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- [00:00]
A
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B
So let's bring in Dr. Ellen Wald, President of Transversal Consulting, also senior fellow in the Atlantic Council. She's also the author of Saudi Inc. Ellen, good to have you with us. Welcome back. I want to start with this idea of a potential military strike on targets in Venezuela by the United States. The President denying that he'd made a decision to strike military targets in Venezuela. Look, whenever we have a conversation like this, it's, it's. We're talking about a military operation, but we're also talking about the economics of it. So we're going to try to separate market implications, you know, the market implications from everything else. I am curious about the market implications. If the US Were to strike Venezuela, what would that do for oil?
- [03:31]
C
So I can see why oil spiked a little bit earlier in the day when it wasn't exactly clear what's going on in Venezuela. I think it's still not exactly clear what in the world all of these US Warships are doing right off coast of Venezuela or approaching Venezuela. But it doesn't seem like we're about to strike Venezuela, which I think was probably never really in the plans, mostly because, you know, we're not about to invade Venezuela. I think that there's a concern certainly that if there is any kind of political instability in Venezuela or military activity in Venezuela, that that could have the potential to impact Venezuela's oil exports. Now, keep in mind, Venezuela's oil is actively being sanctioned. So all the oil that it's selling is really all on this kind of black market goes to China or goes to Iran or at least used to be going to Syria. And so technically it's not really, or it shouldn't really impact the larger oil market. But of course, you know, everyone knows that there's this large black market for sanctioned oil going on. So, you know, the potential for any kind of disruption does impact the oil market. And so we saw that happening today.
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A
Hey, so what's a more important fundamental story when it comes to the energy markets, the oil market? Is it really what's going on in overall global supply and demand?
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C
I do think that's. That is the most important thing underlying. But I do think that there is a lot of confusion about what exactly is going on with supply and demand, because you have some of these big global kind of agencies that keep track of supply and demand saying, hey, we're in a massive, massive oversupply right now. And then on the other hand, you have other agencies like OPEC saying, no, we're not in such a big oversupply and you have, you know, the Saudis coming out and saying we're not all that oversupplied. OPEC is going to pump more oil. And so I think that there's some confusion or at least disagreement about how much oil is on the market, how much oil is being pumped and how much and what oil demand is. And I think that that's understandable given how incredibly complex the oil market has become recently with all of this sanctioned oil going different places and they're saying it comes from one place when really it's coming from the other. And so, so there is a lot of confusion, rightly so. I also think that there is a lot of trepidation about the economic condition where we're going economically kind of as, as a world, the global economy. And so that makes it hard for people to figure out, you know, how much oil should we be pumping. And so that's one of the reasons I do think that we have seen oil prices remain fairly low and at the same not seeing any kind of pullback in terms of production.
- [06:23]
A
Well, let's go there. There's a story on the Bloomberg today, Ellen. U.S. oil production climbed to a fresh record near 13.8 million barrels a day in the month of August according to a monthly government report. Number was higher than official figures previously indicated. Apparently there are some government reports that continue to come out. You know, sorry, but so US Oil are our production here. I think I heard something earlier on Bloomberg surveillance, maybe it was with Tom Paul this week about, you know, just the amount of oil that we are producing here in the US what's your expectations and where is all this oil going and doing.
- [07:05]
C
Yeah, this is a great question because you know, we have, you know, we get these reports weekly but they're not all that accurate. What they really are are estimates. And so once we start to get these reports coming, you know, oh well, it's now the very end of October and we're finding out what really was produced in August and wow, it's lot higher than we, you know, within the forecasts were that that really says something in. 3.8 million, sorry, 13.8 million barrels a day is an absolutely massive amount of oil that we're producing in the United States. And it's clear a lot of that oil is going into our own refineries. It's being used, it's being turned to products that we're using. But we're also exporting a lot of oil. We're exporting to Europe, we're exporting to China, we're exporting, you know, all over the place. And I do think that that is very, very significant at this time. I do think there's of discussion about, you know, it has fracking peaked, is the Permian peaking? And when we get a data point like this, it tells us that maybe, maybe it's not peaking because there were people have been looking at these estimates and saying, hey, maybe we're finally seeing it, it coming down. Well, maybe, maybe it's not or maybe it's not going to come down as fast as they thought it was and that's going to lead to more supply being on the market than people thought there would be. So sometimes we see a disconnect between what the forecasts and what people think it should be and then actually where it is going.
