Netflix Shares Fall most Since 2022 as Tax Hit Spooks Investors

Summary

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Bloomberg Intelligence Podcast:

"Netflix Shares Fall Most Since 2022 as Tax Hit Spooks Investors"

Date: October 22, 2025
Hosts: Scarlet Fu & Paul Sweeney

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Episode Overview

In this episode, Scarlet Fu and Paul Sweeney leverage insights from Bloomberg Intelligence analysts to unpack timely market movements. The primary focus centers on Netflix's surprise stock drop—its worst since 2022—triggered by a significant tax charge in Brazil and underwhelming quarterly results. The discussion then broadens to cover AT&T's earnings, competition trends in broadband, tariff impacts on toy maker Mattel, and the latest from Hilton Hotels' financial results.

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Key Discussion Points & Insights

1. Netflix's Q3 Earnings and Share Drop

• Guests: Geetha Ranganathan (US Media Analyst, Bloomberg Intelligence)
• Main Issue: Netflix’s shares fell nearly 10%—their steepest decline since 2022—primarily due to a surprise catch-up tax expense in Brazil and lighter-than-expected operating margin and revenue numbers.

Key Insights:

• Brazil Tax Charge:
  "Nobody saw this coming in terms of this transaction tax. It's a little bit of a catch up charge that Netflix took in the third quarter and there will be an ongoing charge as well, about $40 million or so per quarter...it definitely depressed the margin performance."
  — Geetha Ranganathan, 02:05

• Operating Margin Impact:
  Without the Brazil tax, Netflix would have reported near-record margins: "They guided for 31.5, they would have come in at close to almost 34% if, if we didn't have that tax issue."
  — Geetha Ranganathan, 02:46

• Content Slate vs. Results:
  Despite a strong content lineup ("a monster slate") with high-profile releases, the financials showed no substantial beat, triggering market nerves:
  "None of that was really reflected in the numbers. And I think that's why you're seeing so much of nervousness today."
  — Geetha Ranganathan, 03:16

Notable Segment:

• Netflix’s M&A Stance
  • Netflix has signaled potential for mergers & acquisitions, specifically leaving the door open to studio assets (possibly from Warner Bros Discovery), though not cable networks: "This is a once in a generational opportunity for anybody who wants to own this kind of a studio...So yes, it is a defensive move. But again...I don't necessarily think that they are going to be in a much weaker position [if they don’t buy]."
    — Geetha Ranganathan, 04:09

Content Costs and AI:

• Netflix continues to invest heavily (close to $18 billion yearly) in content while using artificial intelligence to potentially curb costs by 5–10%:
  "We think that [AI] should help Netflix actually curb content costs by about 5 to 10%. That's substantial cost savings...especially for Netflix, which typically has used AI really, really well." — Geetha Ranganathan, 05:44

• Looking ahead: Major new titles in 2026, including "Emily in Paris", "Bridgerton" new season, and a "Narnia" movie highlighted as engagement and growth drivers.

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2. AT&T Earnings & Wireless/Broadband Market Evolutions

• Guest: John Butler (Senior Telecom Analyst, Bloomberg Intelligence)

Key Insights:

• Promotions & Subscriber Growth:
  "If you look at AT&T's numbers, they were truly mixed...Subscriber growth, though, was higher than expected...You're out there trying to build up your roles, your subscriber roles, at the expense of revenue in the short term, on the promise that in the long term, if you can keep those subscribers, it more than pays back."
  — John Butler, 09:42 / 10:25

• AT&T’s Competitive Position:
  Now the smallest of the "big three" wireless providers, AT&T is pivoting heavily toward fiber broadband: "Fiber is the single best way to deliver Internet, period, full stop. There's nothing better out there, and AT&T is a real leader there." — John Butler, 11:29

• Broadband Market Trends & Competition:
  Increasing competition as traditional cable loses to fiber and fixed wireless (FWA); Starlink is anticipated to disrupt further with satellite broadband: "The cable guys are losing a lot of share to fiber and particularly to fixed wireless access...AT&T was late to that game, but they're getting a lot of growth in FWA right now..."
  — John Butler, 12:59

• Industry Watch:
  Metrics to monitor in upcoming wireless earnings (Verizon, T-Mobile): service revenue trends vs. subscriber growth signal competitive/promotional intensity.

