BI Weekend: Nike Turnaround, Airlines Outlook, AWS Growth

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1:32quality 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 our analysts cover worldwide. Today, we'll look at why a turnaround at the footwear giant Nike is beginning to take hold in North America. Plus, a look at why Amazon cloud sales may get a push from AI in 2026.

2:03But first, recently on Bloomberg Intelligence, we discussed HBO show Industry. Industry is a high-stakes drama following young graduates competing for careers in a prestigious London investment bank. Now in season four this year, the bank has folded, and some of these junior bankers have become power players in finance, business, and politics. For more on the show, we sat down with Mickey Down and Conrad Kay, co-creators, writers, and executive producers of the HBO show Industry. We began by asking Mickey down about the theme for season four. Wow, what a big question. I think the theme of season four is, as you said, you know, these characters didn't have power and it was about them accruing power.

2:39Now they have power. What do they decide to do with it? And how does it corrupt them? How does it mutate them? And is there a way out of this institution, this life, this industry? You know, I spent 35 years on Wall Street and many years on a trading desk. You guys get it. I mean, you got it. I don't know how you guys did that. Did you guys work in the financial services industry before, Conrad? I did, yeah. After I graduated college, I was a U.S. equity sales guy at Morgan Stanley for three years. And I was famously, when my boss let me go, he said I was the worst salesman he'd ever met on Wall Street.

3:11So he was like, go and do something else because you're pretty useless at this. Well, that's a true Wall Street career. You haven't had a Wall Street career until you've been fired from Wall Street. 100%. And I've been there myself. you guys what's the state of the industry in London these days I mean how are people how are the young people feeling in the industry because you guys reflect that with your show very well well I think our show is a reflection of almost like 10 years ago when we were in it and I feel like people like me and Cornwall would never be allowed in the industry now I think it's become a lot more technocratic we both did art subjects we were so underqualified you wouldn't believe it we were we were I know I'm not a great mathematician but I think You're speaking to a literature graduate and a theologian.

3:52Oh, great. So let's put you guys on Wall Street. Exalted derivatives were not our strong suit. Only in England is that allowed. So there's no room for liberal arts majors on global Wall Street anymore. And what's apparent is the show has become less about banking and more about wealth and resources and the leveraging of that. So, Conrad, what are you saying about capitalism and how it interacts with politics, with media? I don't know. I mean, the thing is that as we've written the show, we've realized that more and more we're writing really about the class system in the UK, who has power, who doesn't have power, who's born into power, and the sort of relative different glass ceilings people face.

4:26Like, I think season one was a kind of experiment because they were, the main characters were from such different socioeconomic backgrounds that they were always bumping up against different ceilings. And then, like, me and Mickey never set out every season to say something didactic about capitalism. Like, I think the show is, the show has something to say if you're looking underneath it. It has, like, a very strong subtext. but we set out to make eight hours of the most entertaining thing we can. 9 p.m. on HBO really means something still. All we care about is entertaining an audience, really.

4:54How is it getting a show on the air these days? There's so many different platforms. It used to be pitched to a handful of networks and hoped for the best. Now you can go anywhere on these streaming platforms. How does that impact from the creator's perspective? Well, I think there are fewer options than there were at least five years ago. I think there's been a massive contraction in the industry. I think it's actually much harder to get something on TV than it was when we started. We were two guys ex-financiers, grandiose term, who were given an opportunity to make something on a relatively small budget by the biggest network, most prestigious network.

5:27I just think that wouldn't happen now. I think we were, you know, it's an original show. It's not IP-driven. We don't have any fans to service. It's not a comic book. That kind of show, they're few and far between now. And there are lots of different streaming platforms and lots of different outlets, but I think actually we're just making a lot less stuff. We were really in the right place at the right time when we started developing the show about 10 years ago because it was a real gold rush of TV in terms of the amount of content getting created. Netflix came in, disrupted the whole model by flooding the zone with cash and quantity, and we were just in the right place at the right time in some ways.

5:59You know, season four is rolling out right when HBO's parent company, Warner Brothers, is in the middle of a drawn-out bidding war, something that Paul and I have joked about would make a really worthy Sunday night series of its own. were you ever tempted to draw any parallels between the show and the real life drama that's going on to your corporate parent? I think another HBO show already did that. A very successful one that won more Emmys than us. We'll leave it to them. Yeah, but you know, you could have made it really meta, for instance. For sure. Surprisingly, they don't consult us on any of that stuff.

6:29Maybe they should. The other thing that I noticed is that you introduce a lot of new characters this season played by American actors. Kiernan Shipka, formerly of Mad Men. Max Minghella, he's English, but he plays an American character. Why do you put so much of a focus on Americans in London? Given that you're both British, I mean, and it takes place in London. It's interesting. Well, obviously, finance is a global industry. I think, obviously, there's a lot of, you know, international people in finance. It was my experience working in the financial services industry. And the show was originally conceived as a kind of outsider status show.

