B (3:27)

Portfolio insights from Alpha Public's AI powered research assistant. Then I discovered that Alpha can do recaps of earnings calls. And that's why I love getting the inside peek into a business. As soon as its shares update, Public.

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B (3:56)

Full disclosures in Podcast Description well, we.

A (3:58)

Saw a major telecom deal announced today as AT T said it intends to buy spectrum licenses from EchoStar, which is the owner of satellite services company dish, paying up $23 billion in cash for these licenses. These cover more than 400 markets across the United States. While the headlines have some very big numbers, that always catches our eye. But the reason that we wanted to dig in together on this one, go beyond those headlines is because the path to this deal happening, as well as the market reaction, is really interesting. Well, let's start here with some quick definitions. The deal is all about licenses for spectrum, and as a quick reminder, that's the collection of invisible airwaves that power wireless connectivity, specifically in this case, how mobile data is transmitted. Now, in the age of mobile, in the age of endless hunger for data, spectrum is gold.

B (4:53)

And not only is it gold, it's a limited resource. It's regulated by the Federal Communications Commission, and telecom companies can't connect their towers with your devices unless they operate on those frequencies. So of course, AT&T has an interest in increasing their share of the spectrum by buying it, however they can.

A (5:10)

Now, earlier this year, back in March, I was really lucky to be able to have a conversation with the chief financial officer of AT&T that was on our sister program after earnings. And we spent a lot of time talking about the importance of spectrum and getting more of it for AT&T's business model. So looking back in that conversation now, it almost felt as though he was foreshadowing this deal. Let's have a quick listen to what the CFO of AT&T, Pascal Desroche had to say.

C (5:38)

It is a scarce resource. The government had a big auction back in 2021. Since then it hasn't auctioned any new spectrum. We and others have been vocal about the need to add more spectrum to the pipeline to really allow a cost effective expans of delivering mobility services. But we're hopeful with the new administration that will be an area that we have access to new spectrum inventory.

A (6:02)

Well, the new administration is here and the FCC is taking a slightly different tack in a sense of urgency around freeing up spectrum. Not only looking to allocate more spectrum over the course of the next year, but also by looking very closely at telecom companies who may be underutilizing the spectrum that they're already sitting on. And that's where the echostar piece comes in. So John, take us through what's been going on there.

B (6:27)

That's right. So the question is, was EchoStar squatting on their spectrum rights? And here's a letter that was sent from Brendan Carr, the chairman of the FCC to EchoStar in May and it says EchoStar holds a large member of FCC spectrum license. I have directed agency staff to begin a review of EchoStart's compliance with its federal obligations to provide 5G services throughout the United States. And this last part, as you know, build out obligations are one of the ways that the FCC can ensure that Americans, including those living in rural communities, have a fair shot at next generation connectivity.

A (7:02)

Right. So that's the key piece of it there, John. It's. The FCC is really focused on making sure that a lot of communities who may otherwise struggle to get access to data, including in rural communities, wanting to make sure that they get a hold of it. The government isn't the only one who wants to see these resources being used. Elon Musk, the founder of SpaceX, has been vocal and complaining about his perception that EchoStar has not been properly using the spectrum that it's been allocated. And we went and we dug around a little bit and we actually pulled up the letter that SpaceX sent to the FCC that was in April of this year. And I'm going to read a little bit of it because it's very powerfully written the SpaceX letter to the FCC starts by saying despite years of false promises and dubious technical showings, new data confirms what most people already suspected. Dish network owned by EchoStar barely uses the AWS for band if it is used at all to provide 5G or any other service to American consumers. Again, calling out this idea that American consumers are being denied access to something that would be useful to them. The line here that really caught our eye, quote, Dish uses less than 5% of what would be expected from an actual wireless network operator. So SpaceX saying in this letter that EchoStar Spectrum is quote, ripe for sharing among next generation satellite systems. Clearly a self interested statement by SpaceX. Nevertheless, the FCC has been paying attention. And today @&t has had the ability to buy broadband to buy spectrum from.

