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One of the big stock stories of to day is CBS, the healthcare company. CBS stocks down today. Management change is never a good thing. We wanted to get to the bottom of it because a lot of people don't really know what CBS is. It's not CBS the television network. It's c and Victor and s CBS. Jonathan Palmer, he knows what's going on. He's a senior healthcare anles for Bloomberg Intelligence. Hey, Jonathan, thanks so much for joining us.
I know you know this company. Well, can you tell us what CBS is and why the stock is down today? What's going on there?
Yeah, Paul, thanks for having me on. So you know, most people think of CBS as their corner drug store, but really it's a far bigger healthcare company in the ecosystem than just that pharmacy that you see around your corner. They own the benefits manager Etna, and they also own what's called a large PBM, a pharmacy benefit manager called
care Mark. So really it's a vertically integrated enterprise that you know, most people knows their corner pharmacy, but actually has a far bigger reach through the insurance side of the business as well. So the stocks down today. They pre announced earnings that missed. They announced the management change.
The CEO has left. They're calling it a resignation, but this was really probably the last straw in her tenure, and they promoted the head of care Mark, the benefits manager and a longtime employee to become the new CEO.
Talk us through the build up to this management change what was going on exactly.
Yeah, So the story of CBS, or the narrative on
the stock, has been one of missed expectations. You know, they've been trying to get back to the double digit EPs growth and they've put that out in the in the outer years, and they keep pulling back on that guidance, you know, both reaching that milestone, but also every year they've been kind of missing their EPs guidance, and so they'd already revised guidance down last year they revised guidance down with two Q earnings last quarter, and so really
I think it's a question of execution. The CEO just hasn't executed on the game plan that she has spoused, and so they've got little they can do to kind of turn the story around other than making the management change.
Thirty seconds, Jonathan, do you think it can be done and in what timeframe?
Yeah?
I do, you know, I think it's going to take a lot of blocking and tackling. But the hard part about this business is it's based on contracts, and contracts are typically two to three years, and so it's going to take it take some time to work through the headwinds that they're facing and their benefits business on the pharmacy side. But these can be overcome.
All right, Jonathan, thanks so much for joining us. Jonathan Palmer, senior healthcare analyso Bloomberg Intelligence, joining us via zoom talking about CBS Health the economics of the healthcare business. I don't pretend to understand that. I think one of the most complex businesses to analyze. So we're glad we have a smart people like Jonathan Parker.
The cupons are good.
The coupons are good. Coupons we get some really good coupons for CBS through our CBS care Mark.
Yeah, but in New York City, in New York City Weekly, exactly, you believe it, exactly. There you go, stock off eight and a half percent today. So again, maybe this is a little bit of a kitchen sink moment for the company, and Jonathan Palmer suggested there is a path towards improved profitability there, So we'll see how they do their.
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China it's front center, not just for folks that invest in China or in emerging markets, but it's one could argue as the second largest economy in world. Everybody has to have a view on China. Our next guest, does Urar DiPippo, Senior geoeconomics analyst for Bloomberg Economics, joins us Geron. I guess the question a lot of people have as it releas to China is are their fiscal and monetary moves to support this economy? Are they enough? What do you think at this stage?
So they've already announced monetary policies a few weeks ago, those by their centers are fairly aggressive. The big question is how big will the fiscal policies be. They the Ministry of Finance had a press conference on Saturday where reporters asked many questions, but they didn't provide any actual number. The reason for that is that in China, they actually need the legislator to approve any change in fiscal policy
like government borrowing. They won't be meeting until probably late October, possibly early November, so we don't actually know, but I think that the general consensus is that there was sort of this initial euphoria in late September, which explains the massive stock market rally, that they were going to do this big bang stimulus. They kind of are on the monetary side, but it's not exactly clear yet whether they're
going to do it on the fiscal side. But what sort of qualitatively what they're saying suggests that the early hopes of doing sort of a big consumer oriented fiscal stimulus that's likely not going to happen, but we're still waiting for the top line number.
So what does this all mean for investors who are interested in equities in China?
