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Let's turn our attention to the media space. Lot's going on out there. Spotify reported some earnings, but we want to lead with Warner Brothers Discovery.
That MNA sag can continues to play out today.
Paramount kind of amended its bid to add some more cash funding for a termination fee, instituting a ticking option here for this thing. Keitha Ranganath and she file follows this as the media analyst for Bloomberg Intelligence. Keith, let's start with Warner Brothers Discovery here. I'm still surprised that Powermount has not raised its bid from thirty dollars. That are making changes and maybe some enhancement mins to the offer, but not raising the bid in general.
What do you make of it?
Yeah, still playing the cat and mouse game here, Paul. They did stop short of actually raising the offer, but yes, you're right, they are offering now this almost one dollar and eighty cents per share to cover the termination fee with the Netflix deal, as well as some of the financing costs, and then of course, as you just mentioned, the ticking feed. I don't know though, if this will
necessarily fly with the Warner Brothers Discovery boat. I think this is just Paramount exhausting all of its options before you know, they actually raise the bid. But in my mind, what this signals is, yes, they did stop short of actually raising that thirty dollars bid, but I do think that the signals that they are willing to kind of go back to the table and probably raise that bid. As you know, kind of this thing keeps dragging on.
Yeah, it does feel a little bit silly given that David Ellison had said that thirty dollars a share was not their best and final offer, So let's let's kind of get to it. That begs the question, Keithan, this is a dumb question. Do they have the money to raise bid?
They do, But the question is really going to be what happens after Scarlet. So you know, right now we're looking at a company with the thirty dollars per share bid. We're looking at a company that's going to be levered about six and a half times, they raise that bid to let's say thirty two, thirty three, thirty four, whatever the number is. You're going to look at a company that's value that's going to be levered at about seven
to maybe seven point three times. What happens with those dangerous levels of debt is, you know, it just becomes a distraction. You're not going to be able to invest in growth, You're just going to be focused on deleveraging. This is exactly what we've seen, you know, happen many a time in the media world. It's happened actually to Warner Brothers Discovery itself. You know, they had over fifty billion dollars in debt and the only thing that they were hyper focused on is Okay, how do we keep
you know, reducing that dead pile. And so the biggest worry is that's what's going to happen to Paramount. So, yes, they could get their hands on this absolutely world class asset, but yes, leverage becomes this huge, huge headache for them.
If any sense of timing, it doesn't seem like either side feels.
The need to, I don't know, be aggressive here.
So February twentieth. That's what that's the date that paramounts a proxy bid actually expires. It was initially Jan twenty at the extended to February twentieth, So that's the thirty dollars hostile bid. That's the date of expiring. Remember, Paul and Scarlett, only about seven percent of Warner Brothers shares two date have been tendered at that thirty dollars bit, so everybody's still kind of holding out for that higher per share offer.
I think that tells you everything you need to know right now. Then Februy twenty eight is the day we'll watch for Geita. Let's also talk about Spotify here. It added a record number of users thirty eight million users to seven hundred and fifty one million, topping analyst estimates. How much more room is there to raise prices because increased price prices in the US was certainly part of that story. And it looks like consumers continue to sign up.
Conzuomer's continue to sign up. Yes, we're seeing Spotify and if you just look at the subscriber trajectory scuddled over the past few years, they've added about twenty eight to thirty million subscribers every year, and there's just no signs of slowing down. They keep adding a record number of subscribers, record number of active users quarter after quarter. So there's just so much of appetite for this platform for music in general, for audio in general, So that is definitely
good news. You talked about pricing power. I think, you know, just with kind of the user interface that Spotify offers, with all of the content that it offers in terms of breadth and depth of content, and as they keep adding more enhancements, they do have a lot more leverage to keep raising those prices. So you know, they've made a pretty bold move by raising their prices a little bit earlier this year. So now now it is thirteen dollars for an individual plan in the US. That was
a little bit above the rest of their competitors. But then we just saw a few days ago Amazon Music also kind of raising prices, which then I think just speaks to the audio industry in general. I mean, everybody there has a lot of pricing power, but I think Spotify definitely has the most, just kind of again given the fact that they are a best in class product.
