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Let's get back to the other story of the morning, and that's what's happening with Google. So joining us as man, you've seing Bloomberg Intelligence senior tech industry analyst on a potential Google breakup. Okay, so the DOJ considering asking a federal judge to force Google to sell off parts of its business. What do you think is actually going to happen?
Well, so there are three big lawsuits out there against Google in the US, two from DOJ. One is the monopoly lawsuit with the lost and that's where we're looking at remedies. The other one is also from DJ against their ad tech business, where the DOJ is looking at their at tech stack and how you know they control all parts of this stack. The third one is from the you know, different state attorney journals, again targeting their attach business. So when I look at you know, everything
that obviously regulators want to change with Google. The ad tech piece is the one which comes up over and over again, the fact that they control different parts of the ads TAC. Now in the monopoly lawsuit, they're talking about a force breakup of the Chrome business or the play store business, Android business. I think it's very hard to take out, you know, a single product from a company like Google and say this is a separate entity.
It's just like it's all run or shared infrastructure. I can't imagine you know, doing that with Google, and you know, doing it successfully in the sense that Android can be a separate company. Maybe YouTube, But again with YouTube, it's run on that same infrastructure that searches run on. So how do you split that infrastructure. It's very hard to do it at the product level.
All right, here's some inside Bloomberg for you. You can get really smart on a new piece of information that just hit the tape about a company type in the ticker goog L for Google. Hit equity, then hit BECO BICO for Bloomberg Intelligence company Research, and you'll get what's called a recent event reaction. So I want to know immediately what Mandeep Singh thinks about this stuff and what
I read. I didn't expect to read we see a breakup of Google's add tech business as the most likely outcome for remedy in the company's monopoly case with the US Justice Department. I thought what I would have read is, I don't worry about it, but this has some teeth here.
This is what you're kind of well, because the loss that first lawsuit at the dog and the second one the ad tech as well, it's very likely that the judge will rule against Google. So when you lose the cases, there has to be both behavior and structural remedy. And in the case of behavior remedy, yeah, they can't make those payments to Apple anymore. To be the default sir, or any other hardware maker, they will have to open up Android to offer search screens so that you just
don't have to use Chrome or Google Search. You can use bing search for example. So choice screens is another behavior elder. But the structured remedy in terms of a forced sale, I find it hard to believe that the dot will ask them to sell a product. It has to be more at the technology stack level.
So when we go to the ad tech stack, maybe that just demptail with what you were saying, so what does control the ad tech stack mean when you're talking about Google?
So think of how an ad exchange works. You have the supply side, you know in terms of the publisher ad inventory, and then you have the demand side, the advertisers who are buying those ads, and then you have the exchange in the middle, who is matching the supply and the demand side for ads. Google has a products across the stack where they have a man side platform, They have a supply side AD platform. They are an online exchange and they've built it over the years because
they made a few acquisitions. Double Click was the most notable one where they acquired all the capabilities to really operate as an entity that knows everything when it comes to digital ads being sold in the marketplace. So they control that stack end to end. That's why when you compare Google's ad pricing to everyone else out there, they
are far superior. One they have the best targeting. The other is when you're operating a stack where you have the dominant product across the different pieces, you have a pricing advantage. And that's what you know. The regulators are saying that this company controls pretty much everything in the ad stack.
But the advertisers themselves they're not complaining, of course not.
I mean they're getting like, who are they protecting?
This a solution in search of a problem here in my opinion, because I have a competition in this market, I think I have competition. I mean Google's huge, so Facebook, and now I've got this little company in a Seattle called Amazon. They're monster's advertising player. So where's the problem here?
So it all comes down to how you look at the market. If you look at the market the way you just described, where Meta is as formidable as Google and Amazon is a big third player, then yes there is competition. But when you look at certain type of ads, whether it's on the desktop or you know the third party ads that are going through Google Ad Exchange, these companies don't overlap. Like remember, Meta is a walled garden, even though it's big in terms of the digital ad advertising,
it's its own world garden. Amazon is its own walled garden Google. So these companies have their own swim lanes. They are big in terms of the digital ad dollars, but they have their own swim lanes. They don't overlap. And that's the objection that I think regulators have.
Okay, so if they wound up, you know, moving around that ad tech stack and changing stuff up, what does that change look like and how much money could then Google lose?
Well, so Google Search obviously is a two hundred billion dollar rund raiate business, still the cash cow for Google. So that's where you know the Google network piece, which is the ads that Google shows on third party platforms. So one is Google showing ads on YouTube and their own search page. The other is Google showing ad on let's say New York Times or some other publisher. Because
it's going through the Google Ad Exchange. That's the part that can be divested where and it's a thirty two billion dollar rund rate business within that two hundred billion, that's the part that's not growing. But you could argue could be split up in a way where I think Google maybe a smaller search ad business, But at the same time that will appease the regulators because they're not controlling different parts of the ads stack.
We talk to institutional investors out there these days, how do they think about the regulatory risk over big tech these days? And how's that change over the last three.
Or four years?
