BI Weekend: Netflix, Tesla, AT&T Earnings

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1:32Low quality stocks driving this short term rally. Bloomberg Intelligence. With Scarlett Foo and Paul Sweeney. On Bloomberg Radio, YouTube and Bloomberg Originals. On today's Bloomberg Intelligence show, we dig inside the big business stories impacting Wall Street and the global markets. Each and every week, we provide in-depth research and data on some of the 2 ,000 companies and 130 industries that our analysts cover worldwide. Today, we'll look at how a heavy promotional campaign at AT &T impacted its quarterly earnings. Plus, we'll break down how delayed orders at U.S. retailers impacted earnings for toy maker Mattel.

2:04But first, we begin with earnings from the streaming giant Netflix. Netflix shares fell the most since April 2022 after its third quarter earnings missed analyst estimates. This comes after Netflix had to pay about$619 million to settle a multi-year tax dispute with Brazilian authorities going back to 2022. The results may renew concerns about the sustainability of growth going into 2026. So for more, we brought in Geetha Ranganathan, Bloomberg Intelligence Analyst on U.S. Media. We first asked Geetha for her take on Netflix results. Nobody saw this coming in terms of this transaction tax. It's a little bit of a catch-up charge that Netflix took in the third quarter.

2:40And there will be an ongoing charge as well, about$40 million or so per quarter. But again, nothing that will materially impact results. What that tax charge did was that it definitely depressed the margin performance. And this is something that everybody's been super focused on, operating margin numbers. Those came in definitely much lighter than what Netflix itself had projected. But actually, if you just strip out that Brazil tax impact, they would have had record operating margins. So they guided for 31.5. They would have come in at close to almost 34 % if we didn't have that tax issue. I think fundamentals are definitely strong.

3:19But I think what is happening is, apart from the tax issue, was that it was just a very, very ordinary quarter. You know, people were definitely expecting something, you know, a much bigger beat in terms of revenue, just given that, you know, the second half content slate has absolutely been a monster slate. I mean, we've seen some of their biggest hits ever in the third quarter, we expect to see more coming in 4Q. But none of that was really reflected in the numbers. And I think that's why you're seeing so much of nervousness. Okay, so ordinary results at Netflix is like the new bad. Going back to the results, Geetha, what was new, I thought, in the earnings report was that they flagged the possibility of M &A, which is not something you hear from Netflix.

4:00Of course, there have been all these reports that Netflix is interested in buying assets from Warner Brothers Discovery. Do these latest results show that Netflix is now in a position where it has to make a purchase? It's a defensive buyer as opposed to an offensive buyer. I don't know whether it has to make a purchase. They definitely left the door open, which suggests to us that they will take a long and hard look at the studio assets, not the cable networks. They made that extremely clear on the call. But the studio, if you just think about it, Scarlett, I mean, this is definitely, and I mean, we spoke about this yesterday as well.

4:33This is a once in a generational opportunity for anybody who wants to own this kind of a studio. I mean, this is a top tier studio with a lot of very, very, you know, beloved popular franchises across the world. We know that these titles resonate. I mean, Netflix themselves has a lot of the Warner Brothers titles. They perform extremely well on the platform. So, yes, it is a defensive move. But again, if Netflix doesn't, you know, go ahead and doesn't make that purchase, I don't necessarily think that they are going to be in a much weaker position. It definitely complicates the strategy for them a little bit, just because you might have another player like a Paramount or a Comcast that becomes much stronger.

5:12But they still have a considerable lead versus all of their peers. So I don't think it's it's it's do or die. So what's the environment like out there in terms of creating content, movies and TV shows? Is is Netflix still like the first phone call you make if you're a producer or you're a writer? I've got this project. I'm going to go to Netflix and get it done. Because they had the biggest and maybe still have the biggest checkbook in Hollywood. They do. They're spending close to about$17.5 to$18 billion on content every year. And, you know, there's been a lot of concerns, Paul, in general about the rise of AI, especially now that you have Sora 2.

