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What is actual investing? We believe that it's a real world task to deliver thoughtful capital deployment. It's not about speculating over the short term. It's about understanding the long term opportunities for companies through technological progress or new business models. So we seek out those exploring big new ideas that will change the world. Then we back them to give those ideas time to flourish. Bailey Gifford Actual Investors Find out more@bailey gifford.com did my card go through?
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How do you think the Fed is looking at tariffs? The uncertainty of tariffs?
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Let's take a look at the sectors and how they perform.
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A lot of investors getting whipsawed every.
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Day by news events, breaking market headlines and corporate news from across the globe. Could we see a market disruption, a market event?
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People just too exuberant out there.
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You see some so called low quality stocks driving this short term rally. Bloomberg Intelligence with Scarlet Fu and Paul Sweeney on Bloomberg Radio, YouTube and Bloomberg.
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Originals on today's Bloomberg Intelligence show, we dig inside the big business stories impacting Wall street and global markets.
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Each and every week. We provide in depth research and data on some of the 2000 companies and 130 industries our analysts cover worldwide today.
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As earnings season rolls on, we'll take a look at results from some of the biggest names in food, travel and entertainment.
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Plus, the cash stockpile at Berkshire Hathaway grows to a record.
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But first, this week, Yum Brands launched a strategic review for the pizza maker Pizza Hut. This comes after the company reported earnings that beat Wall street estimates. For more, we were joined by Michael Halen, Bloomberg Intelligence Senior restaurant and food service Analyst first asked Michael for his take on the possible sale of Pizza Hut.
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D
I think this was kind of a long time coming. It's really been a drag on the top and bottom line growth. Taco Bell is an absolute monster, is putting up strong unit growth as well as same store sales growth quarter after quarter after quarter. KFC has had some well documented same store sales issues in the US but that seems to be turning. They had a solid little quarter here with flat same store sales versus six straight quarters of decline. So that business seems to be accelerating a little bit. And KFC unit growth overseas is phenomenal. Absolutely phenomenal. They crush it overseas. Yeah, so, so Pizza Hut has been that, this drag on this business for quite some time. I think the street is, is really excited about a potential divestiture here.
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C
Any potential buyers out there that you can identify?
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D
No, we don't have, we don't think any of the companies in the public market are going to be an acquirer of Pizza Hut. Yeah, we, you know this, this thing, like I said, has struggled mightily. I mean we could see private equity, I think private equity would be a good fit. Right, because it's going to take, you know, management said on the call it might take some of their markets two, three years to, to get them back to like their rightful position as market leader in those countries. Would they which they see as their rightful, you know, position. I think Domino's would have something to say about that. But you know, it's going to take a few years to turn around some of these markets and private equity obviously looking at a five to seven year time horizon would be a good fit.
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C
All right, let's step back. The restaurant space in general getting through, you know, earnings season here. What are you learning about kind of the consumer out there from the restaurant perspective?
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D
We heard from Wingstop and another fast casual chain that's struggling also partly been a victim of its own success. Right. It's absolutely crushed it over the last six years and is lapping very, very strong results from last year. But they talked some more about low income consumers and Hispanic consumer weakness and it broadening here in the third quarter. There's some optimism here I think around the smart kitchen.
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C
So what's a smart kitchen?
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D
So they're rolling out some kitchen technology that's boosting operations, it's speeding up service times. You know, they're, they're putting out consistent 10 minute service times which is 50% better than they were doing prior. Accuracy is better, foods getting to customers hotter and fresher and, and people are Going to have a better experience. And so stores that have had this technology right now it's in about two thirds of the US stores. It's going to be in all 3,000 by the end of the year. But stores that have this equipment and have had it the longest are outperforming on same store sales by 500 basis points. So we think that's, that's why the stock is up so much. People are now a little bit more confident in a positive 2026, despite the decelerating trends here in the third quarter.
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C
What's going on on the labor front for restaurants? I'm thinking quick service restaurants, you know, with the southern border shut off. That was one of the industries that said we may have some labor problems associated with that. Have you heard from your companies about that?
