three and twenty four, so valuations have ticked up off of their lows. But I also think seller expectations have tempered a bit. We've been in this valuation, this down more down valuation environment now for almost two years, and eventually you have to realize this is the new normal.
Yeah, I think that this I guess the question I was asking a lot of IPO bankers is when is that stigma of, you know, a down round.
When is that going to kind of ease up off the marketplace?
Because I felt like I didn't want to be one of the first people to do an IPO at a down round or would do a down run in the private market.
So but it maybe more deals we get done, Maybe that that that happens.
So on the M and A space here, I mean, how are you targeting your business, what your target sheheet look like, what type of company are you calling on?
So we focus on late stage private companies and public companies. We will represent either buyers or sellers. That's a little different than other boutiques who tend to focus only on sellers. We think it's important to be able to do both. But opportunities in the one hundred million of enterprise value all the way up to a billion and well beyond
is where we where we do our work. Might characterize that as middle market, but there's a that's where you know, under the M and A curve that's where the greatest amount of area is. So there's a lot to do there. We focus mostly on enterprise technologies. So again I mentioned the enterprise use case for AI. A lot of our companies are then are selling two big companies themselves saying here, here's how I can make you more efficient, how I can help you drive more revenue. That's where we spend
most of our time. And there's a there's a lot of great software companies in there.
Well, okay, I was in say Soft, where I feel like there are gazillion software companies like this one reports and some reports like it could snowflake. I have no idea the difference as like a general market person like, are we going to have to see big consolidation within that?
I think we will see more consolidation. I'm not sure it's going to be big to big. I think you're going to continue to see the larger players acquire small medium sized companies on a relative basis to their own market caps. And that's, you know, certainly, that's what we're counting on. We don't think because you touched up, Paul, we don't think we're going to see a surgeon IPO activity. It'll be busier this year than it was last year,
but that's a very low bar. Obviously, Ultimately ninety five plus percent of venture backed companies that get to an exit get to an exit through EM and A.
And that's that's been true for literally decades.
One of the things that's new, at least since I was on the street, was this whole private credit market. How does that impact your business to technology industry? Because I would guess it's just another form of capital for your companies, that's right.
So it's it's been a boom for our business. We brought in a team led by Mike Meyer Partner who owns our capital markets businesses that actually is now our CEO has done a great job with that. That's almost two trillion dollar asset class from private credit today and it's also available to technology companies earlier than it ever
has been before. So to your point, we can go to our clients and say, let's talk about your capital needs, the cost of capital that you're looking for, the flexibility you're looking for, and let's look across the entire debt equity spectrum and find a solution for you. And you can go to the private credit markets and find that tailored solution much easier than you can in the public markets.
What other ways are we financing deals here?
Again, most of the large acquirers are going to finance at largely off their balance sheet. Okay, so I mean, obviously if it becomes a really large deal, you might see the bigger companies go into the market. But to the point that Paul made earlier, right, that's a lot more expensive now, and so they prefer not to do that if they don't have to. Occasionally we're seeing stock for stock deals those used to be de Reger not
so much anymore amongst the larger buyers. But mostly this is still a cash buyer's market, and so if you don't have enough cash on hand, then you're going to have to go out and find it. And I think we'll start to see a return to equity based financing, convertible based financing again, a lot of the use of the private credit market with its flexibility. Will we'll back some of the M and A.
That's going to happen this year.
I'm guessing in your middle market size, you don't have to deal with regulators.
Too much approving deals.
But boy, across the industry, if I'm a big ticket M and a banker, I got to make sure I got the right lawyers give me the advice because I didn'tink the Department of Justice, the FTC, everybody's cracking down.
It's true, and we think of it in terms of to whom are we going to be selling this company, because if you're one of the Big seven, you're gonna get scrutiny for almost every deal, right, and so we watch for that as as we bring opportunities forward and think about what that might look like.
But you're right, it's really that group.