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We have markets in the green right now, and the NASAC is among them. We've had seen this decoupling between big tech and the rest of the stock market, but big tech is back in the green once again, and the big news really is Alphabet and all the hyperscalars. It's going to need about one hundred and eighty five billion dollars in terms of capex over the this year, and so it has to raise a lot of money
in the debt market. Caroline Hyde is the co anchor of b Tech and Caroline Alphed has had a banner twenty four hours looking to raise almost thirty two billion dollars or a pretty much to raise thirty two billion dollars in less than twenty four hours.
I know we've got dollar denominated debt, you've got sterling, you've got Swiss frank and what's extraordinary is the extent of demand. They could have sold way more the thirty two billion dollars. They had extraordinary, more than one hundred billion dollars worth of orders for the upsized twenty billion dollar US sale. We're ranging from you know, three year to ten is out to as much as thirty year,
thirty two year. But then you're looking to the UK, they're selling one billion pounds of my great British sterling in one hundred year bonds, a century bond. Now you haven't seen a tech company do that since motor rollers.
It's the nineties.
And look this, it's such a vote confidence. Yes, you can say, is Google going to be here in one hundred years time? A lot of these companies pay off the debt well ahead of one hundred years. Disney they issued back in the nineties, they paid it off in
the in twenty twenties. But really what this is a resolute, clear signal of is that people believe in Alphabet, they believe in their ability to pay for the AI infrastructure, They believe in that one hundred and eighty five billion of spending in capex is a wise decision, and that they are going to be an AI winner.
More across the.
Board, we're seeing a record Swiss frame issuance. You haven't seen a market been tapped to this extent and again a record amount of demand for it.
Rob Schiffman covers the tech from the credit size for Bloomberg Intelligence.
T says, the windows wide open for these companies. They can keep coming to the market, which is amazing for them and they are. We also got a piece of news Thaiwan Semiconductor Manufacturing said their January sales worth their fastest clip in months. So if you needed, I guess another data point supporting this continuing AI spending, there you go.
Yeah, thirty seven percent increase year on year. In terms of yes, it was probably a bit of a slower year. It's a slower January previous year because of the way that the vacations and holidays fell in China. But TSMC is the chip manufacturer to the world in Nvidia Apple. If you think about a consumer electronics, if you're thinking about the AI data center story, this is the company
that has been dining out on it. The shares are at a record when you're looking at them entire one or indeed on their ADRs trading abroad, and it just signals that the AI bubble that we're so concerned about the idea that everyone's just passing money amongst themselves. There is real orders going in from on a fundamental basis for this particular chip maker.
Yeah, and it's the hardware maker TSMC. Let's talk about other hardware companies because they are paying up for memory chips, and those memory chip makers, some are winning, some maybe are under more pressure, and investors are trying to discern whose best place. How are you thinking about this?
I think a lot of people are trying to understand where is the cost pressure. The cost pressure is for those electronics companies. Apple has more control over its supply chain, its own own chips, but still, more broadly, if you're looking at an index of electronics makers, like thinking of the Nintendos of this world, they've sold off about ten percent in the beginning of this year. Meanwhile, the memory makers are up about one hundred and sixty percent or so.
We're seeing Samsung being the winner here, you're seeing the likes of Micron. You're seeing Yes, there is turbenance day in day out, but more broadly it has been up and to the right for these memory makers because not only is there necessary to put them into your hardware and your electronics but really the ferocious demand to put them in AI data centers. Remember this is high bandwidth memory that everyone's been going on about. The hk Heinex
has been winning in for Skhinex, for example, over in Korea. Well, because there's so much demand there and it's so much more profitable for them, they're having to sort of put their boring, bog standard memory chips that you want in your devices to the back burner, and it's really hurting these companies.