I mean right now, everyone wants to know who will be the dominant player when it comes to LLMS and you know, generative AI, whether Google will end up losing its dominance in search because of these LLM players. And that's where I think again, the products that Google has, whether it's Android or YouTube or cloud, they're critical to maintaining Google's lead in that LLLM and generative AI space where they do have competition from Open AI, Microsoft, And
that's what investors are most focused on. It's always about the future five ten years down the line, and that's where the growth is. And the companies with the best large languid models have an advantage. And Google, because of the fact that they own these family of apps, they have a data advantage. For the large anguid models, it's their proprietary day, so they don't want to give away YouTube or you know, just have that separate in terms of all, Yeah.
It needs the beast in essence, for lack of a better word, they don't have to buy to feed the beast. Okay, So when we wind up hearing numbers and earnings, what kind of growth are we going to see for these big tech companies and what's going to be considered good, like eighteen percent growth. Is that going to be good enough for what I mean?
Right now? We look at Microsoft growing mid teens. Obviously the growth part of the business is Azure Cloud. In the case of Google, Look search business may probably grow you know, low teens, it's still is growing double digit, which is remarkable for you know, a business of two hundred billion dollars round rate. That just goes to show that Google Search still dominates and that's why they get so much regulatory scrutiny. But the growth part of the
business is the Google cloud business. I think that's where you will see the growth thirty percent growth, and it's driven by companies deploying their you know, large angrid model, deploying generative AI. Where do you do that? You do that on the cloud. And the cloud side is big enough for you know, all three players, whether it's Microsoft, Amazon and Google, to do well. So I think we'll
see a lot of cloud business. And YouTube I think is a great standalone business, but there is a cyclical element to it, and that's why YouTube business growing as fast as their cloud business.
The reason we have like twenty seven techannels of Bloomberg Intelligence, I mean, they're all over the place is because I think the US just said fifty years ago, just light touch on regulatory let these guys in Silicon Valley do their thing, and that's what created the great technology boom in my opinion, as opposed to Europe, which you got nothing right. So now I'm not sure if the cat's out of the bag for a lot of these things.
Yeah, I don't know. I don't know. It makes life more interesting though, for our intertrust to people and Mandy a job, all right, many things a lot man you've seeing joining us from Bloomberg Intelligence.
You're listening the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business Act. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa, playing Bloomberg eleven.
Thirty from Alex Steel alongside Paul Sweeney. This is Bloomberg Intelligence Radio. We are broadcasting to live from Interactive Broker Studio right here in Midtown Manhattan. For the last few days, though Paul and I were in Orlando at a Commonwealth Advisor's conference, and Orlando was getting a little bit dicey the winds are picking up. You had rain, and it looks like that Hurricane Milton is just barreling towards that west coast and it's very, very dangerous, particularly for those
on that west coast. So you want to take a little bit of a deep dive to kind of understand what it means, say for power and utilities and the grid, because no doubt power is going to go out, but how long it stays et cetera is going to be very pivotal. Mike Sullivan is Energy and Utilities consultant at PA Consulting joining us. Now, Mike, this is a very silly question, but how do's a hurricane like this impact the grid and utilities? Like, what's the sequence of events of how this plays out?
Okay, oh, good morning, and thanks for having me. At first, it goes without saying that Milton is on track. This will probably be one of the most destructive hurricanes in Florida history, and there will be extended power outages, both from wins and the wave surge, so both of those
things will be in play. I think the most important thing is for the public to remember that the local officials are first and foremost their choice for information there These emergency management organizations, they are the glue that provide coordination between the state organizations, federal organizations, and first responders
like utility workers. And right now there are some estimates that's saying there were over thirty five thousand out of state utility workers who have converged on Florida to help in restoration. So it's it's going to be a huge effort. It's going to take days to restore power, and it's quite a job the utilities are up against.
So, Mike, give us a sense here of kind of the risk to Florida here. I mean, they've been through this so many times. Unfortunately, what can what have they done? What can they do? What should they do to maybe try to I don't know, safe proof their grid perhaps a little bit more. Is there anything that can be done?
Sure, there's actually a state law in Florida that requires that utilities file storm protection plans every three years. You know, the basic construct or compact that utilities have is to provide safe, reliable, and affordable power to all customers. Over the last decade, so that has layered on top of that has become that has come into play two other objectives the clean energy transition and hardened and more resilient grids.
So all the utilities have filed these plans to make their grid stronger to withstand events like this, to be able to restore power faster, and then you know, to think about the overall survivability of the communities that they serve. I think goes without saying that the number and the impact of the kinds of events we've been seeing in recent years requires the greater investments be made. Those protection
plans are good starts, but these grids are expansive. They've been built over one hundred plus years, and they need to be hardened and also expanded to to support the Queen Energy transition and greater electrification due to data centers and a lot of other increasing electrical load.
Who pays for that?
Is it going to be utilities and the rate payers or is it more of a grid operator? Is it the government? Where does that come from?
So mostly, you know, I said part of utilities compact is to keep rates affordable. All of these the investments cost money. I mean, you're rebuilding major parts of the grid, and yes, ultimately it does come down to raising rates or rate payers, all right, So.