And let's face it, they have lived for a very long time on asking for forgiveness, not permission, and I think they're going to continue that activity. But by the way, it's not just the DJ here. We've seen a lot more activity and scrutiny out of Europe and the UK in particular, and we think that's going to continue for a while.
Yeah, the UK, they get Brexit and then they realize, oh, we can have a seat at the table now.
Yeah yeah, yeah, Iah ex Oktay.
Very good, All right, Ted, thanks so much for joining us once again. Ted Smith, he is a co founder and president of Union Square Advisors. Joining us live here in our Bloomberg Interactive Brokers to you're talking about the world of tech, the world of deal making again. The past eighteen months, just looking at my MA function on the Bloomberg terminal, been much slower than maybe like the ten year average, And I guess that can happen when rates go up five hundred basis points.
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I kind of felt like it was a bit of a nothing burger, Like it wasn't bad, it wasn't terrible, And I'm really wondering if we actually.
Learned anything today on inflation.
So good thing that Ira Jersey is here, Bloomberg Intelligence chief you as interest rate strategist.
Iira, did I learn anything today?
We didn't learn a whole lot from the PC report on inflation. I mean, obviously the headline numbers were as expected. There were some details here and there that were kind of interesting. Certainly the downward revisions for December turned a couple of heads here and there and helped contribute to the rally. What I found really interesting, and I think something that people have been talking about this the personal
income number being so hot today. So that was up one percent, which was well above expectations, and that was driven in large part by two factors. One was massive increase in government spending, so basically Social Security payments in particular were increased a lot in January. Part of that was a cost of living adjustment, so that was up three and a half percent in one month's you know, that's massive and the most that we've had in the year.
And the other was actually dividend payments. So dividend payments actually contributed about seventy five billion dollars to personal income in annually. That's an annualized rate in the in January, and that's a pretty big move do it normally it's significantly less than that every month. So take that with a little bit of a grain AsSalt too, and I think the market looked through that, and that's why treasuries have rallied a little bit since the since those data came out.
So, ira would it be bad form to give the Federal Reserve a little pat on the back here in terms of their ability to bring inflation down?
Well, maybe it might be a little bit early for that.
You know, when you still have two point eight percent core inflation on a PC weighted basis, that's not at their target yet. But certainly, you know, anything sub three percent is better than five.
Percent for sure.
But when you look at some of the details there there still are pockets of inflation that are very hot, and they're in sectors that aren't particularly interest rates sensitive. Right, so there are sectors like services excluding housing, and if you consider those types of services, it's going to be hard for inflation to keep coming down. So the Fed obviously has tightened monetary policy quite a lot. There's certainly certainly some room maybe for inflation to continue to fall.
So you know, we're going to continue to have this debate as will the Federal Reserve cut interest rates before midyear? If they don't cut by June, then are they going to be able to cut because of the election cycle, and you know, do they.
Want to get in front of that.
So so that debate is going to continue right up until the May and June meetings, I think, certainly into the June meeting if they don't cut in May. So so you know, that's why you're going to have these gyrations. But they're going to be probably bounded where you're going to see two year yields go from you know, four fifty to five percent and probably probably hover in that area depending on what the market's expectation for the Fed's next move is.
Well, I wondered if we learned anything about the reaction function of the market, because it looks like what we learned is that we're going to sell the room or buy the news this time round.
Is that fair to say, Well.
The selling really came because European rates were selling off overnight, and you know, so it was just a global rate sell off a little bit. But the rally back I think that there was it was pretty clear that some people were short and thinking, hey, if we get a you know, zero point four print on headline inflation, then that could be mean that we get meaningfully higher treasury yields. With that not happening, I think that's the reason why
you had that pullback. That was a little bit of a relief rally there in terms of the in terms of the market reaction. So so you know, we knew that that inflation was going to kind of be within the range that it was just because PC doesn't diverge that much directionally from CPI. So so the forecasts were obviously reasonably good going into some of these numbers.