Notable Quote:

• "If service revenue goes down but subscriber growth goes up, it tells you there's a lot of promotional activity out there."
  — John Butler, 15:00

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3. Toy Industry: Mattel, Hasbro, and Tariff Headwinds

• Guest: Lindsey Dutch (Consumer Hardlines Senior Analyst, Bloomberg Intelligence)

Key Insights:

• Tariffs Impacting Mattel:
  Retailers are delaying or reducing holiday orders due to tariff uncertainty, leading to Q4 guidance downgrades:
  "Orders were delayed further than sort of everyone expected and they're taking smaller quantities than usual, you know, onto their shelves ahead of the holiday season, which was a real concern for Mattel's fourth quarter earnings..."
  — Lindsey Dutch, 20:20

• Cost Mitigation:
  Mattel is managing the tariff hit (~$100 million/year estimated) via cost cuts, sourcing shifts, and price increases.

• Hasbro’s Position:
  Hasbro is cushioned by a growing digital gaming business, which may offset toy-side weakness. Their expectations for toys are more modest than Mattel's optimistic Q4 outlook.

• Industry Trends:

  • The "kidult" trend (adults buying toys) is a strong growth driver:
    "...those big black box Legos that are very high price points, you know, they've done very well the past couple of years...Mattel is also leaning into that...the industry was up 6% in the first half." — Lindsey Dutch, 23:41

  • Holiday 2025: No obvious "wow" toys; Netflix/Mattel collab (K-Pop Demon Hunters figures) could be a future hit due in 2026.

  • Content Licensing: Success of toy/movie tie-ins depends on Hollywood's output. With few blockbuster releases, growth from this channel is subdued.

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4. Hilton Hotels: Differing Fortunes Between US and International Markets

• Guest: Jodi Laurie (Senior Credit Analyst, Bloomberg Intelligence)

Key Insights:

• Earnings Reaction:
  Hilton’s strong EBITDA guidance stands out, but both credit and equity analysts question whether it's too optimistic given sluggish "RevPAR" (revenue per available room) projections:
  "Now they're saying 0 to 1%. Yet for some reason they're able to reach an EBITDA that's almost similar to what they were projecting then. So it's a little bit of a head scratcher..."
  — Jodi Laurie, 28:30

• US vs. International:
  US market is underperforming, especially leisure and group business, while international markets (notably Middle East, Africa) are showing strength.

• Brand Trends:
  Premier/luxury brands (Conrad, Waldorf Astoria) are outperforming; mid-to-economy brands are weaker, echoing the broader "K-shaped economy".

• Growth Strategy:
  Hilton is expanding globally, introducing new lifestyle brands to attract younger consumers and compete with alternative accommodations (Airbnb/VRBO).
  "They're trying to key into these low, these younger consumers, getting them to go into these lifestyle brands and more of these quick service brands that might not necessarily be traditional hotels..."
  — Jodi Laurie, 31:56

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Notable Quotes

• Geetha Ranganathan on Netflix's tax surprise:
  "Nobody saw this coming in terms of this transaction tax...it definitely depressed the margin performance." (02:05)

• John Butler on AT&T's fiber leadership:
  "Fiber is the single best way to deliver Internet, period, full stop. There's nothing better out there, and AT&T is a real leader there." (11:29)

• Lindsey Dutch on kidult toy trend:
  "A big trend that we have seen growing momentum on is really the kidult trend, which is adults 18 plus playing with more toys and Hasbro, Mattel, Lego, they're all playing into this." (23:41)

• Jodi Laurie on Hilton's dichotomy:
  "Comparing their higher end brands versus a year ago, it was very strong in terms of growth from an occupancy standpoint. But then if you look at the lower end brands, they're actually a lot weaker. So the farther down you go in terms of their quality of their brand...that's where it's weakest and that speaks to that K-shaped economy that everybody is talking about." (29:36)

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Timestamps for Key Segments

• [01:52] — Netflix: Tax hit and results analysis
• [03:22] — Netflix content, M&A rumors, and future strategy
• [05:16] — Content spending, AI impact, and forward pipeline
• [09:11] — AT&T: Wireless market pressures and broadband pivot
• [12:50] — Competition in broadband: cable vs. fiber vs. FWA vs. Starlink
• [15:00] — What to watch in upcoming telecom earnings
• [16:38] — iPhone launch impact on carriers
• [20:20] — Mattel: Tariffs and holiday disruptions
• [23:41] — Toy industry trends: kidults and licensing
• [28:09] — Hilton: Optimism vs. slowing RevPAR, US vs. intl.
• [31:56] — Hilton’s brand and strategy shifts

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Overall Tone

Conversational, insightful, and occasionally playful—reflecting the hosts' ease with both their guests and the technical depth of the subjects discussed. The show efficiently blends market rigor with accessible explanations.