B (8:37)

EchoStar for $23 billion cash. And how did the market react? AT and T is down over 1 1/2% today, but EchoStar up over 75% today. So how does that happen? And why, why is that deal so much better perceived for one company than the other?

A (8:54)

Well, let's start with, with AT and T. It's a really good question. So just to repeat, AT and T stock down over 1 1/2% today on this news. Let's start why this could be good for AT&T. And let's go back to what the CFO told us, right? This positions AT&T to quote, maintain long term leadership and advanced connectivity across 5G and fiber. AT&T after this deal dropping $23 billion in cash because they want to serve more customers in more places. And that's what getting more spectrum enables them to do. So the reason the share price is down for me, the reason that is coming to my mind really stems from looking at its balance sheet. So I went back. I'm a nerd, we all know this. I dug up the latest quarterly filings and its cash on hand as of June 30th was $10 billion. Well, if you're paying out $23 billion in cash, they gotta find the difference from somewhere. And AT T is funding the this amount by going out and pulling down a bit more on its debt. Now AT T shareholders will remember that recently AT T has been super focused on getting its debt levels down. So I think what you're seeing here is a market taking a minute saying, okay, is the benefit of the growth opportunity here so good that it outweighs the fact that we're going to see debt tick back on up again? And I think that's why the share price is down. @t did go out of its way today to say it's going to be back at its target debt levels within three years. Company's way of saying, stick with us. It's going to be all right. We're going to be back to steady Eddie. Just one final thought on AT T before I flip to Echo Star. $23 billion. A lot of money. AT T's market cap over $200 billion. So just worth bearing in mind it's a big deal, but for a very, very big company. Now, Echo Star, those of you who were smart enough, lucky enough to be a shareholder before this deal, you are now sitting there watching your share price up over 75. So kudos to you and here is why. Echo nerded out latest filings, had $26 billion of debt on its balance sheet. Lo and behold, if this deal gets regulatory approval, closes by the middle of next year. $23 billion of cash will land in Echo Star pockets, pay off that debt. And that, my friend, is why the shares of EchoStar are up so much today. Not bad for selling an asset that Elon Musk would say they weren't using Anyway. Now, if you want to check out my conversation with AT&T CFO, we're going to post a link to it in the episode description so it's available to you. We're going to take a quick break and then come back. Figma and how Wall street is making some noise. John, we have a question from the audience.

B (11:29)

That's right, we heard from Jared in Orlando and he wrote, I bought some Figma stock when it IPO'd last month. I've done well. But the share price dipped this week apparently because of something called the, quote, quiet period. And that ended. What is the quiet period?

A (11:43)

