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Anne Barry (4:28)

Coming up, Oracle's earnings exacerbated fears that the company may be left holding the AI bag. So we're going to take a look at the key questions executives still have not answered. And after getting over at Ski's Vail Resort, see the return of a leadership mogul. Can he get the company back on track? Well, quarterly earnings are still dribbling in, slowly trickling in, still sending stocks moving. So we're still watching those even in this run up to the holidays. And we're going to start with something that feels a little bit festive, actually sort of a snowy vibe. And that's Vail Resorts in just a minute. But first, all eyes were on Oracle last night as the company reported earnings and Investors sought insight into the company's expensive build out of AI data centers. So we're going to dig into how much might be recouped by through a partnership with OpenAI or not. Well, the market didn't get all the answers it wanted. Sort of the punchline here, John. We won't bury the lead on that one, but give us a brief overview of Oracle because this is one of those names all over the headlines all the time. Let's talk about just the context for how this big this business actually is and what it actually does because nobody so goes back to basics on this one.

John Croteau (5:34)

That's right, and it's evolved over time, over the decades that it's been in business. Ticker or CL on the New York Stock Exchange market cap Yesterday before earnings $635 billion and you mentioned dropped $100 billion overnight to 535 billion at the start of today's trading session. So let's start with what the company does. Like you were saying, it started out Oracle as a database software company that allowed companies to store, manage and secure data. But in recent years Oracle has been building out massive cloud data centers in competition with more established cloud providers like Amazon's web services, Google, Google Cloud and Microsoft Azure. And so in fact this is the first quarter that Oracle's cloud infrastructure unit generated more sales than the applications business. So it's really going whole hog into this area. And Oracle doesn't own the data center structures. This is going to be a point that comes up. It builds them out and then rents out the computing capacity.

Anne Barry (6:30)

Right. And it's that rental where actually the margins have turned out to be thinner than expected by the market, which has caused Oracle, whose share price has absolutely rocketed over the last year, but it started to tick down once that margin profile and the sort of skinniness of it started to become apparent to investors. Well, shares were down overall again, $100 billion in market cap wiped out literally overnight. And that's because this was such a critical earnings report. John, I was staring at this, waiting for this to break after the bell yesterday because one of the fears that has been fueling the narrative around do we have an AI bubble? Is this idea that now we're moving beyond the likes of Nvidia stroking checks for $10 billion, which they can do because they generate a lot of cash, to companies like Oracle now taking ton of debt to fund investments in AI. And when credit and debt starts getting involved and there's a fear of a bubble, those two things colliding start to make the mark market a little bit anxious. So let's just frame how much spending we're talking about here. The market has been floating around. Numbers like Oracle may have to spend up to $100 billion to fulfill its intentions in AI. Oracle came out very clearly saying we think that's an overstatement, we think it's going to be lower. The problem is they didn't give an alternative number. Right. And if we look at where CapEx has been trending and look at the hard numbers the facts actually disclosed rather than speculation. Oracle's capex did hit about $12 billion in the last quarter, an increase from 8 and a half billion dollars in the preceding period. And most importantly, much higher than the $8.25 billion analysts expected for the quarter, to the tune of nearly $4 billion, 50% higher than expected. That is the core of what's going on here. And the market saying, how on earth Oracle are you going to pay for it?

John Croteau (8:15)

Right? And we're talking about, well, how much money are they bringing in? Yeah, they reported revenue of $16 billion, which was up 14% year over year, but short of estimates and not keeping up with that spend like you were talking about.

Anne Barry (8:26)

Now one of the things that the company has touted and which initially got the market very excited, one of the reasons that Oracle share price shot up in the first place was it sort of popped up out of a cake and said we've got a ton of contracted future revenue, including from cloud customers like TikTok and Meta, but with a whopping chunk of it related to work with OpenAI. So just to put the numbers around this, the company did report $520 billion plus of contracted future revenue. Over half of that 300 billion related to work specifically with OpenAI, which PS is still a loss making startup whose early lead in AI no longer looks unassailable. Good use of unassailable Google is gaining ground. We've seen the Gemini models being lauded by the likes of Salesforce founder Marc Benioff. So there is a question, right? There is question whether OpenAI is really going to turn up with $300 billion of revenue for Oracle when all is said and done.

