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So you have a global it collapse, right, just really putting a CrowdStrike front and center in that spotlight. Now, CrowdStrike stock is only down by about nine percent, and I say that because it was down as much as
twenty percent not too long ago. This is a dominant supplier of software that protects businesses from ransomware attacks, and it was really thrust into the spotlight as it struggled to fix a faulty patch that led to cascading system wide failures that just paralyzed the operations of clients ranging from banks to global re tail giants to healthcare systems today and then for everyone else social media, which I'm sure was disastrous for influencers everywhere. Just a little history
here on CrowdStrike. Guys, we're going to talk to mandyp saying more about what it means for the company, what it means for revenue and earnings in addition to what it means for their customers and do they wind up switching gears at any point. But here's some of the
details and the history of CrowdStrike. It was founded by former executives of antivirus pioneer McAfee, and it launched back in twenty twelve, and now it has grown into the leading maker of a relatively new type of security software that's considered among the best defenses against ransomware and other hacking threats. It controls about eighteen percent of the eight point six billion dollar global market for so called quote modern endpoint protection software, just ahead of our rival Microsoft.
And this is all according to market research firm IDC. So it is distinct from the older, more limited types of security software. And traditional antivirus was pretty useful in those early days of computing in the Internet, and this is basically where CrowdStrike is at. That's kind of your history of how CrowdStrike got to be so popular and so big in this market. That stock still down by about nine percent. Man Deep saying is joining us. He's
much more details than I do on this. Bloomberg Intelligence senior technology industry analyst Mandy I guess my question is is CrowdStrike going to lose a bowload of customers?
I don't think so. I think right now we are just learning that. Clearly this was something they shipped last night. It was an outage because of the changes they made to their software. So the good thing is it wasn't a breach. I mean, the last thing you want is a cybersecurity company getting breached themselves.
So that's not the.
Case, right, So plus time, yes, yeah.
Yeah, But at the same time, the fact that this happened at the scale at which it did, and look, there will be liabilities. I mean, there will be fines. I think that I've heard GDPR findes because the outage was pretty big, there was lost business. So clearly the fallout from this would be, you know, it will impact their free cash flow for this year and also delay their deals. I mean, look, they are two weeks away from closing this quarter. A lot of these deals are
signed at the very end of the quarter. I bet you they're not happening now given the outage.
So if I'm a customer, so I'm Delta, Yeah, what do I say to CrowdStrike if I can't operate and I lose money for two days? Or I have to shell out cash to help customers who are really mad at me.
Yeah, so that's where you know.
That's where the finds are going to come in.
And look, Microsoft also is involved here, so it's not just Crowdstrike's fault. The fact that this happened at the Windows operating system level, you have to ask yourself, could Microsoft has done something here in terms of preventing that sort of a change where the system would not book? I mean, Microsoft is the operating system layer, and anytime you change things at the operating system layer, it's like
all your critical systems will be down. So the fact that, and that's the broader point here is if you have an agent based solution where you're installing something at the operating system layer, who's liable for that? Is it the
operating system vendor or is it the software vendor? And that's where I think, I mean, everyone is saying, oh, they rolled back the changes, the outage is over, there will be a fallout in terms of who is paying the fines, and more than the fines for the lost business, there's somebody who is liable here, and it's CrowdStrike and probably Microsoft.
So can you just explain it done that downy for me. Even more so, CrowdStrike says, hey, guys, I got a software updated. Microsoft's like cool, and then they press go what should they have done instead?
I mean, this should have been tested one hundred times before you roll something like that out.
Then they test it, they find the bugs, they fix it.
There's a whole software industry just for testing changes. That's why cloud software it's great because you deploy it for all your customers with the click off a button. But that's your risk. I mean, when people used to do things in the on prem world, you had to ship a disk, the disc had to be installed it and look, not everyone would have done it overnight. In this case, all the customers got the change overnight and they were affected overnight. And some of them are running all machines.
So even though crowd strikes says that they rolled back the update and it's going to automatically fix things, well, some people are running Windows two thousand, so it doesn't roll back that way because those people have to take some different steps compared to the ones that are running the latest version of Windows where it can be rolled back easily.