So I mean it was a good day for equities in China. The two big things that happened today were they put out their Q three data, which is generally above consensus, and how well it did, including for GDP. The other thing that might have helped for the stock market was that the PBAC reiterated that it has these these swap facilities, including to help companies buy back shares, which then puts up the stock market. In general. The stock market has done well over the last few weeks,
but over the past year not so much. The Chinese stock market has sort of a feast or famine tendency when it comes to sort of boom and bus. This has happened over the past decade or so. It often sort of appears to underperform. Then there's a lot of euphoria, and then a lot of that is often based on what the government is doing. So I think what everyone is waiting for now is again, what is the actual top line number for fiscal fiscal stimulus, Because if it
comes in below expectations. The rally, which has already given up some of its gains, could give up even more. But if it's actually at that level three trillion R and B, maybe more than you could see some upside.
Hey, Gerard, I see that the China GDP numbers recently came out at rows four point six percent from last year. That's the slowest pace in six quarters. Is there still room to go in terms of decelerating booth or economists out there are they saying, hey, maybe we're atur near the bottom.
So at Bloomerg Economics, we think they're probably at the bottom in terms of top line GDP growth, And in general the data was fairly good, so industrial production, retail sales, fixed ass and investment were all just slightly above the consensus. But the sort of broader bad news is that those things are still generally below the sequential trend. So consumption, particularly retail sales, is still well below its pre pandemic trend.
And the bottom line is that even though the sort of top line number might have bottomed out, the economy needs more stimulus and that's what everyone's waiting for. And the big thing in particular, it's really two that are related one is the property sector with the government that intends to stabilize probably through stabilizing the purchases, not investment
or prices per se. And the other thing that's related to that is consumption or consumer confidence, which is integral linked to the property sector, which is where people have their savings.
So what further risks are out there, especially as we dig a bit deeper into the property market that they did say has still yet to stabilize.
Well, so in the property sector, I mean, the main thing is that one of them is that the property developers are still in a tough spot. They are in the process of recapitalizing banks in parts of the banks can lend to the property developers and help stabilize that, but ultimately you have to get sales back, you have to basically get the confidence back in. And what's tricky for the Chinese government is they actually wanted to deflate the property center. It was a property bubble. They have
deflated it. It needed to happen, But then what they don't want to do is reinflate it to restabilize the economy. So they're walking a sort of a tightrope at the moment.
With that, what are the next data points that we need to be looking for for China here.
I mean we would be the high frequency indicators like PMIS or in general things like retail sales. The thing that the event to look forward to would be the National People's Congress meeting that will be happening probably in a few weeks, and that is when they'll announce the big stimulus or whatever the number is.
That'll be interesting to see because a lot of folks and a lot of I think investments are weighing in large part on what the Chinese government will do. We here, Gerard, thanks so much for joining us. Gerard to Pippo, senior geoeconomics fist for Bloomberg Economics, giving us the latest on the monetary fiscal stimulus in China. Again, the GDP last period rows four point six percent from last year, but that was the slowest pace in six years.
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Our good friends over at Netflix and FLX is the ticker symbol. They reported numbers last night, beat the streets, some good guidance, some good discussion around kind of the growth out look. The stock's up ten percent today fifty two week hig. I'm guessing that's probably close to on an all time high three hundred and twenty five billion dollar market cap. I don't know what's going on there, Keith rag and Othin does because she's the analyst of
Bloomberg Intelligence who follows Netflix. Boy, what happened last night? What did Netflix report? Ethan?
Yeah, Netflix had an actually very very high quality earnings report last night, Paul. So they were up on subscriber metrics. They came in ahead of consensus. But I think really what excited the street was they were ahead in terms of guidance both for the fourth quarter revenue guidance as well as operating margin guidance, and their outlook for twenty twenty five was slightly ahead of consensus. And mind you, it was slightly ahead of consensus just based on subscriber growth.
So the two big growth levers that you know, everybody was expecting they would pull. One was, of course, the ad business that doesn't look like it's going to be a huge contributor in twenty twenty five looks more like a twenty twenty six event. And then, of course the thing, the event that we were all waiting for, which was you know, a price increase on their standard plan in
the US, and they didn't announce that. And so the fact that they're able to guide to double digit, solid double digit revenue growth without pulling any of those growth levers just tells us that there's a lot more Jews left in this business, even with you know, just playing subscriber.