7:00It was about someone coming into an inside world. And, you know, that was encapsulated by Harper, who's a black American woman, coming into the UK, which is obviously rigidly class-based, and that felt really interesting. We just like to, I know, we like a mishmash of voices. I mean, obviously, people complain about the show and its accents and the amount of different accents that are in the show, but we just love to represent it. I think we were consciously thinking of giving an American audience an access point to the show, because as Mickey said, it's a very jargon-heavy show. It's loaded with Britishism, British slang, British codes of conduct.

7:28We wanted to give Americans a bit of a foothold into what we were trying to do. Just real quickly, who's your audience? Like, what's a typical viewer of your show. I'm drawn to it because I'm a Wall Street guy. It's very wide. It's very wide in terms of demographically, in terms of age. I mean, I'd say it caters to everyone from 18 to 80, really. It really does. My 94-year-old grandmother loves it. Do Wall Street guys email you guys? Oh, yeah, all the time. For sure, all the time. What's the number one feedback? You're getting this wrong or you're getting it right. I could do better. It's really become a bit of a recruitment tool.

8:00People are saying that it's the reason they got into Wall Street. Oh, my gosh. Mine was Wall Street with Michael Douglas and Charlie Sheen. That was my time. That was mine as well. Our thanks to Mickey Down and Conrad Kay, co-creators, writers, and executive producers of the HBO show industry. We move next to the world of sports with the Super Bowl less than five weeks away. The run-up to the big game on February 8th could be a key window for sports betting companies like DraftKings and FanDuel. According to Bloomberg Intelligence, this time period could allow the companies to expand distribution of the new prediction markets apps available in 17 states.

8:33We're joined by Brian Egger, Bloomberg Intelligence Senior Gaming and Lodging Analyst. We first asked Brian about how DraftKings and FanDuel have been positioning themselves for the NFL playoffs. Yeah, so DraftKings and FanDuel, among other things, recently rolled out these prediction market apps, which are separate from their sportsbooks. And this is really to compete more head-on against Kalshi and Robinhood and other of these financial firms that offer these event contracts in a number of states. How big is it? I'm hearing more and more about this prediction market. How big is this thing? I mean, this is potentially really large.

9:04I don't have numbers in front of me. But the key thing is that Kalshi and Robin are trying to do this in all 50 states. There are about a dozen states that have either told them cease and desist because they effectively are engaging in illegal sports betting, according to the states. Or a couple states have warned DraftKings, FanDuel, don't do the same thing if you've got a sportsbook license. So what DraftKings and FanDuel did was try to go into states with this product where they don't operate sportsbooks. They can do prediction markets on politics or entertainment events in any state, but the real issue is with respect to sports.

9:38That's where they limit themselves. Let me ask you a dumb question, and maybe we don't know the answer to this yet. Who is the target audience for a contract and in prediction market setting versus just a regular parlay or simple bet in a sportsbook? Well, regardless of the type of person, in terms of the type of area or territory, think about the fact that you've got mobile sports books in almost 30 states, 30 some odd states, DraftKings, FanDuel, and 25 of them. Other states, big states like Texas and California, they don't have legal sports books and sports betting. That's a logical market for Kalshi and for Robinhood to go in there and say, you can do these prediction markets and engage in that even though sports betting isn't active and legal in the state.

10:20That's really the big opportunity. So what would a Texas and a Florida say about that? Right. So without going through every state, there are about a dozen states that we either specifically told Kalshi and Polymark or Robinhood, cease and desist, don't do this. A few others have issued letters warning DraftKings and FanDuel do not offer a sports prediction market in a state where you've got a sports vet license. So what FanDuel and DraftKings did is 17 states were DraftKings, five for FanDuel. They're offering this product in states where they don't have sports books and where sports betting isn't, quote, legal.

10:54Who regulates the sports markets? So it's very confusing because the sports books are regulated by state gaming regulatory authorities. The prediction markets are regulated by the CFTC. So it's state versus federal. And that's been the argument of Kalshi that, you know, we're a financial futures contract. We're not sports betting. We are federally regulated. The states have pushed back and said, no, this is a form of effectively analyzing sports betting. And ultimately, I think this heads to the Supreme Court. That's certainly the view of Elliot Stein, our litigation analyst. So what do the casino companies say these days?