John Croteau (9:20)

And is Oracle leaving itself vulnerable because reportedly the contract between OpenAI and Oracle is spread out over five years, $300 billion over five years, whereas Oracle's property leases are typically at least twice that. So Oracle is on the hook for lease money and payments for these data centers for 10 years plus. Begging the question, what happens after the five years.

Anne Barry (9:41)

Yeah, exactly. And you can see that the lease obligations on those buildings are significant. Those leases adding to the debt obligation that's sitting on out there. And so look, you've got folks who doubt that OpenAI will be able to generate that $300 billion of revenue that's sitting in Oracle's numbers right now. OpenAI, should it back out, as you just said, John would leave Oracle with costly rent payments to the data center building owners. So there's just a lot going on here and a lot of key questions were asked that just weren't answered right.

John Croteau (10:09)

And there was one analyst I saw that thought it was sort of clever that Sam Altman's OpenAI is allowing Oracle to do all the hard work and costly legwork of setting up these data centers and then running their company off of it.

Anne Barry (10:22)

Other people's money has been the mantra for many, many successful companies and wealthy individuals over time. Well, look, just in terms of CapEx guidance, Oracle did say it would hit $50 billion in the fiscal year ending May 2026, up $15 billion from the projection it provided just three months ago. Again, the sort of snowballing cost of investing behind AI and just to sort of quickly go through this debt question, which really is the core of all this, not only are there concerns about the cost and the time required to develop AI infrastructure, the problem is the market did ask Oracle, well, how much debt is going to take? The company's already taken out a significant amount. There was an 18 billion dollar bond offering in September, which is when a lot of folks started to get nervous and there just wasn't answer the measure of Oracle's credit risk. There's lots of different ways to measure this, but did reach a fresh 16 year high over the course of today. That kind of volatility demonstrating just how much the market's got its eyes on this. So just again, I want to be more upbeat about this. We're going to be upbeat when we talk about Vera resorts. But just to put it in context again, Oracle stock had lost a third of its value since a record high on September 10th. That was even before the earnings report today. So this one's become pretty volatile and.

John Croteau (11:37)

Down about 10 and a half percent at the end of the day.

Anne Barry (11:39)

Yeah, so even just in that one day. Well, we're going to keep watching Oracle because don't forget, it isn't really a story about just Oracle, it's always also a story about the Ellison, because just a reminder, Larry Ellison, founder of Oracle, he has some CEOs running the business. But he's very much still involved from the board level. His son, David Ellison, is the CEO and the brains behind Paramount Sky Dance. And so the Ellison connection to Oracle is not going away. And one of the questions around the Paramount Bridge for Warner Brothers is how will the family afford it? We know that the Ellisons have got backing from some sovereign wealth funds from Apollo, which is a private equity firm from Redbird. But the Ellison family net worth and wealth is on the line for that, too. And it is inextricably linked to the Oracle stock price. So there's more to it than just chips for once on this one.

John Croteau (12:26)

Absolutely.

Anne Barry (12:27)

Let's talk skiing. Let's go to a different kind of company that also reported earnings last night. And we were inspired by two things to dig into this one. The first was the absolutely frigid weather that's settling in across the United States at the moment. But also by a note that got us really excited because a listener did ask us explicitly to look at VE resorts and especially to see how the current ski pass season and holiday bookings are starting to look. So, John, let's take a look at this one. VE Resorts.

John Croteau (12:55)

That's right, Vail Resorts. Ticker Mtn, which I guess is mountain.

Anne Barry (12:59)

Great ticker. Love it.

