Daybreak Weekend: Tesla Earnings, European Banks, Trump-Albanese Meeting

0:01Bloomberg Audio Studios Podcast Radio News This is Bloomberg Daybreak Weekend, our global look at the top stories in the coming week from our Daybreak anchors all around the world. Straight ahead on the program, we'll get you set for a couple big earnings reports from Tesla and Netflix. I'm Nathan Hager in Washington. I'm Caroline Hepger in London, where we're looking ahead to European bank earnings, including from Barclays. I'm Doug Krisner, looking at how rare earths will be a topic when Australia's Prime Minister visits the White House in the week ahead. That's all straight ahead on Bloomberg Daybreak Weekend.

0:41On Bloomberg 1130 New York, Bloomberg 99.1 Washington, D.C., Bloomberg 92.9 Boston, DAB Digital Radio London, Sirius XM 121, and around the world on BloombergRadio.com and the Bloomberg Business App.

1:02Good day to you. I'm Nathan Hager. We begin today's program with earnings. 90 companies on the S &P 500 open their quarterly books this week. We want to focus on two of the big ones, Tesla and Netflix. Here to get a set for what to expect from the EV giant this week is Steve Mann, Senior Autos Analyst for Bloomberg Intelligence. Great to have you with us on the weekend program, Steve. I mean, this is the quarter where we got that record delivery number, right? Wasn't it close to half a million vehicles sold? What's that going to mean for the numbers you're keeping an eye out on? Thanks, Nathan.

1:38Yeah, they did have a record shipment for the quarter on EVs, but they also had a record shipment on their battery storage business, too. I mean, yeah, I mean, not a surprise because, look, the 7500 tax credit, EV tax credit, but it went away at the end of September in the US. So there was a lot of consumer coming into the market, taking advantage of that$7 ,500 credit and bought a lot of EV. So we saw record EV sales for Tesla. They're not alone. GM also had a record sale. Ford, if it's not record, it's almost record sales as well. So the industry really got a boost. But I think the most important thing now is what do we expect?

2:23in the coming quarters, which is a slowdown. Yeah. So what do we expect given that these subsidies are going away? I mean, it stands to reason that we're probably not going to see these kind of blowout delivery figures in quarters to come, right? Yeah, absolutely not. Two ways that we're looking at this, first in an air term, definitely some challenges for Tesla as well as the rest of the EV market. Rivian and Lucid, to name a couple. There's been a lot of pull forward demand into the third quarter. So expect weak earnings, weaker cash flow in the next couple of quarters for these EV makers. But long term, it's going to be an interesting market because without the 7500, you're definitely going to have less buyers there will be buyers but less buyers in in the marketplace and there are a lot of products out there like in the last two three years with the Biden administration pumping a lot of money into the EV market every automaker you know rolled out new products expanded capacity so there's going to be a lot of new EVs out there we actually expect price competition right price competition and wouldn't be surprised there's some consolidation in the marketplace as well.

3:51We started to see that. GM just announced they're going to book$1.6 billion in write-offs on EVs. We expect they're probably going to have to right-size their product portfolio as well. Yeah, so we saw the new products as well, specifically on Tesla's side, and those finally lower-priced models of the Model Y and the Model 3. What could that mean for Tesla's outlook and for their margins as well. Yeah, if you think of the flip side, it could be an opportunity for Tesla. They are the largest EV maker in terms of sales globally and in the U.S., one of the biggest, definitely biggest in the U.S. So it's also an opportunity for them potentially gain market share.

4:41you know they are the you know one of the very few profitable ev makers uh in the world so launching those products for broader appeal makes sense uh if you look at social media there's actually now talks about them you know revisiting the earlier plans of of rolling out uh the model two which is even a cheaper vehicle so uh if they can do that they they may be able to gain market You mentioned the record for battery storage in Tesla's latest quarter as well. Of course, there's a lot of ambition in this company, not just from EVs, but from the autonomous vehicle side, robo taxis. Where should the focus be for investors as we get ready for this quarter to be explained?

5:29Yeah, I think when they release earnings on the conference call, I wouldn't be surprised that Elon Musk will primarily focus on their AI initiatives. RoboTaxi is probably the only business that we have better visibility on driving the top line and the bottom line. We think that's probably going to come through in 2028, not immediately. They've rolled out RoboTaxi in Texas and parts of California. They're looking to roll it out in other states, maybe at least two more before year end. But the financials don't really roll in until then. But RoboTaxi is probably the earliest, the business is going to have the earliest impact on their bottom line.

