C (3:18)

That's right, the Power of Advice is a new series from Capital Ideas and Capital Group. You'll hear from CEOs, investors and founders about how they built careers, took risks and reinvented themselves.

B (3:28)

Topics covered on the podcast include how to not over learn lessons, embracing discomfort and more.

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And if you're starting your own journey, this is the kind of advice you won't want to miss. Part published by Capital Client Group Inc.

B (3:39)

Well, we are off to the races with earnings season and we thought to dig into a couple of the big ones that caught our eye today. So let's start with Netflix. Revenue up 17% to 11 and a half billion dollars, although that was below forecast. And net income up nearly 8% to two and a half billion dollars. Still healthy growth still below forecast. So we're just going to break down some of the numbers here because there's actually a lot going on.

C (4:04)

Well, you know, you said they missed some of those forecasts and the results broke Netflix's six quarter streak of posting a profit that beat projections. And the company blamed an over $600 million tax bill from Brazil. So here's what CFO Spencer Newman had to say about it on today's call.

A (4:22)

No other tax looks or behaves like this in any other major country in which we operate. And secondly, absent this expense, we would have exceeded our Q3.25 operating income and and operating margin forecast. And we don't expect this matter to have a material impact on our results going forward.

B (4:40)

So I always find it funny, John, when tax is humanized right here, it looks and behaves in a certain way. And I found this really interesting because you flagged this right when we were chatting about this earlier.

C (4:50)

That's right.

B (4:51)

And this is one of these things where from the CFO's perspective, he must be so frustrated that he's having to talk about a one time hit. Just wanted to point out that although the market did not react positively to this tax bill, the company does in fact have over $9 billion of cash on its balance sheet. Netflix is a cash flow machine at the moment, so this does feel like something it can absorb. Just one sort of super nerdy note to one of the measures of profit we often talk about on the show is ebitda. And the reason it's used a lot is it's before things like these one time tax hits. So the T and ebitda, that's the T in ebitda. So totally nerding out there. But interesting that the market's not quite looking through that tax hit here. Now there are a couple other things. The company said it recorded its best ever quarter for ad sales. It's on track to more than double revenue from ads relative to last year. And let's talk a little bit about where some of these new developments are coming from. Now, even in live shows are going to be commercials, even if you've got an ad free subscription. So a different form of ad revenue coming in. We've got double header NFL Christmas Day games coming up.

C (5:53)

The SAG Awards.

B (5:55)

I love that you caught the SAG Awards. WWE every week. And then we've got the World Baseball Classic in Japan in 2026, which I love by the way, because the songs actually all the fans come up and sing like a special song for each team member, which is pretty cool.

C (6:07)

Oh, I'm looking forward to that. But that's an interesting revenue stream because I'm a subscriber, I pay every month and so I think, well, I'm not gonna get ads, but if I want those special live Japanese game songs, I'm gonna have to pay and watch an ad. They have some things coming up on the docket at Netflix. K Pop Demon Hunters Sing along is headed back to theaters in Halloween. That's their smash hit movie. But this time the movie is going to be shown on AMC screens. Previously there was sort of a chilly relationship between Netflix and amc. What's for streaming, what's for the theaters. And so it's interesting to see that that relationship might be thawing a bit. And Netflix is rolling out new party games on the tv. This is different than the ones they had before this. You can control the game with your telephone, it's on the TV in the house, and you can play games like Boggle or Pictionary.

B (6:56)

I love that it's such a good idea.

C (6:57)

And that reminds me of COVID when we were at home and playing these games. So it's interesting to see that Netflix is diversifying their offerings beyond just shows and then not just TV shows. Last week they inked a deal with Spotify to air some of the video podcasts that had previously been on Spotify. You'll now be able to see next year on Netflix.

B (7:14)

It's interesting. So are they planning to have sort of a podcast channel almost within Netflix? Is that the vision for it?

C (7:19)

We're going to see how it, how it turns out, but that's what would mean to me.