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B
Where does China fall into this in demand or lack thereof? Coming from China right now, that is.
- [08:35]
C
A really interesting question because China is definitely got strong demand. But then the question is, okay, is it going into their, you know, is it going into into their economic system? Is it being actually used or are they putting it into their absolutely massive stockpiles of oil? Is it going into their kind of independent refinery system that is that's producing products and then selling them all over Asia? And so it's hard to get kind of a handle on what economic, what China's economic situation is, what they're producing there when we're not entirely sure where all that oil is going. Plus, now you have this issue with Russian oil. We know that China imports a lot of sanctioned Russian oil. They import a lot of Iranian sanctioned oil, they import Venezuelan sanctioned oil and they hide a lot of that. And so we, you know, we may not know exactly where their oil is coming from, but it's possible that soon they may be at least cutting back on some of their imports of Russian oil. And so that is important for the future of global oil markets.
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A
So glad we could check in with you. Dr. Alan Wall, President of Transversal Consulting, senior fellow at the Atlantic Council, author of Saudi Inc. Stay with us.
- [09:48]
B
More from Bloomberg businessweek Daily Coming up after this.
- [09:55]
D
Support for the show comes from public.com you're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic option plays on the side. The point is you're engaged with your.
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Investments and public gets that.
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That's why they built an investing platform for those who take it seriously on public. You can put together a multi asset portfolio for the long haul. Stocks, Bonds, options, crypto it's all there plus an industry leading 3.6% APY high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market paid for by Public Investing. All investing involves the risk of loss, including loss of principal. Brokerage services for U.S. listed registered securities, options and bonds in a self directed account are offered by Public Investing Inc. Member FINRA and SIPC. Crypto trading Provided by by ZeroHash Complete disclosures available@public.com Disclosures Introducing the all new.
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Adobe Acrobat Studio now with AI powered PDF spaces do more with PDFs than you ever thought possible. Need AI to turn 100 pages of market research into 5 insights with a click? Do that with Acrobat. Need templates for a sales proposal that'll close that deal. Do that with Acrobat. Need an AI specialist to tailor the tone of your market report to sound real smart in real time. Do that with the all new Adobe Acrobat Studio. Learn more@adobe.com do that with Acrobat. How can you free your team from time consuming office tasks? Amazon Business empowers leaders to not only streamline purchasing, but better support their teams. Smart business buying tools enable buyers to find and purchase items fast so they can focus on strategy and growth. It's time to free up your teams and focus on your future. Learn more about the technology, insights and support available@AmazonBusiness.com. you're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. Netflix is actively exploring a bid for Warner Brothers Discovery Studio and streaming business that at least according to Reuters, citing people with knowledge of the matter. Now remember Bloomberg News reported earlier that Netflix and Comcast are weighing bids for parts of the company. Comcast execs discussed their M and a strategy on an earnings call earlier in the week. Meantime, we are also focused on those Mag 7Amazon shares, Tim, are soaring in a big way today with more and.
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B
A look at the big tech earnings week. That was for Apple, Metta, Alphabet and Amazon. Back with us is Laura Martin. She's Senior Entertainment Internet Analyst at Needham and Company. She covers the media, entertainment, the worlds of Internet as well as which as we know have become so intertwined. She joins us from Los Angeles.
- [12:47]
A
Laura, great to have you back Hello.
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E
Hello, Hello.
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A
We got to start with Netflix and Warner Brothers. We've talked with you before. We did it at Bloomberg Screen Time out on the west coast and it was just after Netflix Co CEO Greg Peters was like, we're not interested in Warner Brothers. You said that even though Netflix doesn't do big acquisitions, you did know that they must buy established IP into intellectual property. You know, and you talked about this. So do you feel like there's momentum here that Netflix is kind of moving towards a deal?
- [13:21]
E
You know, I think that it's a smart move for them to look at the books of Warner. They have. They lose nothing by doing the due diligence. And looking at Warner's business model, I think Wall street would be supportive of Netflix using its very valuable equity to buy the studios. I do not think Wall street would be amused if they tried to buy the linear TV networks. And, and I think that, you know, I think there's a disagreement within Netflix. You're right that when I last saw you, Greg Caters was like hard, no, we don't want to look at these assets. Ted Sarando's body language on his earnings call was much more open, probably because he's the content guy. And Warner Brothers has some of the best IP in the deepest library of any studio. And once you own the ip, you never have to pay to rent it again. So it's really hard to keep creating brand new ip. You may as well get some that has an installed base of fandom from 50 the last 50 years. And Warner Brothers has some of the most next to the Walt Disney company.