All right, what do we look forward next? What's the market now? Looking forward?
May we just like snooze until May or something?
Well, I don't know if it's going to be a snows fest.
I mean we are our duration scorecard that we put out this morning and basically saying should you position long, short, or neutral? The Bloomberg Treasury Index says you should be neutral because it's very things are that there's nothing particularly rich or cheap about the market given the incoming data that we've received. But next week's data it could be market moving. Right ism new orders and the ism manufacturing report that we get next week that is often market moving.
Plus we have payrolls coming up, right, So in order to get the Fed Reserve to think that they're going to cut early and aggressively, you really need to have the employment situation deteriorate much more than it has. So that's one reason why that will continue to be a key focus report for the market.
Lots of people have the steepeners on. Then there was like, oh gosh, the steepeners didn't make me money. I got to take that off. And then it was like, now we're going to say with the steepeners, what do I do with the steepener?
Can somebody define steepener for this equity person?
Oh?
Okay, so let me try as like the person. Okay.
It basically means when long end yields go higher than short end yields, and the idea is the Fed's gonna cut, so you're gonna buy the front end and then yields in the back and go up.
Irah am I right? Did I pass?
So that is a that is a bear steepener. A bull steepener would be if say, front end yields rallied a lot and yields went down and long term yields just went down slower or didn't move at all.
So so you can get a steepener either bull or bear.
But basically it's it's that long term yields don't move as much as or stay higher than front end yields do. That that's basically the.
Definition of a steepener.
You know a lot of people thought that it would be a bull steepener because they were expecting you know, we were just think about it a month ago, we were thinking that the Federal reserve, the market was priced with a federal reserve to cut interest rates by one point five percent this year. So that's one reason why a lot of people were in those steepeners, because they thought the two year yields, instead of being a four point seven percent, they'd have a three handle now and
they don't. And so that's one reason why you've continued to see the curve kind of reinvert a little bit here. I don't know where we are at the moment, but probably thirty nine or forty basis points inverted between the two year and the ten year. You know, we've been we've had the call for quite a while that we thought that the curve would remain inverted for most, if not all, of this year and certainly the first half, and that seems to be playing out pretty well.
And that was predicated.
On on our view that the Fed woulden't cut more than three times this year. And now now we're priced for three cuts, so you know, we have to reevaluate that.
Call right now, you know, based on the incoming data.
Obviously, thirty nine basis points is where we are. So basically we just learned Paul. Is that IRA's right?
Right?
Ira said the stuff.
He's been saying this since I don't know, last summer and no one's listening, and now we're listening.
The markets up.
Oh, Paul, very good, Hey, Ira? I mean what I mean?
It's interesting here? What it is it May or June? Do we care whether it's May or June? When they start cutting rates? I feel like they gotta do it before we get too much into the election season.
But I don't know.
Yeah, big picture, it really doesn't matter. You know, it matters to people who are trading June, who are trading you know what we call, you know, very short term interest rate contracts that people who are in money market instruments like T bills, they care whether it's May or June, right, because there's some incremental few basis points of pickup that you can get depending on what they do. But you know, big picture, you don't care. Ten year yields don't really care.
Two year yields do care. So if they go, you know, the I think the big challenge is if they don't go by June, what is there what is their propensity to move in July or September? Right, around the political party conventions and then obviously in the middle of the election season. You know, we don't have a lot of experience with this because there's only a presidential election every
four years. But at least to date, the Federal Reserve has never started a new activity, whether it's hiking or cutting, in the middle of an election season. They've continued policies that they that they started prior to an election period, but they've never you know, they've never started at say,
the September before an election. But you know, so that's one reason why, like, if one reason why I think they it would behoove them if they were thinking about cutting at all, they should just cut one time and
then they can skip a few meetings. So an outcome that would not surprise me at all is if the Federal Reserve were to cut in June and then wait to cut again until after the election, and then if they have to because the economy deteriorates meaningfully, then they can cut again in July or September and just say, well, there's a continuation of the policy that we started a
couple of months ago. Because you know, the unemployment rate's gone up and inflations come down, like whatever whatever reasons that they espouse for their initial cut.