B (7:22)

Also on the point of games, Catan, did you see that announcement this morning? Apparently now got a partnership with Netflix. Well, the other reason that Netflix has been coming up in the news lately, beyond earnings of course, is the speculation that Netflix could be interested in buying Warner Brothers Discovery, which is a deal, but abuzz in the news at the moment. Now, Ted Sarandos, who's the co CEO of Netflix, was asked the question, is this something that Netflix could do? And I thought his answer was just pretty clear. He said, quote, we've been very clear in the past that we have no interest in owning legacy media networks. So there's no change there. We're predominantly focused on growing organically. This to me was such a fascinating quote because so often when a major asset comes up for sale in the industry, CEOs like to preserve optionality. Right. They don't like to shut down the idea that they could go and do something in case they change their mind and they don't want shareholders. Surprise. This was pretty definitive.

C (8:14)

Ted is betting big on the programming that he has developed. He's developed the live television, he's developed these comic specials. He's doubling down on what he chose.

B (8:23)

Well, the thing that's not doubling down unfortunately is its share price. Netflix was down 10% this morning, but still up over 25% year to date. Expectations were pretty high on this one. It needed some blowout earnings to keep justifying that valuation. Well, we're not quite done yet with Netflix because there was another company it's teaming up with which caught our eye and that is Mattel, the toy making giant. Now Mattel and Hasbro, it announced yesterday, have partnered with Netflix to capitalize on the success of the exact movie that you just discussed, John, which is K Pop, Demon Hunt, Demon Hunters, to offer dolls and other consumer products tied to the film. Also part of this collectible movements we've seen with sort of adult collectors as well. Now Mattel's earnings came out last night, missed expectations, share price down just under 3% today and right.

C (9:11)

And during the third quarter sales in North America fell 12% with the largest year over year declines in the company's toddler and preschool category, international sales climbed 3%. So Barbie and Fisher Price brands, those are Mattel's two biggest, were particularly down.

B (9:26)

So here's why this caught my eye. And so one of the things that we talk a lot about on the show is how earnings is actually a really interesting moment to try and look at lots of different pieces of data and then use those to build up a picture, not just about individual companies, but what's going on in a market more broadly. And here's why Mattel caught my eye. Other than that, participation in this K Pop Demon hunters. For toy companies, the quarter immediately before the holiday season is a really critically important one because that's the time when the retail customers, the likes of Walmart and Target and Amazon, place their orders with the toy manufacturers to start getting ready to stock their shelves for Thanksgiving and for Christmas. Now, the fact that sales were weak at Mattel is something the market is looking at and saying, oh no, you know what this means? It means Walmart and Target and the like are expecting holiday sales to not be as strong as we all would have hoped for. So we're actually going to pivot to looking at those retail shares, share prices tomorrow morning to see what their reaction is going to be. Now, when the retailers feel more cautious, it shows up as a lag in Mattel's results like we saw today. And then here's the other thing that's interesting in terms of this kind of pattern. Mattel saw a similar effect during President Trump's first term trade wars when retailers delayed toy orders amidst the shifting tariff policy, again causing what we've now seen today. So just goes to show, history does sort of have these patterns. And again, there's more that Mattel signals than just what's going on amongst toys in this particular company.

C (10:56)

Yeah, we'll be looking to the Christmas season for that. That's interesting. And Hilton Worldwide announced today. Hilton, Yep, they logged their highest profit in revenue in the third quarter despite a loss in occupancy. And so you'll get into that in a moment. Revenue was up 8.8% to over $3 billion. Net income of 400 million and adjusted earnings were 2 and 11 cents a share, which beat estimates by 6 cents. No, but system wide occupancy and average daily rate both slipped about half a percent.

B (11:26)

It's really interesting to see a share price up, by the way. So Hilton was up nearly 5% today. Off the back of these earnings, when you're in the hotel industry and you report Occupancy down, meaning literally the number of people, travelers staying in your rooms, an average daily rate down. You don't expect to see those two things and then actually see a share price go up. So we dug some more into this and you know, John, there was actually more commentary about how it's been a bumpy time for US Hotel companies. Right. Talk a little bit about foreign visitors to the United States.