5:53You have all of these new tools from Google, from Meta. You know, is that going to be a disruptive force for all of these streaming players and Netflix? And it looks like it actually won't. You know, we've run some numbers internally. We think that it should help Netflix actually curb content costs by about 5 % to 10%. That's substantial cost savings, you know, for all of these streaming players, especially for Netflix, which typically has used AI really, really well. You're absolutely right. They've, you know, they've done a great job when it comes to content. They're going to, I think, continue to do that.

6:27Not only do we have the second half slate for this year, which is extremely strong. Scarlett just mentioned all of those titles. But actually looking forward to 2026, again, you have a whole host of different titles coming on the platform, you know, including Emily in Paris, you have Bridgerton, which has been one of their biggest series. And then you have the movie Narnia, which is supposed to be like this huge event for them coming a little bit later. So they have a steady, steady, steady pipeline of titles that should help them, you know, drive engagement and ultimately drive pricing. Our thanks to Geetha Ranganathan, Bloomberg Intelligence Analyst on U.S.

7:03Media. We move next to the luxury space. This week, the luxury goods company Kering agreed to sell its beauty division to the cosmetics and beauty company L 'Oreal in a$4.7 billion deal. The transaction includes the sale of perfume maker House of Creed, which Kering bought only two years ago. And this comes as Kering's new CEO, Luca DeMeo, changes course in a bid to turn around the French luxury giant's fortunes. For more, guest host Lisa Matteo and I were joined by Andrea Feldstedt, Bloomberg Opinion columnist. We first asked Andrea to break down what exactly the Caring transaction shows. Well, it's being dressed up as a partnership between Caring and L 'Oreal, but what it really is, is effectively the sale of their beauty brands to L 'Oreal.

7:44They've got a new CEO, Luca DeMaio. He's come in at a time when the balance sheet is very stretched. His predecessor, who is now chairman, bought a lot of things, including Creed, this very, very upmarket perfume business, a share in Valentino, to try to make the group less dependent on Gucci. But that really increased debt. At the same time, Gucci's really slowed down and they're having to revive it. So they're saying it for€4 billion in cash. That gets some money in to deal with the debt and gives the new CEO a bit more time to turn around Gucci. Andrea, isn't this a complete turnaround? I mean, didn't the company want to bulk up the beauty and cosmetics division?

8:32Exactly. I mean, they're saying, you know, this is built on the potential that they created. I mean, to be fair, they bought Creed. They paid a lot for Creed, 3.5 billion euros, which I worked out to be about 14 times sales, you know, an awful lot. But what they did, it had a supply chain it was they they did that as a platform to build for beauty and the argument is they have been able to do this deal because of that platform that's probably kind of rather generous um look at him i had a big decision to make when he got in he either had to stick with beauty and invest in it but with that debt it's gotten all and and the need to reinvigorate gucci It's got an awful lot more calls on its cash.

9:13So he just decided beauty wasn't a priority. I consider myself a Gucci expert. I read the book. I saw the movie. You saw the movie, yes. Exactly. So, Andrew, I mean, it's obviously an iconic brand. What are the experts saying that needs to be done? Because it's such an important part for caring. It is. It really is. At its peak in sort of 2018-19, around that time, it was 60 % group sales. Now, you know, Kering had an amazing run with Gucci. They put in this quite unknown designer, Alessandro Michele, and the prevailing look had been very minimalist. And he came in with these big logos, clashing print, granny chic, and it was just a breath of fresh air.

9:56And it changed prevailing fashion. But that was in sort of 2016. After the pandemic, when obviously nobody was feeling terribly good, soaring inflation, It just felt very out of sync with how people were feeling. And they tried to turn it around and have a much more minimalist look. And it just wasn't Gucci. Gucci works best when it's very fashionable, when it's over the top. So they brought in Demna Vesalia, who was at Balenciaga. And he is trying to, you know, really revive it. He's gone back to the Tom Ford days when it was very successful. He's gone back to the Alessandro McKaylee days. He did this crazy film in Fashion Week that was absolutely bonkers.