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For listeners and market watchers, this episode is a primer on how one-off shocks (like Netflix’s Brazil tax), evolving consumer trends, and shifts in competitive strategies (across media, telecom, toys, and hotels) are shaping the post-pandemic business landscape.

Transcript

[Paul Sweeney]

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[Lindsey Dutch]

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[Paul Sweeney]

Bloomberg Audio Studios podcasts Radio news. You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

[Scarlett Fu]

Geetha Ranganathan joins us. She is the the US media analyst for Bloomberg Intelligence. Geeta, what's going on with their friends at Netflix? I mean, so they had a tax dispute in Brazil. Is that enough to knock the stock down 10%?

[Geetha Ranganathan]

Yeah, I think that's part of the story Paul. So definitely nobody saw this coming in terms of this transaction tax. It's a little bit of a catch up charge that Netflix took in the third quarter and there will be an ongoing charge as well, about 40 million or so per quarter. But again, nothing that will materially impact results. What what that tax charge did was that it definitely depressed the margin performance and this is something that we've everybody's been super focused on operating margin numbers. Those came in definitely much lighter than what Netflix itself had projected. But actually if you just strip out that Brazil tax impact, they would have had record operating margin. So they guided for 31.5, they would have come in at close to almost 34% if, if we didn't have that tax issue. I think fundamentals are definitely strong, but I think what is happening is apart from the tax issue was that it was just a very, very ordinary quarter. You know, people were definitely expecting something, you know, a much bigger beat in terms of revenue. Just given that, you know, the second half content slate has absolutely been a monster slate. I mean, we've seen some of their biggest hits ever in the third quarter. We expect to see more coming in for Q. But none of that was really reflected in the numbers. And I think that why you're seeing so much of nervousness today.

[Paul Sweeney]

Okay, so ordinary results at Netflix is like the new bad. And you talk about the contents like K Pop, Demon Hunters, a new season of Wednesday, the sequel to Happy Gilmore. And then in the fourth quarter there is the Stranger Things final season and a sequel to Knives out, the third season of Diplomat.

[Scarlett Fu]

That's what I'm watching.

[Paul Sweeney]

Yes. Oh my God. That is really good. That is fantastic. Great acting by Keri Russell and Rufus Seawell. Okay. Anyway, going back to the results, Geeta, what was new, I thought in the earnings report was that they flagged the possibility of M and A, which is not something you hear from Netflix. Of course, there have been all these reports that Netflix is interested in buying assets from Warner Brothers Discovery. Do these latest results show that Netflix is now in a position where it has to make a purchase? It's a defensive buyer as opposed to an offensive buyer.

[Geetha Ranganathan]

I don't know whether it has to make a purchase. They definitely left the door open, which, which suggests to us that they will take a long and hard look at the studio assets. Not the cable networks. They made that extremely clear on the. But the studio, if you just think about it. Scarlett, I mean, this is definitely. And I mean we spoke about this yesterday as well. This is a once in a generational opportunity for anybody who wants to own this kind of a studio. I mean, this is a top tier studio with a lot of very, very, you know, beloved popular franchises across the world. We know that these titles resonate. I mean, Netflix themselves has a lot of the Warner Brothers titles. They perform extremely well on the platform. So yes, it is a defensive move. But again, if Netflix doesn't, you know, go ahead and doesn't make that purchase, I don't necessarily think that they are going to be in a much weaker position. It definitely complicates the strategy for them a little bit just because you might have another player like a Paramount or a Comcast that becomes much stronger, but they still have a considerable lead versus all of their peers. So I don't think it's, it's, it's do or die.

[Scarlett Fu]

So what's the environment like out there in terms of creating content, movies and TV shows? Is, is Netflix still like the first phone call you make if you're a producer or you're a writer? I've got this project, I'm going to go to Netflix and get it done. Is that because they had the biggest and maybe still have the biggest checkbook in Hollywood?