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B
So should Netflix do it?
- [14:16]
E
I think it depends on price because it is contentious within Wall Street. It depends on price. And I get the sense that Warner Brothers really wants to sell deer because they have this idea that if they split in half, they're going to get 26, $27 a share of total value. I don't believe that. But if they believe that, then that means that they're going to try to overcharge Netflix. And I will be, I don't know that Wall street, that Netflix would be over to pay for the studio assets here.
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A
Who else? I mean, we talked about Comcast. I mean, who else could be, you know, a really big competitor here for Warner Brothers?
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E
So I think, you know, my opinion is the way this plays out is everybody looks at the books, everybody gets the inside scoop on what's happening at Warner Brothers. Because why not? You're competing against them and then the price and then they buy a. Try to buy A piece like Comcast tries to buy linear or Netflix tries to buy and I'm not sure they are regulatedly approvable except for Larry Ellison who is Donald Trump's good friend. So I think all of this is in, in the end a way to get Ray, Larry Ellison, David Ellison to get their price up to match whoever else is bidding. But I think that's Ellison's are the only ones that can get this to regulatory in my opinion.
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B
What ends up happening to the linear stuff over at Warner Brothers?
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E
Well, Allison has said he's willing to buy the whole thing, so that solves that. They just sell the whole thing because he can get regulatory approval.
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D
Huh.
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B
Okay.
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A
God, it's fascinating.
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B
I think we'll have Laura back on before and still like our first question will be a month from now about this, this potential deal.
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I know, I know, I know. Is there any pressure to get this thing done sooner rather than later?
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E
No. I mean the CEO Zaslav is trying to make pressure because he's saying, oh, in April we're going to split it in two pieces. But it's an arbitrary deadline. He can push that off to June or September. You know, I don't agree that the two pieces spun off alone will be worth 26 or 27. So. But that's his stocking horse is this artificial timing deadline he said.
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B
So let's say Netflix doesn't get this when I promise we're going to ask you about more stuff, Laura, but let's say Netflix doesn't get assets from Warner Brothers. What would be its next move in content ip. What should it do?
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E
So what I think it's doing interesting things with advertising, interesting things with video games. It's going into short form, which is smart. It's backing creators, which is smart influencers. It's moving into the YouTube businesses and like socially connected people, it's doing physical. You saw it's doing physical around K Pop. It's number one film of all time, physical outlets the way Disney does. But they're doing pop ups. A much smaller, you know, much smaller vision than the Disney vision of theme parks. So they're doing a lot of things that are trying to maximize revenue from their ip. I would like to see them buy a library, but I don't want to see them overpay for a library.
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B
Okay, last one on Netflix announcing yesterday a 10 for 1 stock split. The split adjusted basis trade is expected to begin on November 17th. Shares up 2.7% as we speak. I'm like a big hey, this doesn't change the fundamentals of the stock. So I have a hard time ever. Yeah, I do. Whenever a company does a spot, the stock split like this. Your thoughts on the stock split? Do you care?
- [17:34]
E
Super smart. This is a retail company and people should be able to give. You know, when I was a kid at five years old, my grandmother always gave me five shares of the Walt Disney Company which we should deliver in a frame which are still on my walls every birthday for five years till I was 10 years old and wanted a different thing, dresses or something. So they should be doing that with Netflix shares. And this should be expensive, accessible to the public that wants to be supportive in the capital markets that they're on a retail like retail investors of the fact they love Stranger Things. It's another way to sort of give a feedback loop to Netflix about the good work they're doing. So I'm very supportive.
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A
All right, great stuff. Hey, let's talk Mag 7. Amazon, Alphabet, Apple, Metta. What a dump. This week investors reacted differently to the spend at different companies. Pick your company that you think was most interesting this week.