Got it. So to set the stage here, let's take a look at Figma, which is the website and app design software company that went public on the New York Stock Exchange at the end of July. This was another one of the hot IPOs that we've seen so far this year. Its stock more than tripled in its first day of public trading. These numbers are extraordinary. It priced its IPO at 33 bucks a share and then ended up trading at $85 a share, closing out the session at around 1:15. So that same day, rise. Absolutely extraordinary. So let's get into what a quiet period is. Well, to understand this, we're going to have to dig into what happens when a company goes public. This took me back to my investment banking days. Banks Called underwriters, advise companies when they want to go public, and they advise on the valuation that they should go to market with when they ipo. So these banks, when they turn up to be advisors, they evaluate the company's operations and they do it. They dig in at something called due diligence to figure out the fair price to set for the stock on its IPO day. So how do they do that? Well, often these banks will pull in their research analysts who are expert on stocks in the same sector. We read their reports, and those analysts, as a result, privately get early access to information, often more than shareholders will get out of the gate from the public documents that come out in support of an ipo. Now, the quiet period to be really technical, is a window of 25 to 40 days when these analysts are not allowed to publish research or ratings on the company. And by the way, even if the analyst didn't get involved in the diligent process, the banks still are regulated with a rule that means that these analysts cannot publish if they work at banks that were involved in the IPO process. And here's why. It's to prevent the risk, both the real risk of it happening and the perception that the banks advising on an IPO could interfere in the early days of a stock's price, for example, by writing really nice research about their clients. So the share price goes up and then they're thrilled with the IPO that they've delivered. So this is what the quiet period rule is designed to prevent. Well, Figma's quiet period officially ended yesterday, August 25th. And so that's when we finally got the first wave of analyst ratings because they were now allowed to publish their reports. So we went away, we read some of those reports for you, and the punchline was they were kind of, they were fine. And here's what we had in terms of puts and takes. There were positive things written about the company in a qualitative way. Goldman Sachs, for example, said, quote, figma is well positioned to maintain its industry leadership in digital design, where compelling UI and UX is increasingly viewed as a strategic differentiator. But most of the research that came out rated Figma stock neutral, which is Wall Street's way of saying, don't rush to sell, but don't rush to buy it either. They warned that Figma's current price may be too high with competition rising. And we saw that explicitly in the price targets that came in. J.P. morgan thinks that the target price for this Stock is about $665 lower than where it traded today. Goldman Sachs with that nice stuff said that I just read out to you price target at 48 a share, way lower than where it's trading today. Some people were more bullish. Morgan Stanley at $80, others a couple, a couple of points higher. A couple of dollars higher. But the point is that these reports are not saying this is a screaming buy. We recommend that people go after this and that's what hit the Figma stock. There was just enough caution written in these reports and quantified in these price targets that the markets basically said ah, this wasn't as positive as we hoped. And that share price came. That's a quiet period. But just one more note on this. What the research said, where the price targets came out really just confirmed what the market was already sensing. If you take a look at Figma share price since it went public, stocks down over 17% since it first went out. There has been a fear in the market over the last couple of weeks that Figma is overvalued and once again, end of quiet period. Looks like those were just confirmed in writing. We are hearing the bell. It's 4pm on the east Coast. The markets have closed. We don't have a ticker tape so we're going to throw it over to our human ticker John to tell us how the markets did today.

B (16:00)

That's right, The S&P 500 was up 4.10 of a percent today. The NASDAQ also up 4.10 and the Dow was up nearly a third of a percent. Some market headlines, Eli Lilly announced that its GLP1 daily obesity pill succeeded in another late stage trial sending the company's stock up over 4%. Constellation Brands, the alcohol company behind Modela and Corona and others saw their shares down nearly 3.5% today after a downgrade from bank of America analysts. It cited concern over longer term alcohol consumption trends. And Ann, there's an obvious focus on the weight loss aspect of those GLP1s but there is also a discussion that they can curb alcohol consumption. So perhaps the Eli Lilly story and the Constellation brand story aren't exclusive.

A (16:44)

Really interesting to keep following this one because as you say John, it's not just beverages, it's food as well. A lot of questions around what are the long term trends that GLP1s could be impacting. Now final thought, because we have been staring at the screen all day watching a whole series of interesting interviews break on the news and following some share prices as a result. Now yesterday, those of you who watched our episode and you can still go check it out wherever you get your podcast. We covered the fact that the US government is taking a 9.9 equity stake in intel, which is the chip manufacturer. Well, today on cnbc, Commerce Secretary Howard Lutnick suggested that similar moves may follow, possibly with the government taking stakes in the defense sector. Lutnick singled out Lockheed Martin, claiming that the company makes much of its revenue because of the US Government and also one that is going to get retail investors absolutely paying attention. He also said, quote, we would like a piece of Palantir sector bounced up. We're going to keep watching because I got to tell you, sometimes these comments have been precursors to actual action. We've seen a little bit of the sort of breadcrumbing. Something goes out on social media, a comment gets made, sometimes it turns into an actual policy action, sometimes it doesn't. But there's always the possibility. So we're going to keep our eyes on this one. That's it, folks. That's all for today's Brew Markets Daily.

B (18:03)

Brew Markets Daily is hosted by Anne Berry and produced by Jean Krato, Tarek, Abdel Latif and Emily Milian. Our technical director is Lonnie Fiskas and the president of Morning Brew, Inc. Is Devin Emery. If you'd like to get in touch, send an email or voice Memo to brewmarketshoworning brew.com Wake up tomorrow with the.

A (18:19)

Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We will see you back here tomorrow, same time, same place.