6:20Optimist Robot, I think it's going to be a while. There's some technical issues behind Optimist Robot. It's going to be hard to convince other automakers to adopt humanoid robots. So any Optimist sales or adoption will probably be more of an internal within the confines of Tesla. All right. Well, thanks for this, Steve, as we look ahead to Tesla earnings later on this week. That is Steve Mann, Senior Autos Analyst for Bloomberg Intelligence. Now let's turn to the other big earnings story we've got our eye on this week. That would be Netflix. The streaming giant opens its third quarter books on Tuesday.

7:02And for more, we're joined by Geetha Ranganathan, Senior U.S. Media Analyst for Bloomberg Intelligence. Great to speak with you, Geetha. And I guess Netflix is expecting another great quarter. I mean, they've been guiding for something like double digit revenue growth, right? Absolutely. Yes. So, you know, as we kind of look forward to Netflix third quarter earnings, one of the things that we want to highlight, because Netflix no longer discloses subscriber numbers, but the two numbers that, you know, everybody's looking for, especially on the street, one is revenue growth numbers. And as you just pointed out, yes, double digit growth.

7:38That's what we're looking for. The magic number for this quarter is going to be 17 percent. And of course, again, we're going to look for guidance for fourth quarter. Consensus right now expects about 16 percent. So, you know, double digits, high double digits, high teams. That's kind of what we're looking for. But really the headline for, you know, the third quarter as well as for the second half, I think as a whole is just the content slate. So Netflix management themselves have kind of referred to the content slate this year, especially in the second half, being somewhat of an embarrassment of riches.

8:14They've had some of their biggest titles debut on the service. So we're talking Wednesday. We're talking Stranger Things. We're talking Squid Game, all of their biggest hits coming aboard on the platform this year. But what's really turned out to kind of be an absolute sleeper hit in the third quarter is K-pop Demon Hunters. Nobody saw this coming. This was absolutely monstrous, huge. So we just saw 500 million viewing hours just in the third quarter alone. I think by the end of this year, we're probably going to see about a billion hours. This is their biggest movie of all time on their service.

8:53So just a breakout film that has really driven engagement meaningfully. And I think we're going to see that reflected in the numbers. So just given how bonkers K-pop Demon Hunters was for Netflix, is the bar really high for them if they don't meet the expectations that they've put out there? Is that going to put a hurt on the stock? So the one thing I think that we're going to watch for, I think 3Q is definitely going to be strong. The one number that can probably cause some nervousness is going to be if they actually release guidance for 2026. So last year, the first time that they issued guidance for 2025 was when they reported third quarter 2024 earnings.

9:38So the expectation on the street is, okay, they're probably going to give us a 2026 guidance number. Again, remember revenue for this year, the revenue growth number for the full year, again, that the magic word there, double digit revenue growth, it's actually 15%. Can they keep that up? So if it comes in much lower, if it comes in lower than I would say 13%, 14%, yes, that is going to probably cause some nervousness. So yes, talking about that high bar, all of this engagement metrics kind of really playing into that. And then the other metric that we're kind of looking for with Netflix, apart from revenue is margin.

10:15So this year, I think their margin growth is going to be really strong. I think they've already guided to 30%. It's probably going to be a little bit ahead of that. They're probably going to raise guidance. So again, next year, if they're a little bit softer on that number, again, maybe that causes a little bit of a pullback in the stock. What's going to be driving the margins for Netflix in quarters going forward? Is it going to be growth in subscribers? Is it going to be revenue from advertising? Yeah, I'm really glad that you brought it up because now that they don't disclose subscribers anymore, it's a little bit hard to get transparency.

10:50And again, just for full disclosure, they haven't actually disclosed any hard metrics around advertising either. So we don't necessarily know exactly what the advertising revenue is. Of course, there have been some guesstimates that it was probably around a billion dollars and change in 2024. That's probably going to be upwards of 2 billion this year. But then you're absolutely right. We're expecting a significant ramp up going into 2026. And that is going to be one of the major drivers for both the top line growth as well as operating margin. So for operating margin, you need strong top line growth, but you also need content cost rationalization.

