ByteDance to Get About 50% of TikTok US Profit Under Trump Deal

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1:28Scarlet Fu:Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's go over to another interesting story today in the tech space. That's TikTok. It needs to be divested. The U.S. operations. Looks like there are some buyers out there. Now the question is, what are they going to pay for it? Mandeep Singh joins us. He's a senior tech analyst at Bloomberg Intelligence. Mandeep, I saw the reporting this morning from Bloomberg about a$14 billion valuation.

2:11And I was saying, what? Isn't it worth multiples of that? But then I see that there might be an arrangement where ByteDance is going to receive a lot of the profitability of the U.S. operation. What's the latest that you know? So that profitability option is tied to the fact that, you know, ByteDance still has to run the operation. So what they have done is created two separate entities. One entity will house the data. It will control the content and the algorithm. So they are going to recreate the algorithm. and that other entity that ByteDance is responsible for will actually run the day-to-day operations.

2:51And it will be responsible for showing the ads, any e-commerce that flows through TikTok. And so from that perspective, it makes sense that they will keep half of the profits because guess what? A company like Oracle, yes, it can run the infrastructure, the app, but it doesn't have the expertise to run the ad operations or do e-commerce, at the end of the day, it's more infrastructure than applications. And so from that perspective, it makes sense that, you know, ByteDance is involved in running the operations.

3:21Scarlet Fu:And we've also learned today that ByteDance is expected to get about 50 percent of TikTok U.S.'s profit under this potential Trump deal. What do you make of that? This, again, is according to Bloomberg reporting. It has not been confirmed and we all are waiting for things to be made official. Does that sound like a reasonable split? I mean, think of it this way. Oracle was getting paid. Let's say, you know, TikTok US was generating about$10 billion in revenue. Oracle was getting paid$2 billion just for hosting the app and, you know, storing the data. So it was a revenue generator, the TikTok contract for Oracle.

4:02Now that Oracle owns TikTok US, that revenue gets converted into a cost. And it could be at least a billion dollar in cost. So from that perspective, the fact that Oracle went from$2 billion in revenue from TikTok to having$1 billion extra in cost, it makes sense that they should get some sort of a deal when it comes to buying the asset. And so that's why that low price tag of$14 billion that everyone is surprised about, But there's a reason for that, because, you know, I mean, if Oracle has to own this thing, they need to have some sort of incentive because it's a three billion dollar delta to their gross profit.

4:41All right. So just to be clear here, what is your what will these new investors, what will they be buying? And is what they're buying is that 14 billion dollars seem reasonable to you? Yes. So the other minority investors, whether it's Silver Lake, and we still don't know all the minority investors who are involved here. But clearly, I imagine they're not responsible for the day-to-day operations. And if TikTok US was generating about$10 billion plus in ad and e-commerce revenue, that's why they want ByteDance to continue owning those operations, running those operations, because they don't want that$10 billion to go to, you know,$5 billion over the next six months.

5:29And so that's why they're getting that 45 or 50 % of profitability for TikTok US, even though they'll become a 20 % owner of the TikTok US asset after this. Stay with us. More from Bloomberg Intelligence coming up after this. Over$100 trillion estimated to be transferred to generations in the next 25 years. It's both a risk and opportunity because we see that only about 18, 19 % of high net worth investors plan on sticking with their advisor post-transfer. This has to be a tough statistic for some to hear. People who work so hard trying to grow their net assets, they want to protect that life work and they want to make sure that it

6:10Scarlet Fu:is able to transfer in a seamless way. Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined.

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7:25Scarlet Fu:Let's talk about health care for a second. It doesn't always work the way people expect it to. If you've ever waited on a prescription refill or had a hard time getting the care you needed, you know the feeling. The system should just work better for everyone. That's exactly what the people at Optum are trying to do every day. They're a health care company linking patient care and pharmacy services and using data and technology to drive the whole system so care is connected, not complicated, for patients and providers. Things like making it easier to get care that looks at the whole person, from primary care doctors to mental health support and even in-home care, and then using technology to make sure they all work together.