- [18:25]
E
Okay, so the two most interesting were Amazon and Matter because one's up 12%, the other one's down 12%. In total, these companies each raised their capital spending guidance for this year by 7 billion. Together, the MAG7 will now spend $400 billion on generative AI infrastructure going up to 500 billion next year. Half a trillion dollars in a revenue stream that isn't determined yet. So that is a big headline here. Capex spending continues to, you know, rotate up Amazon. Really spectacular numbers. Really. Amazon is trading on nwc. Like you may think it's an E commerce company, but capital markets are telling you NWC is what it trades on. They reported 20% revenue growth at US, which is the highest in I think three years. 300 basis points faster than last quarter. So accelerating it did $33 billion of revenue out of 105. Total that revenue for the quarter at a 30% margin. Remember, E Commerce has a 2% margin. So think about what's happening to returns on capital. And okay, so you're going to say, oh, but they're spending all this capex. So it's unclear. But what's great about Amazon is everything they're building for generative AI they are using internally to lay off 14,000 people. So they're improving their operating efficiency and they're driving revenue growth in all of their businesses and they're going to sell. They are the only one not capacity constrained because four years ago. Since 2022 they have doubled their power capacity, which is the gating factor to data infrastructure. And they created training chips which are there like proprietary, what they call custom silicon, so they don't have a capacity problem. Whereas we hear from Microsoft and Lama over at Meta and Alphabet, they're all capacity constrained. That's silly. Amazon's running a better business. Good for them. Go Amazon. So they are not capacity constrained and they have differentiation by these Trainium chips. Let's move to Meta. Metta, the opposite. They're like, we're going to borrow, we're going to take on all this money. They spent 19 billion of capex in the quarter which left them only $10 billion of free cash flow in the quarter, which means next quarter when they spend more, they're going to go into negative cash flow, which means they're going to be borrowing money from capital markets. And when he tells you about what his goal is for this huge capital spending, that's going to drive leverage, adding financial leverage to his income, his balance sheet. He's saying we're going into the super intelligence business which is going to benefit the world. And it's going to be, some experts see, three to five years from now, some say seven, and some say after that. To which I say, what? Too much value leakage? Wall street should not. Wall street investors should not be in the business of buying Meta shares to benefit the world. The Pope does that. There are people who have a seat that does that. No, no, no. Buy Alphabet. Everything they do is about capturing the value of the capex they're building both for themselves and leasing it to third parties at increasingly high margins. So I don't like the value leakage. I don't want to save the world through a corporate investment. Get out of Metta, move into Alphabet, move into Amazon and Apple. Just not in the game, Laura, just their capex.
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B
We only have 10 seconds left, but if you know Amazon's market cap is $2.65 billion trillion dollars. Excuse me, you say that's all us is what it's traded on. What portion of that is the value of us?
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E
Very quickly I would say, I would say this is what it trades on, but I'd say half of the value of this company is now based on your outlook.
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B
That's incredible.
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Laura Martin we could talk to.
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B
Jassy is the CEO.
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I know we could talk to her forever. Have a great weekend and I know we will talk with you soon. Amazing. Laura Martin, Senior entertainment Internet analyst at Needham & Co. You're listening to the Bloomberg Businessweek Daily podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [22:33]
B
Shares Amazon up 10 and a half percent. They were up as much as 12% earlier in the session. This after the company reported third quarter results that beat expectations. That business especially strong. A bunch of banks including Morgan Stanley, Truist Securities, RBC Capital, raising their price targets as a result of the print also raising its price target. Tom Forte, managing director and senior Consumer Internet analyst at Maxim Group. He's got a buy rating on the stock. He's increased his price target by $8 to $280 per share. Tom joins us this afternoon. Tom, good to have you with us on the program. I'm wondering about the specific price target increase. It was a pretty blowout report. Stock surging, As I mentioned, 10 and a half percent. Right now you raise your price target by $8. Why not? Why not more?
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F
Yeah. So when you think about our price target for Amazon, it's pegged to enterprise value to Ebitda. And I do think as crazy as this sounds on that basis, there's an opportunity for expansion in the multiple as the company improves its profitability, led by its cloud computing effort. So I would say that the $8 caught modest increase was a reflection of a slight increase in our profit expectations coming out of the quarter. But I do think as they continue to improve their margin profitability or margin over time, that there actually could be some expansion in the multiple for Amazon, which is somewhat unique.
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A
All right, so what kind of improvement time could you see in that margin when it pertains specifically to the US business and how does it get there?
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F
So Carol, if you think about Amazon as a software company and not as one of the largest retailers in the world, that's where the opportunity comes. So when you compare it against other software companies, they're trading at enterprise value but ratios of north of 30 times. So by no means am I suggesting that Amazon will get to 30 times from the high teens today. But I think directionally it could head there.