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D
Yeah, you know, our companies just talk about the fact that they're, they use E Verify and they're, and they do everything by the book, which, you know, I think is predominantly the case. The impact that, you know, you're seeing A, is with more of the independent restaurants.
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C
Okay.
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D
But then B also kind of causes labor costs to go higher here for the public chains. Right, right. They're seeing another 4 to 5%, you know, wage rate inflation this year. That's been pretty common year in and year out since the pandemic.
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Our thanks to Michael Halen, Bloomberg Intelligence Senior restaurant and food Service analyst.
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We move now to earnings from the fast food giant McDonald's. The company reported faster than expected US sales growth in the third quarter. And this comes as the restaurant looks to restore its reputation for affordable meals with new deals and promotions. We are joined by Red Brown, Bloomberg News earnings reporter.
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A
I think in the context of the other results that we've gotten from a couple other restaurants, I think it's really interesting. During the call, the McDonald's CEO CFO really talked about this bifurcation that they've been observing for the last few years between higher income diners and lower income people. And it seems like that trend is continuing, persisting, potentially accelerating. It seems like in some. Specifically what I'm talking about is the higher income consumers seem to be coming down into McDonald's and shopping a bit more drawn in by the value that McDonald's has been pushing over the last couple of quarters. And we're seeing that across all of the fast food chains. That's yum as well. And also Burger King, things like that. And then on the other side of that, companies like Chipotle and Kava, these kind of like middle tier that, you know, $20 bowls of food are struggling a little bit more as like people lose interest in that value proposition that they're offering. So I think McDonald's, obviously the big name in the space, really kind of hammers that point home for this earnings season. And I think that's kind of the thing like the main takeaway for me at the moment.
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B
And of course McDonald's is leaning into this idea that it offers value at a difficult time for a lot of consumers. It's got a lot of deals and promotions to maintain that reputation. Does that cost it in any way or do the same store sales kind of back that up that this works?
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A
I think it's a little early before they've seen that like benefit from it quite yet. Like they have seen a little bit of pressure on the profitability because the company is so committed to this. Like getting, restoring the value reputation is kind of the language that they use with their customers, that they're actually supporting the franchisees, they're giving them marketing, they're helping them make up some of that losses that they will make, they will have from offering these discounts on the menu. So McDonald's is committed to this. It sounds like they're committed to this in the long term because they do want to get people back in the stores. It doesn't. It kind of remains to be seen whether or not the foot traffic is actually benefiting such that it is driving the bottom line as well. But they see it as so important to refreshing or kind of reintroducing the brand proposition to people that they're willing to commit to this, take a little bit of that short term pain for the long term benefits.
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C
What are they saying about their cost structure here? I see beef prices much higher over the last year or two. What are they saying about some of their cost of goods sold here?
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A
The one thing to call in the cost of goods sold before we get into the beef issue is the marketing. So they are kind of bumping up the marketing. They saw around a 20% jump in their, their SGNA expense because of that. But on the beef thing, McDonald's is the largest buyer of beef. So that scale kind of allows them to take it. They can take advantage of the scale and, and you know, and negotiate strong contracts when it comes to beef. Obviously beef inflation has been hitting all of these companies, but not in a way that the companies are like outsized, negatively impact thus far, but definitely something to watch as the beef prices continue.
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To go higher and the improvement here, especially for its US Comparable sales really is comes at a timely point because for a while the company had been a laggard when it came to comparable sales. At least domestically.
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A
Yeah, definitely. And it does speak to the kind of strategic changes that they've. They've made. Like, they did act maybe a little bit late in the game. Burger King has been rolling out their value offerings for a little over a year. But, but McDonald's has like acted and acted swiftly. Like, you know, it's a big deal, I think, to get the buy in from the franchisees of McDonald's. Like, they had almost a consensus. It's very rare that you see almost like a high 90 percentage of franchisees willing to take the price hits because they're the ones that are dealing with this at the end of the day. But I think, you know, McDonald's acting fast, acting boldly to kind of get back into the green.
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C
I've noticed really, really in the last several years, so much more technology in the stores. Like you can. A lot of them don't even have people practically taking your order. It's all done electronically. What are they saying about their investments in technology, maybe even AI? How's that impacting that business?
