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Ann Berry (4:32)

Let's check in on the business of cable television, the melting ice cube of media that for years has seen market share dwindle with increased cord cutting. And not, by the way, just amongst millennials. It's now become multigenerational. While cable heavy parent companies like Comcast and Warner Brothers Discovery have been wondering what on earth to do with these assets. And in a very significant move of its kind, Comcast, which is the parent company of NBC Universal, is formally spinning off its cable network holdings into a new public company called Versant. Though if you watch some of those Versant networks like cnbc, they're always joking, is it Versant or Versant? They're never quite sure. We'll toss it over to our producer John to give us a brief overview of what is going on in cable and at Versant.

John Crateau (5:16)

That's right. And so just to put the cable business in perspective, currently about 69 million US households still subscribe to cable Television. So it's significant. But 15 years ago, that number was 105 million. So it's a decline of about a third over the last 15 years. Now, in October 2024 last year, Comcast President Mike Kavanaugh first mentioned the company was considering a spinoff of its cable networks, saying at the time, like many of our peers in media, we are experiencing the effects of the transitions in our video businesses and have been studying the path forward for these assets. And now, a year later, the board of Comcast approved separation of NBC Universal's cable television networks into new independent publicly traded company, Versant Media Group. And like you said, you've seen people on CNBC talking about that. That's one of those networks. The others include usa, Syfy, E Entertainment, the Golf Channel and msnbc, which is now Ms. Now.

Ann Berry (6:11)

I know, I keep noticing that Ms. Now so popping up in the corner. And have you noticed they've also changed their logos? CNBC was launched, we launched the logos. They're all looking a little bit more angular, a little bit more tech, like. So a lot going on in preparation for this. Well, the logic is that Comcast can now focus just on broadband and on streaming and its higher growth experiences. Business like the Universal theme parks. And there is something in this because Comcast really does need to do something to appease its shareholders. Stock down 25 year to date, 45% over the past five years. So that sort of begs the question, given that the share price of Comcast has come down, what does this mean for the valuation of Versant? And this has been an interesting process to watch because it's shown how much one big company has to do to educate current and potential shareholders on what the value of the business that's being spun out actually is. So first had an Investor Day and CEO Mark Lazarus broke out standalone metrics for 2025 for the business. So just to reiterate, again, that is the cable networks, and again, that's the likes of USA, SCI, FI, E, CNBC, the Golf Channel, MSNBC, or now Ms. Now. And Mark Lazarus, CEO of this business, said that this year the company will generate $6.6 billion of revenue. A lot of cash flow, actually $1.4 billion. So those look like pretty healthy numbers. One metric the market focuses on is something called free cash flow conversion, which is what is your free cash flow as a proportion of your revenue or your profit? Pretty healthy. In this case. The problem is revenue did fall 5% in 2023. It fell again in 2024 and is projected to be down 6% in 2025. Now, Barron's estimates that Versant will have a market cap of about $10 billion. We're going to come back to that number in a moment. But, John, let's talk about valuation in general and just talk about the context, if you don't mind, about what's been going on with other media assets and what that has meant for the appetite for others.

John Crateau (8:16)

Right, exactly. There's been so much conversation and speculation around the sale of Warner Brothers Discovery, because Paramount, Skydance, we can remember the bids they put in a bid for the entire company, Right. That was for the roster of cable channels like CNN and TNT and Netflix, which seems to be the prevailing winner there so far, would wait on those channels to be spun out from Discovery and then complete the purchase of just the studio and the production assets.

Ann Berry (8:43)

Right. So when you cut through the bids that have come in for Warner Brothers, either the company in its entirety or looking at being split into pieces, estimates for the value of the Warner Brothers Discovery cable channels specifically. So the assets that would be the most likely to be compared directly with Versant, the range of values there is somewhere between two and a half and $10 billion. It's a very wide range which kind of puts into perspective how does one invest in Versant and if one does so what does it mean for how much you're going to end up holding in terms of value? So it's a little bit technical, so stick with us. So if you are a Comcast shareholder, by the close of the market day tomorrow, you are eligible to receive shares in Versant. I know. John, do you. Do you own Comcast shares? I don't.

John Crateau (9:29)

I don't.

Ann Berry (9:29)

You don't? Well, if you want to, if you wanted to become one, let's go through just the mechanism that would enable you to then become a shareholder in Versant next month.

John Crateau (9:38)

Sure. I've got about 24 hours if I want to buy in. And at the end of Closing tomorrow, there's one share of Versant awarded for every 25 shares of Comcast that are held. So If I buy 25 shares of Comcast tomorrow, then I would get one share of the new Versant, which will start trading on the NASDAQ under ticker VSNT, and that'll be as of January 2nd. So that that Monday after the holidays, that'll start trading. And we got a question from a listener named Kevin. He asked how the initial price is set for Versant. And Kevin, there's no fixed IPO offer price because this is A spin off and the market will determine the perceived value in January.