- [24:37]
B
Am I, am I crazy to bring this up? This was like something that people talked about a couple of years ago. Tomorrow should Amazon just spin off us?
- [24:47]
F
So Tim, the challenge for spinning off us, I've spent probably too much time thinking about the sum of parts for Amazon. So the cloud computing business is clearly very valuable over that three year period. The advertising business has become a lot more valuable when 62% of items are sold on Amazon, they're sold by third parties, not Amazon. That's a relatively healthy margin business. But the remainder where Amazon's the seller record, they're probably break even. So I do think on the strength of advertising and cloud computing, the sum of parts may be worth more than the whole. But you still have a pretty big low margin e commerce business for Amazon. What happens to that in the case of a spinoff?
- [25:37]
A
So you know what we got some color on and specifics on Tom on the earnings was we know Amazon is backing Anthropic, that investment of 8 billion but we got some idea of the impact of that company. So I'm just curious AI and what they're doing, their whole strategy and the build out and the spend you're comfortable.
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F
With the build out and spend is enormous. I mean it's, yeah, it's kind of scary to think about more than, well, more than 100 billion in capex for Amazon. But what I think is interesting when you compare and contrast Jeff Bezos running Amazon with now Andy Jassy doing it is that Andy focuses on both the top line and the bottom line. And I think the reason he does that is to give the company the ability to, to generate profits while it ramps investment spend. So I spent a lot of time, Carol, thinking about why are they laying off all those people heading into earnings, what does that mean? And I think that Andy's trying to run a business where he cares about margin a lot more than Jeff does. And the reason is so he can continue to invest in the business but maintain profitability.
- [26:52]
B
Well, look at his DNA. Right? Where did he come from? Aws. He's the guy who created us, so.
- [26:57]
F
Exactly.
- [26:58]
A
Yeah.
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B
So it's not necessarily the retail DNA.
- [27:02]
A
No.
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F
So yes, but what is that? Running Amazon as a services company collectively.
- [27:08]
B
So where does that leave the retail business? I'm just trying to get an understanding of how investors should value it.
- [27:13]
A
I mean sales increase what, 10% in the third quarter.
- [27:16]
B
Remember they're eating, they're eating tariffs.
- [27:19]
A
Right.
- [27:19]
F
So remarkable how insulated they've been from tariffs. Again, it speaks to the marketplace model. 62% of the items sold by third party, not by Amazon and Amazon. And those third party sellers know that if you want to win the buy box you have to price competitively. So I don't think you're seeing inflation have as negative impact or tariffs and inflation on Amazon's retail sales as you're seeing at Walmart, Target and other retailers.
- [27:48]
A
But Tom, to Tim's point, I Mean, we all think about Amazon, you know, in a big way as this retail company that, you know, miraculously puts things on our doorstep in 24 hours.
- [28:01]
B
Mostly groceries for us. Yeah, Whole Foods thanks to that acquisition.
- [28:05]
A
Lots of stuff. Right. But I mean we know the bread and butter and the gold of this company or the golden aspects is really aws. But having said that, would Amazon be as interesting without that retail component?
- [28:19]
F
So if you think about it, let's compare and contrast it with Alphabet and YouTube. So you have Google Cloud and you have YouTube. In the case of Amazon, the birth of us was to give the retail effort the capacity it needed from a computing standpoint. So I do think that there is an element where the two go and hand in hand.
- [28:44]
A
So I always like to ask folks like yourself, and I do this with our reporters too, if you were sitting down with Andy Jassy, what would you ask him?
- [28:54]
F
So I would ask him the future of Amazon and what will be the next pillar. So if you think about Amazon, you think about health care. I'm a one medical customer because I want to learn all about their health care efforts. You think about Amazon pharmacy. So what is Amazon going to do in the future that it isn't doing today? You think about Project Kuiper and high speed Internet via satellite, things of that nature. So what's Andy's vision for what Amazon will do in the future? And what are areas where he doesn't want to pursue? So how's he making that decision on where to expand and where not to expand? All right, that is what keeps me up at night thinking about Amazon.
- [29:36]
A
Tom, 45 seconds. I'm going to be Andy Jassy and I'm going to throw it back at you. So Tom, what do you think we should do?
- [29:42]
F
So in order to maintain the stock price, I've published 27 white papers on the convergence of tech and retail three and the death of Amazon. Essentially what could slow the stock they need to maintain growth. So I do think he needs to continue to find large trillion dollar market opportunities like health care. So I do want him to to expand there not just as a consumer looking for a better health care experience, but is a longtime analyst of the company.