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A
Yeah, for McDonald's, there's quite a bit of talk about their digital offerings for this quarter. All of these companies. So between McDonald's, yum. Which has KFC, Taco Bell and a couple other brands under that umbrella are all really pushing the digital for that exact reason, to get the cost down. You know, McDonald's just rolled out their monopoly program. When I was a kid, Monopoly was the peel off on the cops. It was very exciting. Now it's completely digital.
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E
Right.
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So like, that's another way of they're trying to drive people into the app to get people to shop through theirs. It's where a lot of promotions are that'll help also drive foot traffic. So it's helping in two ways. It's helping people get in shop more and also helping on the cost front.
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Our thanks to Red Brown. He is a Bloomberg News earnings reporter.
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C
Moving next to the hospitality industry, this week, cruise company Norwegian Cruise Line reported earnings that missed expectations. For more on this, we were joined by Brian Egger, Bloomberg Intelligence senior gaming and lodging analyst.
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E
People are still cruising. The bookings are higher. I think there was a bit of a change in their strategy related to the Norwegian Cruise Line brand. Trying to get more families and kids and all that. Could talk about that, but that does have some slightly dampening impact on yield growth for the fourth quarter.
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B
So this Is the idea that they're broadening their customer base, not just targeting the super high income consumer which by all accounts is doing just fine in this economy whereas the lower income consumer in the mass consumer perhaps is struggling with rates staying fairly elevated and a lot of question marks over their job prospects. What is Norwegian Cruise Line's strategy here? Certainly compared to its peers like Carnival and Royal Caribbean, I think it's twofold.
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E
I think number one to try to attract more of a family audience, increase the core customer base of the Norwegian Cruise Line brand and also by having more shorter duration cruises maybe with home ports closer to where people live that could result longer term in kind of more efficient operations and some more, you know, more savings on the net cruise costs per net unit cost side. But it remains to be seen and I think that's why there's a little bit of caution because the near term effect will be a slightly dampening impact on the overall mix of yields. You know, cabins filled with children and families may have a slightly lower combined revenue yield than a different type of customer audience.
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C
Typically the cruiser. They're pretty loyal people Brian, how do they typically react or how do they spend during what could be maybe a little bit softer economic environment?
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E
So if you judge by the current environment, the overall bookings pace I think for the third quarter overall was up 20%. The outlook for next year is quite good with at least modest yield growth. You know, so I think we're seeing still a pretty steady pace of consumer demand. Obviously that could always change if we see a more severe economic downturn. But the overall pace in terms of bookings demand notwithstanding, this kind of tweak in marketing strategy has been quite good.
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Our thanks to Brian Egger, Bloomberg Intelligence senior gaming and lodging analyst.
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B
Coming up inside one of the biggest deals of the week. Kimberly Clark Buying can view the maker of Tylenol.
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You're listening to Bloomberg Intelligence on Bloomberg Radio providing in depth research and data on 2000 companies and 1130 industries.
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You can access Bloomberg Intelligence via BI Go on the terminal. I'm Scarlet Fu.
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And I'm Paul Sweeney. This is Bloomberg.
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What is actual investing? We believe that it's a real world task to deliver thoughtful capital deployment. It's not about speculating over the short term. It's about understanding the long term opportunities for companies through technological progress or new business models. So we seek out those exploring big new ideas that will change the world. Then we back them to give those ideas time to flourish. Baillie Gifford Actual investors Find out more@baileygifford.com.
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B
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Payment of $45 for three month plan $15 per month equivalent required New customer offer first three months only, then full price plan options available, taxes and fees extra. See mintmobile.com this is Bloomberg Intelligence with Scarlet Fu and Paul Sweeney on Bloomberg Radio.
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C
It was a merger Monday. This week in the consumer goods space, Kimberly Clark announced plans to buy Can View, the maker of tylenol in a $40 billion cash and stock deal.
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The combination would create a company with $32 billion in revenue and become the second biggest seller of health and wellness products. For more we are joined by Diana Gomez, Bloomberg Intelligence Senior Equity Research Analyst.