Growth, right, good news coming out of this report. Where are some areas that they could have done better? Is there any areas that people are critiquing?
I think the areas that people are critiquing is really just the lack of disclosure around advertising. And one can understand why they are holding their cards close to their chest. So this is still a very small business. They have not disclosed the number of subscribers that they have on the ad tear and that's you know, color that investors and the whole investment community has kind of been looking
for for a long time. But they did give us some qualitative kind of guidelines, right, They said that, yes, we are growing pretty fast, but it's off a small base. Don't expect the advertising business to be a huge growth driver in twenty twenty five, but I think come twenty twenty six, that completely changes.
Where we on programming budgets Keith, because I think one of the things that you and you and I worked together, we were just shocked at the early days of Netflix and the types of money they were willing to spend, the billions of dollars they're willing to spend on their programming budget, and that forced everybody else to kind of keep pace. Where are they with their spending their spending strategy. Do they have to keep spending to get subscribers?
I think they do, but they're doing it in a much more intelligent, much more efficient way. And the ROI on the content spend has absolutely, you know, increased so so much, Paul, And that's just because you know, it's been a function of just the operating leverage that they have in the model, with the scale and the way that they're able to spread those costs over you know,
a two hundred and eighty five million subscriber base. So you know, yes, there has been some content cost rationalization across the board, including Netflix, They are still spending about seventeen billion dollars this year on content, which makes them one of the biggest spenders in the streaming space. They are planning to increase their budget a little bit going forward, so I think closed about eighteen billion dollars in twenty
twenty five is what the general estimate is. But then again, remember they are looking to build out an AD business, and for ads you do need to invest in different kinds of programming, not really the entertainment programming. It probably has to be more a live sports or a live events type of strategy, and they I think are willing to kind of splurge on that to really build up and scale up that AD business.
How's the debt looking on their balance sheet? I know there are big spenders, especially as we think about all the shows and the movies that they're rolling out. Are they staying above water?
Oh, very very much so. They have about fourteen billion dollars in debt, but remember they have over seven billion dollars in cash on there on their balance sheet and they're going to throw out, you know, six billion this year. So absolutely in very very good shape.
So the sixty four thousand dollars question geetha which I'm sure you get asked by your institutional investor clients all the time, is how about everybody else? When you see a Netflix quarter like this, you're like, boy, how's everybody else can to compete against these guys in the streaming world? What are you saying to them?
Yeah, so they definitely Netflix has definitely won the streaming wars. They're going to keep it that way. You know, we know that they have about ten percent of all viewing time in the United States, so they obviously see much more upside for themselves to kind of grow. And I think that's exactly what's going to happen, you know, as they have more and more plans, you know, cheaper plans with of course the advertising based here, and of course
as they have more and more must have content. So there's definitely the competitive intensity is absolutely easing, which allows them to be a dominant player. But I think also Netflix is really showing the other players how it's done. So one of the big points that came out yesterday from their earnings report was the fact that they've increased margins. Remember at the start of twenty twenty four they said twenty two percent operating margin. Yesterday, they're saying twenty seven
percent operating margin for twenty twenty four. And remember, Paul, I mean you know this, well, the Bogie has always been about thirty thirty five percent margins, and it looks like they're going to be able to get there in the next couple of years. So this is going to be and probably even more profitable model than the traditional TV model, which is great news.
Well can am I I'm not seeing that or are we going to see that with some of the other traditional media companies which are still chasing profitability Because you say it can be done, I'd go out there and take a flyer on Warner Brothers, Discovery. I take a flyer maybe even on Power Amount. If you're saying that model can be profitable, yeah, it.
Can be profitable, but of course it depends on so many other factors. I think Disney is definitely in the strongest position to kind of replicate this success. The other is not so much because again, you know, scale is going to be a huge issue for them, Marketing costs is going to be a huge issue for them. They just don't have that cloud or the firepower that you know, Netflix and Disney kind of have with their IP and their franchises.
I mean, after these results, it seems like a bit of a positive start so far. When we're thinking about those sort of former fameing names. What is the next thing that investors are looking for? Has the company talked anything about new projects that they're rolling out? What are investors on the watch for?
