Trump Denies Reports That He’s Planning Strikes on Venezuela

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2:44Plus, global business, finance, and tech news as it happens. The Bloomberg Business Week Daily Podcast. with Carol Masser and Tim Stenevek on Bloomberg Radio. Right now I'm looking at WTI crude futures. They're up as much as 1.3%, just up about half a percent. We did see a jump in oil earlier, though, but it did pull back off those highs, as President Trump said. He denied making a decision to strike military targets in Venezuela. It's something we talked about in our 2 o 'clock hour. Also, ExxonMobil and Chevron outperforming Wall Street expectations after new oil field projects and acquisitions boosted crude output.

3:22We wanted a big picture view on where Venezuela fits in, but really where we are in the global oil markets. Let's bring in Dr. Ellen Wald, president of Transversal Consulting, also senior fellow at the Atlantic Council. She's also the author of Saudi Inc. Ellen, good to have you with us. Welcome back. I want to start with this idea of a potential military strike on targets in Venezuela by the United States, the president denying that he'd made a decision to strike military targets in Venezuela. Look, whenever we have a conversation like this, it's it's we're talking about a military operation, but we're also talking about the economics of it.

3:59So we're going to try to separate market implications, you know, the market implications from everything else. I am curious about the market implications. If the U.S. were to strike Venezuela, what would that do for oil? So I can see why oil spiked a little bit earlier in the day when it wasn't exactly clear what's going on in Venezuela. I think it's still not exactly clear what in the world all of these U.S. warships are doing right off the coast of Venezuela or approaching Venezuela. But it doesn't seem like we're about to strike Venezuela, which I think was probably never really in the plans, mostly because, you know, we're not about to invade Venezuela.

4:40I think that there's a concern, certainly, that if there is any kind of political instability in Venezuela or military activity in Venezuela, that that could have the potential to impact Venezuela's oil exports. Now, keep in mind, Venezuela's oil is actively being sanctioned. So all the oil that it's selling is really all on this kind of black market, goes to China or goes to Iran or at least used to be going to Syria. And so technically it's not really or it shouldn't really impact the larger oil market. But of course, you know, everyone knows that there's this large black market for sanctioned oil going on.

5:20So, you know, the potential for any kind of disruption does impact the oil market. And so we saw that happening today. Hey, so what's a more important fundamental story when it comes to the energy markets, the oil market? Is it really what's going on in overall global supply and demand? I do think that is the most important thing underlying. But I do think that there is a lot of confusion about what exactly is going on with supply and demand, because you have some of these big global kind of agencies that keep track of supply and demand saying, hey, we're in a massive oversupply right now. And then on the other hand, you have other agencies like OPEC saying, no, we're not in such a big oversupply.

6:02And you have, you know, the Saudis coming out and saying, we're not all that oversupplied. OPEC is going to pump more oil. And so I think that there's some confusion or at least disagreement about how much oil is on the market, how much oil is being pumped and how much and what oil demand is. And I think that that's understandable, given how incredibly complex the oil market has become recently with all of this sanctioned oil going different places. And they're saying it comes from one place when really it's coming from the other. And so there is a lot of confusion, rightly so. I also think that there is a lot of trepidation about the economic condition, where we're going economically, kind of as a world, the global economy.

6:45And so that makes it hard for people to figure out, you know, how much oil should we be pumping. And so that's one of the reasons I do think that we have seen oil prices remain fairly low. And at the same time, we're not seeing any kind of pullback in terms of production. Well, let's go there. There's a story on the Bloomberg today, Ellen. U.S. oil production climbed to a fresh record near 13.8 million barrels a day in the month of August, according to a monthly government report. Number was higher than official figures previously indicated. Apparently, there are some government reports that continue to come out.

7:21You know, sorry. But so U.S. oil, our production here, I think I heard something earlier on Bloomberg surveillance. Maybe it was with Tom and Paul this week about, you know, just the amount of oil that we are producing here in the U.S. What's your expectations? and where is all this oil going? And do we? Yeah, this is a great question because we have, you know, we get these reports weekly, but they're not all that accurate. What they really are are estimates. And so once we start to get these reports coming, oh, well, it's now the very end of October and we're finding out what really was produced in August.