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H
So it is surprising in many ways for from the perspective of Kimberly Clark, I must confess it shows that can view really as a lot to do to turn around the business since it split from JJ about two years ago and the third quarter Mies just added up to a pile of disappointing results. Obviously there's a ton of low hanging fruit let's say in terms of efficiencies that can be gained in terms of plugging the great iconic, well known trusted brands from Kenview into Kenview's system that is running at more efficient level at the moment. But there is skepticism there because we are talking about revenue synergies as well as cost synergies and this will be quite a complex new company at the point when Kimberly Clark was just simplifying as they are aiming to close the transaction on their international business that includes segments like tissue by mid-2026 and now this merger expected to close around the same time just seems to complicate the picture a little bit.
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B
Oh yeah, that besides the Tylenol yes.
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H
And we know how Canvia has been dealing with some crisis of in the last month with Tylenol and then with talk lawsuits outside the US as well.
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B
So I'm glad you went there. The Tylenol situation, the Trump administration attacking Tylenol overall, do you think that's something that might complicate this deal? Could regulators step in and hold things up or raise questions that will just drag things out?
- [18:32]
H
Quite different questions I would say but great questions. So in terms of Tylenol the legal risk is there. Kinview was already fighting in the courts some lawsuits but we now have Texas state lawsuit on top on top of it the humorway quarks price when we walk in terms of for instance an EBIT to enterprise value multiple and I'm taking 2025, 262025 sorry that they will report so that will come at about 14 times whereas historical transactions in the consumer health space were in the range of 16 to 20 times so 14 times that. So really reflecting not only the struggles of Canview where their organic growth is still declining, but also that liability risk with lawsuits that are ongoing. And that's a new lawsuits that can be added as well in terms of the say antitrust competition, regulatory approval. As I see it, they don't really overlap directly but it really depends on on a country region by region basis because we know the US Stance can be very different from the European Commission one.
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C
Diana, should we expect more consolidation in the consumer products space, do you think?
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H
Yes. So that's a team that I've been watching very closely. Obviously we had other large pharma groups with significant consumer health businesses. So we are talking not only over the counter medicines but also the more personal care that deals with wellness. Sanofi decided to sell it to private equity. So at least for the next few years that is that Bayer is still considering well not considering as management says puts it. But Bayer still has their consumer health business and they could be looking into either wasting it or further consolidation within the current players.
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Our thanks to Diana Gomez, Bloomberg Intelligence Senior Equity Research analyst.
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C
We also got earnings in the media space as well.
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B
Warner Brothers Discovery, the parent of HBO and CNN reported third quarter sales that missed analysts estimates, providing a glimpse into the company's businesses as it puts itself up for sale. For details, we caught up with Geetha Ranganathan, Bloomberg Intelligence Analyst on US Media.
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F
So fundamentals, Scarlett, really don't matter all that much at this point. Especially yes, the TV network business as we know now for many many quarters has been severely challenged. We saw a 20% slump in TV advertising. We saw a 20% decline in TV EBITDA. This was kind of well expected. And this really speaks to why they need to separate themselves, why they need to separate the low growth, or rather the no growth TV assets from one part, from the part of the business that's actually growing, which is studio and streaming. That part of the business actually posted really good numbers. We saw the studio, Warner Brothers has actually been having very, very successful run at the box office this year. They have about a 27% share of domestic box office. And we've seen that kind of translate into really strong EBITDA numbers. And so we saw studio and streaming actually put up really, really good numbers. And that again speaks to why so many different parties, including a Netflix, including a Comcast, are interested in going after those studio and streaming assets. So right now, again, fundamentals don't matter that much. It's really all about the M and A.
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C
And I'm actually surprised, Geeta, that maybe we haven't had some more news on the MA front because we've seen the M and A environment is very, very active with the markets very receptive to M and A. Here we have a willing seller. In terms of David Zaslav and the board of directors here, how do you think this is going to play out? Is something to make a bid for the entire company or just maybe the good pieces for it?