Yeah, so the new projects right now? Rah. Of course, the big thing that everybody has kind of got their hat hanging on is the advertising business and how big that can potentially be when it takes off in a big way. They also, of course again are making this big you know splash or this big foray into live events. So you have you know, the NFL games that are going to come up, you have that Jake Paul Versus
Mike Tyson event. The question is how many more of those are they going to do and will those actually be a big you know, needle mover for them, and then of course you would have them kind of taken you know, these baby steps in the in the gaming industry again not necessarily been a game changer so far,
but over time it certainly can be. So they have these different ancillary revenue streams that can definitely build uh and kind of increase their not only their catalog of content, but also their competitive positioning as in strengthening their competitive positioning.
I need I need some tips on how to get around the sharing.
Well that's the thing. I mean, getha, that's sharing thing.
Please?
That's that that helps them out.
Right them out huge, big time, big time, one hundred million subscribe versus the opportunity that they outlined there.
So they've identified that. The Tucker offspring, I think is the dead beats like me to get around I know, all right, thanks so much. Keith wrong an oath and she's a medias for Bloomberg Intelligence. And I'll notice what's.
The Netflix nowadays?
Since I don't get it anymore? Oh you you were cripping off one of your kids.
No, I'm not going to make yourself. It's called sharing, right is carring?
Yes?
Thank you? Sweeny shocked when this happened. Oh, I like they were calling like all like, Dad, would you do you cut us off?
Said?
I didn't cut you off.
My dad was like, I don't even know how to work this cut it off.
That's why we own the stock. It's one of the many reasons for Dead beats like you were off the doll So so that's important. And the advertising, is Keitha said, is a you know, twenty five twenty six event that investors can hold their hats on as they look for growth to continue to support that multiple.
There you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Outo with the Bloomberg Business Act. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa Play Bloomberg eleven thirty.
SAMAS officials they have confirmed the dethical maas leader Yagat Sinwar, who was said to be the architect behind October seventh attack order. Today, President Joe Biden spoke on Sinewar's death, seeing it as a quote moment of justice and quote while also renewing the call for a cease fire dealist take a listen.
The death of leader AMAS represents a moment of justice. He had the blood of Americans and Israelis, Palestinians in Germany, and so many others on his hands. I told the Prime Minister Visil yesterday, let's also make this moment an opportunity to seek a path to piece a better future in Gaza without Amas.
All right, That was President Biden earlier today speaking about the death of Sinwar's death, again calling it a moment of justice. Let's break it down a little bit farther. We talked geopolitics in the Middle East. Some smart voices help us out there. Jonathan Schanzer, He's the senior vice president for research. He's at the non partisan Foundation for Defense of Democracies think tank. Joins us from Washington, DC via zoom. Jonathan, what do you make of this latest news?
I mean, the Israeli seemed to be quite successful targeting leaders of Hamas and Hesbola. What do you think their strategy is right now?
Well, first, I think we need to acknowledge something that yesterday's strike against Sinwar was dumb luck. The Israelis have pulled off a lot of serious operations and places like Lebanon and Iran. In Gaza, this was the result of a couple of younger IDF soldiers simply happenstance falling upon Sinhwar's position. After a brief altercation, they called in a tank strike and ended up killing him. Really just a
remarkable turn of events. But what the Israelis have done, you know, outside of this particular strike that killed Sinowar is they have just been using their intelligence advantage. They've been using their technology advantage to effectively evisceerate Hamas. They've got his balla on the ropes. They're now preparing for a strike against the Iranians. I think the expectation there is they're going to take away some of Iran's capabilities. This has been not the war that the Israelis wanted
to fight. It's been a war of attrition. It's been fought in some cases on their turf that runs one hundred and eighty degrees away from their doctrine, which is fighting fast wars on other people's turf. But I do you get the sense right now that through these precisions, strikes, through the technology, through their comparative advantage, they're starting to gain the upper hand against the Iranians and six or seven in other proxies, which is truly a formidable axis
that they are fighting. But you do get a sense that they're starting to make some headway.
Jonathan, this war has been going on for over a year. What chapter are we in? How much closer Are we to a truce? What are people saying?