11:28And that's really what we've seen Netflix do extremely well. So we're seeing revenue grow mid-teens levels, sometimes even high teens, but content costs grow only about mid to high single digits. And that's where we're seeing this huge jump in operating margins year after year. And when it comes to content cost management, where is the focus going to be, do you think, for Netflix? Is it going to be on that original content, the scripted stuff, or is it going to be more reality shows or even more live shows? It's going to be all of the above. So we've seen them really do a very good job. Originals, as you pointed out, drives majority of the viewership on the Netflix platform.

12:13We've seen that in all of the engagement stats that they disclose from time to time. That makes up about 50 to 55 percent of their content budget. But you're absolutely right. They have a really nice mix. They also have a good amount of licensed content, you know, the content that they get from the Disney's and the Warner Brothers and the Paramounts of the world. So they're making very concerted investments across the board. All right. Well, thank you for this, Geetha. Really great having you on with us. That is Geetha Ranganath and senior analyst for U.S. Media for Bloomberg Intelligence. And coming up on Bloomberg Daybreak Weekend, we'll look ahead to bank earnings out of Europe, how they may have been affected by rate cuts and geopolitical risk.

12:54I'm Nathan Hager, and this is Bloomberg.

13:06As markets move and headlines break, what matters most is context. A Bloomberg subscription gives you unmatched reporting, sharp analysis, and powerful tools that help you connect the dots. Visit Bloomberg.com slash podcast offer to learn more. This is Bloomberg Daybreak Week and our global look ahead at the top stories for investors in the coming week. I'm Nathan Hager in Washington. Up later in our program, we'll look ahead to a key meeting between Australian Prime Minister Anthony Albanese and President Donald Trump. But first, European banks have seen a trillion euro surge in value since late 2022 as interest rates have come down.

13:45But that may come under pressure from growing fears over sovereign risks in France and threat of a new bank tax in the UK, while rate cuts and geopolitical risk are added burdens. With the UK's biggest banks, Barclays, NatWest and Lloyds reporting earnings in the next few days, we want to get more from Bloomberg Daybreak Eurobanker Caroline Hepger in London. Nathan, European banks are eyeing Wall Street after a bumper set of earnings for the third quarter. JP Morgan, Goldman Sachs and Citigroup all comfortably beat estimates with a combined profit of more than$20 billion. But the CEOs of a number of US giants did sound alarm bells that market optimism is perhaps overblown.

14:29JP Morgan's Jamie Dimon pointed to a pair of recent bankruptcies in the private credit space. I probably shouldn't say this, but when you see one cockroach, there's probably more. And so everyone should be forewarned on this one. So Dimon's comments came amid an increasingly complex macroeconomic picture. You've got global trade wars, tariffs and political turmoil for the banks to think about. So against that backdrop, lenders on the other side of the Atlantic are also looking to balance risks and opportunities. So how have European banks been faring? So joining us now is Bloomberg's finance reporter, Will Shaw, and Philip Richards, Bloomberg Intelligence's senior banking analyst.

15:12Welcome to both of you. Thank you for being with me. Philip, can I start with you on the third quarter earnings? how are European banks expected to fare specifically against those Wall Street lenders who've reported just in the last few days? Yeah, so we've had all the US banks reporting and they've actually come across quite a lot stronger than the market was expecting. Particularly on the investment banking side, I've seen some quite hefty beats coming through on fixed income, equity trading, also quite a big return in terms of M &A and those are also quite ahead of consensus coming through as well.

15:43but also on the retail banking side as well. Lending growth has been higher than most people expected. A couple of wobbles on the credit quality side but overall they've been very strong. So the question is how much of that is going to follow through to the European banks in the week coming ahead. I think the bottom line is they should follow quite similar trends. There are a lot of overlap in terms of the investment banking space where the banks are operating. Therefore I think they could be fairly hefty beats there as well. Hefty beats expected. Okay, that's interesting. Will, how have the Wall Street banks done during the earnings season?

16:15What are the expectations then, in your view, for the big UK lenders, including, of course, Barclays coming up? Yes, I think, like Philip says, the Wall Street banks have really smashed it, I suppose, is the technical financial term. Morgan Stanley's stock traders soared past expectations. They were beating rivals on a surge in trading activity around turbulence from Donald Trump's policies. Goldman Sachs also posted record third quarter revenue down to like a resurgence in deal making as M &A began to resume. People now obviously looking ahead to Barclays. Now, Barclays are the analysts that we take note of.