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F
We're having all possible permutations and combinations here, Paul. So we know that Paramount Skydance is actually interested in all of the company, including the TV networks. They've already made three bids. The highest one was for 23 and a half dollars per share for Warner Brothers Discovery. All of it that was turned down. So they obviously have to come up with a much better offer. Now the other bidders and the two that are most often mentioned are Netflix and Comcast. They are the ones that are only interested in, in the studio and streaming assets. No interest at all in the TV linear network business. We know that Netflix has started looking into the books of Warner Brothers Discovery. This doesn't necessarily mean that they have to come out with a bid. I mean, remember this, you know, Zaslav is, as you just mentioned, he's a very, very tough negotiator. He's a deal maker. He is going to make sure that they really get paid well for the streaming and studio assets if they sell that. And we expect, you know, a price tag somewhere in the ballpark of about 75 to 80 billion. So, you know, whoever makes a Big bid has to cough up a huge chunk of change for, for this asset.
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B
So we keep talking about how it's Netflix, Comcast and Paramount, Skydance. Could there be another bidder that emerges from the shadows?
- [23:57]
F
Absolutely. I mean, you can never rule out big tech. You know, Amazon obviously has shown some interest in the past. They bought the MGM studio. We're not necessarily sure whether they've actually taken a look at the Warner Brother assets. But again, Scarlett, as you kind of think about the whole media landscape and you kind of think about the various assets out there, this is kind of a once in a lifetime, kind of a generational opportunity for anybody who wants to get big in media to really go after Warner. I mean, they have some of the best IP out there. They have a streaming business that has performed really well. HBO Max is a name that, that resonates across the globe. So, you know, anybody and everybody should really be taking a look at this asset. So I wouldn't be surprised if we have some kind of a dark horse bidder here.
- [24:41]
C
Our thanks to Geetha Ranganathan, Bloomberg Intelligence US Media Analyst.
- [24:45]
B
We also got earnings reports this week from two of the world's biggest rideshare companies, Uber and Lyft.
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C
Mandeep Singh joins us here, research head of Bloomberg Intelligence on tech stories. Talk to us about that segment of the economy. The, the ride sharing, the outsourcing, the, you know, the third party delivery. Are people still spending money on that stuff?
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They are. And all these companies, I mean, Uber reported over 20% growth. DoorDash reported 25% top line growth. Even though the stock reaction was negative, that was primarily because they plan to spend more money next year on building their tech stack. I think what the playbook here is to expand in more geographies as well as branch out into other areas of last mile delivery. And in the case of DoorDash, they're experimenting with delivering food without a courier, human person involved. And also expanding into restaurant point of sale devices. I mean they're developing technology where you can pay using a doordash hardware and point of sale device. So clearly there is a lot that these companies are doing beyond the original business that they have.
- [26:02]
C
You know, having, you know, when you spend time in England and you go pay for a meal, the card never leaves your presence. They just tap it on some machine and bum, bum, bum, bum, you're all that here. They take it, they put it in a little folder, they take it away.
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B
For five minutes and that's what you pay 20% for.
- [26:15]
C
You don't know where it's going. And that's why I'm surprised. We're so behind here in US about that point.
- [26:21]
B
We've always been kind of behind this. You know, that's been our calling card.
- [26:24]
G
The way to think about it is there are so many legacy systems that anytime you have new technology, even everyone is talking about AI agents and whatnot. It has to sit on top of a lot of legacy technology. And like, the promise of AI is it can rewrite a lot of that legacy code and migrate into the, you know, the modern technology. But we have yet to come across, you know, real proof points of that.
- [26:48]
B
So when you were talking Mandeep, I noticed that you talked a lot about how these companies are spending. They're investing. And I'm curious about the reception that gets from investors because initially in the big AI buildup, everyone was excited about these plans, but now more and more everyone's like, oh, I'm not so sure that's a great idea that you're spending so much, whether it's on AI or whether it's on new products and internal platform like it is with DoorDash. Why do you think investors are now more skeptical about this idea of companies spending?