Mike, you think about our grid and you just look at the wires strung on these poles, It just it just seems like so technologically out of step with where our economy is. Underground wires, isn't that the future? I mean, as long stuff's above ground, it's going to be at risk to hurricanes and it all kinds of weather.
Talk about being expensive and rapairers pan or.
Sure, sure, absolutely, And for the last thirty years or so, all new communities are supplied with underground service, So that's been going on for some time. It's the older infrastructure. Oftentimes communities are served they were built in the thirties and forties with what we call real lot construction. That's the lines that run behind people's backyards and butt up
against other backyards. And those overhead lines are the ones that are particularly susceptible to coming down and taking an awfully long time to put back up because they serve only a few customers.
So when you say that, okay, so a lot of investment needs to go in to help all of these things, whether it's the energy transition or it's weather proofing, etc. And you mentioned that rate payers eventually are going to have to pay. I mean, there's only so much tolerance for that. Do we know an estimate of what weather proofing this industry as well as energy transitioning this industry is going to cost.
So part of the problem is that oftentimes regulators, state regulators who approve these plans don't adequately consider what I call stack value. Is you are trying to build and upgrade your grid for more renewable resources, greater electrification. That is, they have to have more capacity and at the same time to build build them back more resiliently. Those two things, when you think about them as a stacked value, it
becomes more understandable, more digestible. Estimates for undergrounding, it's very expensive, and power White has a particularly extensive undergrounding program underway right now, but you know, it's a million dollars to two million dollars depending on which part of the country you're talking about to underground lines. And most of the lines that are are overhead and cause most of the problems are ones that run up and down city streets, commercial areas, that kind of thing. And even in the
best case, whether they're hardened or not. You know, oftentimes in major hurricanes like this, it's not just trees toppling on wines, but it's flying debris hitting poles and lines and things like that. So an event like Milton is particularly problematic, but increased investment can certainly help.
Hey, Mike, thanks so much for joining us. Really appreciate getting your insights here. Michael Salvin, he's the energy and you Tooty's consultant for PA consultant. They're based down in Annapolis, Maryland. There so again the hurricane barreling towards the west coast of Florida. John Sucker and I read the book The Grid, so we consider our Oh you.
Did, wait, we're now already all right, all right, fine, I'm under list.
The technology looks like nineteen twenty oh oh yeah, and you know, like really, I mean, can't we do anything? But as Mike Sulin was saying, the new stuff gets built, it's getting built on the underground. So first, after our good friends in Florida, this is Bloomberg.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car Playing and Broid Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
All right, in the markets, what do you do if it's still going to be higher for longer? In that maybe we're pricing out some cuts by the Fed in twenty twenty five this year, maybe a done deal next year though the market has repriced a bit. So let's get some details with Shelby McFadden investment analyst and Motley Fool asset Management. Shelby, it's always so wonderful to speak
with you. One of my big questions is if we do get a longer economic cycle and the idea is higher rates for a little bit longer, lower than they are today, but still relatively higher, can stocks continue to beat bonds? And if so, wear in stocks?
Yeah, I do think that the battle starts to get a little bit closer, because really the question is when will consumers or investors rather make that switch from bonds to risky assets. Right, So, the fact that stocks have continued to beat bonds thus far has already been something that's a bit more of a phenomenon, and we know
the main leaders that are driving that. So it would really have to be a matter of in my view, you know, yields coming down to such a level that they are higher than we've been used to over the last four years or so, but not quite high enough to justify completely coming out of risk assets. So I think that's the sort of fundamental part of it. I think the second part really comes from the narrative, Right, what is it that these growth companies claim to be offering.
What is the secular shift that's going to propel so much of this growth? If the growth is not going to be broad, if it's going to continue to be concentrated, then I think it might be a little bit more of a tussle between the two for stocks to keep on winning.
Shelby, I'm just a little uncertain about the consumer. Yes, I like rates coming down, and I think that's good for the consumer, But how do you guys think about the consumer and owning stocks that are dependent upon the consumer and retail spending?
Yeah?
Absolutely.
I mean from what we've seen from a lot of the banks, the payment processors thus far, and of course knowing that we've got banks coming up soon, has been that consumers for the most part are doing okay. That's not to say that inflation is completely over. That's not to diminish the fact that in some locales it's a bit more significant and over certain goods and surfaces, but
for the most part, people seem to have adjusted. They have definitely spent downsaving, so discretionary is a little bit lower, but they have figured out how to live on the income that they have. The job switching has slowed down a lot, so we're not as barish on the consumer as a whole some others might be. But in terms of playing the consumer, that's where the active management comes in. We take the time to pick the companies that are
run well. They have great operational leverage, they can go ahead and move with the consumer as they need to. So that's why we've got companies like Costco in our Malipul one hundred in our Global Opportunities Fund. Those are names that are consumer facing, but they tend to do the best out of their peers because of how nimble they are.