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Let's get to some more corporate earnings, because we are knee deep in earning season. We're past the big tech companies and now we're really focused on the companies that make up this US economy. Companies like Has, the toymaker. The shares are up more than seven percent right now. Lindsay Dutch is joining us. She is the consumer Hardline
Senior analyst at Bloomberg Intelligence and Lindsay. This earnings report shows it had a decent fourth quarter revenue and earnings for share beat, but the guidance the outlook was seen as fairly conservative, yet investors seem to be rewarding the Stock's the what's the story here for Hasbro?
Hice Garlet, thanks for having me. So the story for Hasbro is, you know, the result in twenty five, including the fourth quarter, is really being driven by their Wizard of the Coast digital gaming segment. That that segment has been growing rapidly forty five percent on the year, sixty percent I think for Magic of the Gathering in the quarter. So just tremendous growth coming out of that brand, better than expected, and that unit is really going to carry
the growth in twenty twenty six. The outlook for the consumer products with their toy segment is still kind of weak, so it's really coming out of that digital gaming segment. But I think investors are pleased with the outlook there just because they're lapping very difficult comps. So to see solid growth in twenty six coming out of that, it was a good surprise.
What's the competitive landscape out there? Hasbro Mattel others. How's that playing out.
Yeah, So we get matel results later today and we'll have to see how that goes. It was a very challenging twenty twenty five, you know, with the tariffs, we had retailers delaying the holiday orders and that really threw a wrench into the entire year for these toymakers. Hasbro did report, you know, a plus seven percent sales growth in the fourth quarter for consumer products.
That was the first quarter of growth and quite some time.
They do expect toy growth in twenty twenty six, but it could be low single digits.
You know, there's a lot of headwinds.
You know, we just saw you know, disappointing retailer sales for December, so there's a lot of uncertainty about consumers out there and a rebound in that category. And we should hear more from Mattel, you know that they're the dominant player in dolls.
So we'll heal more later today.
Lindsay, what about Tariff's Is this something that Hasbro has figured out and it's no longer something that leaves its earnings to be kind of unreliable and they've kind of smoothed things out.
So it definitely affected the year, so about forty million dollars in the fourth quarter. A headwind for margin there, especially on that consumer products segment, so that margin did decline year over year, which was a disappointment.
It's certainly going to be a headwind.
For profitability at least in the first half, and comps will get easier in the second half. But Hasbro did note that, you know, much of the cost savings program that they're working on and other supply chain efficiencies, they were able to offset a significant portion of that cost. So that is a good sign, but there's still a little bit of a headwind for the next two quarters.
I'm just looking at the FA function on the Bloomberg terminal, gives me all the financial analysism. Boy, the operating income profit for the Wizards of the Coast and the digital segment is huge, whereas the profitability of their regular toy business not so much. Is a company just throwing all the resources into their digital stuff?
Is that the strategy?
So they have definitely been pushing for several years now to become a bigger player in that digital world, but also really to become known for that. So I would say, you know, one of Hasbro's big brands, Monopoly that that's what many people know that the company for is that traditional Monopoly board game. But they are pushing into this world of digital games. You know, they want to be
valued as such. And I will say, you know, they do have a digital version of Monopoly Monopoly Go, and that has done very very well over the past couple of years. It continues to surprise, including in the fourth quarter. So they're definitely moving in that direction. But that toy segment consumer products, you know, still is pretty large. It was still around fifty percent of revenue for twenty five.
I do think that will that mix will come down over time, but it's still a big piece of their business that they can't ignore.
Lindsay.
I also noticed that in this latest earning support, they announced a one billion dollar stock buyback authorization. I believe this is the first by back since twenty eighteen. What does that signal to you?
You know, I think that their Hasbro was still working through their capital allocation priorities. They're still focused on reducing leverage. You know, their dividend has been flat for quite some time, so I think they're looking at different avenues now that they're in a much better financial position than they had been.
Maybe a year or two ago.
So I think it's just a signal that that that position is solidly better and they're looking to redeploy cash in different ways that they maybe couldn't have done a year or so ago.