C (11:58)

Overall revenue per available room declined 1.1% over all Hilton. But 2.3% of that decline came in the United States. But there was less of a decline in the Middle east and Africa.

B (12:09)

Right. So we saw a pullback in the US by foreign visitors. There's been a pullback in government travel as well. Instead though, that growth overseas is something that was really eye catching. Now there's a new pipeline of hotels that Hilton announced today. It's looking to open up another 3,650 ish hotels, very interestingly, including 26 territories that Hilton is not present in today. And this emphasis on the Middle east and Africa and these new markets reminded me of a conversation I actually had with an entrepreneur based in Singapore who'd founded a premium hotel brand. And he said, look, here's something that you've got to think about as a US Investor. Whatever happens in the United States, we're seeing the rise and rise of the middle classes in markets like the Middle east, in markets like Asia and, and those populations actually want to vacation locally because there's so much to explore. And I was reminded of this again, that share price up despite those key metrics being down because Hilton was able to paint a picture of there being more growth coming down the line. The other piece I would just point to, when it comes to Hilton, their business model is very special because they have a lot of franchise and licensing fees. Those were actually up year over year. There's a hugely cash flow generative. So again, despite those core metrics we associate with hotels being down, I think other things going on at Hilton being rewarded, Management team being ex being rewarded for core execution, focusing on getting costs down as well. So much going on in earnings. We're going to keep at it every day at the moment, drinking from the fire hose. We're going to take a quick break. When we come back, LinkedIn's chief economist Karen Kimbrough joins me to discuss the state of the labor market and what role AI may or may not be playing. Brew Markets Daily is sponsored by Public, the platform for those who take investing seriously. John, who do you go to if you have questions about your your investments.

C (13:55)

Well, I have in the past called my mother.

B (13:58)

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B (14:58)

Earlier today I sat down with LinkedIn's Chief Economist Karen Kimbrough for the latest on the labor market. Now, she previously served as Vice president in the Markets group of the Federal Reserve bank of New York during the financial crisis, so she has a very unique perspective on what's going on. Here's our conversation. I saw on your LinkedIn profile that earlier in your career you were a director at the Federal Reserve bank of New York. Let's talk a bit about what's going on. Right now we're in the thick of the government shutdown. It's now, I think, the second longest in U.S. history. And one of the key issues here has been no new jobs data coming out of the Bureau of Labour Statistics. We do have a Fed decision due out next week. So from your seat now at LinkedIn and having been part of the Fed, what happens now? We've seen private companies like ADP filling the Gap. Is LinkedIn publishing labor data that could be useful for some of the Fed's decision making?

A (15:53)

Here we are, in fact, we're not only publishing the data, we're offering to share it with government officials, with central bankers, not just in the US but around the globe to let them kind of understand what we're seeing. And we acknowledge that, like, honestly, it's a mosaic of data from all different types of private companies. But LinkedIn has a role to play here. In a moment when there's an opportunity and a need for more data. So we're able to tell them about hiring, job openings, whether people are quitting or staying put. We can tell them what kinds of roles are ascending. And we have even our own non farm payrolls outlook, so we share all of that with them just to give them a picture from our perspective.

B (16:37)

And are they taking you up on this or actually the government officials saying to you, give us your data, we want it?

A (16:44)

Oh, I mean, absolutely. In fact, we're really happy to play a role all the time, you know, whether or not the data is being provided from the government, we just see ourselves as an auxiliary part of this whole process of understanding what's going on in the market. Our data is very real time. And so we are happily sharing what we're seeing, you know, in real time across different industries, sectors, geographies, so they can understand, like, is hiring slowing? Is it speeding up? What do we think it means for whether employers are looking for more talent or, you know, holding off? So, yeah, we share that data with them actively. And to be honest, we were sharing that with them before the shutdown and before the summer. So it's been going on for a while.