Which also on your list is American Express, and the idea typically is that, oh, American Express caters to higher income earners, so if you're looking at the K shape economy, that part of the K is actually going to do really well. BTIG actually cut the credit card company to sell from neutral saying that fundamentals are slowing for those super prime customers.
What do you see?
Yeah, so, for the one thing, we do know that they're a little bit sticky, and yes we have that slightly longer runway for higher end consumers, but they tend to have already made the big decisions to get rid of large bills, right, So if they've sort of held on to that end fee card for about two years in this tightening cycle, they tend to be in that part of that what is it, a less seity curve where it's kind of like, you know what, we're good to go here, even though we may be in a
little bit of a higher for longer situation. There has been some relief, right, There has been some relief on credit conditions, and if we even get another twenty five basis point cut this year and maybe another one in Q one, that makes even better conditions for going a little bit down market. Now in looking at American Express,
they're not interested in going completely down the river. That's not really their prerogative, but there is an opportunity in the high earning categories of gen Z and young millennials that they have an opportunity to go ahead and catch, but also knowing that these earners have a little bit short of a credit history, so as credit conditions soften, there is an opportunity there to go ahead and get a little bit more of the market, to go ahead
and sort of adhere with they're already sticky premium base.
I'm still a Green card holder. They try to sell me, upsell me for all the other stuff, like I'm staying with the classic green card.
Okay, here's my thing with you.
What you need.
So my husband has the purple fancy one, right, somehow I only have the silver one. But I'm the one that spends all the money and pays the bills, and I don't like them. But I don't like that at all. And somehow I'm not in charge of this. It's still in their hist him nothing me. I think it's five hundred dollars.
Oh that's such a company.
Please, all right, Shelby, let's get remembers.
Let's go where John and I shop Costco. It's not just for the dollar fifty hot dog. Talk to us about the Costco story.
Yeah, the Costco story is one of just prime operators. I mean, I think that's the simplest way to put it, so they were able to navigate not only supply shortages in sort of the mid days of the pandemic recovery period, but also navigating the depths of inflation or the heights, if you will. They were one of the few companies
that was boasting about lowering prices. So not only do they have this annuity model where they're going to be making the majority of their money in terms of absolute dollars, but in margin on the annual fee that they're charging, but they're able to garner more consumers by saying, hey, we're going to give you the best deal you can get. Obviously in a large amount, so as long as you have another room in your house. But they're able to keep people in that regard, and because it's an annual fee,
it's something you budget for once and then it stick. Also, knowing that they were probably going to have more in stock, having that really robust shifting network allowed them to hold on to people. So I think consumers knowing that Costco is sort of on their side is a breath of fresh air compared to some of the other retailers. So the operators they have the succession planning went fantastic Over the last twelve months, no one's really had any concerns, and there's a huge opportunity.
For e comm.
A lot of folks really just kind of trudged through it on the sort of legacy platform. There's that Instacart partnership they have right now, but we give Costco to the five to ten years. They may really have something to compete with some of the peers on e comm.
All right, Shelby, we always appreciate you. You have the best stuff, honestly, thank you so much. Shelby mcfadd investment analyst in Motley Fool Asset Management, joining us from Alexandria, Virginia. Wait a second, they have one hundred. They have a dollar fifty hot dog.
Still yeah, still fifty?
What is it?
John?
I buy him at bulk?
No, it's what is the dollar fifty?
But the one where you go and you get it like in in maybe to get it long rack of the.
Door there, it's to die for.
I still don't have a membership.
I mean, at least happened your shot there without a membership.
He doesn't show you.
You want to tell her, oh, you.
Use someone else in membership?
I got it.
I admit, I admit to not pick look at me being all smart.
All right, you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple, card Play and Android Otto 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.
You know, so Disney was closing, Yes, Paul got in in the nick of time.
Yeah, so I was there. When was that there?
Sunday, Sunday, Monday.
Sunday, Monday, a little bit Monday, and even during the rain and it was raining, it didn't stop people at all. You buy the poncho for like fifteen bucks each, but you buy the poncho and they're just standing there and yeah, Yeah, Disney's a place. It's kind of like when I go skiing, I don't even think about the money I'm spending because that would be too upsetting and impact your enjoyment of what you're doing. She just kind of shut your eyes
and go That's how you do it at Disney. But apparently there's gonna be a financial impact to this whole thing.
Interesting, and wonder how long it gets depends on how long it's gonna be closed and if there's gonna be flooding.
And all the like.
Fortunately, we pay somebody to think about this stuff, Keitha Ranganath, and she's a media analyst for Bloomberg Intelligence. One of the big names that she covers is the Walt Disney Company. She knows it back, you know, inside and out. And you know, Githa, you know, I've covered Disney for a long time and we never really cared that much about the theme parks. They were in nice business, they contributed
nice profits, they kind of grew every year. But now if you think about the Walt Disney Company investing in the Walt Disney Company, you better be really bullish on the theme park business because that's now the major part of the profitability. So talk to us about the theme park business and what might be some of the risks for shutting down Walt Disney World.
Yeah, absolutely right, Paul. So it's it's about a third of revenue, but it's about two thirds of profits.