Yeah, Look, I think there's a possibility of possibly getting to a truce with Hamas because they've just been eviscerated, right, I mean, I think they have to at some point understand that fighting is just not worth it any longer, not for the people of Gaza, not for the organization itself. They're still holding one hundred and one hostages, including I believe seven Americans right now. A deal can be cut that would end the fighting in Gaza. But I think
we need to all be clear about something. This seven front war that the Iranians are waging against Israel, that's going to keep going, and we're seeing it now. His Ballas declared that they're going to up the ante and possibly use more advanced weapons against Israel than we've seen so far deployed in that theater. The Huthi's are still at it, the SAI militias in Iraq and Syria are still at it. Various terrorist groups that have been attacking Israel out of the West Bank they're still at it.
And then of course there's Iran itself, which recently lobbed one hundred and eighty one ballistic missiles at Israel in one night. So this war is going to continue on other fronts. But certainly it would be welcome to see the fighting finally stop in Gaza. It would be a welcome relief for the people of Gaza, who really do I think, need to see that place go under some serious reconstruction, both politically and physically. That needs to happen
sooner rather than later. But the war, the broader war in the Middle East, is going to continue.
Yeah, Jonathan, it seems like, you know, in this year that there's been this hostilities in Middle East, it's gone from a limited war in Hamas to simply you know, evistrate Hamas and get the hostages back to a much much broader regional conflict, something that the US wanted to avoid here. But it feels like the Israelis recognize this as a moment in time where they can settle everything everywhere in the region. Is that what you're thinking at this point?
Look, you know, I think first to frame this properly, you have to understand that what started with Hamas, it was never about you know, Hamas versus Israel, or Israel versus the Palestinians, or you know, a war in Gaza. This was an Iranian proxy hamas you know, waging more against Israel and then opening up multiple fronts at once, and so now we're seeing all those fronts, it's become even more clear. I think it was a clarifying the moment yesterday. With sinwar gone, you begin to see that
these other fronts haven't stopped. If anything, they may actually only get hotter. And so I think for many of us here in the West, it was kind of an aha moment where we say, Okay, wow, this really is
a wider war in Iran is behind it now? Israel I think has some choices in front of it, right, it can try to fight to a ceasefire in Lebanon where you know, maybe his Bala is forced to withdraw above the Latani River, which is you know, what was enshrined the international law after the last war in two thousand and six. But it doesn't solve for all of the other challenges that Israel still facing, these Sheite militias that have been firing drones and rockets and missiles at
Israel over the last year. There's still a problem. The regime itself is still the big problem, and the biggest problem of all is that Iran is still flirting with that nuclear weapon. They may use all of this as a distraction to make a dash to that bomb, and
then the entire map changes. In the Middle East. You've got basically a regime that is as malign as North Korea in the heart of the Middle East, threatening to pull the trigger at any time, and using, by the way, in nuke as the ultimate insurance policy to be able to continue the kind of mayhem that we've been watching. So the Israelis, I think, are looking at all these and I think they're clear eyed about it. They see
the need to bring down the regime in Iran. I don't know if they can do so without help from the United States or maybe more importantly, help from the Iranian people. These are people that truly hate their regime, and I think we're now starting to see a strategy take shape where the Israelis. The Israeli Prime Minister spoke directly to the Iranian people a little bit more than a week ago, enlisting them in the battle against their mutual enemy.
Jonathan, thanks so much for giving us a few minutes of your time. Really appreciated. Jonathan Schanzer, Senior vice president for research at the non partisan Foundation for Defensive Democracies. That's a think tank in Washington, DC. There are a lot of smart people out there that help us understand what's going on in a very difficult part of the world. We appreciate getting few minutes of Jonathan's time there.
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Linda sitting in for Alex Steele. I am Paul Sweeney. We're live here in our Bloomberg Interactive Broker's studio. We're streaming live on YouTube as well. To check us out there. Sylvia Jablonski joins us. She's a chief executive officer and chief investment officer Defiance ETFs. So we're gonna talk to market with Sylvia, and I also want to talk ETFs because I'm just continue to be shocked at the amount
of money going into the ETF space. It's one of the great stories of my during my career on Wall Street to see the fun flow there. Sylvia, thanks so much for joining us here. We've got a lot of economic data that looks pretty solid. Maybe a lot of folks in that soft landing camp, I think they're feeling pretty comfortable with that kind of backdrop. Where are you telling your clients to all k capital these days?