- [27:15]
G
Just because we have seen, you know, Uber and all these companies really struggle with free cash flow initially. I mean, in the ZURP era, you know, these companies burned a lot of cash. Now they have gotten to a point where the business model does generate, you know, 7 to 8 billion dollars in free cash flow for Uber. And even for DoorDash, it's 20% EBITDA margin. So the fact that they are talking about spending again, it makes you think, okay, if you're an investor, you waited all this while for these companies to get mature and, you know, start delivering on cash. And now they're talking about another investment cycle. And that's where, you know, in the case of Uber, it's their hand is forced by waymo launching on 10 cities and really expanding and potentially Tesla. I think in the case of DoorDash, they feel, you know, making acquisitions will help them expand their geographic footprint and then obviously they want to expand their tech stack to more areas.
- [28:11]
C
Our thanks to Mandeep Singh, Bloomberg Intelligence global tech research head.
- [28:15]
B
Coming up, Berkshire's cash pile soared to almost $382 billion. That is a fresh record for Warren Buffett's company. We'll bring you details.
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You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on 2,000 companies and, and 130 industries.
- [28:29]
B
You can always access Bloomberg Intelligence via BI Go on the terminal.
- [28:32]
C
I'm Scarlet Fu and I'm Paul Sweeney and this is Bloomberg.
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B
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 lenovo.
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- [30:50]
C
Berkshire Hathaway reported its cash pile reached over $381 billion in the third quarter, a record. This comes as Berkshire Hathaway declined to buy back its own shares for the fifth straight quarter.
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B
So we brought in Matthew Palazzola, Bloomberg Intelligence Senior Analyst of PNC Insurance. We began by asking Matthew to break down Berkshire's most recent quarter.
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I
The interesting thing is the stock has underperformed the market by like 30% since Buffett announced that he was stepping down in May, and they haven't bought back any stock over that entire period.
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I turned my mic On I say why.
- [31:26]
I
Buffett used to have a rule when the Stock was above 1.2 times Price to book, they wouldn't buy it back. They kind of kick that out. And they said we're just going to buy it back whenever we see intrinsic value below. So, you know, I know to me it begs question. I mean, maybe he sees the stock as kind of fully valued, even down, you know, year to date, even with.
- [31:46]
B
The lagging performance as well. So does that change when Greg Abel, the hand picked successor to Warren Buffett, takes the reins officially at the end of the year?
- [31:56]
I
You know, Scarlett, he walks a fine line between putting some sort of stamp on the company maybe over time, and then kind of of respecting the ethos of Berkshire and how they've operated. I would hope something happens. I mean, they did a $10 billion deal in the fourth quarter. They bought the Oxycam business from Occidental. They just don't have things that can move the needle very much. Even in the quarter. Their net stock buys and sells were a negative $6 billion. So they were negative on other equities as well.
- [32:28]
B
Yeah, there were net seller stocks for 12th straight quarter and that cash and equivalence was at a record high at the end of September. Is that a signal that they're waiting for the market to tank, that they see a correction? Maybe not tank, that that might be too strong. They see a correction or consolidation in the near term and are ready for it.
- [32:48]
I
They're always ready for it. You know, Buffett has always said we're not looking to time the market, we're just looking for good companies. He's also been, you know, the, when I talk to people, the thought is, is he just hoarding money for Greg Abel and kind of setting the company up and just handing it over? He's said he's not doing that. So, you know, unfortunately they don't talk to investors, so we don't can't really pick his brain besides at the annual meeting. So we don't exactly know what's going on there. I think he's just extra conservative in his old age, I guess.
- [33:23]
C
All right, here's my cynical Wall street perspective. The one Mr. Buffet passes 3% dividend yield, massive stock buyback. Do you think that's a scenario?
- [33:32]
I
I think dividend yield, hopefully, you know, some sort of dividend, maybe special dividends. The buyback I think will also kind of weigh on what able sees the intrinsic value. So I don't, I would say probably hopefully dividend, I would say maybe more steady buyback there's also, they can't buy back a ton of shares on, on volume because, you know, there's rules on how much they can buy back and how active they can be in the market. So that limits them a little bit.
- [34:00]
C
That's plan B. We got it. Don't you have to split the stock like a gajillion to one?
- [34:05]
I
Well, they have, they have the A shares and the B shares, but there's, I don't have all the exact rules, but they've talked about we can only buy back so much at a time. They bought back none. So I think a steady buyback plus some returns of capital in forms of, I would hope, special dividends. They maybe they don't want to be beholden to a regular quarterly dividend.