Wow.
So almost yeah, almost sixty to sixty five percent of profits. And that is a complete shift, as you correctly pointed out, from just a few years ago, maybe even just five years ago before they kind of went into the streaming business before the linear TV business kind of is seeing the circular declines that it is right now. So it really the picture has kind of completely changed, and that means there is a lot of attention and a lot
of focus on the theme parks. We do have, you know, some prior hurricane closures to go by, So they had one in twenty twenty two, which was Hurricane Ian when they closed the park for two days. With Hurricane Ian, they lost about sixty five million dollars. That was the operating income impact. You had Hurricane Irma in you know,
twenty seventeen it was one hundred million dollar impact. We think though that with more and more reliance on the theme parks, just with the fact you know that it's become a bigger revenue contributor, a bigger profit contributor, obviously the financial hit is also going to be larger. Remember just the Florida parks pull in roughly one hundred and thirty five to one hundred and forty thousand visitors every
single day. It's fifty million visitors a year, so you know, it obviously has huge ramifications it's losing roughly, you know, fifty million dollars per day. We think the operating income impact will be at least at least one hundred and twenty five million.
So this is the first time.
This is the first time I've been to a Disney property as a civilian. The other times I've been to a Disney property is always with Bob Iger walking next to me, so we have that analyst and investors and things like that. When they either close the park so we're the only ones there, or they give us like some super duper passes that we can zip at any line. This is the first time I wanted, like a civilian red to kind of wait in line and do all
that kind of stuff. But and jillions of people do it as key.
Yeah.
At the airport, there were definitely reports of little children being just sobbing because they had to leave Disney. So just okay, you said they're losing fifty million dollars per day by shutting down Disney World, Like that's that's how big that Florida resort is for them. I heard that right, Yes, absolutely, yes, So it go ahead. Do they wind up? Do they make that up? Is it in the pent up demand or is this just lost.
This will pretty much be lost, because remember it's not just the par closure. There is obviously going to be some you know, longer ranging repercussions for you know, all of the theme park businesses in Florida, in the Orlando area. So we are actually expecting attendance itself for the fiscal first quarter, which is the current quarter, to actually beat down maybe about mid single digits. Attendance was flatish in
the you know, in the September quarter. It is definitely that there is definitely pressure all around and this obviously is not going to help them at all. The other thing that we're watching for alex as we kind of get into twenty twenty five, and this is going to be a special pain point for Disney, is that Universal, its closest rival, actually has a new theme part that they're opening in Orlando, and that basically doubles Universal's footprint.
They're adding Epic Universe sometime in March April of next year. Again, a lot of people have been holding back on their you know, travel to Universal because they knew, they know this new attraction is coming, and so again we think that's going to be a little bit of a hit for Disney once we get into twenty twenty five.
It's funny you mentioned that gig because I wrote Home with a Scottish family. They're on their way back to their home in Dundee, Scotland, and my seat my new buddy Rarely. I thought he was eighteen. He turns out he's thirteen.
Huge.
The girl in a big over there. But they came as a family. They came over from Scotland to Orlando just to go to Universal. They didn't go to Disney. They're wait a minute, So I turned on to asked this mom, this kid's tell me you guys came all the way here and you just went Universal, and she said, yeah, they're big like Harry Potter fans, so they do all that kind of yeah stuff. So that's and that's a Comcast property, Isn't that right, Keitha.
That is a Comcast dropped And you're absolutely right. I mean it's for the younger kids, like the two to ten. I think Disney still continues to be the go to, but once you get into the teenage years, Yeah, you're absolutely right. Harry Potter seems to be like the bigger attraction you find a lot of families going there, and Epic Universe is going to have a lot of that as well.
Also, to be fair, can't they just like hop over pairs to go to Disney World there? It's not the same, it's not the same. Okay, well, fair enough.
Been there, done that. Hey, Keith it I know Disney is really ramping up their investment in their parks, right, Didn't they like double their capex over the next number of years.
Yes, sixty billion dollars in capex spending over the next ten years. Almost twelve to fifteen billion dollars of that will just be for new cruise ships. They're really kind of doubling down on the cruises, so that's going to be a big part of their business going forward. But absolutely, they're almost doubling their footprint in some of the areas, like especially in California, they're kind of going to their footprint, going to almost add a whole new park in you know,
in Orlando when all is said and done. So, yeah, big investment in in the parks, and they're kind of hoping that's going to pay off as they keep increasing prices.
So I sent Paul an article this morning. Was one of the first things, I read that when it ran, it came in that Disneyland raises prices by about six percent on the most popular days. So the most expensive tickets now, typically weekends and holidays, are climbing over six percent two hundred and six dollars a day. At what point here are we capping out on price increases. I mean, if you have a family of four and there are two parents, it's twelve hundred dollars for one day.
I don't think we're capping out. I think, you know, Paul kind of summed this up perfectly. You know, once you go there, you're not thinking of how much you're spending. And so actually, as we kind of model out the average prices, you know, it's close to about it's about one hundred and ninety dollars right now, the average you know, per capita spending per person. We think this pretty much goes to a about three hundred dollars over the course of the next four to five years.