8:02And wow, it's a lot higher than we, you know, within the forecast were. That really says something. I mean, 3.8 million, sorry, 13.8 million barrels a day is an absolutely massive amount of oil that we're producing in the United States. And it's clear, a lot of that oil is going into our own refineries. It's being used, it's being turned into products that we're using, but we're also exporting a lot of oil. We're exporting to Europe, we're exporting to China, we're exporting, you know, all over the place. And I do think that that is very, very significant at this time. I do think there's a lot of discussion about, you know, Has fracking peaked?

8:38Is the Permian peaking? And when we get a data point like this, it tells us that maybe it's not peaking because people have been looking at these estimates and saying, hey, maybe we're finally seeing it coming down. Well, maybe it's not, or maybe it's not going to come down as fast as they thought it was. And that's going to lead to more supply being on the market than people thought there would be. So sometimes we see a disconnect between what the forecasts and what people think it should be, and then actually where it is going. Where does China fall into this and demand or lack thereof coming from China right now?

9:14That is a really interesting question because China has definitely got strong demand. But then the question is, OK, is it going into their economic system? Is it being actually used or are they putting it into their absolutely massive stockpiles of oil? Is it going into their kind of independent refinery system that is producing products and then selling them all over Asia? And so it's hard to get kind of a handle on what China's economic situation is, what they're producing there, when we're not entirely sure where all that oil is going. Plus, now you have this issue with Russian oil. We know that China imports a lot of sanctioned Russian oil.

9:56They import a lot of Iranian-sanctioned oil. They import Venezuelan-sanctioned oil. and they hide a lot of that. And so we, you know, we may not know exactly where their oil is coming from, but it's possible that soon they may be at least cutting back on some of their imports of Russian oil. And so that is important for the future of global oil markets. So glad we could check in with you, Dr. Ellen Wall, president of Transversal Consulting, senior fellow at the Atlantic Council, author of Saudi Inc. Stay with us. More from Bloomberg Businessweek Daily coming After this.

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13:07That's Venture Global. That's unstoppable energy. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. Netflix is actively exploring a bid for Warner Brothers Discovery Studio and streaming business. That, at least according to Reuters, citing people with knowledge of the matter. Now, remember, Bloomberg News reported earlier that Netflix and Comcast are weighing bids for parts of the company. Comcast execs discussed their M &A strategy on an earnings call earlier in the week.

13:47Meantime, we are also focused on those Mag7. Amazon shares, Tim, are soaring in a big way today. With more and a look at the big tech earnings week that was for Apple, Meta, Alphabet, and Amazon. Back with us is Laura Martin. She's Senior Entertainment Internet Analyst at Needham & Co. She covers the media, entertainment, the worlds of internet as well, which as we know have become so intertwined, she joins us from Los Angeles. Laura, great to have you back. Hello, hello, hello. We got to start with Netflix and Warner Brothers. We've talked with you before. We did it at Bloomberg Screen Time out on the West Coast, and it was just after Netflix co-CEO Greg Peters was like, we're not interested in Warner Brothers.

14:25You said that even though Netflix doesn't do big acquisitions, you did know that they must-buy established IP, intellectual property, you know, and you talked about this. So do you feel like there's momentum here that Netflix is kind of moving towards a deal? You know, I think that it's a smart move for them to look at the books of Warner. They lose nothing by doing the due diligence and looking at Warner's business model. I think Wall Street would be supportive of Netflix using its very valuable equity to buy the studios. I do not think Wall Street would be amused if they tried to buy the linear TV networks.

15:05And I think that, you know, I think there's a disagreement within Netflix. You're right that when I last saw you, Greg Peters was like, hard no, we don't want to look at these assets. Ted Sarandon's body language on his earnings call was much more open, probably because he's the content guy. And Warner Brothers has some of the best IP and the deepest library of any studio. And once you own the IP, you never have to pay to rent it again. So it's really hard to keep creating brand new IP. You may as well get some that has an installed base of fandom from 50 the last 50 years. And Warner Brothers has some of the most next to the Walt Disney Company.

15:37So should Netflix do it? I think it depends on price because it is contentious within Wall Street. It depends on price. And I get the sense that Warner Brothers really wants to sell deer because they have this idea that if they split in half, they're going to get$26,$27 a share of total value. I don't believe that. But if they believe that, then that means that they're going to try to overcharge Netflix. And I don't know that Netflix would be over to pay for the studio assets here. Who else? I mean, we talked about Comcast. I mean, who else could be a really big competitor here for Warner Brothers?