- [34:25]
B
Yeah, makes sense. Okay, so that's something we'll watch for when that eventually happens. In the meantime, how are the businesses of Berkshire Hathaway performing, especially insurance?
- [34:35]
I
Yeah, so all, all good in the quarter. The insurance business made much more money than the year ago, but that was because they had a bunch of large losses in the year ago. They also had this favorable reserve development, which means they write business and those losses come in better or worse than they expect over time. And that was, those losses were coming in better than they expected. So that is, it's a good thing, but it's not a super high quality source of earnings beat. So the insurance business performed well on those two things, which aren't super high quality in my opinion. The underlying business and the insurance doing well. The problem is it's hard for it to get much better next year. The underwriting side, the prices in that are going down. So I think it's tough to see the insurance underwriting doing better next year. It's also tough to see the investments doing better next year. And we're talking about really just the fixed income investment. So like the equities, who knows what happens? But in terms of the interest income, we saw that decline in the quarter as well.
- [35:35]
C
The business fundamentals of the underlying businesses, did they move the stock historically?
- [35:39]
I
Not really. It's tough.
- [35:42]
C
Scarlett asked the one fundamental question. That's enough. Let's get back to the main point of the story here.
- [35:47]
I
It's also my job too.
- [35:48]
C
Is there an activist investor who's ever.
- [35:51]
B
Oh, good question.
- [35:52]
C
One word about this company.
- [35:54]
I
So historically there have been investors very vocal about it. I don't, I don't have names, but no one's ever been able to move. The new Buffett's always the majority shareholder. So there's really been no one who's ever been forcing them to do anything. And so why would they even listen?
- [36:10]
B
And can you do that with a company that has an A class year and B class year with this?
- [36:14]
C
What is his voting control? I haven't done them.
- [36:17]
I
I don't, I don't, I don't know. Off the top of my head, I thought it was something like 60% of the shares, something like that. And other insiders will hold more. So there's almost no way of wrestling control from him. The A shares and the B shares, they did. So the A shares are several hundred thousand dollars and then they instituted the B shares and they're, they're going to peg to each other. So they can't, you can't, you couldn't buy up the B shares and kind of take control either.
- [36:42]
B
They've come up with all kinds of rules to make sure that all the things you just proposed can't happen.
- [36:46]
C
And I'm not the first.
- [36:47]
I
He's, he's not a dumb guy, but.
- [36:48]
C
Yeah, exactly. Right. It's been extraordinary.
- [36:52]
A
Run.
- [36:52]
C
Is there a sense that the law of large numbers over the last several years, if not the last decade, is kind of caught up to this?
- [36:58]
I
Yeah, for sure. I mean, they, they, they bought a company for $12 billion, Allegheny, and it barely moves the needle. They bought this oxychem for, for 10 billion. Barely moves the needle. They bought like 20 billion of Chevron stock two years ago. It didn't even come up at the annual meeting. People didn't even ask about it. I was sitting there, I couldn't believe. I said no one's going to ask about this. So, you know, there's just things that are tough for them to move the needle from having so much money. They're making those investments in Japan, which I think are interesting. So they invest in the trading houses in Japan. It's hard for me to know a ton about those businesses. Some of them are like, like mini Berkshires, maybe. This is stuff that they kind of do in the future. Also the energy business. Greg Abel's an energy guy. Aon is an insurance broker. They talked about last week this huge opportunity with the hyperscalers needing risk transfer services and other things. So like those are things that fit right into Berkshire's wheelhouse. Right. The risk transfer and the energy businesses. So those are opportunities for them in the future.
- [37:58]
B
Our thanks to Matthew Palazzola, Bloomberg Intelligence senior analyst for PNC Insurance.
- [38:03]
C
We move next to earnings from the entertainment space. This week, Spotify reported Active users and sales beat expectations in the third quarter.
- [38:10]
B
But ad supported revenue declined 6% from a year ago because of pricing pressure. For more, we are joined by Geetha Ranganathan, Bloomberg Intelligence analyst on US Media.