Again, using the PG function, you can see where the revenue comes from geographically for this companigy, and the international business, which was about forty percent of the revenue, has been declining as a percentage of total revenue. Here, is there a strategy there to focus on the US or are they pulling back from international?
What's that strategy?
Yeah, so I don't think that they're necessarily pulling back from international.
Toys is a global business.
I think a lot of that is reflecting the growth and wizards of the cost and the digital gaming. So the digital gaming, it's really picking up very quickly in the US or seeing a lot of growth there, and that's partly shifting that geographical concentration. That digital gaming business is a global business, So some of that shift might move back the reverse over time, but I think the near term shift is just part of that growth on the digital gaming side.
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All right, let's get back to earning season, because those are not the only companies that reported. Coca Cola also came out with its latest results and maybe perhaps a bit underwhelming given the stock price reaction down two percent at the moment. Kenshe is our consumer products analysts, our senior consumer products analysts, and he joined us now from Princeton. So what's the story from Coca Cola, Ken, What did they tell us?
Yeah, hi, Scarlett. Well, Coke in the fourth quarter, revenues are up to EPs was up six percent, pretty much in line with expectations. But I think what maybe concerning the mark a little bit about Coke is that the mix was not as favorable as it had been well, so the company with the past couple of years had been relying heavily on price mix to boost the top line. It was a considerable slow going in the quarter. Having said that, there's always some noise in the fourth quarter.
It's hard to draw too many conclusions from the fourth quarter. But I think the market is also being spooked a little bit by the guidance for next year, which came in a bit a little bit late. The company's long term algorithm is to generate about four to six percent organic revenue and from that it can generate high comparable EPs growth, and it did that in twenty twenty five. In twenty twenty six, other saying four to five percent top line and four to five percent EPs growth, and
so that's EPs growth again, that's excluding currency effects. It's not only below their long term algorithm, but also below consensus expectations going in.
What's the You know, we always talk at a lot of your companies, the contuber products companies as staples companies that you think about them as kind of GDP maybe a little bit GDP plus kind of growth here.
Is there any secret.
Sauce to the Coca Cola story or is that the way we should think about it?
Well, there's a lot of truth to that, Paul, because Coke is in the two hundred markets around the world. You know, I guess the way for growth is lunar at this point, I mean they're everywhere. But I think there's gonna be a new CEO on March thirty first, Henry Barraun. He's a long time veteran at Coca Cola, was the COO used to head a Latin American operations. I think there's a lot of confidence in his ability
to take the reins here. And I think what he's going to spell out in his vision next week at CAGNY, that's when they usually do it.
That's what you'll be Yeah.
Well, I think he's gonna say that they need to step up their marketing and innovation here to boost that top line growth. And I think they're going to talk a lot about functionality, something that we talked about with Pesico. What I mean by functionality, well, well, consumers want more from their beverages than just taste good and hydrate them. They want to not only have zero calies, zero sugar, but if they wants to have more electrolytes in their water,
it wants to have more protein in their drinks. Particularly the JLP one crowd, they want to have fiber coke offers in its probiotics. So it is like simply pop So these are the kind of things they're going to talk about in terms of product innovation, I believe next week. In addition to that, I think the company's going to spend more in marketing, digital marketing, get the message out to new young consumers.
I guess the idea is to just have your drink or place your food.
I guess.
Zero Sugar actually was a standout, right with Coca Cola Zero Sugar posting double digit volume growth in the quarter. When you say that they want to focus on the innovation and get the word out, what does that mean in terms of spending on marketing. What does that mean on in terms of capital expenses?
Well, I think, broadly speaking, more social media advertising. I mean on a purview basis, that's a lot more cost efficient than traditional ways like television poll You would know that right analyst days. So it's more of that. It's also working more closely with their bottlers in terms of co marketing ventures. That could be a wide range of things, not only digital marketing, but perhaps coming out new packaging, whether it's multi packs to attract an economical consumer, to
spending more on its fountain dispenser. You see a lot of a lot of fast food restaurants where they can make their own sodas and so on. Spread that out more to have more consumer engagement matter where they are. Yep, so I see.
More of that.
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