[Geetha Ranganathan]

They do. They're spending close to about 17 and a half to $18 billion on content every year. And you know, there's been a lot of concerns, Paul, in general about the rise of AI, especially now that you have Sora too. You have all of these new tools from Google, from Meta, you know, is that going to be a disruptive force for all of these streaming players and Netflix? And it looks like it actually won't. You know, we've run some numbers internally. We think that it should help Netflix actually curb content costs by about 5 to 10%. That's substantial cost savings, you know, for all of these streaming players, especially for Netflix, which typically has used AI really, really well. You're absolutely right. They've done a great job when it comes to content. They're going to, I think, continue to do that. I mean, not only do we have the second half slate for this year, which is extremely strong. Scarlett just mentioned all of those titles. But actually looking forward to 2026 again, you have a whole host of different titles coming on the platform, including Emily in Paris. You have Bridgerton, which has been one of their biggest series. And then you have the movie Narnia, which is supposed to be like this huge event for them coming a little bit later. So they have a steady, steady stead pipeline of titles that should help them, you know, drive engagement and ultimately drive pricing.

[Scarlett Fu]

Stay with us. More from Bloomberg Intelligence coming up after this.

[Paul Sweeney]

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[Scarlett Fu]

AT&T reported numbers here. It looked pretty solid to me, but I know they had a lot of promotional stuff out there, so the revenue growth kind of came in a little bit lighter. John Butler, he covers this stock for us at Bloomberg Intelligence. He joins us here. We're going to have the CEO, Mr. Stanking of at and T coming up in just moments. John Butler, Senior Telecom Analyst for Bloomberg Intelligence, joins us here. John, talk to us about the AT and T quarter. We know it's a wireless business, is a really competitive business out there.

[John Butler]

It's a tough one, Paul. It's a very mature market right now. You've had a lot of movement and the management suite with new CEOs at Verizon and T T Mobile. So the fear is that promotional activity is going to pick up as these new CEOs try and make their mark. And I think we saw some evidence of that in three. You know, if you look at AT&T's numbers, they were truly mixed. I was really surprised at that. What we saw was revenue growth across the board, just missed estimates slightly. It was a little bit slower than everyone expected. Subscriber growth, though, was. Was higher than expected. And that really, to me, that, that's the. Those are the kind of financial metrics you see in a highly promotional environment. Right. You're promoting heavily, there's pressure on pricing. Their average revenue per user actually fell in the quarter on the wireless front, but subscribers rose. And so you're out there trying to build up your roles, your subscriber roles, at the expense of revenue in the short term, on the promise that in the long term, if you can keep those subscribers, it more than pays back.

[Paul Sweeney]

I always pay special attention to AT&T's results because I switched from AT&T after like, I don't know, 15 years because of the original iPhone to T Mobile because they had all these great deals and, I don't know, it seemed more fun in general. I'm a sucker for fun.

[Scarlett Fu]

So the results are.

[John Butler]

It's down because of you?

[Paul Sweeney]

No, no, no. I actually switched last year. But the reason I ask, John, or the reason I bring this up is because now AT&T is actually the smallest of the big three wireless providers. Behind Verizon, behind T Mobile. Does being the underdog work for it?

[John Butler]

It's a good question, Scarlett. What they're really doing is throwing their weight behind broadband. John Stankey, who's going to be on in a moment, can speak to this more eloquently than I can, but he has really pursued the broadband market in a big way. And I think a lot of it has to do with the fact that the broadband market is growing faster than wireless. It's still a mature market, it's still relatively saturated, but there's room for more growth there. AT&T is pursuing a fiber broadband strategy, and fiber is the single best way to deliver Internet, period, full stop. There's nothing better out there, and AT&T is a real leader there. So I think on the wireless front, I don't want to say they have their eye off that ball in any way whatsoever. They're going through a big modernization of the wireless network right now, standing up a lot of new spectrum. So you're going to see network quality increase significantly over time and that will drive more net additions, I think, down the road. But if you think about AT&T, don't just think wireless. I think it's important to pay attention to what's happening in that broadband business because that really is setting the foundation for their future growth.

[Scarlett Fu]

So, John, in the broadband business, are they competing against the cable companies because they've made that a key focus over the last decade or so.