Hi, Paul, Thanks for having me, And first of all, I would like to have a best but to whiz her on the jersey you are with that sounds like a lot of fun. Yeah, I think you know, I think the markets are in a good spot, right we it all kind of started, the momentum restarted, I should say, with that job's number that looked a little bit better after concerns of the report prior. Inflation is looking good. So we have the situation now where monetary policy is
becoming a little bit more favorable. We have steady jobs, we have wage growth, we have consumer sentiment, you know, pretty solid, and consumer spending and then earnings earnings are holding up, right, So while valuations are high, companies are proving that they're profitable and that they're continuing to grow. So it does feel a little bit like a goldilocks market right now, particularly you know, we're going into that seasonally strong time of year next month, we have an
election year. I think it's it's going to be a pretty good ending to the you know, to the S and P five hundred and NASDAC, and so where do you allocate? You know, whenever the market pulls back on dips and AI stocks, I always buy them. We've talked about that. You know, a lot of people probably already know my picks there right then, videos the AMD's super micro micro strategies. But I'm also starting to allocate to XMAG.
So the other two hundred and ninety three stocks in the S and P five hundred that are kind of forgotten over the last couple of years, I think they're going to start having their day in the sun.
What areas are you avoiding?
You know, I think the breath is increasing in the market, and I think that the overall market is starting to perform. So it's not that I'm necessarily avoiding a particular sector.
I think if I look at the MAG seven for example, actually there's only two of them that are now outperforming the S and P five hundred, and that's Nvidia and Meta and the others, although Apple might have picked up after the last couple of days, but the others are kind of slowing down in terms of outperformance, and so I'm not really looking to pick up like the classic mag seven. But that's not to say that I'm selling
the positions that I already have. I think if I just put new money to work, I'm going to be a little bit more thoughtful about where I diversify it, and that probably will be away from some of these names that have flown high.
You've got excellon in your notes here. That's the name we don't talk about, I think enough here John Tucker and I were just talking about oil coming back down now below seventy dollars a hour for WTA crude oil. What's the investor call on Exxon.
Yeah, I mean that's why I like it, right. I think it's it's come down quite a bit. But if you look at what's going on in the rest of the world, to me, this is this is a bit of a you know, a bit of a diversifier to the portfolio. First of all, it's again it's not the Max seven. It's in that four ninety three it's a strong company with a solid balance sheet. They pay a dividend, and I think the company's also well positioned, you know,
whether whether or not. Of course, they're tied to oil and whatnot, but I think that they're doing a lot of investing in kind of you know, green energy and going climate neutral to twenty fifty, they'll be big players in that space because I think they've learned that they have to be evolved. So I just like that company overall. But I do think that oil is going to be a story. You know, there's so much going on in
the Middle East right now. I don't think it's necessarily over and that's an impetus for potentially oil to spike throughout the months coming ahead. And then the other thing is, you know China, if we keep seeing China, if we see that stimulus there and we see the second largest economy in the world growing. You know, they're one of the biggest consumers of X products, and so I think that that company has a shot of growing.
Here talk to me about healthcare. I know this is an area that can get really nitty, griny and niche, but what's going on?
So healthcare again, this goes to my to my ex mag right, if you look at if you look at the MAG seven and then kind of start going down the list and start trying to look at the companies that are outperforming the S and P five hundred. You know, Eli Lie Lily is one of them. Can't talk today. I think you know, part of that is is the GLP one craze and the weight loss drugs, and you have you know, Novo and Lily playing in that space.
But that company in particular has a big portfolio of drugs, whether it's Manjaro, whether it's you know, cancer drugs and FDA trials, Alzheimer's disease drugs on trials and things like this. But I think it's a macro story that's starting to play out. To be honest, I thought that these companies, these you know, big pharma companies would do better than
they have sooner than they have. They're getting some steam now, but you know, you have this massive aging baby boom population people started to consume medical services and you know, these these products post COVID. I think that's going to continue. And just strong balance sheet. They pay a nice dividend, good diversifier, you know, defensive play for the market. So I do think it's worth looking at Sylvia.