Ann Berry (10:19)

Right. And so just to reiterate again, if you hold Comcast shares by the close of the market tomorrow, you will receive one share in Versant for every 25 shares of Comcast you hold. Which means that until the point at which Versant is spun out, there is a direct link between the valuation of Versant and the valuation of Comcast. There is a direct link between the share price of Comcast and the share price in Versant. That's until those new shares are distributed on January 2nd. And again they're going to be linked at that moment that they're released to trade openly on the nasdaq. Again, under the tick of vsnt. There may be some pro rata distribution that's coming up as a result of that. But basically after January 2nd, Versant, you're on your own, you're at the mercy of the markets. And so the question is going to be what do we think happens then? Now, if you go onto Google right now, for those of you are curious about this and want to go down the rabbit hole, if you start Googling Versant Media Group, you will see this sort of faux ticker come up, which is VSN tv. And that's just to get a bit technical for a moment. It's a bit like a shadow stock or it's something that represents the, when issued trading of Versant, it's to get the market to sort of get the juices flowing to see how the share price of Versant when it stands alone could start ticking around. It's not something that you can really trade. It's not something that you close on. It's just a way to sort of get an a sense of the proxy appetite for what this ticker may do. So again, that's just if you're googling, it's not something frankly I'm paying that much attention to at the moment. I'm going to be all eyes on January 2nd when this thing really goes independent. There is a lot of information out there for folks who are interested in Versant. There was a long investor day presentation, John, that you went through. I did. You nerded out, John nerded out.

John Crateau (12:03)

I did. I browsed through all 183 pages of the deck from Versant's investor day. And this was just a week and a half ago. And the focus really on selling investors was that the cable channels still have a live programming element and that's something that they were emphasizing doesn't exist as much on streaming. Yeah, now you turn to Netflix and you might binge a show or something like that. But they kept pointing out that on Versant channels you're going to get news, you're going to get sports, there's the Golf Channel, you're going to you can watch some of your favorite news analysts talk. And they highlighted that msnow is the number two rated cable network and the number one news brand on YouTube.

Ann Berry (12:41)

That's interesting about YouTube, actually highlighting the transferral of the msnow brand onto that really critical digital media platform. That feels like a bit of a win, but still a bit of a question mark ultimately around the go forward economics on this one, not a ton on actual new growth or sort of fresh ideas really laid out there, sort of generalities. But frankly, until it spins itself out and goes independent a bit harder to be specific, shares in Comcast were up three and a half percent today, a little bit more as the afternoon closed on. Clearly Comcast shareholders frankly just delighted to get some optionality for two different ways to get value from their portfolio. Well, let's take a quick break and when we come back, the consumer goods OG Proctor and Gamble is shooting for a bit of a turnaround, but the key question is is the market sold on it?

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Ann Berry (13:55)

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Ann Berry (14:02)

So you're about to make a trade based on a friend's text, but which you do you listen to is it we could buy a house in Tulum, get optioning those options. We could lose everything. Or let's do a little research, get your head in the trade and make the investment decision that's right for you. Learn more@finra.org TradeSmart John we have a question from the audience.

John Crateau (14:33)

That's right. Alex in Anaheim, California wrote in hi Ann, I was wondering if you could provide some insight into the ongoing decline in Procter and Gamble stock ticker pg. The company has beat earnings estimates the last few quarters, its P2E ratio appears to be on the low end and all the analyst price targets are currently higher than where the stock price stands today. Thanks so Much.

Ann Berry (14:53)