Well.
Really caught my eye is there is report that someone has issued a paper ticket in handwriting to get on a plane. I was like, oh, this is real now to.
Get rid of systems are down.
Oh man, So I know you're not going to give stock prices, but just looking at CrowdStrike down nine percent, it was down twenty percent. What kind of hit to the stock price is reasonable that we should really be looking at.
I mean, look, we don't know the extent of liability they have in this case. Depending on that, I think fifteen percent is warranted. And some of their competitors are up Sentinel one Palo Alto Networks, So endpoint security is primarily four vendors. CrowdStrike is the leading one Sentinel Palo Alto. And there's a company, vis Security, that Google is looking to buy. There were rumors about that last week. Well guess what that validates? Why Google, a cloud player, is
looking to buy a cybersecurity provider. So clearly, given it's a four kind of company race here, CrowdStrike fallout means the others stand to benefit here.
What else are you looking at right now? I mean, I know this occupied most of your morning, but now we seem to be resuming somewhat as is operations with some question marks, But what else is on your mind right now? After this week? Or you've seen what I think the Nasdaq, the S and P, and the Nasdaq one hundred seeing its worst week since April? What do you think?
I mean? Look, we got the print from Netflix last night at TSMC ASML, they all reported results and AI spends still continues to be robust. So with Google reporting next week, I think you may see a pretty strong print going by what happened this week, even though the market was down and everyone is raising concerns around valuation and just you know, the market risk. But I mean AI spend is still what's driving the market, and you want to see how Google does next week.
When you say the AI spend part, how do we know about the monetization of it on the end user? Because that's going to be where the investment continues, right, Like you're going to invest a bowtload of money now, great, but then you actually have to make money off of it to then keep spending money on it. When does that start to come into play?
Well, so I think you will see that in Google's result as well. They have launched their Gemini offering that's part of their Google One bundle, Microsoft has a GitHub copilot. They all run cloud businesses where they are deploying these workloads, the AI workloads. And look, the biggest driver of this is how big is the GPT five and GPT six going to be. If the models that are being trained are going to be much larger, ten twenty times larger,
you need more compute. And if the companies are spending the capex to train these models, that means they are in it. I mean, these companies are the biggest spenders on capex, Your Microsoft, Google, Amazon. If they continue that path, they're telling you that we believe in it. And if one of these vendors blinks first, that's the big risk. Who says, Okay, I'm pausing spending on training cloud models now because we don't see the ROI we haven't seen that yet.
Everyone is going big.
And then to your point, like there is a no first mover advantage to not doing that right, Like Google's not gonna want to do it first, Amazon not gonna want to do it first, Like who does that first? And when that happens, So is there a possibility that they'll just keep spending because of that?
Even if like there is fear pressure because and right now the GPUs are still supply constraints. So nobody wants to say, oh, I'm not raising my capex and I have enough of these GPUs because there are still a hot commodity. Well, time will tell, if you know, the market kind of stabilizes, their the supply demand equation gets better, and that's when you will see market reaction. But until that time, what TSMC told us, yeah, is they're still
supply constrained. They have more demand to make those leading at chips, and so that's why I think the ai story continues.
Yeah. They said also that that supply and demand imbalance is going to last what until twenty twenty six.
Yes, yeah, well, I mean and couple that with the geopolitical risk. You know what's going on with the election situation, the former Trump, former President Trump saying he doesn't believe in Taiwan. So that's a chill point. If something happens to Taiwan and the relationships changes, then TSMC is not spending capex on expanding their capacity. Well, everyone wants TSMC to expand capacity, so that's a big risk in itself. It's TSMC is not expanding capacity of their notes amazing.
You look really excited, by the way. I definitely heard Man Deep tag about this it thing and he was a little giddy. There's like something really interesting going on here. Mandy, thanks a lot, really appreciate it. Thanks for the hustle. Man Deep saying, Bloomberg Intelligence senior technology industry analyst, amazing stuff. Cannot wait for Google next week. That's going to be really great as well.