- [30:07]
B
Just 30 seconds on project Kuiper. Do you think they stand a chance against Space X and Starlink?
- [30:12]
F
Do I think they stand a chance? So let's call them a distant number two. So I still like what Elon's doing with Starlink, but I think it's interesting what they're doing with Project Kuiper. And understand why both Starlink and Project Kuiper are trying to bring high speed Internet to parts of the world. Don't have it today?
- [30:30]
B
Yeah, good for AWS if everybody can get online, right?
- [30:33]
A
Yeah, exactly. Tom, this was really terrific. Thank you so so much. Have a great weekend. Tom Forte, Managing Director, Senior Consumer Internet Analyst at Maxim Group.
- [30:42]
B
Stay with us. More from Bloomberg Businessweek Daily Coming up after this.
- [30:50]
D
Support for the show comes from public.com you're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic option plays on the side. The point is, you're engaged with your.
- [31:02]
A
Investments and Public gets that.
- [31:04]
D
That's why they built an investing platform for those who take it seriously. On Public, you can put together a multi asset portfolio for the long stocks, bonds, options, crypto. It's all there plus an industry leading 3.6% APY high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com/market paid for by Public Investing. All investing involves the risk of loss, including loss of principal. Brokerage services for U.S. listed registered securities options and bonds in a self directed account are offered by Public Investing Inc. Member FINRA and SIPC. Crypto trading provided by ZeroHash complete disclosures available at public.com disclosures introducing the all.
- [31:50]
A
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- [33:00]
B
A great and timely column from Bloomberg Opinion on the terminal today. Thank you, Carol Massar, for sending it my way.
- [33:05]
A
You're very welcome.
- [33:06]
B
Okay, so Laura Noonan writes that the sport of running, it took off in the 1970s as a low cost fitness trend. It's turned into a playground for the wealthy. One Citigroup exec who took up running six years ago spent tens of thousands of dollars on hundreds of personal training sessions, regular blood tests, countless massage treatments, three hours a day of training. I want to know what type of executive can do three hours of training a day. That's what I want to know.
- [33:30]
A
I don't know. I don't know. A very efficient one, I guess.
- [33:32]
B
Yeah. Well. Dear Sheridan has also spent decades thinking about running. Not necessarily spending as much money in six years training for a marathon, but getting people to buy his running shoes. He's the CEO of Brooks Running. It's the Seattle based subsidiary of Warren Buffett's Berkshire Hathaway. You know, their shoes. The company, though, also makes apparel, sports bras, accessories and more. Dan joins us here in the Bloomberg Interactive Broker Studio. Welcome. How are you?
- [33:55]
D
I'm well. Thanks for having me. This is great.
- [33:57]
B
How's business?
- [33:58]
D
It's incredible. We just finished our third quarter up 17% and all regions for Brooks are growing double digit right now.
- [34:07]
B
So that's the top line and that's growth. That sounds great.
- [34:10]
D
Yeah.
- [34:11]
B
What about the bottom line with these tariffs?
- [34:13]
D
So we don't report our bottom line publicly and. But I would tell you that we are having a great year in terms of top line and bottom line. And it's really based in this participation that we're seeing around the world for running and walking and just movement in.
- [34:27]
B
General on the bottom line, controlling costs around tariffs. Your shoes are imported.
- [34:32]
D
Are any made in the U.S. no, not at this time. Southeast Asia is where we manufacture our products.
- [34:37]
B
How have tariffs hit your company?
- [34:38]
D
Yeah, it's been challenging. Since 1930, the athletic footwear industry has had really high tariffs, 20% on average. And so this new round of tariffs, tariffs increased our tariffs by 100%. We now have 40% tariffs out of Southeast Asia. So we had a big math problem to deal with and we've got our arms around it. It's now at a place where we think it's going to stay at this rate. And so we're working the whole value chain at Brooks to really address the, the costs that are coming into our products. And, and again, I think we have our arms around it, but we're just starting to see the tariffs kind of roll into cost of goods right now.
- [35:15]
A
So Dan, you went from what tariff to 40%?
- [35:19]
D
So we went from 20 in Vietnam, where we're predominantly manufactured, to 40% now with the August announcement of tariffs.
- [35:28]
A
How do you manage that?
- [35:29]
D
Yeah, it's really.
- [35:30]
A
Do you squeeze?