And nobody does it better than Disney. I mean, you get this little wristband, so you know, you're not even physically taking out your credit card.
So easy to tap it and you just tap and go, and you know, it's just and you.
Don't see it until you look at your credit card statement in like a month or something exactly.
So it's nobody's better at it than Disney. All right, So let's step back on the Disney story here, the theme parks. We've got a good handle on that. Where are we in terms of profitability of the streaming business? Is this still a big big headwind for the company in the stock?
Not anymore, Paul, So you know, the turnaround has finally taken place. It happened last quarter, and we are actually going to see the streaming business now become a major contributor to actually the bottom line. So so far it has been a huge drag. There were almost four billion in losses just a few years ago. But now we're seeing that it's breaking even. It's going to become a
positive profit contributor. Why, because they're increasing prices. You're going to see a huge jump in your Disney Plus subscription come October seventeenth. They're cracking down on password sharing. That's something that you know, they're just copying from what Netflix did. Again, that should lead to a nice bump in their average
revenue per user. And then they're also they've also introduced the advertising tier, and so advertising, which is already a pretty big business for them, they're really going to double down on that as well. So they have multiple levers that they're pulling now. As far as the streaming business is concerned.
What how is the stock trading? Is the stock trading encompassing all of this? Do you think it's undervalued? Overvalued? I know you guys don't give actual valuations on the equity market for that, but I'm just curious is to see in terms of relative valuation.
I think in terms of relative valuation it's definitely a little bit undervalued right now. And I think that's just because you know, we kind of have to wait for higher visibility in terms of the theme parks. So they have clearly said that the theme park business is going to be under pressure through most of fiscal twenty twenty five. So we see like a nice ramp up in growth with the parks. I think we're going to see that somewhat of a negative sentiment and somewhat if that's sustained pressure.
Boy, because it seemed like it seemed for a while there. Once they make that turn, that's when you want to dive into the stock. But I guess that's at a time where maybe the US consumers you know, a little bit weaker on the margin, and that's going to hit the theme parks compared to what yours or exactly yes, spending like crazy. They're gonna have a blowout quarter this quarter, gith that you can call it right now, all right, Githy, thanks so much for joining us. Githa RANGANATHANCI is a
US media analyst for Bloomberg Intelligence. She covers all that stuff. Disney obviously a huge, huge name in that sector, and again, investors have been waiting for the turn and profitability for the streaming business, and it looks like they're at that point making that turn there to profitability. So we'll see to what extent taken Rampant. I mean, you look at the margins, the profit margins at Netflix, and I don't think Disney is saying they're going to get to those
profit margage margins. But if they get to something close to that, that's a lot of cash and a lot of earnings here for the company. So but the stock, again, it's one hundred and sixty seven billion dollar market cap stock, but it's only up two percent year to date only up about ten percent or trailing twelve months, badly trailing the market there. And that's what Scott, that's been, you know, a real concern for media investors, the sector tough for that sector to work if Disney sstant work.
Yeah, yeah, absolutely U I've takeing a look at all of that. As Hurricane Milton continues to bear down on Florida with house toppling Wins.
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I was just looking at an Nvidia that is within a couple of points of its all time high again, So there was a little bit of a solved there in some of those AI names. But they seem to be coming back a little bit, So see what's going on there. Kim Forrest joins us. She's a founder and she's a chief investment an officer at Boco Capital Partners. She's at there in Pittsburgh and longtime technology analysts really have some good views there and I love to Kim.
I love to get your thoughts kind of on this AI traded. You know, had a little bit of a lull there for a while, but it seems to be coming back. How do you think about it?
Well, it's generative AI is the thing, and it has been the thing for I don't know, maybe twenty four months now, it seems like forever. But here we are, and every once in a while people go, uh, oh, wait, it's it's wrong, sometimes right, and then they go wait, like it doesn't solve any problems, but we know it's cool, So should we keep funding it, you know, as investors? And the answer seems to be yes. But there are fears, and I think rightly placed, that we don't really know
how big this market is. We keep being told that, you know, data centers are going to take over large swaths of America. I don't know that. I believe that. I think think my biggest problem with generative AI is there it's unclear about what problem it's solving, and then that leads to the question how much would you pay to solve this problem? And I don't have answers to either one of those, And I think that's what makes a lot of investors uncomfortable.
Well, maybe given that lack of comfort there and maybe some of the finer points of the AI story, is technology still a sector that can lead the broader markets higher, like it's done for much of the last I don't know, ten or fifteen years.
Absolutely, I'm a cute you know, even though I'm like a little bit of a doubting Thomas here on the whole generative AI.
I used to work in AI, and I.
Know the power of the problems that it can solve, and they're much smaller than somebody talking to a computer and say design me a new car. Computer, Like, that's not a thing, you know, ridiculous, you know, just one sentence problem solving, you know what I mean. But I do think that productivity is the thing that drives businesses to invest, and that drives technology companies to try to solve those business problems. And at the end of the day,
that is what drives technology. Although people like to use it, it's fun, it's interesting, but they don't pay nearly as much as businesses do to run technology.