B (17:24)

So, Karen, tell us what the data is telling us. Are we seeing a labor market that's as fragile as the headlines suggest? Are we seeing a slowdown in growth? What are some of the top, call it three takeaways that you're seeing from the LinkedIn data at the moment?

A (17:37)

So the labor market is holding up, but it is a lot more fragile than, or precarious than it was, you know, six or eight months ago. I mean, by our view, the U.S. economy has created as many jobs in, say, the last four or five months as it did in the month of April alone. So all the jobs are created in April. That same number of jobs, net, it took us another five months to create. So things have slowed significantly over the summer. I will tell you, I was probably the only person who, when they saw the revisions to the labor market data, thought, oh, okay, that makes sense. Because our data all along had been looking pretty soft. We've seen a slowing in labor demand, which means employers looking to hire, demanding that labor, but also a slowing in supply of labor, the availability of workers. People are not looking to move as much, even if they feel a little bit less engaged at work and are curious. They're so cautious, they're not really moving. So everything is kind of stuck a little bit We're a little bit frozen, if you will.

B (18:39)

And Karen, is your data showing what lots of news outlets are reporting on at the moment, which is for the generation of new college graduates in particular, there has been a greater slowdown in hiring than for other demographics. Is that consistent with what you've been seeing?

A (18:55)

It is, but I feel like I have a take I really want to emphasize here. So let me tell you what we see and then I'll tell you how I read it.

B (19:01)

Okay.

A (19:02)

What we see is that hiring for everyone has slowed significantly since pre pandemic time. If I take 2019 as a baseline and I say, well, what's the pace of hiring now? Well, it's probably about 20% slower than it was in 2019. So hiring is slow for everybody. It doesn't matter. Your seniority, your occupation. On average, 20% slower. If I look at just entry level jobs, well, actually those are running even slower. Like say 24% slower. So it's a 4 percentage point difference. Even more slow. And now if I then say, but show me those entry level folks who have a bachelor's degree or a master's degree, they're running even slower. We're starting to approach 40% below pre pandemic levels. So there's been a huge slowdown. It is exactly what we see in our data. But the way I read it is differently. I don't believe AI is fully to blame or is the culprit for the slowdown we're seeing. I think it's much more cyclical and macro driven and related to the fact that there's a lot less turnover. People aren't really creating vacancies and leaving their job, which means there's less hiring. Employers are feeling cautious about economic uncertainty, so they are kind of holding back on backfilling roles anyway and starting to wonder to what degree. Maybe AI is playing a role, but it's in my mind, a smaller role. And most of the explanation for the entry level slowdown is macro.

B (20:32)

So very interesting. Take that. It's not AI necessarily replacing jobs, replacing headcount. But let me ask you something different that relates AI to what you're perhaps seeing for the amount of openings that you are actually seeing advertised on LinkedIn. How much are companies specifying that they want to see people with AI skills? Are they saying we need AI literacy?

A (20:55)

Oh my gosh, you stole my tagline. Absolutely. How did you know the fastest growing skill on our platform and we can see what skills are in demand because we see millions of job postings by employers Saying, hey, I'm looking to fill this role, that role. Here's the criteria I'm looking for. And so we can see what skills are looking for. And AI literacy is the number one fastest growing skill on our platform. At LinkedIn, we've seen a 70% increase year over year in job postings that are put out by employers who say they want AI literacy. And this is across all occupations. So it's not just me saying, oh, there's software engineers that need to be AI literate. No, no, no, no. This is marketing specialists, project managers, architects, you name it, every single role that's there. They want AI literacy as table stakes. It's the overlay or the underpinning.

B (21:55)

So with that in mind, are there specific areas, Karen, that you're seeing a little bit of a bucking of this trend that are saying we are actually going to double down on hiring AI literate employees?