You know what we had Bruce Richards on a marathon asset management yesterday on television. He called that the two step yeah, which I was like, okay, I kind of get that right, Like you move a little and then you pause, and you move little and.
Then you pause. Hey, Ira, thanks a lot, Ira Jersey. He is a chief US rate strategist at Bloomberg Intelligence.
He lost me after that, like two steps. I don't know where you go after the two step, but you know, but that idea you move a little and then you hold.
Okay, I mean yeah, I mean may or June.
I don't think again, as Iris said, I don't think the market, generally speaking, cares that much. I'm you know, as an equity investor, having the anticipation of RAID cuts is as good as having them, in my opinion, just turn right now.
Yeah.
And they actually talk about that in terms of the lag of monetary policy, that if it's just the expectation of stuff, that changes what the lag of monetary policy actually is because by the time you feel it, you're already anticipating those cuts.
That's being said, I like to refinance the mortgage.
Yeah, I know, I know, not yet, not yet.
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It was interesting to get their earnings out yesterday from Paramount because there was a little bit of good and a little bit of bad. Right, you know, fifteen percent decline in TV advertising, so that feels like that's not great, but then streaming subscribers went up. I was one of those people, so real well comparing it's my weird addiction.
I have to Survivor. I know, which is because I was paid for years.
I know, too late, but I know I'm paying my twenty money to Survivor.
It's still a million.
They didn't adjust aipulation, but one time it was two million and they did Survivor All Stars.
But that was back twenty nineteen.
But point is I was paying twenty five bucks a season, so I just did the Paramount plus thing. But I think I'm gonna add more because the ads are.
Just so annoying. Really, Yeah, and I'm gonna be one of those people that they love.
Yes, anyway, let's go to geta because she knows much more than I do on this. It wrong enough then and she covers US Media Bloomberg Intelligence senior industry analyst, hey Geet Debt. So there was like a little bit of good, a little bit of bad. What's my broader takeaway from that?
Yes, you're absolutely right at like streaming was definitely a key positive, and you're absolutely right in terms of the subscriber numbers, those came in slightly ahead of estimates. The bigger positive was the r poo trends. So remember Wall Street has now kind of shifted its focus away from subscribe just subscriber growth to revenue growth as well as profitability, and they kind of scored pretty well on the revenue
growth metrics as well. So urpoo increased about thirty percent through the year, and that's on the back of a price increase. And then the next thing, of course you look at was profitability and their losses narrowed, so they're obviously taking a step in the right direction. I think what investors are kind of really cheering though, is that they did articulate some kind of strategy to kind of get to profitability, and they outlined a timeframe as well.
So twenty twenty five is when they're expecting paramount plus profitability, which is definitely I think good news. The question is, I'm not sure whether it's enough.
Yep.
I mean the stock is a four point three percent today, that's a good news. Of bad news is looks down twenty two percent year to day eight, and it's down for about forty five percent over the last year. And Keith, before we move forward here, we have a big discussion internally here in the studio. Do you prefer the pronunciation of your first name githa thh or Geeta with a T It's it's th.
Boom told you John Tucker, thank you for schooling than she told me years ago.
I was forget See, I've known Keith and I have worked together for fifteen years, you know, and she just doesn't bother to correct me anymore.
So I figured, you know, if it's I'm.
Going to stick validating us.
What was the interview with Paul?
Like?
Was it intimidating when he interviewed you for your job?
I begged keith to join me. I begged Keitha to join me. She did and it was the best thing we ever did, So Keitha.
I guess the bigger picture here with Paramount is what does the ownership here want to do with the company. It appears by all accounts that they're just not big enough to compete against some of these big technology companies, some of these big media companies like a Netflix, like a Disney and boy, there's a lot of speculation around Paramount.