- [35:32]
D
We tried to really be holistic in this approach. We didn't want to one, raise prices and dampen demand or punish consumers. So we looked at the entire supply chain, work with partners, long term partners that we've had for 25 years, all the way through distribution and transportation, to get our cost to a place where we could raise prices moderately and not dampen demand and punish the consumer.
- [35:57]
B
Is this the world we live in moving forward? Is this a permanent thing, you think?
- [36:02]
D
Yeah, I think the history of tariffs is they, they don't roll back. And so we're planning long term for, you know, higher cost inputs on, on duty. We, we sell in over 50 countries around the world. So global trade for us is super important.
- [36:19]
B
Does it make you think differently about your supply chain? I mean, look, at the end of the day, the President wants everything to be made here in the US we've spoken to a lot of CEOs who say we just can't do that. I mean, Harmeet Singh, the CFO of Levi's was on our program and he was like, we're not going to make Levi's in the U.S. yeah, it's just, it's just not going to happen. Are you ever going to make Brooks in the US Again?
- [36:42]
D
Yeah, I think the way we think about it is for our supply chain, we have to build agility and resiliency into our supply chain because a lot of the things that impact supply chains are out of our control. Trade policy, you know, just governmental policy as well. And so we're building agility and resiliency. We also are starting to work on automation in the footwear process. One of the secrets of performance run product is it's manual. 500 people touch a pair of shoes from the start to the finish and so automation will change and that could open up new markets for us, new countries to manufacture.
- [37:22]
A
If you can increase automation, would it make it possible to manufacture in the us Potentially.
- [37:27]
D
I think that the challenge though is that the entire supply chain of material is based in Southeast Asia. So we have to solve that problem as well. Otherwise we're just importing goods to final assemble in domestic markets and, and the imports would have duties on it as well.
- [37:46]
A
Does is the President listening Is the White House listening to your industry?
- [37:50]
D
Yeah, I think we've got really good trade organizations that are, you know, lobbying on our behalf. And so we're making some progress, but I'm not sure we're at the top of the list. You know, this administration has said they're not trying to make shoes in, in this domestic market. So we're hopeful that we can navigate this. But we do have our arms around it and we feel like we've got a path forward in terms of pricing and supply chain.
- [38:16]
B
Well, let's talk a little bit about brand positioning for Brooks and how you think about Brooks's position.
- [38:20]
A
I don't know if you've noticed, but there are tons of sneaker choices out there.
- [38:25]
B
Yeah, I mean look, we've had the CEO of On, on with, on our program. We've had New Balance as CEO as well. No question there's a lot of competition out there. Nike's challenges have been well documented. Where does Brooks fit in?
- [38:37]
D
Yeah, there's 1400 people at Brooks that get up every single day. And all we think about is running runners. Their experience, the products that we deliver. That is our positioning. We often say at Brooks that our sharp focus creates mass appeal to anyone that moves, moves. But our, our North Star is runners and the lifestyle of run, the community of run. So that's our positioning matched with innovation that solves for the runner. Real innovation every single day based in biomechanics and science matched with trends in the, in the markets. And, and that has been a great strategy for us. Over a 25 year period we've grown over 14% compounded and we have consistent growth because we're based in science and we're delivering products that are meaningful in runners daily lives. And it's, it's a great position for us.
- [39:32]
A
What does that science look like? Give us an idea of like what is going on in a lab or labs and, and how you guys are innovating?
- [39:38]
B
Yeah.
- [39:39]
D
Well, in Seattle, Washington where we're based, we have a biomechanics lab that we invest a lot in R D and innovation. Through that lab we're doing deep scientific study on how people move through the gate of running. Our goal is to reduce injury and improve performance in everyone's life. And so that that lab, based with partners in Asia and institutions around the world, is driving insights for the runner. We match that with what we call RUN Insights, which is a consumer insights group that we have at Bryce. And they're matching the biomechanical science pieces to what runners Want experiences, emotions and the like. And that is a just a beautiful marriage for us.
- [40:21]
A
So help us understand your demographics because I hear it's runners, but I mean, you know, there's a lot of older folks that are wearing them.
- [40:31]
B
They got wide shoes for people like me.
- [40:32]
F
Yeah.
- [40:34]
A
So I am curious about if you.