You know, when I was growing up on Wall Street, it was all about the mutual funds. Now, the funds flows over the last decade plus have just been extraordinary to this new rapper called the ETFs at your platform defines ETFs. What are you seeing today trips of funds flows and kind of where are they going?
Yeah, I mean this was our best year yet. I think it was the best year yet for the ETF industry. I know you guys have Eric talking about that pretty regularly out there, but it's it's a multi trillion dollar business and state of the world now. And if you look at you know, these big mutual fund companies, I mean, they're all trying to figure out how they can do these conversions to ETF products because I think it's the way of the future. I mean, I'll say something bold.
I don't think that you know, I have young kids. I don't think that they'll know what a mutual fund is by the time they're teenagers right when they invest. I mean, it'll be some it'll be like a you know, rotary phone or something like that. But I just think ETFs are a better product. Right, you can trade them throughout the day. They're transparent, and they're a lot cheaper, I think the days of expensive mutual funds, I mean, give or take a few. Like the market leaders, it's
just like have their client base. I think they'll have it for a while, but you kind of have to adapt and go you know, cheaper, more transparent, unless it's like a super sophisticated active strategy, but that probably still works better than an ETF forepper. So I think growth continues there.
Yeah, but when I was, they're not as profitable to me. When I'm trading for Salomon Brothers, I'm wearing Stanley back in the day.
You're not going to make its much money as an advisor, that's for sure. And that's you know, but I think if you you know, the good news is that the types of ETFs that are out there are are more interesting.
You know, there's a lot of great thematic products, options based products and things like this, and so an advisor I think can now be you know, really providing a good service by alerting ret tell clients of theirs that there's all this other stuff out there that they can get exposure to, including bitcoin, right, I mean Bitcoin wasn't a thing a few years ago within an ETF product. Now people are putting it in their IRA, so it's a different world.
It is a different world, and as you mentioned, it is arguably much better for investors, and that's the most important thing. Sovia Jablonski, thanks so much for joining us chief executive officer and chief investment Officer for Defiance at ETFs.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Romelina sitting in for Alex Deel poul Swinging. You live here in our Bloomberg Interactive Brokers studio. I'm going to get right to our next guest here. A very cool story here, Roland Martineque, CEO of Data Bank. Data Bank is a private company. Tell us what you guys do role because I think a lot of people are really interested in your business.
Sure be here.
Thanks for having me so, data Bank we're a US based company. We're a data center developer, data center. So we have over seventy data centers in twenty seven markets, giving us the largest geographic footprint of data centers in America. A data center, I like to say, if you know, it's basically the foundation for technology adoption. Right, you think about anything on your phone, anything on your computer, it
basically originates and terminates in a data center. So we support over twenty five hundred customers, you know, from the major hyperscalers to major enterprises to smaller businesses that want to put their critical data, their applications, their services inside a hard and facility that a data center. Because obviously in today's world, everyone's really dependent on on their digital footprint.
Throw me a few names of your customers.
So Amazon, Google, Netflix, JP, Morgan, just A and C Bank, Carnival, Cruiser.
Right, so even simple people like Nora, and I know, nor is much smarter than is the real estate business. I know that the data center business is a good business, booming, really good business. Some people want to invest with you and you just raise some capital. Talk to us about that.
Yeah, So one thing about data centers is they're really expensive. Right, you know, we measure everything in power. We call it, you know, by the megawatt, which is a million watts. It costs about ten to twelve million dollars per megawat to build out data centers, and we're building data centers that are sixty megawats, seventy two megawats, forty megawatts. So you know, we're now in the kind of the billions range when it comes to these investments across the sector.
So this week we announced that we had raised two billion of equity capital with Aussie Super which is an Australian pension fund, as our new lead investor, with a one point five billion dollar commitment.
So, I mean, the tech industry moves fast and breaks things, but if you think about the utility industry, it's a bit slower and tries never to break anything at all. Obviously, you work as the middleman here. I'm curious, how do you manage the relationships between both ends.
Yeah, that's a great question. Yeah, these two kind of galaxies are really colliding now.
You know.