Did they address that at all?
They didn't. I mean the one thing though, that you know, I think Bob Beckish got out of the way was they are going to do something that is good for all shareholders. He kind of underlined that because there has been this constant, you know, question about whether you know, Sherry Redstone is kind of just going to cash out and leave everybody else hanging, and so he wanted to, you know, kind of get that out of the way. But again, you know, I think the focus is going
to come, you know, the M and A options. Paul and We've discussed this seemed to be shrinking at this point. You know, Warner Brothers Discovery obviously said they're no longer interested. Other firms have kind of come taken a look. Apollo being one of them, said not interested. The only interested party right now is sky Dance, controlled by David Ellison, but again he's really not there's really no natural buyer for all of the assets. He's not interested in controlling
some TV networks. He's only really looking at the studio. So again, I'm not sure that Paramount Management necessarily wants to do kind of a part parts sale here. So I think they're going to kind of go back and focus on fundamentals. I think some of that those the unrealistic M and A expectations are kind of going to subside a little, but we're going to go back to fundamentals, I think for the time being.
Well to that point, then did they buy themselves some time? Because I could make an argument that, okay, well the slowing and ad sales and maybe that's an industry wide thing. Okay, other players are getting hit they did as streaming subscribers, so they have some time now that they might not have had twenty four hours ago. Is that a real statement or no?
I think so. I definitely think so, because with streaming, what we're going to see is We're going to see some sustained momentum in those ARPUH increases, so they're doing more, you know, international price increases. They've kind of integrated Showtime into Paramount and with that they've been able to take some price increases. So we're going to kind of see that play out so pretty much most of twenty twenty four.
The question is what happens after twenty twenty four, But they definitely have bought themselves sometime.
So what is the outlook for the studio here?
Geita Studio.
Unfortunately, for twenty twenty four looks really bleak. So the big movie, of course that everybody was kind of looking at, was Mission Impossible. That's been pushed out to twenty twenty five. We do have a few movies here and there. I mean, you have Quiet Plays that's coming out in June. There's obviously some anticipation building there. But again, in general, Paul, the box office outlook for twenty twenty four is just pretty weak, and that's just because of all of those
Hollywood strikes. Has pushed out a lot of movies into twenty twenty five. It's kind of going to shave off I think at least two billion dollars off of the box office.
So presumably we're going to look through that, right, I mean, presumably they're going to recoup that and they'll be pent up in twenty twenty five.
That is the big question, right, Yes, we've seen kind of box office demand, you know, in general, kind of come back, but it's still about twenty percent below pre pandemic level. So the big question is, Okay, when all of those big titles kind of hit the screens in twenty twenty five, are we kind of going to see a bigger resurgence. The jury is still out. I think yes, it's definitely going to be better than twenty twenty four. Is it going to be as good as it was? You know,
and it's heyday? I'm not so sure.
So, Gith, how about the CBS television network and the Viacom cable networks? You know, one point that was such a big part of this company. Here, talk to us about the advertising the television advertising market. What's kind of the forecast for the next several years. Is it a growing business? Is it a declining business?
It's a melting ice cube, Paul, just like you know, just like the whole PayTV ecosystem, so you know, this is this used to be back in the day about a sixty billion market. It's shrunk. It's going to probably hit about forty five billion by the end of next year. And really, you know, this is just kind of a
progression of where all the eyeballs are moving. So they're moving away from the linear TV networks to streaming, and so we're seeing kind of those ad dollars follow those eyeballs and going from you know, the TV medium to what is now called connected TV, which is really all the streaming platforms and you know, you're using all your connected TV devices, the rokus and the Google sticks and all of that to kind of television, and that's where
all of the advertising is moving as well. Unfortunately, Paramount doesn't have too much of a presence there. Yes, they do have you know, Pluto TV, which is their solution, but it's not going to be able to kind of offset the leakage that we're seeing in the television ecosystem and that is really a problem for all of these media companies, for Paramount a little bit more so.