John Croteau (13:00)

Market cap of five and a half billion dollars. And so of course, we all know the fancy skiing in Vail, Colorado. That's the namesake. But Vail Resorts is a network that includes Vail, but other mountain destinations and resorts like Breckenridge, Park City, Whistler, Stowe and 32 other locations across North America, as well as a few international locations. So this is skiing, but it's also hotels, restaurants, golf courses and retail.

Anne Barry (13:24)

The great outdoors in general. That's been a big investment thesis because people are wanting to be outdoors a lot more these days. Vacations. Well, the company did report a loss of $187 million, but net revenue was up 4% year over year. And it was quite surprising to see where the growth was coming from.

John Croteau (13:41)

That's right. I looked it up. The growth came from Australia. I had not considered there being a strong skiing scene in Australia or just.

Anne Barry (13:49)

Being outdoors, which Australia is known for. Actually, it's known for being an outdoorsy environment. And I would just say one thing. So I do ski. I don't snowboard. I'm actually afraid of snowboarders, if I'm honest. As a skier, I sort of pizza my way down the slope and I hear the, of the, of the snowboarders behind me. It makes me a More nervous skier. But I do love going to ski resorts in the spring and the summer and the fall. Hiking those trails is actually very beautiful. So I can kind of see how Australia might end up being just a sort of outdoors in general destination. Well, Vera Resorts did reaffirm its fiscal 2026 guidance with EBITDA, which is really the measure of profitability here. Pretty chunky. You forget how big this business is. Just again, five and a half billion dollars in market cap. EBITDA outlook for 2026 of 842 to 898 million dollars. That's pretty chunky. And then just to dig in a bit more specifically to what our listener asked us to take a look at, compared to last year, the number of ski passes sold for the upcoming season is down by 2%. But the price of a pass is up 7%. And the price of ski passes going up has been a point of contention for several years now.

John Croteau (14:56)

That's right. And so there's been a real challenge with this company to put it in perspective. Share prices down 25% year to date and it's down 50% over the last five years. So what did the market see today? That sent shares up around 9% and that's a turnaround plan. And that was the other thing that the listener referenced. Rob Katz has been the CEO, had been the CEO for 15 years before stepping down in 2021. And he returned to the job earlier this year after foot traffic to Vail Resorts continued to decline despite an uptick in skiers across the United States.

Anne Barry (15:28)

Well, it's interesting to see this one because you can see how again these kinds of resorts were doing pretty well in that sort of pandemic to post pandemic era when everyone was focused on sort of being outdoors and it felt safer. So Kat, since he' come back, is trying to bring those skiers to Vails properties. The addressable markets increased. If you've got an uptick in the number of US skiers overall. And the way he's trying to do it is by trying to raise brand awareness. The company has increased spending on social media and specifically influencer advertising, which makes a ton of sense for this kind of company. They're rolling out new promotions that focus on the single day walk up skiers because Kat thought that the company had become too focused on selling season passes, which is where you've really seen that price escalation. And this reminded me, John, actually of reading last month how Uber, do you remember this? Has really tried to focus on Uber. It launching Uber Ski, which is combining ride and lift ticket booking. And that was a partnership with Epic Passes, which I think does in fact cover some of the resorts sitting in the. This is, this is Epic Passes. So Uber and that partnership made a ton of sense to me at the time. And looking at it in the context now of this earnings report makes even more sense to me. And it's just look good old fashioned lowered lift prices at some resorts and the hope is that the elasticity means that some demand is driven into these locations as a result. So this to me feels like going back to basics in some sense, which is frankly getting your marketing program up to date, going digital, going influencer and thinking about how to get, you know, people like me who maybe don't want to be a season pass holder. I don't travel enough to ski resorts to do it, but I want to have a good time and I go for a day or two or go for a weekend.

John Croteau (17:05)

Yeah. And feel like I'm included. Like you're welcome to come up for just one day.

Anne Barry (17:09)

Although I'm such a horrible skier, everyone else would wish that I was not included. Nobody wants me on the slaves.

John Croteau (17:14)

I just want to give one more parting.

Anne Barry (17:15)

Yeah, go for it.