Obviously we always were good partners with utilities, but over the last twenty four months, with the advent of generative AI, the demand for data center capacity has just skyrocketed. To give you some example, in twenty twenty let's say twenty twenty one RIP. Before chat GPT, there was probably about a gigawats seven hundred and fifty megawatts of absorption in the United States for new data center capacity. This year, the estimate is six gigawatts of new data center capacity
will be absorbed. So our relationships with ver utilities are critical. And yes, they are more on the slow moving side, right. They're utilities that are regulated. They think of things in ten year cycles. Meanwhile our customers think of things in twelve month cycles. So there's a lot of activity going on there. But the utilities are, you know, working hard to try to figure out how they're going to meet the expected demand of AI over the coming decade.
So what do you do when you develop a data center g you us assume the utilities can be there to support you, or do you build your own power there? Like John Tucker lakes to talk about these small.
Well, you couldn't build your own power, Like if a littleminum produce al CoA had to build its own power its own dam in the wherever it was. But you can't do something.
Like that technically, you can, I mean that self generation, right, that is becoming a topic that is much more discussed now than it was before.
But ultimately, what we do is, you know, before we.
Acquire land, we're already working with the utilities to understand where they have capacity on their platform.
Right.
We look for, you know, transmission lines that obviously carry the electrons, and then we'll buy a land kind of in close proximity to those transmission lines so that we can tap into them to grab power. And that's exactly what we did with the three announcements we made this year. We're building a four hundred and eighty megawat data center campus in Texas South Dallas. We worked with Encore there to identify that spot. We're building one hundred and twenty
megawat data center campus in Atlanta. We worked with Georgia Power to again identify a suitable location.
And then we're building one hundred and ninety two.
Mega walk campus in Culpepper, Virginia, which is about fifty miles south of kind of data center.
Ally as when are you eyeing nuclear plants?
No, most of the power here is kind of there's a it's a grid mix, right, So like in Texas, you know, Encore is you know, very proactive in terms of connecting new generation there, believe it or not. As an example, you know, on any given sunny day in Texas, you know, forty five percent of the power is coming from solar, wind and batteries. So there's been a huge investment in those kind of renewable power generation sources.
You get in Dallas, right we are. We just had a story your pension. You've got a pension problem in your city, right and like an incredibly unfunded pension. And I looked at this story. I like, there's a million companies like your smart young companies fucking to Texas, fucking to Dallas. I don't know how you guys got yourself in that pickle in the city of Dallas. But that's another story for another time. So talk to us about this investment here. I mean, what are the Australians are they?
Did they see this as an AI play for them? What's the angle for them?
Yeah?
I mean what's great about our business is that, you know, we're really a pick and shoble business, right. You know, data centers are agnostic. It doesn't matter what technology you put into a data center. All that matters is that people consume technology That's what I love about our business that you know, we're really indexed to technology adoption, and I would argue humans are addicted to technology, right, and that because of that, we think there's going to be
you know, long term demand. So so you know, these investments are very long term investments. You know, we build a data center, you know, we expected to have an operational life of thirty to forty years. In fact, you know, there's the data center sector really has only been around for about twenty five years, so you still have assets that were.
Built in the nineties.
They're in the dot com bubble that are still relevant and active today. So Australian Super they're looking to support us as we build out this eight hundred and fifty megawatts that I just described over these three campuses, and this equity will help us build those facilities.
I mean, there's insatiable demand right now in the market. How are you all thinking about sustainability, I know you mentioned renewable power.
Yeah, so the good news is is that you know, there's a commitment with the sector, and there's a commitment from the largest consumers of data center capacity, which are the hyperscalers, to a renewable future, so ourselves obviously all the major hyperscalers, we all have kind.
Of carbon neutral net zero goals.
Ours is for twenty thirty and the major hyperscalers are also in that range. You know, they are the largest consumers.
Of renewable energy in the world.
I've just read recently because of Google's announcement about that nuclear that they consume fourteen gigawatts of renewable energy. So these companies have a corporate commitment to renewables and that creates a demand signal for people to invest because they know there's going to be a buyer for that product.
Ro thank you so much for coming in. Really appreciate it. Fascinating story. Raoul Martineck. He is the CEO of a Data bank. Is the company sup private company based down in Dallas, Texas, the data center of business.
Boy.
I know that's a great business. So interesting story there. Of course.
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