But here's the thing.
If they wind up just doing advertising on streaming, like, isn't it going to be eventually kind of shake out the same.
So that has been kind of their hoole spiel. I mean, of course they're saying that, you know, they can reclaim some of those lost dollars. The problem is the digital ad space is getting really really crowded as well, and so you know, again it depends on who has the most watch time. Netflix dominates. They have about two and a half hours of viewing time every day. Disney Plus
is you know, follows very closely. And now the biggest blow really to all of these players has been Amazon because they just came out about a month ago and they introduced advertising on their Prime video service and that is really kind of shaking up the whole digital ad market. So if you're a subscale player, chances are you're not going to really be able to make a dent even within the digital ad space.
Wow.
Interesting, all right, Githa, thanks so much for joining us there. Githa Raganathan, analyst on US media for Bloomberg Intelligence. Githa Raganathan joining us from the headquarters of Bloomberg Intelligence, done in Princeton, New Jersey. Boy, I don't you know that melting ice cub that's not good.
Yeah, just do. That sentence wasn't good.
Yeah, that's not good for them. And but I just don't know what they do. I don't know what the endgame is here.
What's funny is this is a total side note, but my daughter grew up without commercials because.
We never had linear TV.
We had to like Netflix, right, And now she's experiencing commercials because all these streaming players have commercials, and so now she like quotes all these She's nine, by the way, so she can quote all these commercials now from and she like likes them and wants to be with them, and she rails.
Against car commercials.
Really, I don't know what that is. She's like, who needs all these cars?
This is ridiculous.
I don't want to see this.
So I feel like I'm gonna have to pay up for the non commercial one.
Now, yeah, a lot of people do, a lot of people do well.
It just shaves time too, right, And they're only and that that block between segments is only going to get more and more.
I'm thinking, yep.
And if you're on broadcasting cable television, what are the advertisers. They're not the car companies, they're not Coca Cola, they're healthcare. You need this drug for this problem.
As my husband loves, He's like, I have all these problems. It's like I don't want to see this on TV exactly. That such a good point.
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Another sock weer're watching here is Hewlett Packard. So this is HPQ.
This is the company that makes PCs and printers reported or that stocks down by about one percent. It reported earnings that quite frankly, just show that there's still a slowdown in the PC market. They seemed relatively more constructive in the back half, but still I got some questions. There's no one else to bring to and talk to about it. Then, as Woojin Ho, Bloomberg.
Intelligence Senior Technology analyst, Wujin what was your biggest takeaway here?
Yeah, Look, the first quarter results were pretty week if you if you look at the first quoter PC numbers, Uh, they fell below consensus expectations, and you know, the the the fact that they were able to maintain guidance on the revenue side for PCs as well as EPs side.
They're really hoping for that second half, as you were saying, Alex.
And give us the drivers here, wouge for that second half. What has to happen?
Well, there's a there's a couple of things, right. You have a macro improvement and better consumer dollars. You have the second half seasonality that's going to drive it up back to school for the consumer side.
Uh.
But there's also a big Windows eleven upgrade cycle that's coming in and which is supposed to be a tailwind. But I do have some doubts for for one big reason, corporate I spending has been fairly weak and that really needs to cooperate in the second half for.
The PC numbers to materialize. For hp.
Do my homework for me. We have the CEO of HPQ tomorrow in the morning. Yeah, and we're going to run it on the closed Show. What are the best questions to ask?
Because I'm really interested in kind of when they see the trough really materializing, how how long that trough actually may last.
Yeah, So I think we are getting closer to the trough, right. I think next quarter is going to be the trough in terms of a PC revenue side. If we think about it from from this perspective, you want to ask along the lines of why are they so bullish on the second half? If I do my if looking at the back of the envelope math, it looks like they need about ten percent second half growth versus first half growth.