John Croteau (17:16)

I was looking through the earnings report today and learning about this company in a way I didn't know. You know, it's a big capital expense to run these outdoor properties. And according to the the company, they're going to spend about $235 million in the upcoming year. And it's for things like replacement T bar lifts at Whistler, upgrading to a 10 person gondola lift in Park City, and this one got me. And installing remote avalanche control systems, which is an ongoing concern.

Anne Barry (17:44)

Yeah, it is.

John Croteau (17:45)

They can remotely and safely trigger avalanches.

Anne Barry (17:47)

To improve safety just so that people don't get stuck in snow. That comes in an unpredictable fashion. I mean, it's critically important. Your reputation, you think about it. The safety element of this is so critical. If you're operating one of these resorts and I put in the same bucket, by the way, theme parks, Right.

John Croteau (18:02)

Sure.

Anne Barry (18:02)

You can't have roller coasters going wrong. You can't have your gondola going wrong in Park City. These kinds of things, I mean, these are horror stories. The idea that people get stuck up on the ski lift. So it makes complete sense that there's an upgrade going and complete sense that they're probably going to emphasize the safety and reliability as part of their marketing message. Fascinating, this one. Thank you to our listener who asked us to look at this. We love it when folks ask us to dig into specific names because we look at so many and we're excited about so many. Helping us focus on the ones that get you the most engaged and excited is something we really appreciate. So thanks again for writing in. Well, let's take a quick break and when we come back, we'll go over leadership change at Coca Cola. More on that cease and desist letter from Disney to Google how a soccer stock is playing this earnings season. And one big chart that caught our eye. I can't wait to talk about that because it's an absolute eye popper. And now a word from our sponsor, Vanguard Financial Advisors. Listen up. Capturing value in fixed income is not easy. Bond markets are massive, murky. And let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard.

John Croteau (19:05)

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John Croteau (19:21)

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Anne Barry (19:23)

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Anne Barry (20:05)

It's 4pm on the east Coast. There's the closing bell. The markets are wrapping up for the day. We don't have a ticker tape, so we're going to throw it over to our human ticker. Our producer, John that's right.

John Croteau (20:14)

The NASDAQ finished down a quarter of a percent today, but the S&P 500 was up 2:10, finishing at 6901, which is a record high for the S&P 500. And the Dow Industrial Average finished up one and a third of a percent today, finishing at 48,704, which is also a record high finish.

Anne Barry (20:34)

We Mentioned earlier that last night lawyers for Disney sent a cease and desist letter to Google that shines a light on the challenge of protecting IP in the age of AI. So we wanted to dig into this because these are two monster public companies. Alphabet, the parent company of Google, Disney, as we know, right on up there as the media og. So this letter is really, really interesting with some interesting quotations, actually, that we wanted to hone in on to really paint the picture of what's going on. That's right.

John Croteau (20:59)

So the letter from Disney says, quote, Google is infringing Disney's copyrights on a massive scale by copying a large corpus of Disney's copyrighted works without authorization to train and develop generative artificial intelligence models and services.

Anne Barry (21:13)

That training element so key.

John Croteau (21:16)

That's right. And training AI models isn't the only concern. The letter also alleges that Google is using AI to, quote, commercially exploit and distribute copies of its protected works to customers in violation of Disney's copyrights.

Anne Barry (21:28)

Yeah, there's a lot going on there. Well, the Disney characters allegedly ripped off include those from Frozen, the Lion King, Moana, the Little Mermaid, Deadpool, the Guardians of the Galaxy, Star Wars. That's according to a report from Variety today. So you can really see the range of IP that it's concerned about. Well, this isn't the first time that Disney has roared against alleged infringements. It's really being proactive to try and get in front of them. Disney has sent cease and desist letters to Meta and to Character AI. And Disney's also filed litigation against AI companies Midjourney and Minimax alleging copyright infringement. So it's spending lawyer dollars on trying.