10:40But it got people talking about Gucci again. I was in New York a couple of weeks ago, and I went to the store in Soho, and there was a big installation of all his things and a capsule collection. It's trying to get people interested in Gucci again, and he's sort of going back to the future to try and revive its magic. Whether it's going to work, I'm not sure. I thought he was the wrong person to be appointed. But so far, he seems to be doing all the right things. Andrea, can you tell us some of the challenges Carrigg has been facing? I mean, there's that slump in Chinese demand, higher U.S. tariffs as well.

11:15What are they facing? So what we've got at the moment is the 1 % are still doing very well. But they're not buying Gucci. They're buying Hermes. They're buying Brunello, Cuccinelli, Laura Piana. They want these very expensive upmarket things. Now, the rest of the luxury market, that aspirational customer is coming under pressure. And Gucci had a lot of those aspirational customers, particularly in the US. So you've got the sort of aesthetic going out of fashion. You've got these aspirational customers coming under pressure. It's really had a bit of a perfect storm. And it needs to really revive Gucci.

11:56and it had, Battega Veneta wasn't doing too bad and their designer went to Chanel. So, you know, every brand is sort of, you know, got its challenges. Our thanks to Andrea Falsett, Bloomberg Opinion columnist. Coming up, a look at why third quarter profit at EV giant Tesla missed estimates on Wall Street. You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in-depth research and data on 2 ,000 companies and 130 industries. You can access Bloomberg Intelligence via BI Go on the terminal. I'm Scarlett Fu. And I'm Paul Sweeney. And this is Bloomberg.

12:31This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio. We move next to earnings from the EV giant Tesla. Tesla reported third quarter earnings that missed analyst expectations. This comes despite record electric vehicle sales. It's a sign of the pressure automakers are facing from shifting federal policies and rising costs. Afterwards, CEO Elon Musk also spent the end of Tesla's earnings call pleading with investors to approve his$1 trillion pay package and blasted shareholder advisory firms that have come out against that proposal. For more, we were joined by Steve Mann, Bloomberg Intelligence Global Autos and Industrials Research Analyst.

13:07We first asked Steve for his reaction to the recent Tesla news. It was quite a surprise given the volume of production. You would think that, you know, the fixed cost absorption would be higher this quarter than in the past. but it didn't happen. Looks like appreciation costs increased for them. Looks like the tariff cost impact is greater than expected. And then even below the gross margin line, the R &D costs went up quite a bit. That could be viewed as a good thing because that's a sign they're pivoting to the RoboTaxi, the FSD, and the Optimist robots. And Elon Musk, I guess towards the end of the call made a plea for investors to approve his$1 trillion pay package.

13:53Quote, this is from Elon, there needs to be enough voting control to give a strong influence, but not so much that I can't be fired if I go insane, Mr. Musk said. How did that go over on the call here? And what's the thinking among investor community about what may be a$1 trillion pay package? Yeah, I'm not sure if money is important to him. He does have a lot already. So I do believe that it's more about the control the company. Look, Tesla doesn't have the dual class shares like some of the tech companies have. So there is he does have that fear of getting pushed out. And, you know, he had that experience, right, with OpenAI.

14:31You know, he's one of the initial investors in OpenAI and he got pushed out. So he does have the concern. It is his baby. Look, the stocks, you know, the other thing is the stock hasn't reacted too negatively to the weak earnings that we saw in the last quarter. There's a battle happening between the bulls and the bears, the long guys versus the near-term investors. And there are a lot of people who believe that he can achieve getting the Optimus robot up and running, getting physical AI going. So there's a lot of believers out there. There's a lot of believers. And what the company actually reports, especially when it comes to his vehicle sales, almost doesn't matter based on this idea that Elon Musk will steer the company in the right direction.

15:29Eventually, maybe because of the robo taxis, which are in operation, but the self-driving vehicles, the humanoid robots, those are going to take a couple of years to pan out. If that, we don't have any details on it. So in the meantime, what is the growth driver for this company? Well, definitely in the call, he doesn't talk about cars a lot anymore, other than Robotans and FSD. He's very focused on physical AI. But at the end of the day, he needs to sell cars. He needs to continue to sell cars to actually generate the cash to support his endeavors. Now, he has launched cheaper vehicles. It would have been better if he is offering even a cheaper model, like something under$30 ,000 that we talked about in the past.