All Right, Kim, We've got a federal reserve that isn't a rate cutting mode. Maybe there's some debate about how far and how quickly they do that if you look at the bond market. But earnings, I think they still matter, and JP Morgan is going to really kick things off on Friday. What are you looking for out of corporate American this earning season?
Sure? Well, October is really the twitchiest earning season because a lot of companies didn't know if they were going to make their quarter because of the vacation schedule of everybody, So that always adds a layer of uncertainty.
To this time.
But that being said, I think the bar was set low enough. I haven't seen very many, if any pre announcements from companies. That's still ongoing as they tally things and the SEC forces a company to give in meaningful material information to its investors, so we always look for that, but I don't see very much much in the way of pre announcements. Now. What we're going to now look
at is what do companies see going forward. I think there are some questions about whether or not this economy is truly as strong as some of the numbers forecast, So that is what we're going to be looking for all season long. All earning season is do the company see the next six months to a year strong week or somewhere in between.
Do you think it's going to be mag seven or the other four hundred and ninety three stocks this time?
Oh my god, I wish Meg seven would just take a break sometimes, you know, Oh gosh, But I think mag seven still has that generative AI magic going on. But there is room for other companies, especially in a declining rate the smaller companies get bought by larger companies, and that's really been in quite a lot because of
the high interest rate environment. Now that companies know that the or have a pretty good idea that the interest rates are dropping, they are going to go back into the shopping mode, which is always exciting for me because I own some of those smaller names.
So small cap again, we've heard it that maybe in a lower interest rate environment they will do better on a relative basis. Certainly there's valuation. There are there certain sectors on a small MidCap that screen well for you guys.
Well you know, there's technology that's always good. And you know one of our smaller companies is getting bought by Synopsis. So that's really the key here is a small company that can fit into the larger companies product suite or expand its total addressable market. That's what you're looking for in a takeover candidate. And I think just about every industry has, you know, some smaller companies that could get bought by larger companies.
You like.
Like, yeah, say individual names, just give me Like, where are the sectors where that might make the most sense.
Well, there's banking, there's always banking, right, there's too many banks. There's that technology. There's lots of point products that would go nicely into a larger, larger companies suite of products. Retail not so much, God knows, we love to talk about retail, but I think that's that looks pretty good for right now. Maybe industrials again, point products going into a larger company to allow that larger company to satisfy
its customers with a broader suite of products. So those are the key areas that I look at.
All right, Kim, thanks so much for joining us. Always appreciate getting your thoughts. Kim Farst. She is the founder and the chief investment officer Boca Capital Partners. There are out there in Pittsburgh, PA.
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Alex Olpaul Sweeney. You live here in our Bloomberg Interactive Brokers studio. We're streaming live on YouTube as well, so go over to that internet thing, YouTube dot com, Charch Bloomberg Local Radio, and that's where you'll find us. All right. Sustainable aviation fuel, I didn't know it was a thing. Alex knows it's a thing. I did not know it was a thing. Fortunately, we have people actually do that stuff here. Anna Davies is one of them. She's head
of Renewable Fuels at b n EF. Joining us live here in our Bloomberg Interactive Brokers studio. And I just use jet fuel, throw it in my jet and I go, what is.
Sustainablen't have an actual private jet.
Just in my mind, what is a sustainable aviation fuel?
What is it?
And is it being used? And how well is it being used these days?
So hey, nice to be here. What is sustainable aviation fuel. You use it exactly like that. You can throw it in your private jet and go and it'll work just the same way. Really, it is in as simplest form, molecularly pretty much identical to fossil jet fuel. The only difference is it doesn't come from fossil fuels, so mostly
it comes at the moment from biofuels. So instead of having a crude oil, you're using a biooil, so something like soybean oil, or use cooking oil the leftover oils from your deep fryer.
Which would be the issue now, supply or demand when it comes to staff.
That is a very good question because everybody says we need more, there's not enough produced. There's all this demand that we need to replace fossil jet. But we have seen both suppliers and actually airlines kind of push back on roll back their targets.
Right now.
The problem is it's expensive and no but he is really willing to pay it. So we see buyers not quite willing or able to step in to take it, and as a result, we don't see suppliers able to secure financing to build their facilities.
So how do That's a chicken and Yan type type of thing. How do you think you solve for that? Is that bringing the cost of production down? Is it trying to stimulate demand somehow?
So we anticipate the cost of production at pnof we try and calculate and mart exactly, and we do not see the cost coming down to reach parity. Really like current jet fuel prices, it's always going to be orders, a couple orders the magnitude above. So the real crux that's needed is policy. You need to have a policy push to either incentivize its uptake or force it, and we're seeing both of those policies developing.
Which basically what that means is that you have to subsidize the difference between staff and a regular jet fuel And what the IRA did it was really helpful and incentivizing the supply, but not the demand side of it. How close do you think that is right now?