John Croteau (22:03)

To tackle this right, and onto a different form of entertainment, Premier League football. I didn't know until recently that you can invest in soccer in the public markets by putting your money into Manchester United. That's ticker man. U M A N U Clever. It has a $2.7 billion market cap and is listed on the New York Stock Exchange.

Anne Barry (22:22)

Well, ma, Manchester United earnings came out today. And just a reminder, the reports are in pound sterling. So when you go and look it up, just remember there is the currency difference there. Despite being listed in the United States, the latest quarterly results came in with a total revenue just over 140 million pounds. And adjusted EBITDA, that measure of profit, hitting 26.9 million pounds. Net debt, interestingly, hit its highest level in 20 years because this company was out borrowing a ton of cash over the summer to fund recruiting players. So very interesting. Just to think about for the business model for these kinds of companies. And there's been a lot of noise around what the franchise's truly sustainable cost base ought to be. The INEOS Group, which is led by Britain's richest man, Sir Jim Ratcliffe, became minority owners early last year and since getting into the cap table has undertaken a pretty aggressive cost cutting drive at Old Trafford, which is hq, that manufacturer still going on at the club, still seeing those cost reductions and restructurings. Stock down today on their earnings report. The market saying it's not seeing enough progress on that hitting the bottom line quite yet.

John Croteau (23:26)

And I read in that article that literally no more free lunches at the staff canteen over at hq, Coca Cola shares also ticking down today. That's on news last night that the company's chief operating officer will be taking over as CEO on March 31st.

Anne Barry (23:39)

Well, the outgoing CEO, James Quincy has been in charge for nine years. He's going to transition to executive chairman and he's had a pretty solid stock, up 30% over the past five years. A very highly regarded CEO. So the market getting a little bit nervous with the idea that there's a changing of the guard. We're going to keep watching that one and see if once that new CEO is in his seat, despite having been at the company for a while, if he's going to do anything dramatic. So all eyes on that one. But just as a final thought, there was one chart that kept referencing it. I'm going to post it on Social later today. And that was a chart that came out from Apollo star analyst Torsten Slock. This is somebody who gets a ton of attention. Apollo's chief economist, Rita Retail investors always perk up to hear what he has to say. So do institutional investors. He really is one of those rare people who gets to both audiences. And he published a note today with this chart which plots the price to earnings ratio. It's a key metric that is used to determine how expensive a stock is relative to the promise of earnings generation by a company. And he plots this against what happens to the S P 500 once those P ratios hit a certain level, what happens in the 10 years afterwards in terms of the annualized return. And what this actually shows is his his conclusion is if you take a look at the P ratios of the S P500 today, he would say that the chart, the correlation analysis would predict a 0, a 00% return to the S P 500 over the coming decade. Now he very cleverly didn't elaborate too much more on that. That a sort of self explanatory. I am again going to post this chart because it's eye popping but when somebody like that, with that kind of scale of audience, as Torsten Slock says something like this, it's a warning bell. So we're going to keep on watching this and also we're going to be digging into this more because over the next week or so in the run up to the holidays, we're going to survey lots of different analysts for their predictions on what's going to happen in 2026. So stick with us over the next couple of episodes as we lay out that landscape for you. That's it folks for today's Brew Markets Daily.

John Croteau (25:41)

Brew Markets Daily is hosted by Anne Barry and a very happy birth.

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Things are hurt.

Anne Barry (25:46)

Thank you, thank you team for the donuts. I've been a festoon of donuts today. I love donuts and the team's been so kind.

John Croteau (25:53)

You have lots of sweets to invite. I do.

Anne Barry (25:55)

I'm so excited. I'm gonna be 10 pounds heavier for the show tomorrow.

Commercial Voice (25:58)

Thank you all.

John Croteau (25:58)

The show is produced by John Croteau, Tarka Bid, El Teef and Emily Milian. Technical direction by Felicia Edwards. Jim Orzo is our audio engineer and the president of Morning Brew Inc. Is Devin Emmerich.

Anne Barry (26:08)

Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow morning, folks. Same time, same place.

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