11:29What do they say? Does that impact their sports book and their sports betting? On the margin, to the extent that MGM and Caesars have mobile products, it's very possible they'll look into this type of product as well, again, in those states where sports betting isn't legal. So everyone's going to think about it. And the real other wrinkle is Texas and California, once they realize we may not have sports betting, well, we have effectively sports bettors. If you believe that's what prediction markets are, we might as well legalize it. And so there's a whole bunch of ramifications to this. What about Native American tribes in states like California, in Connecticut?

12:05Where do they fit in? How do they fit in? In California, although sports betting isn't legal in California, the tribes have themselves challenged and through legally the likes of Kalshi and Robin Hood. I don't remember which one. So to the extent that tribes have opportunities to operate sports books, which effectively Florida has a seminal tribe operating Hard Rock betting site, even though Giraffe Kings and Fandle are not involved. So the tribes very much will care to the extent that this is effectively a competing product as consumers might perceive it. So is betting just going crazy, the total dollar amount?

12:43I see kids, high school kids, having conversations in detail, showing a level of expertise, which really blows me away. Kids, high school kids. And I don't know. It just doesn't feel right. It's surprising. And it also gets very problematic when you have college kids, college games, college players. But, yeah, there's a big national draw to this. And I think the real, I don't think DraftKings and fans will get as affected as some might fear in states where they've got a sports book. But in states where they can't operate a sports book, but Kalshi and Robin Hood and Polymarket, others are offering prediction markets.

13:24That's where I think they see risk as well as opportunity. Our thanks to Brian Egger, BI's senior gaming and lodging analyst. Coming up, a look at Bloomberg Intelligence's outlook for North American Airlines in 2026. 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 Foo. And I'm Paul Sweeney, and this is Bloomberg.

13:53This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio. We move next to research Bloomberg Intelligence recently put out on the footwear giant Nike. According to BI, Nike's turnaround is beginning to take hold, notably in North America, but China remains a challenge. For more, we were joined by Poonam Goyal, senior U.S. e-commerce and retail analyst at Bloomberg Intelligence. We began by asking Poonam to break down BI's most recent research. Basically, we think that Nike turnaround is possible. We see finally some light at the end of the tunnel. Their North America business has improved and is going to improve as they rationalize inventories.

14:33The issue still is China. And the struggle in China, we don't think will end anytime soon. In my mind, it's a one to two year turnaround. But that said, if they can get everything else right, which I think they are doing and will get to, I do think that Nike's turnaround is well underway and investors will begin to appreciate it. So let's dig into the struggles in China. I mean, you're talking about a long time frame here for things to turn around. Is it just that Nike has lost its appeal to the Chinese consumer? Is it competition that's really stepped up in the last couple of years? So it's a few things.

15:13Number one, Nike in the U.S. and other parts of the world is perceived as a more affluent at-leisure brand. In China, it is not. What's been happening in China is that Nike has been selling at a discount to clear inventory as the vicious cycle of weaker sales has led to more discounting. So it's more seen as an off-price rent. That needs to change. They know that needs to change. I think that's the first step in solving the problem. And I think what they will do now and what they've said that they do, and I do believe they will because they did it in the U.S., is they will clean out that aged inventory.

15:50But as we know, that will take time. In the U.S. alone in the last year, we've seen that it takes anywhere from 12 to 18 months. The U.S. is finally in a place where in the next three to six months, they should be clean. So which is why we think it'll take 18 months. Once they can do that, the new pipeline of products that they're building, I do think will resonate with shoppers and it will sell at full price. But once again, it's an 18 to 24 month turnaround in China, in my view. Talk to us about, you know, new product development and new product introduction. Are there certain verticals they're targeting, whether it's running or lifestyle or, you know other types of activities?

16:28So running is a core category that they're focused on. They have launched a new innovation in running. Running actually with their new pipeline has done very well in the US. We saw that running was up nicely, whereas the rest of the business was down slightly to up slightly, depending on the quarter that you look at over the last 12 months. We also think that they're focused on sport. So when you think about Nike, and if you compare it to Adidas, I think there's a big difference in the way that they're approaching their businesses, which allows both of them to succeed. Nike is focused solely and most importantly on sports and performance, whereas Adidas has owned for the last few years the lifestyle category.

17:11And I do think that Nike's focus on sports is the right one. And that is where they should be to drive this turnaround. What about tariffs, Phunam? Tariffs is certainly something that affects Nike. I know that Vietnam and the U.S. has reached a trade deal. Most of the footwear in this country is manufactured in Vietnam. But how is Nike managing through this headwind? So the headwind is here and it's here to stay. Nike has selectively increased prices to combat the tariff impact. It's also negotiated supplier relationships and found efficiencies internal, just like the rest of the space. Nike isn't alone in the tariff situation.