16:54They expect equities traders to make about 750 million pounds. That would be an increase of about 8 % on the same period a year ago. Then macro traders, they're sort of tipped to make about 1.2 billion. That'd be up about 2%. Dealmakers looking at perhaps making around£600 million in banking fees and underwriting revenue. Again, that would be an uplift of around 2%. So those are the numbers we're watching out for then. Philip, it's obviously been, you know, the context in Europe, this fantastic four years, interest rates have fallen. And therefore, you know, you've had a good kind of tailwind for European banks.

17:34We've seen that in the share prices. But you've highlighted, of course, that there are more threats now into the second half of this year. What are the big challenges for the European banks? Yeah, I think that's fair. I mean, the sector's been on a huge run, as you flagged there. I mean, up about 160 % over that period. That compares to the wider market, about 40 % higher. So a big outperformance from the European bank. But what I would say is they were at very distressed levels at that time when that run started. and where we are today yes we're back at basically the highest level since the the great financial crisis over 2007 2008 so we've had this rally but it has really been supported by fundamental improvements you know obviously interest rate hikes supported it the economy is in a better position now credit quality is all low so it's not just about is that a bubble in terms of share price actually the underlying earnings is much better and you talk about the risk going forward i think actually some of those risks have already come through in terms of interest rate cuts we've seen that now in both Europe and the UK and actually from here maybe one more cut in each market but probably quite minimal from here so a lot of that pain has happened already and actually if you look at economic growth say conditions are still slow but they're getting better and certainly economists have been upgrading forecasts overall and therefore those things could help with the banks.

18:51We heard a little bit of JP Morgan's CEO just about the issue with risky loans i mean some people you know are concerned about this others are not are there signs of exposure amongst european banks to riskier loans what's the concern there in your view yeah this follows through from two big problems in the u.s for tricolor and first brands and the comment from jp morgan was basically that you don't often get just one or two hiccups normally they come together and that's a sign of stress in the market and what i would say actually in the UK or even across Europe, we haven't really seen that yet.

19:24There's not really been many big cases coming through. Credit quality remains actually very strong across the sector. But what I would say, these are well below normalised level, the current charge-offs. So they will gradually rise and there will be some negatives. But overall, if you look on a longer term perspective, actually credit quality remains very strong for the banks. Again, Will, I want to bring you back in on the UK banks and on Barclays. I mean, you you focus on Barclays and what they're doing in lots of detail. And I did also think that the stories around Barclays and their expansion in the US is very interesting.

19:58I mean, they're spending, what, a billion dollars on the refurb of their New York trading floor? It seems enormous, doesn't it? Yeah. Like you say, they're preparing to spend at least a billion renovating their skyscraper, which is in New York's Times Square. They'll begin construction on that tower in the middle of next year. and it's currently in the design phase and it's expected to wrap up in about 2030. I think a lot of people were surprised at the sheer scope of the expenditure there. Barclays is obviously Britain's investment bank. It's big, it's big here. It's not always as visible in the US as perhaps some of the other rivals over there, the big five, Goldman, Citigroup, Morgan Stanley, etc.

20:43And I think it was really interesting to see them put their money where their mouths are and show just how committed they are to the US market with such enormous expenditure there. Well, just thinking about that, if Barclays is the UK's investment bank, the policy outlook, I think, is very interesting, Philip. We've got the budget coming up in November and there's been plenty of talk, not just of deregulation and of things like changing the ring fencing rules for banks in the UK, but also the possibility of a bank win full tax on the Chancellor, Rachel Reeves. What do you think about it? Yeah, it's a bit of a contrast, isn't it?

21:20Give it one hand and take away with the other. So promises of deregulation to match the US, which are obviously the whole, that's the main word in the US at the moment, are now supportive. And as you say, it was less in terms of the ring fencing that could release capital for the banks. It could lead to a reduction in operating expenses. So they were positive. But then on the flip side, now these banks are now obviously in a much more profitable position, you know, 15 percent plus profitability, return on equity for the largest UK banks. And that's obviously quite attractive to a chancellor who's struggling to raise cash.