16:16so i think you know my opinion is the way this plays out is everybody looks at the books everybody gets the inside scoop on what's happening at warner brothers because why not you're competing against them and then the price and then they buy i try to buy a piece like comcast tries to buy linear or netflix tries to buy and i'm not sure they are regulatively approvable except for larry Ellison, who is Donald Trump's goods friend. So I think all of this is in in the end a way to get Larry Ellison, David Ellison, to get their price up to match whoever else is bidding. But I think that's Ellison's are the only ones that can get this to regulatory, in my opinion.

16:56What ends up happening to the linear stuff over at Warner Brothers? Well, Ellison has said he's willing to buy the whole thing. So that solves that. They just sell the whole thing because he can get regulatory approval. Oh, OK. God, it's fascinating. I think we'll have Laura back on before. And still, like, our first question will be a month from now about this this potential deal. I know. I know. I know. Is there any pressure to get this thing done sooner rather than later? No, I mean, the CEO Zaslav is trying to make pressure because he's saying, oh, in April, we're going to split it in two pieces.

17:27But it's an arbitrary deadline. He can push that off to June or September. You know, I don't agree that the two pieces spun off alone will be worth 26 or 27. So but that's his stalking horse is this artificial timing deadline he set. So let's say Netflix doesn't get this when I promise we're going to ask you about more stuff, Laura. But let's say Netflix doesn't get assets from Warner Brothers. What would be its next move in content IP? What should it do? So what I think it's doing interesting things with advertising, interesting things with video games. It's going into short form, which is smart.

18:03It's backing creators, which is smart influencers. it's moving into the youtube businesses and like socially connected people it's doing physical you saw it's doing physical around um k-pop it's number one film of all time physical outlets the way disney does but they're doing pop-ups a much smaller business you know a much smaller vision than the disney vision of theme parks so they're doing a lot of things that are trying to maximize revenue from their ip i would like to see them buy a library but i don't want to see them overpay for a library. OK, last one on Netflix. Announcing yesterday a 10 for one stock split.

18:40The split adjusted basis trade is expected to begin on November 17th. Shares up 2.7 % as we speak. I'm like a big, hey, this doesn't change the fundamentals of the stock. So I have a hard time ever understanding. Yeah, I do. Whenever a company does a stock split like this. Your thoughts on the stock split. Do you care? Oh, super smart. This is a retail company and people should be able to give. of, you know, when I was a kid at five years old, my grandmother always gave me five shares of the Walt Disney Company, which we should deliver in a frame, which are still on my walls every birthday for five years till I was 10 years old and wanted a different thing, dresses or something.

19:16So they should be doing that with Netflix shares. And this should be accessible to the public that wants to be supportive in the capital markets on a retail, like retail investors of the fact they love Stranger Things. It's another way to sort of give a feedback loop to Netflix about the good work they're doing. So I'm very supportive. All right. Great stuff. Hey, let's talk Mag7. Amazon, Alphabet, Apple, Meta. What a dump this week. Investors reacted differently to the AI spend at different companies. Pick your company that you think was most interesting this week. OK, so the two most interesting were Amazon and Meta, because one's up 12 percent, the other one's down 12 percent.

19:55In total, these companies each raise their capital spending guidance for this year by$7 billion. Together, the MAG-7 will now spend$400 billion on generative AI infrastructure, going up to$500 billion next year, half a trillion dollars, in a revenue stream that isn't determined yet. So that is a big headline here. CapEx spending continues to, you know, rotate up. Amazon, really spectacular numbers. Really, Amazon is trading on AWS. Like you may think it's an e-commerce company, but capital markets are telling you AWS is what it trades on. They've reported 20 percent revenue growth at AWS, which is the highest in, I think, three years, 300 basis points faster than last quarter.

20:40So accelerating. It did$33 billion of revenue out of 105 total that revenue for the quarter at a 30 percent margin. Remember, e-commerce has a 2 percent margin. So think about what's happening to returns on capital. And OK, so you're going to say, oh, but they're spending all this CapEx. So it's unclear. But what's great about Amazon is everything they're building for generative AI, they are using internally to lay off 14 ,000 people. So they're improving their operating efficiency and they're driving revenue growth in all of their businesses. And they're going to sell. They are the only one not capacity constrained because four years ago, since 2022, they have doubled their power capacity, which is the gating factor to data infrastructure.