So the IRA, the Inflation Reduction Act, does offer a tax credit for sustainable aviation fiel perdu, which does help to project gap. There's still a lot of uncertainty as to what will qualify. You need to have a certain amount of types of feedstock in order to bring your actual emissions reduction down. That's a big issue in the market. It also is not only in place for a couple of years, which isn't going to help finance a thirty
year facility. You see places like Europe taking the opposite approach, where they're just mandating blending in. So they're saying airlines and airports have to blend a certain amount and that's going to ramp up of the next few years. Sort it out, figure out the cost. And then you see places like Singapore which is actually imposing a levee on airline tickets and saying, okay, we think staff is going to cost this much in order to blend in, we
have blending targets. We're just going to put an additional cost on airline tickets in order to cover the cost of staff.
I mean, see what works in theory? That makes sense, right, Like you just pass it down to the consumer. But it does point out that any anyergery transition that you can do will eventually be then passed on to the consumer.
Consumer or tax payer.
Yeah.
Probably interesting. So what the US airlines are here, I'm just reading some of your research here. So bn F tracks airline net zero commitments and sustainable aviation fuel commitments, and currently forty four airlines counting for just under half of jet fuel consumed globally have some saf target usually ten percent by twenty thirty. Is that good enough?
Well, it's a target, So the question is will they hit those targets?
Is it real?
Can they do that? And that's where we are starting to see some airlines procure SAFF volumes like United procures a lot. If you fly out, if you fly on say United out of San Francisco or La chances are there some staff in the tank.
Can they blend it?
They can blend it one for one. That's one of the beautiful things about sustainable aviation fuel.
Well all in that you can just like easy replacement, you can take the jet full fuel allowed and put it back in versus if you did a hydrogen plane or some other kind of plane.
Yeah, so you don't need new tanks or new aircrafts. You can blend it up to fifty percent.
Currently is the regulatory produces system.
It is currently produced in very small quantities. So right now less than one percent of all jet fuel a sustainable aviation fuel. So we're talking very Smalllliams.
It's produced.
A lot of oil and gas companies and refiners are in on this space. So Neste, there's a company called World Energy and one called Montana Renewables that are producing at the moment. We're seeing P sixty six and Valero through their partnerships with Darling Ingredients.
Those are regular refiners, so does like Valero regular who does jet fuel today?
A lot of the refineries so if you think of a refinery, go.
Talk to the refinery. So you guys need to put out more.
And a lot of them are looking at it because a lot of the process at the moment is similar. You basically, instead of taking a crude oil, you take a biooil, you put it through a refinery and get sustainable aviation fuel. So you can actually convert some existing oil refineries to take biofeedstocks and therefore make these biofuels.
So we are seeing them active.
What about the okay, so a different question, how do you think this industry develops and where does the strength develop?
So a lot of this is policy led.
We are starting to see a lot of policies support it though, because aviation is one of the crucks you can make these types of sustainable fuels into a whole lot of things. You can make diesel molecules, you can make methanol molecules, petrochemicals, But aviation is the industry where there aren't any really good alternatives, especially if you're looking at like a twenty fifty SAP or net zero target, because hydrogen aircraft, electric aircraft, it takes decades to get those off the ground.
It takes decades for fleets to roll over.
So if you really want to decarbonize aviation by twenty fifty, you're going to need to decarbonize the fuel that they're currently using. So this is the area where we're seeing a lot of policy start to move. I've mentioned a few of them. We're starting to see some interest from different producers. We're starting to see a lot of investment
going into this because everybody assumes the market will get there. So, for instance, there's a different way of producing it where you take green hydrogen and captured carbon dioxide to make the fuel that's popular because you don't have the food versus fuel issues of a biofuel. Just earlier this month, we saw Brookfield invest over a billion dollars into one of these e fuel facilities.
I need to go check out when these word are these things are? They just like in Texas and Louisiana.
World they California calful.
A lot of the fuel is sold in California and a lot of the old refineries are being converted there, but they are being produced everywhere. It depends on where the feedstock is. So you can see a lot of feedstock in the Midwest. A lot of the productions coming out there. We're starting to see fuels which are take green hydrogen. They need to be near cheap renewable energy, and so you'll see a lot of these.
Fuel as efficient as carbon the regular fuel, because I don't want to be thirty five thousand feet in the air and then engine.
As reliable thank you yeah.
So it has to produce. It produces jet aspec fuel. There are questions if you had one hundred percent staff in your tank. Actually, a lot of the fossil jet fuels have some aromatics that end up in the jet fuel stream and that actually helps with seals in the engine. So they're testing that out, but nobody we don't have the quantities produced that you're anywhere near one hundred percent these days, and in general, you could think of it as exactly the same as jet fuel.
I mean, all these people get we haven't had like a clunker yet at it.
And for a long time she used to cover literally everything at Bloomberg Intelligence, no PF. It was like oil was gas, it was all. It was all the things, all right, and I was good to see you, Thanks so much. Anna Davis, a head of renewable fuels over at Bloomberg b n e F, where we get all the data that you need to know about the energy transition, honestly, from oil to gas to hydrogen. We'd get it all for you.
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