- [38:19]
F
Actually, like the Spotify numbers. You know, the big numbers that we always look for are, of course, the user metrics. We want to see them kind of do well on both monthly active users, which are basically the free listeners, as well as the premium subscribers, which is basically, you know, everyone paying about $12 a month for a Spotify subscription. And both those numbers came in well ahead of guidance. The other number that we look for in Spotify results is gross margin. This has been, you know, a constant point of debate, but Spotify has done really well in terms of expanding their gross margin. They again delivered numbers ahead of guidance both for, you know, third quarter as well as ahead of forecast for the fourth quarter in terms of guidance. So fundamentals seem to be really strong. I think the one concern, Paul, that has really kind of emerged with Spotify over the past few months is pricing power. You know, are they going to keep, you know, being able to increase prices? And this is something that has dominated the conversation for not just Spotify, but of course, for any streaming company. We've seen Netflix, as you just pointed out, demonstrate really good pricing power. I think Spotify has very good pricing power as well, but people are really waiting for the next big US Price hike to really gain more confidence in the story.
- [39:32]
C
Keith, what's the competitive landscape for Spotify out there? Because as we think about the video business, it's Netflix and then a kind of a big drop down to Disney and then a bigger drop to kind of everybody else fighting it out. What's the landscape for in the audio business?
- [39:46]
F
It's actually very similar, Paul. In fact, you know, Spotify just leads by a wide, wide margin. So if you just look at both the global audio streaming market in terms of subscribers, they have about a 33% share globally. They have close to almost a 40% share in the US market. So way ahead of their competitors. So obviously gives them a lot of. I think, you know, again, we come back to pricing power. Gives them definitely a lot of pricing power in the market.
- [40:14]
C
So what's on the cost structure for them? What are the real levers for them? It seems like, you know, the. I know at Netflix, they got to write big, big checks to, you know, either license content or, you know, create their own content. What's it like on. On the Spotify side?
- [40:30]
F
Yeah, you bring up an Excellent point, Paul. And this has kind of again, been one of the pain points for Spotify because again, this is a music streaming service. They don't own any of, you know, music itself. That's all kind of controlled by the labels. And as you well know, content is king. So this is really where Spotify has a lot of trouble because for every dollar that they earn, about 70 cents goes back to the music label. So they have very little leverage. They've been trying to kind of change that whole dynamic, that whole equation, come up with more of their content. So a big investment area for them has been, you know, podcasts, has been audiobooks, where they kind of get better profit dynamics. It has worked well. But actually one of the things that we're kind of looking for next year is we're going to see a step up in all of the royalty costs. And that's again, something that the street and investors are a little bit nervous about because we need to see how, you know, Spotify kind of manages their whole margin expansion story as those royalty costs go up. So demand at the the that they're paying all of the music labels, the Warners and the universals of the world is going to go up slightly. But we still think that they're in good shape. They've been adding a ton of new features to all of their tiers. They're probably going to debut some new tiers. Again, all of that builds to that whole pricing power and monetization story.
- [41:49]
C
And how is Apple as a competitor here? Because any time I see a company that's even remotely in competition to Apple, I get nervous.
- [41:59]
F
So Apple, you know, if you're just kind of looking at it in terms of share, they are way below Spotify, both globally as well as in the US market. So not much of a competitor from, from a share standpoint. In fact, they've even priced their products slightly lower. Some of the, you know, some of the noise around Spotify and Apple has been, you know, in terms of the iOS and whether, you know, Spotify can kind of get better terms and they've managed to do that as well. So some of the changes on the iOS system have actually helped Spotify in terms of getting a better market share and getting better economics, actually. So Apple Music, not too much of a worry for Spotify.
- [42:41]
C
Our thanks to Geetha Ranganathan, Bloomberg Intelligence US Media Analyst. That's this week's edition of Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on 2,000 companies and 130 industries.
- [42:51]
B
And remember, you can Always access Bloomberg Intelligence via Bigo on the terminal.
- [42:55]
C
I'm Scarlet Fu and I'll put Paul Sweeney. Stay with us. Today's top stories and global business headlines are coming up. Right now.
- [43:04]
B
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