[John Butler]

Yeah, I mean, the broadband market is getting really interesting right now. What you've seen is the cable guys are losing a lot of share to fiber and particularly to fixed wireless access, which is basically a wireless link of broadband into your home. That's been a runaway hit with consumers. Really popular. AT&T was late to that game, but they're getting a lot of growth in FWA right now, as it's called. So it's interesting to see the dynamic where the cable guys are losing share and the telcos are gaining share, and soon you're going to have Starlink enter the market in a bigger way. They're right on the cusp of upgrading the capacity of their constellation. And so they're going to go from a very high priced product, I think, to a much more reasonably priced broadband offering. Once they get more capacity up there, they're going to look to fill that. And the way to do that is to cut your prices. And so suddenly you're going to have another wireless option which is going to be satellite. So the competitive dynamics there are getting interesting. But for AT&T and their dedication to fiber, I think they're extremely well positioned to not only hold their own, but grow from here.

[Paul Sweeney]

You know what I've noticed is that if you have the old school cable broadband, they're always trying to push you into fiber optic by making the old school cable broadband so expensive that you end up calling to complain about it. And then they're like, hey, we can upgrade you to fiber optic. Okay, that's been a point. I fell victim to it. John. AT&T results, they set the tone for competitors earnings. T Mobile reports on Thursday, Verizon reports next week. The interesting bit there is that both of those companies have named new CEOs in the last month. So they're in a moment of transition here. What will you be looking for to carry over from AT&T's results to those numbers?

[John Butler]

So I'm going to be laser focused on what's called wireless service growth, which is the revenue they earn from charging you your monthly bill. Every one of them has sizable handset revenue, but I call them empty calories, if you will. You know, they're sold at cost or even a little bit below cost. So what matters most is that service revenue. And again, Scarlett, if service revenue goes down but subscriber growth goes up, it tells you there's a lot of promotional activity out there. And in particular for both companies. Again, they both have new CEOs. I'm going to be listening very carefully for any change in course on the strategy of either one. Verizon in particular has been a share donor for years and I think the new CEO may be thinking about getting more promotional. I've even seen evidence of it in some of their advertising management commentary. Pardon me, on strategy is going to be the big focus for me.

[Paul Sweeney]

We saw Apple shares hit a record earlier this week because of iPhone optimism. Apparently the early numbers on the iPhone 17 were pretty positive and I'm kind of surprised that that did not extend to AT and T Mobile and Verizon in the same way because of course they're partners with AT&T and sell with Apple and selling these new devices. What kind of numbers are we anticipating to hear from companies when it comes to early pre sales of the iPhone 17?

[John Butler]

We know it's funny you bring that up because at&t over indexes to the iPhone. They have more iPhone users in their base than the other two carriers. And that goes back if you remember when the iPhone first launched. AT&T had this exclusivity deal with Apple for a couple of years and it really led to an outsized piece of iPhone users at, at and t. But pardon me, there were so many other issues going on in the quarter it just never came up again. I go back to that thought that handset sales are sold at or below cost. I think the big danger with a popular iPhone launch is that it can spark outsized promotional activity. Right? And again, we saw evidence of that in AT&T's results.

[Scarlett Fu]

Stay with us. More from Bloomberg Intelligence coming up after this.

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[Paul Sweeney]

You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. We're looking at companies that are reporting earnings this season and giving us any kind of indication that they are affected by tariffs. And so far this year we haven't really seen much evidence of that until today. Mattel is now saying that it is delay orders or retailers. Its customers are delaying orders because of uncertainty over the tariffs. So we want to get perspective now from Lindsey Dutch. She is Bloomberg Intelligence's Consumer Hardlines Senior Analyst. And Lindsey, I'm kind of surprised that this didn't happen earlier.

[Lindsey Dutch]

Hi Scarlett, thanks for having me. Yes, we so we heard earlier actually in the second quarter earnings that there were possibilities for delays and for the toy makers, you know, Wal Mart, Target, those retailers tend to take their holiday orders by July. So there was already worry sort of heading into third quarter, third quarter earnings that we got last night. And of course it was a negative surprise on the top and the bottom line. Those orders were delayed further than sort of everyone expected and they're taking smaller quantities than usual, you know, onto their shelves ahead of the holiday season, which which was a real concern for Mattel's fourth quarter earnings which would be coming up.