16:18He is expanding overseas, right? He had record sales in countries like Japan and South Korea. Now he's going into India. Big market, big market. So cars is still going to be important. Our thanks to Steve Mann, Bloomberg Intelligence Global Autos and Industrials Research Analyst. We move next to earnings from the telecoms company, AT &T. This week, AT &T reported revenue that fell slightly short of analyst expectations in the third quarter. This was a result of a heavy promotion campaign to woo new customers in a fiercely competitive mobile phone market. AT &T CEO John Stanky also said the carrier is up against, quote, increased marketplace activity that shows no sign of slowing through the end of the year.

16:56For more, we were joined by John Butler, Bloomberg Intelligence Senior Telecom Analyst. We first began by asking John to talk about AT &T's quarter that ended and just how competitive this wireless business is. It's a very mature market right now. You've had a lot of movement in the management suite with new CEOs at Verizon and T-Mobile. So the fear is that promotional activity is going to pick up as these new CEOs try and make their mark. And I think we saw some evidence of that in 3Q. You know, if you look at AT &T's numbers, they were truly mixed. I was really surprised at that. What we saw was revenue growth across the board just missed estimates slightly.

17:38It was a little bit slower than everyone expected. Subscriber growth, though, was higher than expected. And that really, to me, those are the kind of financial metrics you see in a highly promotional environment, right? You're promoting heavily. there's pressure on pricing. Their average revenue per user actually fell in the quarter on the wireless front, but subscribers rose. And so you're out there trying to build up your roles, your subscriber roles at the expense of revenue in the short term on the promise that in the long term, if you can keep those subscribers, it pays back. I always pay special attention to AT &T's results because I switched from AT &T after like, I don't know, 15 years because of the original iPhone to T-Mobile because they had all these great deals and I don't know, it seemed more fun in general.

18:31The reason I bring this up is because now AT &T is actually the smallest of the big three wireless providers behind Verizon, behind T-Mobile. Does being the underdog work for it? It's a good question, Scarlett. What they're really doing is throwing their weight behind broadband. John Stanky, he has really pursued the broadband market in a big way and I think a lot of it has to do with the fact that the broadband market is growing faster than wireless. It's still a mature market, it's still relatively saturated, but there's room for more growth there. AT &T is pursuing a fiber broadband strategy and fiber is the single best way to deliver internet at period, full stop.

19:17There's nothing better out there. And AT &T is a real leader there. So I think on the wireless front, I don't want to say they have their eye off that ball in any way whatsoever. They're going through a big modernization of the wireless network right now, standing up a lot of new spectrums. So you're going to see network quality increase significantly over time, and that will drive more net additions, I think, down the road. But if you think about AT &T, don't just think wireless. I think it's important to pay attention to what's happening in that broadband business, because that really is setting the foundation for their future growth.

19:57So, John, in the broadband business, are they competing against the cable companies? Because they've made that a key focus over the last decade or so. Yeah, I mean, the broadband market's getting really interesting right now. What you've seen is the cable guys are losing a lot of share to fiber and particularly to fixed wireless access, which is basically a wireless link of broadband into your home. That's been a runaway hit with consumers, really popular. AT &T was late to that game, but they're getting a lot of growth in FWA right now, as it's called. So it's interesting to see the dynamic where the cable guys are losing share and the telcos are gaining share.

20:45And soon you're going to have Starlink enter the market in a bigger way. They're right on the cusp of upgrading the capacity of their Constellation. And so they're going to go from a very high priced product, I think, to a much more reasonably priced broadband offering. Once they get more capacity up there, they're going to look to fill that. and the way to do that is to cut your prices. And so suddenly you're going to have another wireless option, which is going to be satellite. So the competitive dynamics there are getting interesting, but for AT &T and their dedication to fiber, I think they're extremely well positioned to not only hold their own, but grow from here.