Typically it's about five percent second half growth versus first half, So it's going to be well above seasonality.
So some of those.
Drivers maybe, as they said on the call, is higher pricing, so PC prices are going to come up as as as well as you know, possibly possibly some timing on the incremental contribution to to aipcs.
And I opened a tend door box.
I believe because I'm just looking at the PGO function which kind of breaks down kind of their revenue where it comes from. Commercial is a big part of their business. Talk to us about the buying cycle on on the commercial side of the enterprise side.
Which is it every two to three years? Is it predictable?
And where are we Yeah, so, so we're actually on the beginning and the beginning or the start of the PC refresh cycle from the pre COVID times right, Typical refresh cycles for PCs are about four years and then we get new ones. Now this lies into my concern.
If the pieces are running okay and the budgetary dollars are the corporate dollars are still fairly tight, you know, I would like to say that they would like to hold on to those PCs for another six months to a year, and that would fall into fiscal twenty twenty five. The other thing that concerns me in terms of this particular PC cycle is the emergence of aipcs.
We don't know, Wait.
Real quick, what's an AIPC.
Well, an AIPC is a PC that has specific artificial intelligence chips provided by Intel or a MD and can run AI functionality. That's actually there's a lot of hype on AIPC starting from CEES even last year, and we're going to start seeing the ramp up at the second half of this year and materialize even more in twenty twenty five. So my issue with the AIPC wrap up cycle.
I do think it's going to materialize. It's just that there's no application ecosystem to help support it right now, and if there's going to be buying decisions coming up at the end of this year, I may want to delay a quarter or two to see what the AIPC can actually do and is it right?
Doesn't fit into my corporate workflow, that's interesting.
So I'm looking at the stock absolutely unchanged on it over the past year.
I look at the A and R functions.
I got eight buys, eight holds in three cells the street. There's no conviction on this name here. When you talk to clients, what are they saying about it?
Yeah?
And then it sounds about right right, So so the bulls are looking forward to that second half PC upgrade cycle. Have to look past twenty twenty four to get that PC upgrade cycle to happen, And it's going to happen in twenty five, right regardless, because Windows is going to shut down Windows ten. Microsoft is gonna shut down Windows ten, and it's going to really push that upgrade cycle regardless. My main concern is twofold, and I'm going to step
away from the PC segment for our moment here. That printer segment is a cash goal. It's a twenty percent nineteen to twenty percent operating margin business, and they really can't sell the hardware. And if you can't sell the hardware, you're not going to be able to sell the higher
margin supplies. So over the long term, the concern for me is is that diminishing hardware sales is going to impact the demand for supplies because no one's printing anymore, everyone's digitizing, and then it's going to affect the long term profitability.
Interesting.
I just wonder though, for the refresh cycle, Like I hear you on the profitability part in the printer PERP and the refresh cycle, I mean, how dependent do you think will actually be on that. I'm still waiting for the iPhone.
Supercycle that I've been hearing in bouts in twenty sixteen.
Yeah, well, I want you to think about it this way, Alex. We came off of a terrible, terrible twenty twenty three from from a uni volume perspective, right, and we're probably still going to be bouncing along historic lows from unit volumes.
And you know, people have not been upgrading their PCs and laptops for the last two three years since the beginning for COVID, so we're starting to get some tired PCs out there, and again more importantly for the corporate side, we have the Windows eleven forced upgrade and that is going to force our upgrade cycle. Now.
Now, to.
Give you a data point, normalized normalized volumes on an annual basis is roughly around two hundred and sixty to two hundred and seventy million PCs, and we're probably going to be running around two hundred and sixty two million for this year, so we're still below average trend. And I think there's scope in twenty five that we are going to get above to sixty five million units.
Nahpiece is going to benefit from that as well.
All right, Rich, thanks a lot, which and hoo a Bloomberg Intelligence senior technology.
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