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 all so listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Well, Alex Deal. Paulsweenis off today. This is Bloomberg Intelligence Radio. We bring you all the top news in business, finance, economics through our lens of our Bloomberg Intelligence analysts. They covered two thousand companies and one hundred and thirty industries worldwide. The next top story of the morning, aside from CrowdStrike and what's happening there, is what's happening in DC with
President Biden. So the reports earlier from NBC said that Biden's family is starting to discuss his exit plan from the race. Shortly after that, the White House came out and said that that NBC report was wrong, but the clock is still ticking towards the DNC. Oh and by the way, the RNC just wrapped up last night with a ninety three minute speech from former President Donald Trump. Let's go to Nathan Dean. He's Bloomberg Intelligence, a senior.
Let me get your title right, senior policy analyst joining us from there. Hey, Nathan, there's a lot to kind of get through right now. But before we kiss everything off here, let's just go to what's happening in DC and the White House. What is your take on the Biden campaign?
So, you know, it really sounds like the pressure. I mean, look, I don't think he needs to be me to know that the pressure is on the White House right now and specifically on President of Biden to you know, make the decision to step aside. You know, we've seen reporting from Bloomberg News all throughout the week that not only do your you know, his general allies in Congress, but also you know, statements from you know, or the lack
of statements from President Obama for example. But what we should note is the prediction right markets as of right now are fifty seven to twenty one in terms of Kamala Harris. Look again, these are prediction markets. To take
it if you will. But we've put out a whole host of notes on the terminal this morning on healthcare, taxes, banks, evs, and TMTs, And the crust of the matter is is that if President Biden were to drop out of the race this weekend, and similarly, like Kamala Harris comes in the vice president to replace him, most of the policies are a status quo. There's really not a lot of difference between Kamala Harris and Joe Biden when it comes
to policies. And so just in terms of trying to figure out the certainty in which sectors are being impacted, I think it just be a continuation of the same factor.
So based on that, then what would be the big changes with President Trump? I mean, ninety three minutes last night we learned a ton tariffs and taxes.
Is that what we're looking at exactly? So I would say tariffs and taxes are the top two. In fact, our chief equity strategist Gina Martin Adams put out a note specifically about that this morning, talking about what does that mean for markets in terms of taxes. If you go back to the twenty seventeen tax cuts and you do something very similar to that, you get a slight tailwind pushing earnings a little bit better in that if you get the tariffs, well, there's a lot of uncertainty there.
So but I would say in terms of people thinking about how President Trump would implement this, it's almost short term versus long term. Short term tariffs. The power of the presidency is a lot more powerful when it comes to trade in tariffs. So look for that to be one of the first actions that the president would do if he were to win in say the first quarter of next year. The tax reform debate, however, goes through twenty twenty five. Remember that's when the individual tax cuts expire.
So we have to see a the makeup of Congress, and b we're going to see a lot of debate over what the tax issue is. So if you're trying to model this out from a you know, timing perspective, trade and tariff's number one tax is number two.
Yeah, and also, you know what it actually does to the equity market is a whole different story. Can you talk to me a little bit about energy policies. So clearly it's a drill baby drill situation for President Trump. On the flip side, though, the more you drill baby drill, the lower oil prices can go, which is not always happiness for oil companies and built drill baby drill.
Yeah, you know, if funny enough.
I was on a chat last night with some of our energy analysts when he mentioned drill BA to b drill, and a lot of the feedback I got from Bi's energy team was, look, there's a lot of policy things that President Biden can do, but also just remember the markets are moving in a certain way. Solar and win and renewable technology is continuing to get cheaper, and so you know, there are policies that we'll see on the energy side that certainly could make it easier for drill built drill.
I know it's tough, right, it's hard.
You know, there's certainly going to be policies to coming from the White House. But also remember is this policy a regulation or is it an executive order or is it legislation? And so I think that even though you know, I'm not an energy analyst, but at least, you know our group chat last night, a lot of our energy analysts think that solar renewables are here to stay.