21:50I suppose, yeah, shall I ask you what the odds are? Do you think of her actually doing it or not? Maybe this is impossible to predict. It's impossible to say. I mean, it's been mentioned, it's been widely talked about in the market, but the Chancellor's obviously keeping her cards close to her chest, as it were, and therefore she's not revealing anything yet. We have seen it across a number of other European markets, so it wouldn't be out of the blue. We've seen it in Poland, we've seen it in Italy. So, yes, it's possible, but who knows? Okay, yeah, so windfall taxes. People might be thinking about that in the industry.

22:19Well, in terms of other things then that are happening on the banking front and trying to beef up trading, that's the other thing. I mean, the US banks are so good at that. And does the UK have something to rival that? You know, if maybe there is a windfall tax coming, is there going to be a big pot to tax? Yeah. So Adil Khan, who's global head of markets at Barclays, you know, he's been making a bit of a concerted push into macro trading this year. They've hired more than a dozen senior macro traders, as it looks to make the most out of all the turbulence in the bond market stemming from the Trump administration.

22:53So they've been hiring people from the likes of JP Morgan, Millennium, Nomura, Morgan Stanley. They're all big names. And it's essentially part of the CEO Venkat's three-year plan to boost returns across the investment bank. he's identified priority areas which include european rates as well as equity derivatives and securitized product training so yeah they do seem to be really flexing their muscle in this area at the moment and i think no conversation on any topic frankly in finance or banking is is without the ai factor artificial intelligence and banking so interesting you've also reported on Barclays shifting some of its top executives to try to lead an AI push.

23:39What would an AI push look like for Barclays? Well, I mean, all banks obviously are thinking a lot about AI at the moment, what it means for speeding up, creating greater efficiencies, thinking perhaps about what it might mean for headcount going forward. Evident AI, which is a company which tracks performance in AI of different banks, it doesn't frankly rate Barclays particularly highly. I would expect Barclays to be looking around slightly nervously at the other Wall Street banks and seeing what they're doing. You know, are they at risk of falling behind? They're thinking about areas such as where generative AI can be used in parts of the trading floor to make things more efficient.

24:21They've also promoted Antoinette O 'Neill to Group Chief Information Officer in charge of areas, including AI strategy. So they are on this. Interesting. I think we should also put it into context and listen in to Karen Ward also of JP Morgan Asset Management of course she's their chief market strategist who was speaking to us in the last few days on Bloomberg Radio I just thought this was really a great nugget that was so interesting about AI and whether or not it's going to benefit the UK or not this is what she had to say. The thing I will say with conviction is if AI delivers productivity benefits, the UK will benefit.

24:58One of the things in markets at the moment I find very hard to make sense of is the idea that the tech giants will grow their earnings at 20 % forevermore. And that's why you pay 30 times earnings for them. But yet corporate, global corporate is going to have earnings growth of, you know, low single digits, you know, that can't make sense. Yeah, absolutely. Thank you so much to both of you for joining me. Really appreciate your views. That is Bloomberg's finance reporter, Will Shaw, and Philip Richards, Bloomberg Intelligence's senior banking analyst. We will have full coverage and analysis of the UK bank earnings and European bank earnings in the days ahead, including Barclays quarterly earnings due out on the 22nd of October.

25:41Also, we'll have NatWest and Lloyds to bring you on Bloomberg Radio. I'm Caroline Hepker here in London. You can catch us every weekday morning here for Bloomberg Daybreak Europe, beginning at 6 a.m. in London. That's 1 a.m. on Wall Street. Nathan. Thanks, Caroline. And coming up on Bloomberg Daybreak weekend, Australia's Prime Minister is set to meet with President Trump. What implications could that have for the Australian economy? More on that next. I'm Nathan Hager, and this is Bloomberg.

26:20This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Nathan Hager in Washington. Australian Prime Minister Anthony Albanese will be in the nation's capital in the week ahead to meet with President Trump. For a preview, let's get to Doug Krizner, host of the Daybreak Asia podcast. Nathan, several issues will dominate the conversation when Albanese visits the White House. Perhaps the most important topic, critical minerals. For a closer look, I'm joined now by Bloomberg's Paul Allen in Sydney. Paul, thanks for helping me preview the meeting.