17:46We do think that tariffs will continue to impact margin in 2026, as well as the shift from DTC to wholesale. The wholesale business is doing better. And Nike is more focused on it today because it had lost focus years ago. So that mixed shift is negative. That said, as more full price selling takes hold, as we see signs of China improving over the next 12 to 18 months, those are both areas where they can help to recover lost margin. 2026 calendar year is not a margin story for Nike. It's a top line story. I think 2027 is where we can start to talk about margin expansion. Poonam, one of your discussions with Nike and other consumer products makers and apparel makers, what's the consensus today about the consumer?

18:35The consumer is mixed. The luxury or the affluent consumer is clearly doing better than the low-income consumer. And we do think the consumer will continue to make choices on where they shop. But we think the consumer is looking for fashion. It's looking for newness. It's looking for what's hot in the market. And as long as brands and retailers can be on trend, they will drive sales of those products because that is where the consumer is shopping on trend product. How much rope are investors willing to give Elliott Hill? I mean, I think you do need to give him another year. We need to give him six to 12 months to start to see China inventory moderating and the situation beginning to unfold.

19:20For the rest of the world, I think he's proven that things are becoming stable and that they are on the uptick in 2026, especially later in 2026. Our thanks to Poonam Goyal, senior U.S. e-commerce and retail analyst at Bloomberg Intelligence. We move next to research that BI recently put out on North American Airlines in 2026. According to BI, slowing capacity growth in the first quarter, including cuts from some low-cost carriers, looks set to moderate airfare declines, but weaker economies of scale will likely negate any benefits to profits. For more, we brought in George Ferguson, our senior aerospace defense and airlines analyst.

19:55We first asked George about how healthy the airline industry is and what the outlook looks like for 2026. Look, I think, you know, as we get into 2026 and we're looking at schedules, we're seeing a lot of the growth coming from the big full service carriers. United especially continues to sort of pour on the gas here and put a lot of capacity in the marketplace. Delta a bit less than them, American even a bit less than them. We're going to have Southwest starting to sell premium seats and everybody's got a plan for bringing more premium seats to the marketplace. So when we just look at the full service carriers, you're going to see like three, four percent seat growth in the first half from those big full service carriers.

20:36I think that means there's probably a risk. Premium seats are going to start to feel some pressure on fares. And that's been the really big driver of this business, especially for those big full service carriers has been driving their profitability. On the economy end, we're seeing Spirit Airlines there sort of between this world and that world a little bit. We're trying to figure out if they're going to survive, might get bought by Frontier. They've dropped a bunch of airplanes. We're seeing some of these carriers cut capacity because of weakness in those seat prices. So I think we'll start to see at least some firming up of that basic economy as the market tries to get that back in balance.

21:19So I think that's what we're going to see in the first half of the new year. So it sounds like there's going to be a surplus of those premium seats. And then that leaves a big empty hole here for the frontiers and the spirits. Are they going to be forced to offer also some kind of premium version of what they currently have on offer? I don't know. I mean, I think everybody's trying to figure out a way to get more premium in their airplane. They're not, you know, they're not forced, but they want they want that premium travel that's going to just keep flying through, you know, through good and bad economic times and not have the challenges of inflation on their budget and things like that.

21:54So I don't know if they're forced, but we're definitely seeing all of them look at ways to increase the price they can get the customer to pay for a seat, whether it's block a middle seat, you know, so it might be three by three kind of airplane. They might block the middle seat. Some of them are talking about putting, you know, more recline and nicer seats in the front of the airplane. So everybody, I think everybody has a plan for how to get more premium in their airplane. And again, that's going to mean, like everything in the airline business, we'll get offsides on premium before it's all done.

22:26I think it begins in the first half. I don't think premium seat prices are going to crater. Unfortunately, we're not going to be able to go anywhere really super cheap flying in front of the airplane in the first half. But I don't think it would be as good as it was in 2025. Wages. That's a big cost component for these airlines. I want my pilots happy. I want them feeling like they're well paid. Talk to us about the wage dynamic in the industry. Yeah, I mean, look, you know, we still see, you know, I don't know that I want to call it a shortage, but, you know, it's a difficult balance between the number of pilots out there and what's needed by the airlines and the, you know, the number of people coming into the industry and getting air transport licenses and things like that.

23:10And so the pilots are still decently paid. You know, they came off years, decades ago. They just had many, many bad years. There was a surplus of them. So they've been catching up and they got these 20 % increases in the last couple of contracts. And in the last contract, we saw a 20 % increase and then a 4%, 5%. So actually it was a five and a couple of fours. But 4 % salary gains increases, they're pretty nice in this economy. And the airlines really can't afford that kind of inflation in their cost base. The pilots are a big part of it. And so they keep rolling out bigger airplanes. And that's another challenge in the marketplace, right?