What about EV's Again the contradiction of Elon Musk contributing heavily to a super pac that's going to support Donald Trump. But then yesterday it seemed like when he was speaking, he was like, subsidies for EV's bye bye.
Yeah.
You know, I got that question from a client just this morning. You know, you know, President Trump last night essentially in a paraphrasing here said I dislike electric vehicles, and you know, we're going to do away with the electric vehicle tax credit that's part of the Inflation Reduction Act. Now, they could certainly do this as part of that tax reform debate that I mentioned to, and President Trump could use executive orders to adjust that EV mandate if he
so chooses. But then he got Elon Musk saying I'm going to spend forty five million dollars a month to support President Trump in his presidency. So I think what I would happen here, what the EV tax credit is probably this is not going to be a day one issue. If President Trump were to win, let the issue fester for a little bit. Let's see if Elon Musk tries to get into the White House and starts whispering the President's ear, and then we'll see in maybe in the second quarter, how.
Ultimately they want to move forward with this. So it's certainly keep in mind.
But also I think the ev automakers also are just saying there's a lot of demand here, whether that tax credits with us or not, right, and.
Really we're still revolving around tariffs and taxes, So there is that the priority all right here, Nathan, we really appreciate it. Nathan Dean joins us from Bloomberg Intelligence, a senior policy analysts. Let's go right to Milwaukee here with Emory Hordern, a chief political correspondent to anchor of a Bloomberg surveillance Henry. Last night I felt like a very historic event. I mean, ninety three minute speech, sweeping speech.
Can you just give me some on the ground color as to what it's like having been there and being in Milwaukee.
It was a ninety three minute speech. A lot of attendees were feeling it at some point in the end. Some of them may want to beat the traffic, but they were leaving towards the end.
There. It was really the beginning part of the speech.
That you felt it in the room, very silent, very somber. Foreign President United States explaining in detail what he experienced Saturday evening.
When there was attempt on his life, and he.
Said, it's too painful to talk about, so he's never going to talk about this again. And he was saying how he's thanks to God that he's still alive, and that was really the tone he was trying to set. And then he talked about uniting the country, not the Republican Party, uniting the country. He said, what is the point of having half the country?
I want a victory of the entire country.
But then the speech went on, you heard similar tropes that you'd hear from a Trump rally, and he veered off script a number of times, which basically meandered in and out, and which is why we ended up with a ninety three minute speech. Not sure how this would
land exactly with the individuals back home. If it's slice and dice, obviously people are going to want to hear about that assassination attempt and potentially see a different side of the former president, even though he talked about a lot of things that categorically will were false and similar to some of the.
Rhetoric that unnerves some independence. But in the room it was electric. These individuals.
There are ones that already are motivated to go out and vote for Trump, but these individuals were so excited to be there. And we should note leading up to it was a really a event, a machismo event. You had Hull Colgan come out ripping his shirt open, calling Trump his hero, and you also had Kid Rock. It was the nostalgia of the eighties and the nineties really leading up to the former president to make this historic speech third third time he has been nominated by this Republican Party.
Whole Colgan, I feel like at the end of the shirt ripping it kind of got caught there. But your point is well taken in terms of the unity theme. I appreciate that the beginning of the speech was very much focused on that. How did that evolve throughout those ninety three minutes?
Well went back to the same president Chump that we know and we see and hear on in campaign rallies. He mentioned Biden only once. He did want to talk about the current administration. Potentially that was strategic because of course those news as you were just discussing that President Biden might step aside and his family is discussing this with him, what an exit plan could look like. According to NBC News, we do see a lot of pressure mounching on the sitting president going into the weekend.
So he said the current administration.
He's mentioned Biden's names once and said, oops, I'm not going to do that again. But he went after what he called he called it crazy Nancy Pelosi. So he had some of these similar attacks that we've seen, false falsehoods about a stolen election.
He mentioned had an elector somebody's been quite fixated on for a number of weeks now in some of his rallies. So in the beginning, there was.
This show of he I wanted to project unity, he wanted to talk about this life threatening event. He literally dodged a bullet, But then he quickly moved into the Trump that we've known over the course of his political career.