21:28Our thanks to John Butler, Bloomberg Intelligence Senior Telecom Analyst. We move next to earnings from toy maker Mattel. This week, Mattel reported third quarter sales and earnings at missed analyst expectations. And this comes as U.S. retailers delayed orders due to uncertainty over President Donald Trump's tariff policies. So we tapped Lindsey Dutch, Bloomberg Intelligence Consumer Hardline Senior Analyst, for her take. We first asked Lindsey to comment on Mattel's delayed orders. We heard earlier, actually in the second quarter earnings, that there were possibilities for delays. And for the toy makers, you know, Walmart, Target, those retailers tend to take their holiday orders by July.

22:05So there was already worry sort of heading into third quarter earnings. And of course, it was a negative surprise on the top and the bottom line. Those orders were delayed further than sort of everyone expected. And they're taking smaller quantities than usual, you know, onto their shelves ahead of the holiday season, which was a real concern for Mattel's fourth quarter earnings, which would be coming up. So, Lindsay, what's Mattel and some of the other companies saying about, you know, when their products, you know, get stamped with a tariff, like how much do they try to push back on the manufacturer in whatever country it comes from, say China, how much the importer may take in his or her P &L versus, you know, how are they saying that they're navigating that?

22:51So from the cost side, the toy makers actually have been managing this pretty well. So Mattel is forecasting less than$100 million hit on the cost side on an annual basis. They're mitigating that in several different ways. They're cutting costs in other areas. They did adjust sourcing as much as they could, selling more internationally versus the U.S., shifting that mix a little bit. And they did roll out some price increases in the second and the third quarter, which is ahead of holiday. So that should help protect on the profit on the margin side for that fourth quarter. It looks like those toy makers are bearing the brunt of that cost rather than sort of passing it through towards a retailer.

23:35Lindsay, what are the trends impacting the toy business these days? I mean, I guess a lot of electronics, but what are some of the big trends that you're paying attention to? So a big trend that we have seen growing momentum on is really the kid-old trend, which is adults 18 plus playing with more toys. And Hasbro, Mattel, Lego, they're all playing into this. So those big black box Legos that are very high price points, they've done very well the past couple of years, but Mattel is also leaning into that. A lot of their new products coming out, even with Barbie or Hot Wheels, are really collector's items.

24:14They're really aiming at that cadult. And honestly, the industry was up 6 % in the first half, up high single digits in the third quarter, and that's really being driven by this trend. As we look ahead to the holiday season, I realize for companies themselves, they are already knee-deep in it, but as consumers were looking ahead to it, are there any must-have items that the toy makers are really counting on or these toy retailers are really counting on? So I looked through all the holiday lists and I was a little bit disappointed. I didn't see any wow gifts or what I would call a wow gift. One cool collab that Mattel has, but it's really for 2026, pre-orders will be available in November.

24:55They are doing a collab with Netflix, the K-pop Demon Hunters. So they are doing action figures and dolls for that series. And that should be coming out next year. And I do think that could be a big hit. Our thanks to Lindsay Dutch, Bloomberg Intelligence Consumer Hardline's senior analyst. Coming up, a look at why the hospitality company Hilton Worldwide has raised its full-year profit outlook. You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in-depth research and data on 2 ,000 companies and 130 industries. You can access Bloomberg Intelligence via BI Go on the terminal.

25:26I'm Scarlett Fu. And I'm Paul Sweeney. And this is Bloomberg.

25:37This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio. We move next to the hospitality industry. This week, Hilton Worldwide reported third quarter earnings that beat analysts' estimates. Hilton also boosted the lower end of its full year outlook for expanding its hotel network. For more on this, I was joined by Jody Lurie, Bloomberg Intelligence credit analyst. I first asked Jody what she heard from Hilton in its earnings release. So I think, Paul, you know, what's interesting is that Brian Egger, my equity counterpart, and I came up with the same conclusion in that they are a little bit too optimistic, it seems, in general.