Well, thank you for the question, Alex. And it's timely because Procter and Gamble, the personal care giant, recently saw its share price hit a 52 week low. It's since bounced back a little bit, but it really has been chugging along and struggling a bit. And we'll get back to why in a moment. But first some context. Because this business has been around for an incredibly long time and its overarching story through the various decades has actually been quite extraordinary. Now affectionately known as P and G, this is one of the largest consumer product companies in the world with a widely recognizable portfolio of brands. You've got Pampers, diapers, Bounce, Dryer sheets, Tied, Downy, Gain, Bounty, Always Broad Head and Shoulders, Old Spice, Pantene, Cascade, Swiffer, Crest, Oral, B Olay. I didn't even draw a breath. Go into any home and you're almost certainly going to see a P and G product in a cupboard somewhere. And the omnipresence and the necessity of P&G's products is why the company has managed to pay out a dividend for a significant stunning 135 consecutive years. I mean, it's really extraordinary. If you go and look at their investor presentation, they talk about the longevity and the history of this business and it really is a fascinating story of how to survive and how to survive for the most part, being able to get cash out to shareholders. But here's the more recent problem. Growth and demand for PNG's brands has slowed, dropping down to just an expected 2% for this year organically, compared to 5% in 2019. And I pick that year because it's just before the pandemic which changed Apple appetites, particularly for the cleaning products of this business. Just to pick a normalized data point. Well, as a result, the company has been pushing for productivity gains. And in June P and g announced a two year restructuring plan that aims to create $1.8 billion of savings. That includes a 15% reduction in the workforce. That means cutting about 7,000 jobs. This is a big one. And reorganizing its distribution network as well as exiting some markets completely, which includes winding down manufacturing and commercial activities in an ent countries, for example in Pakistan. So to go back to Alex's question. It's a great question. Yes, earnings have beat estimates over the past few quarters. You can see this plotted out on places like Yahoo Finance, which shows the beat relative to expectations. And most recently this outperformance again versus pretty low expectations though has been driven by strong pricing because these are necessities after all, people will pay for them. Growth in beauty and grooming segments has helped too, but overall volumes were flat and that's one of the key reasons why there has been such a lukewarm reaction to the share price. Now, the company also noted lower expected tariff costs for fiscal year 2026 compared to previous estimates, which on the margin is pretty good news. Now, the stock to go back to that price to earnings ratio or the PE ratio for short. Let's talk about that because that was raised in Alex's question. Well, that has indeed trended down since a peak in late 2024, but it hasn't yet hit the kind of troughs that we saw in 2022. So it's been coming down, but certainly not in sort of the panic place that we've seen in recent years. Well, overall, let's see what the analysts say about this one. I've got to tell you, they're pretty divided on the path for P and G from here. Again, this business is huge. It's got a nearly $340 billion market cap, over $84 billion of annual revenue. So P and G is an absolute beast. And improving companies of this size takes time. Which is why of the 24 Wall street analysts covering PNG, 14 are a buy, which is good, none are a sell rating, which is even better. But 10, which is a lot, are in wait and see mode with just a hold rating. So they're pausing to see how that two year restructuring plan evolves, how much reinvestment into new product innovation or cost ultimately to drive growth. And they're looking for more specific clarity on the outlook for 2026 before they revisit their valuation and their recommendations for buying, selling or holding. Or to sum it all up, as one Goldman Sachs research report put it After P&G's most recent earnings quote. While we have a more sanguine view on P&G's long term potential, its near term path to recovery remains uncertain even as we contemplate P and G strong execution which keeps us on the sidelines with a neutral rating overall. Pretty much sums it up, Alex, in terms of where the market's head is at on this one.

John Crateau (19:21)

And if you have a question for Ann, send an email or voice memo to brewmarketshoworningbrew.com well, there is the bell.

Ann Berry (19:28)

4:00Pm on the east Coast. The market's wrapped up for the day and we don't have a ticker tape. We're going to throw it over to our human ticker John But I just want to say we have seen a ton of requests coming out coming in from our listeners, emails, comments on social media, comments on Spotify. We read absolutely all of them. And I just want to say thank you for all of the names of companies that you've been suggesting we cover. It's been great to hear you listen, to see you listen. And we're just excited to dig into them, P and G and others too. So thank you all for that so much.

John Crateau (19:56)

Absolutely. Well, today the Nasdaq finished down 6/10 of a percent. The S&P 500 and the Dow were both down about a tenth of a percent for the day. Some market headlines. Shares in Zillow, the online real estate listings giant, were down as much as 9% today after it appeared that Google is running tests on putting sales listings into its search results.

Ann Berry (20:15)

Well, the listings allow users to view the full details of a property's page, request a tour and contact an agent. If it all sounds eerily familiar, it is because it's similar to the functions offered on Zillow.com now analysts are saying that there doesn't appear to be near term impact on Zillow's business, but obviously the share price was down. So they're not really believing that. They think over time it could reduce traffic to the site. I got to tell you, John, this reminded me of chat GPT becoming a place where you could search essentially and then transact immediately. This sort of has that sort of smell and flavor at the moment.

John Crateau (20:49)

Absolutely.

Ann Berry (20:50)

Well, ServiceNow, let's talk about. ServiceNow popped up with more what I call boom time acquisition activity in tech. We're seeing the sector really stroking big checks to buy things these days. ServiceNow announcing plans to acquire the startup Armis as soon as this week in a potential $7 billion deal.

John Crateau (21:09)

And Armis, which helps companies secure and manage Internet connected devices, raised $435 million recently in a funding round that was actually just over a month ago and was reportedly looking to go public. Shares and service now Ticker now. We're down nearly 11% today on the news.

Ann Berry (21:24)

That's like the market thinks it's either overpaying or taking risk on integration. So we're going to keep on watching that one. Well folks, it is the last full week before the holidays. We've got a great week coming up for you've got some fantastic interviews. We've got the last, last piece of earnings season coming on in. So stay with us this week. That's it for today's Blue Markets Daily.

John Crateau (21:43)

Brew Markets Daily is hosted by Ann Ber and produced by John Crateau, Tark Abdelatif and Emily Millauer. Our technical director is Lonnie Fiskus. Brittany Dottocco is our audio engineer. And the president of Morning Brew Inc. Is Devin Emery.

Ann Berry (21:53)

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, same time, same place.