All right, Emory, we really appreciate it. Thank you so much. I know it's been a terribly long week, but thank you so much for joining US Amrie Hardern, a chief political correspondent and co anker of Bloomberg Surveillance.
You're listening to the Bloomberg Intelligence podcast. Catch US Live weekdays at ten am Eastern on AFO, Cardplay and broud Otto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch US live on YouTube.
So Netflix stock is now up by about six tens of one percent. The highlights that added over eight million customers in the second quarter. I had topped expectations in every region around the world, and that included two point eight million new customers in the Asia Pacific region. Plus They're less expensive plan with ads accounted for almost half of new sign ups last quarter. The one quest question, though, was a cautious forecast. What was up with the third
quarter outlook? Keetheramanganathan is Boomberg Intelligence analyst on US media and she joined US now from Princeton, New Jersey. Git what happened for them Q three outlook?
Yes, so thanks alex So. The revenue guidance obviously came in a little bit softer than what the street was expecting. Street was looking at about fifteen percent revenue growth in third quarter, they're guiding to about you know, thirteen point nine percent. And I think really what investors are grappling with at this point we've seen kind of the stock bounce around a lot post earnings is because we're not sure whether the three Q guidance. Obviously they did guide
to a moderation of subscriber growth. So just remember in the past four quarters. Obviously they crushed it in the second quarter with eight million subscriber ads, but in the past four quarters alone, Netflix has gained something like forty million subscribers. Wow, that is absolutely massive, And so I guess the question now is, of course we're going to see a moderation in subs but for the third quarter.
I mean, is this just kind of them being conservative from a guidance standpoint, or is this, you know, kind of an inflection to a much more slower, mature growth profile. And I think that's what you know, investors are trying to parse out and digest.
Right, So, like the law of large numbers, when are we going to learn the answer to that question?
So you know, there are obviously a lot of different data points that investors track, search trends, you know, third party data, downloads, as it looks right now, it seems that, you know, all of the trends are still pointing to pretty good subscriber momentum. One of the things that you know, we typically look at is how is the content pipeline shaping up? And the content pipeline seems stronger than ever.
You know, you have multiple hit shows that are coming to the platform in the third quarter, you know, whether that's Cobra Kai this week or you know, Umbrella Academy or Night Agent or Emily Embarrass So you know, they have all of their hit shows kind of coming in. They have a steady cadence of all of those titles kind of releasing, so content should do pretty well for them. And then remember they're also licensing a whole bunch of different content programs from you know, so many of the
other media companies. So I don't think content will be a problem. The only issue that we need to kind of factor in alex is that it was third quarter of last year when they kind of kicked both the password sharing crackdown as well as the ad tier into
high gear. And so we're kind of lapping that when we you know, come to this third quarter, and so that's kind of I think what they're saying, you know, please expect kind of that moderation and subscriber ads because most of that low hanging fruit has been already taken.
Right, So then you're also coming up against a little bit of tough comps in terms of the adzel part. I mean that accounted for almost half of the new signups last quarter. Are advertisers paying up for that kind of exposure or not quite yet?
Not quite yet. So one thing that they did point to was obviously the advertising portion of the business is I think going to be the biggest growth driver in the long term, but there is some short term pain to be experienced before we kind of see those long term gains. And the short term pain is that they need to invest in their technology. So they need to
invest both in their programming and their technology. On the programming side, we've seen them make multiple investments, and those investments are really in different kind of genres, genres that appeal to live that kind of cater to that live audience aspect. So you know, whether it's the hot dog eating contest or whether it was you know, the roast of Tom Brady, or you know, a boxing match that's coming up with Mike Tyson or even the NFL Christmas Games.
All of that are you know, content investments, and all of those makes sense from an advertising perspective, but they also need to make tech investments. Remember, they are that they are the first to the game in streaming, but they are the last to the game and advertising, and so it's obviously going to take some time for them
to kind of play catch up. So it's only been about fifteen to eighteen months since they kind of have this advertising business started up, and it's you know, it's taking longer than expected because they don't necessarily have the technology. Technology that you know, Disney and Amazon and everybody else has taken tens of years to build and already have like a huge advantage over Netflix.