[Scarlett Fu]

So Lindsey, what's Mattel and some of the other companies saying about, you know, when their products, you know, get Stamped with a tariff. Like how much do they try to push back on the manufacturer in whatever country it comes from, say China, how much the importer may take in his or her PNL versus you know, how are they saying that? They're navigating that.

[Lindsey Dutch]

So from the cost side, the toy makers actually have been managing this pretty well. So Mattel is forecasting Less than $100 million hit on the cost side on an annual basis. They're mitigating that in several different ways. They're cutting costs in other areas. They did adjust sourcing as much as they could, you know, selling more internationally versus the U.S. you know, shifting that mix a little bit. And they are, they did roll out some price increases for in the second and the third quarter, which is ahead of holiday. So that should help protect on the profit on the margin side for that fourth quarter. It looks like those toy makers are bearing the brunt of that cost rather than sort of passing it through towards a retailer.

[Paul Sweeney]

So Mattel shares today fell as much as 9.7%, but they've pared their losses and are only off by a third of 1% percent. Where there's smoke, there's fire. So I wonder if this is something that also is an issue for Hasbro yet. When I look at Hasbro's share price, it's up 9, 10 of 1%. I realize that we shouldn't read too much into the day to day moves of each stock price, but can you just talk a little bit about how Hasbro is now positioned?

[Jodi Laurie]

Yes.

[Lindsey Dutch]

So Hasbro, I think, faces very similar challenges on the toy side. Toys still for Hasbro account for more than 50% of annual revenue. But they do also have a very strong and a growing digital gaming business. So when I think about third quarter earnings and they're reporting tomorrow morning, you know, I think that digital gaming business, you know, could shine and it could offset a lot of pressure on that, that toy product side. Hasbro also has significantly lower expectations for their toy business. So they are thinking about that business being down, you know, mid to high single digits, whereas Mattel has stuck with their guidance for sales growth of 1 to 3% on a constant currency basis. So Mattel's outlook is just much more ambitious and much more optimistic for that fourth quarter where Hasbro is going in. They have the digital gaming offset and they already have lower expectations.

[Scarlett Fu]

Lindsey, what are the, what are the trends impacting the toy business these days? Is there, I mean, I guess a lot of electronics, but what are some of the, the big trends that you're paying attention to.

[Lindsey Dutch]

So a big trend that we have seen growing momentum on is really the kidult trend, which is adults 18 plus playing with more toys and Hasbro, Mattel, Lego, they're all playing into this. So those big black box Legos that are very high price points, you know, they've done very well the past couple of years. But Mattel is also, also leaning into that. A lot of their like new products coming out even with Barbie or Hot Wheels are really collectors items. They're really aiming at that cadalt and honestly the industry was up 6% in the first half, up high single digits in the third quarter. And that's really being driven by this trend.

[Paul Sweeney]

As we look ahead to the holiday season, I realize for companies themselves they are already knee deep in it, but as consumers were looking ahead to it, are there any must have items that the toy makers are really counting on or these toy retailers are really counting on?

[Lindsey Dutch]

So I look through all the holiday lists and I was a little bit disappointed. I didn't see any wow gifts or what I would call a wow gift. One cool collab that Mattel has, but it's really for 2026 pre orders will will be available in November as they are doing a collab with Netflix, the K Pop Demon Hunters. So they are doing action figures and dolls for that series and that should be coming out next year. And I do think that could be.

[Scarlett Fu]

A big hit, particularly for kids movies. I mean Hollywood used to do these tie ins with all toys and lunchboxes and things like that. Is that still a marketing lane for the toy industry?

[Lindsey Dutch]

For the movie industry it is and these companies are really leaning into that. But there hasn't been a ton of new content. So Mattel has the Disney Princess and the Frozen license. You know, the Disney lineup for the past year, you know, hasn't been stellar. The Snow White movie was not really a huge success. They are looking forward to live action Moana coming out next year. You know, that could be another key thing for Mattel. You know, doing the dolls for the Moana movie and other licensing agreements are key growth drivers. We just need a little bit of a straight, stronger entertainment slate.

[Scarlett Fu]

Stay with us. More from Bloomberg Intelligence coming up after this.

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[Paul Sweeney]

You'Re listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcast, podcasts or watch us live on YouTube.

[Scarlett Fu]

Hilton Hotels reported some pretty solid results there. The Stock's up about 5% today, up about 12% year to date. Let's check in with Jodi Laurie. Laurie, she is Senior Credit Analyst for Bloomberg Intelligence. She joins us from Princeton, New Jersey. Jodi, what did you hear from Hilton in their earnings release?