A (22:11)

The thing that's most interesting to me, and I actually really have thought about this a lot, is as much as we're seeing this very broad based increase in demand for AI literacy across so many occupations and industries, we're also seeing at the same time this increase in demand for what you might call the human centric skills. So if you think about it, employers also want someone who's got reading comprehension, listening comprehension, great eq, just warm human engagement. Because at the end of the day, most businesses are trying to make a connection with a customer. They're trying to create a relationship of trust that will last over time. And you, you do that through the human engagement. We're seeing an increasing demand for human skills at the same time that we're seeing this increase in AI literacy skills that are in demand. I think the two are ascendant, almost like a double helix rising. And when people ask me, well, what should my kids study in school? The truth is, I think your kids should study whatever they're going to excel at and be really energized by. But if they have that critical thinking, the problem solving, the conflict negotiation, the collaboration, all of those are the skills that employers really, really want in the workplace.

B (23:32)

Let's switch gears a little bit, Karen, and talk about a very interesting phenomenon that a recent guest on the show brought up. It's Danielle DiMartino Booth. She had previously been an advisor to the Dallas Fed, and she brought up this concept of ghost job listings, which is a job posting that companies are putting out there with no intention of filling it. And the reason that they're doing it is to try to send a message to their employee base that things are okay, they're still growing, they're still hiring, even if that is not actually the case. Talk to me about whether you see that from your position at LinkedIn at all.

A (24:08)

So, you know, what I'd say is there was a point where I think ghost postings, and not just on LinkedIn but generally employers were kind of starting to slow their roll. They weren't as keen necessarily to fill a role quickly. And that was happening. But on LinkedIn you don't have to face all that. It doesn't have to be this like tar pit of thinking, is this real or not? LinkedIn actually has a way where they're saying you can look at a job posting and you can actually tell whether or not it's being actively interviewed for like the people are actually applying and hearing back from the recruiter. And this is a, you know, it's a going concern, if you will, in terms of this open role. That is something that should give people heart and confidence that when they're applying for roles they're not just like throwing their, you know, AI generated CV into a pile and never to be read or considered. There actually are indeed a lot of truly open roles and you can verify them on LinkedIn and say, yeah, this one is actually being interviewed. There is somebody who's following up on all these applicants. But what I will say what, people are feeling frustrated because they, we see them on our platform there are twice as many applicants per open role as there were two or three years ago. So the market is far more competitive for job seekers. It's got to be more frustrating. There's definitely an element when we talk to, I'm right here in San Diego at LinkedIn's Talent Connect talking to talent professionals from, you know, thousands of companies and they're saying, we have so many applicants, it's almost like a struggle to get through all of these great applicants. And that's because people can apply to multiple jobs and they can apply more easily. So there's almost a double edged sword here of like, it's easier to apply, people are applying more places and they're hearing back less, which frustrates them. At the same time, the talent professors are saying, we've got so many applicants we can hardly sift through it all. And I think LinkedIn is trying to help that with a lot of the tools we have to help sift through and find the very best candidate. And here. Can I say one more thing actually Ann, on this real quick? The other thing is like when people apply the sort of scattershot approach may not be the best. And there are actually tools on LinkedIn to let you sort of figure out am I a really good fit, am I a high, low or mid level fit for this role? And applying for the roles where you're the best possible fit obviously set you up for a better experience.

B (26:31)

Thanks to Karen Kimbrough for joining us today. Well, it's 4pm on the East Coast. There's the bell, the market's closing and we don't have a ticker tape, but we'll throw it over to our human ticker. Our producer John that's right, The S&P.

C (26:43)

500 was down half a percent, the Nasdaq closed down nearly a full percent and the Dow was down 7.10of a percent. One quick headline Meta announced it will lay off nearly 600 employees in its artificial intelligence unit as the company looks to reduce layers and operate more nimbly. This is the latest in several moves the company has made to overall its approach to AI in recent months. Shares of Meta finished the day flat.

B (27:07)

That's it folks, for today's Brew Markets Daily.

C (27:09)

Brew Markets Daily is hosted by Anne Barry and produced by John Croteau, Tarkab Delatif and Emily Milian. Our Technical director is Uchena Waugh. Audio assistance by Brittany Dottocco. The President of Morning Brew Inc. Is Devin Emery.

B (27:20)

Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. See you back here tomorrow, same time, same place. Sam.