So right, but the Netflix has their content. So it's like exactly chicken or an egg situation. A good point there, though, Can anyone catch Netflix in terms of content at this point?
Not really? And you know this is where kind of the whole content flywheel and everything, you know, the brand, the subscriber base, I mean, it's success breeds success at this point because you have a subscriber base of two hundred and eighty million. Netflix has very much become the default option when it comes to you know, entertainment or when it comes to video entertainment programming, and so all of these other media companies, I mean, they're already struggling.
They have a host of their own problems. They're finding out that one way to kind of alleviate some of their pressures is to actually sell programming to Netflix, and so they're kind of almost feeding the beast here, you know, the whole Netflix content flywheel. And so Netflix is really, I think in that is consolidating. It's kind of streaming dominance. So content absolutely they lead by a wide, wide margin.
Before we let you go Warner Brothers Discovery, there's some rumors here of a potential split between the studio and streaming assets away from its linear TV assets. Is that real? What would that look like? What do you think?
Well, there are rumors, you know, I think they could be real, just because I think management is extremely frustrated with the way that the stock has performed. It's been two years since the Warner Brothers merger happened with Discovery Communications, and this was really all about scale and kind of piecing together these businesses, both of which are were in secular decline, but obviously that merger has not done well at all, and I think this is kind of an
admission of that. Part of it is because they have over forty billion dollars in debt. Part of it is because Ebita has been constantly declining. You know, when the merger happened, they promised fourteen billion dollars. This year, we're going to be at probably nine point seven billion. So obviously the Star price has kind of reflected that seventy percent down since the merger was first announced, so you know, they are obviously looking to some ways to kind of
boost that. I don't think it's feasible though, And I say that because eighty five percent of the cash flow is actually tied to the linear network business. So you have the linear network business, which isn't decline but which is producing majority of the cash. You have the studio and the streaming assets, which are you know, the kind of the future and you know, the sexy assets, but they produce no cash at all. They are completely dependent
on the linear TV network business to sustain them. So I don't know, it's going to be a little hard to execute, but we'll have to wait and watch this. Just a lot of noise right now with Warner Brothers and kind of the NBA talks and whether they're going to match Amazon's NBA deal. So a lot going on for that company.
Right and there's still sort of we're recovering still from the Hollywood strikes from last year, and that's still kind of filtering through as well. Gita, thank you so much, Really appreciate the analysis. Eether Manganathan, Bloomberg Intelligence joining us on Netflix as well as that potential breakup for Warner Brothers Discovery.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple car Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Let's go to some earnings here, because America Express came out with earnings earlier. That stock is down almost four percent, the company is saying, and it's planning to increase spending on marketing, even as billing growth on companies credit cards slowed in the second quarter. Ben Elliott is Boomberg Intelligence, Consumer Finance analyst is joining us for this What was your takeaway on Amex's quarter.
Yes, I think that the price action you're seeing today is because just the bar was set pretty high going into this quarter, and they didn't necessarily outperform. But I think a lot of the metrics are moving in a big good direction. They're still spending, still growing twice the rate of GDP, and AMX is still the envy of the industry. They have the best customers and they're the most likely to sort of outperform in any kind of downturn.
So I think the outlook still looks good. I think people might have been a little upset that guidance was re rated higher, but it's really just for a one time charged our one time game, and so you know, there was no great outperformance, but the core business is still very solid.
Talk about their premium card business, like, are people still willing to fork over a boatload of money per year for these premium fancy cards.
Yeah, it's actually incredible. For twenty four quarters now they are a double digit gain in their card fees, right, so people are clamoring to pay Amex for the privilege of being the best customer out there. On the market. It's really kind of an incredible place for them to be.
Who, like, who was doing it? Is it older people? Is it the young kids?
Like?
Who's doing it?
You know, it's the young kids. Most of the growth is in gen Z and millennial sort of a middle growth tiers is in gen X and growth in the plus the demo is slowing down.