21:28And they created Tranium chips, which are their like proprietary what they call custom silicon. So they don't have a capacity problem. Whereas we hear from Microsoft and Lama over at Meta and Alphabet, they're all capacity constrained. That's silly. Amazon's running a better business. Good for them. Go Amazon. So they are not capacity constrained and they have differentiation by these trinium chips. Let's move to Meta. Meta, the opposite. They're like, we're going to borrow, we're going to take off all this money. They spent 19 billion of CapEx in the quarter, which left them only$10 billion of free cash flow in the quarter, which means next quarter when they spend more, they're going to go into negative cash flow, which means they're going to be borrowing money from capital markets.

22:12And when he tells you about what his goal is for this huge capital spending that's going to drive leverage, adding financial leverage to his income, his balance sheet, he's saying we're going into the super intelligence business, which is going to benefit the world. and it's going to be some experts see three to five years from now, some say seven, and some say after that, to which I say, too much value leakage. Wall Street investors should not be in the business of buying MetaShares to benefit the world. The Pope does that. There are people who have a seat that does that. No, no, no, buy Alphabet.

22:48Everything they do is about capturing the value of the capex that they're building, both for themselves and leasing it to third parties at increasingly high margins. So I don't like the value leakage. I don't want to save the world through a corporate investment. Get out of Meta, move into Alphabet, move into Amazon. And Amazon is just not in the game. We only have 10 seconds left, but if Amazon's market cap is$2.65 trillion, you say that's all AWS is what it's traded on. What portion of that is the value of AWS? Very quickly. I would say this is what it trades on, but I'd say half of the value of Vest Company is now based on AWS.

23:31That's incredible. Laura Martin, we could talk to you. That's why you see Jaxie as the CEO. I know. We could talk to her forever. Have a great weekend, and I know we will talk with you soon. Amazing. Laura Martin, Senior Entertainment Internet Analyst at Needham & Company. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. Shares of Amazon up 10.5%. They were up as much as 12 % earlier in the session, this after the company reported third quarter results that beat expectations.

24:06AWS, that business, especially strong. A bunch of banks, including Morgan Stanley, Truist Securities, RBC Capital, raising their price targets as a result of the print. Also raising his price target, Tom Forte, Managing Director and Senior Consumer Internet Analyst at Maxim Group. He's got a buy rating on the stock. He's increased his price target by$8 to$280 per share. Tom joins us this afternoon. Tom, good to have you with us on the program. I'm wondering about the specific price target increase. It was a pretty blowout report. Stock surging, as I mentioned, 10.5 % right now. You raise your price target by$8.

24:41Why not more? Yeah, so when you think about our price target for Amazon, it's pegged to an enterprise value to EBITDA. And I do think, as crazy as this sounds, on that basis, there's an opportunity for expansion in the multiple as the company improves its profitability led by its cloud computing effort. So I would say that the$8, call it modest increase, was a reflection of a slight increase in our profit expectations coming out of the quarter. But I do think as they continue to improve their margin profitability or margin over time, that there actually could be some expansion in the multiple for Amazon, which is somewhat unique.

25:28All right. So what kind of improvement, Tom, could you see in that margin when it pertains specifically to the AWS business? And how does it get there? So, Carol, if you think about Amazon as a software company and not as one of the largest retailers in the world, that's where the opportunity comes. So when you compare it against other software companies, they're trading at enterprise value EBITDA ratios north of 30 times. So by no means am I suggesting that Amazon will get to 30 times from the high teens today, but I think directionally it could head there. Am I crazy to bring this up? This was like something that people talked about a couple of years ago, Tom.

26:07Should Amazon just spin off AWS? So, Tim, the challenge for spinning off AWS, I've spent probably too much time thinking about the sum of parts for Amazon. So the cloud computing business is clearly very valuable. Over that three-year period, the advertising business has become a lot more valuable. when 62 % of items are sold on Amazon, they're sold by third parties, not Amazon. That's a relatively healthy margin business. But the remainder, where Amazon's the seller of record, they're probably break even. So I do think on the strength of advertising and cloud computing, the sum of parts may be worth more than the whole, but you still have a pretty big low margin e-commerce business for Amazon.