- [40:36]
D
Put one foot in front of the other, you're a runner. Walking slow, running in our, in our building. Right. And so we, we are, we are in the business of movement. So if you get up every day and you're moving, we have a product for you. That's how we think about it. Our strategy and our biomechanics is, is designed around the runner. But if you move, if you put one foot in front of the other, you're our consumer.
- [41:00]
A
All right, we're talking with Dan Sheridan, CEO of Brooks Running here in our Bloomberg Interactive broker studio. So wait, so going back to it, so demographics, what do you know about your shopper?
- [41:09]
D
Yeah, we know a lot of deep, deep survey data tells us one just the journey of running. What we're seeing right now is there's four generations. You've got boomers, you got Gen X millennials and Gen Z that are investing in health and wellness. And so it's the biggest market we've ever seen. What we know about Gen Z with this new generation is they started running earlier than any other generation, maybe all time, because of COVID They were at home with their parents and they started running at the age of 11. My generation, when you got to high school, you started running track, cross country. That was the first time. So what we know is that is coming towards us in a big running boom right now and they're paying for.
- [41:53]
A
And you are seeing that.
- [41:54]
D
We're seeing it, we're seeing it across the globe.
- [41:56]
B
You've been at Brooks for longer than it's been owned by Berkshire Hathaway.
- [42:00]
D
Correct.
- [42:01]
B
But I'm wondering what it's like to be in an independent subsidiary of Berkshire Hathaway.
- [42:06]
D
I often say that I have the greatest job in sporting goods because of our ownership structure.
- [42:10]
B
Do you report your results right to Warren Buffett? We do.
- [42:13]
D
We report up through the Berkshire family. And, and we're just, we're fortunate, you know, ownership matters in business. And what I often say is my competitors that sit in a seat like mine operate on a 13 week calendar. I get to operate on a 10, 20, 30 year calendar. We make decisions for the long haul. And there's many examples at Brooks where we have disruption. Trade is one of those where we play the long game.
- [42:40]
B
Does he, does Warren Buffett pick up the phone and call you? Can you pick up the phone and call him?
- [42:43]
D
I see Warren once a year at the shareholders meeting.
- [42:46]
B
That's what a lot of people see.
- [42:48]
D
I get so excited when I have any amount of time with him. I more frequently talk with Greg Abel.
- [42:54]
B
Which a name that would be very familiar to our audience. But is, and is, is Greg doing anything day to day or is all day to day to you and you essentially report some sort of metric to him quarterly? Yeah.
- [43:09]
D
So Greg's available whenever I need him and we, we do regular check ins through the year. But most of the time the culture of trust and the culture of decentralization that everybody reads about and hears Warren talk about is really how we run the subsidiary and we run our own shop and Greg's there when we need him. And it's a perfect scenario for our business and a long term approach in which I'm very appreciative of.
- [43:36]
A
All right, Greg Abel, obviously the CEO along with Warren Buffett of Berkshire Hathaway. Dan, thank you so much.
- [43:41]
B
Thanks.
- [43:41]
A
Good luck. You got, you have a runner in the race.
- [43:43]
D
We have a lot of runners from Brooks employees and some of our professional athletes this weekend. We'll be out on course rooting them on.
- [43:50]
A
All right. Well, good luck to all of them. Dan Sheridan, CEO of Brooks Running, joining us here in studio in the Bloomberg Interactive Broker studio with Brooks sneakers on.
- [43:58]
B
Oh yeah, always. I bet.
- [44:00]
D
I bet.
- [44:00]
A
I can only imagine how many pairs this is the Bloomberg businessweek daily podcast available on Apple, Spotify and anywhere else. You get your podcasts list in live weekday afternoons from 2 to 5pm Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live Every weekday on YouTube and always on the Bloomberg Terminal. How can you grow your business from idea to industry leader? Bring your vision to life with smart business buying tools and technology from Amazon Business. From fast free shipping to in depth buying insights and automated purchase approvals, they deliver everything you need to achieve your goals. It's not easy to stand out from the crowd. Simplify how you stock up to get ahead. Go to amazonbusiness.com for support. In the heat of battle, your squad relies on you. Don't let them down. Unlock elite gaming tech@lenovo.com Dominate every match with next level speed, seamless streaming and performance that won't quit. Push your gameplay beyond performance with Intel Core Ultra processors for the next era of gaming. Upgrade to smooth high quality streaming with Intel Wi Fi 6e and maximize game performance with enhanced overclocking. Win the Tech Search power up@lenovo.com.
- [45:29]
B
This.
- [45:30]
D
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