So what happens in a slowdown then? So that's kind of the setup for AMX. If we do get a slow down, where does it leave AMEX If they're exposed to people that have more money? Is it okay?
Yeah? So, as we saw in the FED stress test the past month, in a severe downturn, MX is one of the few banks that's still going to turn a profit. They have an incredibly low loss rate and their customers is extremely resilient, and you know, you have to think
back to AMEX is driven primarily by spending. Eighty percent of their revenue is from people swiping the car and paying the gigantic seven hundred dollars fee for their platinum every year, and so they're not as relying on loans, and the loans that they do make are incredibly high quality.
Okay, so fair enough so they do more tight underwriting, et cetera. To your point, the best of their peers in the Federal Reserves annual stress test. What is this bode then for the other guys like a Visa.
Yeah, so Visa doesn't take credit risk, right, so they're more driven by just the total sort of retail spending volume out there. So they're a little bit I think more GDP plus growth, and Amex is rated just a little bit above GDP right now because they're relying on sort of one tranch whereas Visa and MasterCard are kind of exposed more to the aggregate.
Then why is amex a stock down four percent? Is this just straight up like an expectations game.
Yeah, so I think they missed a little bit on the top line number. But if you if you think about it from an operating leverage perspective, their expenses were down a little bit more than that, so they still have positive operating leverage. They're trading at a huge premium
to peers, like a fifty to sixty percent premium. I think they're they're pushing twenty times earnings, whereas most of their peers are a ten x. So everybody has been the you know, MX has been the pre recession play for several quarters now, and so we get the soft landing, the recession doesn't happen, then maybe that valuation is maybe a little two premium.
Interesting Also, the company in the quarter pursued like its consumer focus on travel and leisure. They it bought Talk for four hundred million dollars from squarespace. What does Talk do for AMX?
Yeah, so every every sort of incremental bolt on acquisition is helpful as sustaining travel and entertainment. That's a really sort of a high margin part of their business. They typically negotiate swipe seas that are are really premium in that in that segment. So for every dollar that someone spends on you know, a premium for a legacy airline carrier, MX is getting, you know, more than they would at someone's like swiping out a sort of a retail point
of sale. So like, you know, any sort of incremental gain they can make there is positive. But that's a segment of their business that's flowing down faster than other parts of the business. So you might see them sort of pivot more towards dining and goods and services and sort of some of the more, you know, the less discretionary spending that might be more resilient in the downturn.
Fair Enough, before I let you go, I do want to get your take on Discover Capital one. So Discover is selling itself to Capital one. What what's your outlook for how this acquisition goes?
Yeah, so the acquisition, you know, from a fundamental perspective, is on track. Discovers doing everything they need to do. They're managing well to the sale. They're they're ticking all the boxes that regulators are asking of them. The real question mark out there is what does a Biden DOJ have to say about the deal? And we'll find out
later in the year. But then there's kind of a big question mark here, which is will Biden be in the White House come the January when the deal closes or it's lated to close, And so Trump win could sort of knock out any opposition that the DJ might have.
What does a Capital one look like with Discover?
Yeah, it's going to be really interesting. They plan to transition almost two hundred billion dollars in credit card loan volume onto the Discover network, So that still makes them sort of a distant fourth player. But I think you're going to find it much more competitive with their larger peers like these a MasterCard and Amex. And I think
it's going to be it's going to be interesting. It's going to change the competitive layout in ways that I think are not yet really well understood, and it could be good for consumers.
All Right, we really appreciate it, Ben Ben Elliott a Bloomberg Intelligence consumer finance analysts.
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this time we go to Ken Leon. He's director of equity research at Cfrray Research and he joins us now for Netflix, so he can pretty much talk about anything. But this time we're talking about Netflix. You know, I look at a chart on the last kind of twenty four hours in Netflix, investors cannot make up their mind what they want to do with the stock, Like now it's down by one percent?