[Jodi Laurie]

So I think Paul, you know what's interesting is that Brian Egger, my equity counterpart and I came up with the same conclusion in that they are a little bit too optimistic, it seems. In general, I think what's so funny is when you compare and actually taking a step back, it's a little alarming when equity and credit analysts right? Just as a side note, but when you Compare what their estimates were for Revpar looking a year ago. You know, fourth quarter of last year you were talking 2 to 3% positive 2 to 3% percent. Now they're saying 0 to 1%. Yet for some reason they're able to reach an EBITDA that's almost similar to what they were projecting then. So it's a little bit of a head scratcher I guess. A lot of it's coming from the cost component of it. You know, if your, your revenue per available room isn't necessarily growing, but then your ebit is growing, you sort of say okay, well where that, where is that coming from and what does that mean overall?

[Scarlett Fu]

So what is the company saying about kind of their, there's just the underlying book of business, how are their bookings looking and you know, what are they saying about I guess components of their, of their customer base.

[Jodi Laurie]

So if you break it out, the US is a clear sort of underperformer at the moment. In terms of travel, we're seeing some weakness, some more muted results on the leisure side of things for group and business which was supposed to be a tailwind this year, it's actually pulling back, it's a little bit decreasing now they're saying that group going into next year is going to be positive. But it is interesting to hear that this component where they're hanging their hat on as the area of growth is now not really performing. Now if you look across their brands, what stood out for me, especially for the third quarter but also year to date is that comparing their higher end brands versus a year ago, it was very strong in terms of growth from an occupancy standpoint. But then if you look at the lower end brands, they're actually a lot weaker. So the farther down you go in terms of their quality of their brand. So if you're talking the Conrad brand, which is one of their more premier brands, Waldorf Astoria, etc. Those have been doing pretty well compared to last year. If you go further down the line into some of their more economy scale brands, that's where it's weakest and that speaks to that K shaped economy that everybody is talking about.

[Scarlett Fu]

What I noted they get probably 80% of the revenue is US based here. What's their international strategy these days?

[Jodi Laurie]

So internationally they seem to be growing a lot. They're, they're focusing on new types of brands to get there. They definitely see certain pockets of international doing well. I mean the Middle east and Africa actually did very well this, this quarter which was an interesting component to see. And I think that they're looking at Asia and they're sort of a little concerned to some extent, but they definitely, it was an interesting sort of dichotomy between what's going on in the US and what's on going, going on elsewhere in the world. I think where we're sort of concerned is that they are still giving back to shareholders the same level that they were, you know, the 3.3 billion expected for this year. They have leverage that's roughly within their range of three to three and a half times. But if you're, you're talking about a 2026 that's very uncertain, you say, okay, wouldn't you want to hold on to your cash maybe just a little bit more than your giving out?

[Scarlett Fu]

What, what, what are the Hilton, Hiltons of the world doing in terms of capacities? Is the industry, are they building new hotels? Are they taking hotels off the market? Are they building higher end or lower end? Where's the kind of the capital for this industry going?

[Jodi Laurie]

For Hilton specifically? They're, they're still very much growing. I mean, that was a lot of the conversation. You know, the management team was very optimistic about growth coming from these new properties and also from new brands. I mean, they have a new lifestyle brand that they're introducing as part of their growth strategy. And I think they're trying to key into these low, these younger consumers, getting them to go into these lifestyle brands and more of these quick service brands that might not necessarily be traditional hotels, maybe sort of tapping into what they're seeing in Airbnb's and VRBOs and other sort of alternatives to your traditional hotels. Now what I will say though is something that was a little bit jarring to me as a credit analyst and as somebody who likes macroeconomics is they talked about how inflation is actually reducing and with it are rates. And I don't think that's quite the calculation I would do. But I also am sort of curious as to if the consumer is necessarily feeling that you layer that in. They did mention a little bit about the government shutdown affecting volumes and affecting the outlook. But I do sort of wonder what that means for other companies in the space. For example, choice that really depends on government in terms of infrastructure spending and long term stays at their properties throughout the country.

[Paul Sweeney]

This is the Bloomberg Intelligence podcast available on Apple, Spotify and anywhere else you get your podcasts. Listen live each week day 10am to noon 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.

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