Why so this is great to be here Netflix. We have a buy in a seven hundred and twenty five target. Reiterated that with our published note last night after the call. So for Netflix, it's the second time two quarters in a row where there's always a little blemish here. And it was really the guidance for Q three for revenue
just very right below the consensus target. But when you look at the full year outlook for Netflix and twenty twenty five, but for even twenty four, they reiterated a target of six billion of free cash flow and fourteen to sixteen percent revenue growth that underscores along with operating margins in the second quarter that widened from twenty two percent a year ago to twenty seven percent, showing we believe a growth stock with solid top line growth and
increased profitability, unlike all its peers.
Yeah. So is it just like either they're going to come into tough comps in the third quarter because that's when they sort of cracked on a password sharing or is just a law of large numbers.
No.
I think this is a solid, high quality growth company. You know, there was a lot of sell off this week with the Max seven and other issues. Netflix is a high valuation metric that we still think supports the outlook in a seven twenty five target twelve months out. So I think particularly portfolio managers are thinking is the fundamentals there to support the high valuation. We think the
answer is yes. In my career over four decades, I have never seen an industry so disruptive, which is movies and entertainment where you have a dominant get it right business model with Netflix and everyone else is losing money and trying to figure out what is their future in the new world of technology.
Why is it so hard for Disney Warner Brothers Discovery Paramount to make a dent when it comes to Netflix.
It's a great question, you know. Part of it is it's always difficult to transition from legacy to new platforms such as streaming. Second, it requires having talent on board to do all the hard, dirty work day by day of building an intelligent platform that gets the opportunity for global reach and customer personalization.
Do you think that the streamer I mean, like the Warner Brothers and Disney and everything, at some point do they wind up becoming more solid enemies or will they always be frenemies either? Running out in a Boomberg Intelligence pointed out that now they're they're getting their content on Netflix, so they're kind of you know, I mean, like our streaming network isn't going to be as good, but we want our content out there. Now we're going to go and give it to Netflix. That just seems very odd.
Yeah, So the world has changed, and it's really two tiers of players, the new big players or YouTube or Amazon Prime Video, Netflix and everyone else is trying to figure out, particularly on streaming, how can we play possibly partnering, bundling. But it's a position of weakness, you know, it's you know, very hard for these companies for content to keep subscribers. Think about this that if you're investing or thinking about wireless or cable TV and it's good days. You had
very low customer churn. None of these companies published monthly or annualized customer churns.
Yeah, so what does that? So what does that tell you?
It tells you it's a very vulnerable business. You have to have engaging content, you have to have a lot of it. You need an intelligent platform in each country because cultures are different for personalization. So do we think that, yeah, Bobeiger Disney Reports will talk about getting to what I just said. You know, so you know Netflix is there and you know Disney's trying to catch up.
So at some point do the likes of Disney like pull back capital? Does Warner brother Paramount pull back capital?
Yeah?
So the area that there's always this yan yang between content and distribution and where you have the more durable, recurring growth areas for many of these companies is in content for film or TV general entertainment. And what's stacked right above that is live sporting events. It's not distribution for these companies.
Do when you pivot from live sporting events and they're on Netflix or Amazon Prime instead of say CBS, do they do advertisers pay the same Are they making the same amount of money or is it still sort of a model that needs to be proven.
Well, advertisers have done two things in the last ten years. They've shifted enormous money for social media, whether it be Meta, whether it be Google with YouTube, et cetera. So what's left for traditional advertising on TV? It's smaller and it's being shifted to live sports the only one. It's kind of interesting here we have a whole and the stock is up from like thirty two to thirty seven. In Spox they're only live sports and news.
What do you think we're going to hear when we move forward? In terms of Netflix talking about that ad supported tier.
Though, well, what they're releasing they said, sequentially Q one, the Q one they had thirty percent growth in the ad pay plans. It's a lower rate and advertising revenue directly from the advertising sponsors. No one, Nope, they're not reporting it. It is reported by the other legacy media companies though, good question, gotcha?
All right? So Netflix still by seven twenty five?
Netflix is Netflix still winner and they're going to continue to gain share there we go.
As long as they keep doing Bridgerton, We're good. Hey, Ken, thanks lot, really appreciate it. Have a great weekend. Thanks for joining Kenley on, Director of Equity Research at CFRA. Joining us on Netflix.
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