8:03Scarlet Fu:Technology designed to help doctors spend less time on busy work and more time with their patients. And those prescriptions? Optum is working to bring costs down, save patients money, and make it easier to get refills. Little by little, Optum is helping make healthcare work as one for everyone. Head to business.optum.com to see how. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. The president has planned to impose a 100 percent tariff on branded drug imports.

8:46Scarlet Fu:He talked about this most favored nation status for U.S. consumers. Drug companies, of course, are up in arms and they've been trying to find ways to to get around it, to get an exemption. So let's bring in Sam Vazelli. He is director of research for Global Industries and senior pharmaceuticals analyst for Bloomberg Intelligence. And Sam, the reporting that our colleagues over at Bloomberg News have done indicate that the drug makers are not all that concerned about this tariff plan for pharmaceutical companies because they have all made plans to invest big time in the U.S. They have indeed. And, you know, Scarlett, this has been something that's been going on since the announcement of we're going to punish you somehow.

9:29Tariffs, Most Favored Nation, or whatever other mechanism that's been put forward, unless you bring your manufacturing here. So it's the same rhetoric. It's the same story. And some of the companies have pledged. We were just adding up and just published the list of things that pharma companies have said. $50 billion here,$45 billion there,$60 billion there. numbers at least, and they look good on a piece of paper. And a lot of them already have manufacturing there. Some of them have started making new sites. Maybe they would have done it anyway because you need manufacturing for the new products that you have because they're slightly different, etc.

10:08But I think the reason you see pretty much everything's green on my screen from the large Farmer land except for Nova Nordisk, um i think you know the top performer is galaxo which is uh the uk market is still open actually so um i think it's because of that it's because people know well actually this isn't going to happen 100 tariff is not going to happen because they've done what the president is looking for sam what is all this just generic i mean just all this talk about tariffs as are on pharmaceuticals the restricted funding to American universities. In your circles, where people are working day in, day out, trying to develop new drugs, new therapies, what's the feeling in that community?

10:54The feeling is thorough confusion. Because on the one hand, you want skilled workers in these skilled jobs in the U.S. On the other hand, you're not allowing them to come from overseas. I don't know how many hands I need here. On the other hand, I'm going to borrow your hand, Paul. We've got the situation where we have science that's being defunded to a degree. Now, we have to be careful there because there's particular pressure on certain types of research, certain types of science. But the National Science Foundation, the NIH, those are all the sources of these PhDs and biomedical engineering that are required to run these manufacturing facilities.

11:38They're being impacted. So what happens over the long run, if you can't bring the workers from overseas because of the H-1B visa issue, if you can't generate them internally, what happens in five or 10 years? Who's going to run these places? Therefore, confusion. So this, I'm trying to get my head around, is the U.S. still for innovation or against innovation? I don't know what the answer to that is.

12:04Scarlet Fu:Seems like we're for innovation, but everyone here doing it has to be American. i don't know that might be one interpretation of it but scott scott i buy that and i and it has been the case and you have some of the most innovative some of the best people there no question about it but you still need the basic science and the funding to keep get them to that bachelor's degree master's degree phd degree to become the experts to continue to run these things that's where i'm getting a bit confused maybe it's just me it's been explained to me by someone who runs a major university medical center that has a very large research capability, that it's roughly two-thirds of the funds come from the U.S.

12:49government and one-third comes from the university and other private sources. And that's kind of been in place for 80 years, that structure. And one could argue that structure has worked pretty well for humanity. Is there a belief that that's at risk? I think there is. You know, you might want to listen to some of my podcasts recently. I did one with Elias Serhouni on the Van Goghs of Healthcare podcast. I did one with the CEO of Mark Foundation, who are the people who have either been involved in running the NIH, running R &D centers, that's Elias, or the Mark Foundation, who does finances, very early stage, translational cancer research.

13:32they are all seeing it happen around them and and of course they are the sorts of people who can to a degree fill the gap but you're dealing with billions of dollars we need we need the philanthropy monies from the top 10 folks to come in to to fill this gap that the nih budget cut is leaving the nsf budget cut is leaving that's where i'm worried and maybe unfairly maybe it all comes out and people are still able to fund the research that leads to the innovations that we're looking for. My fingers are crossed. I hope that's the case. Stay with us. More from Bloomberg Intelligence coming up after this.

14:12Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions, buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined.

14:51An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures.

15:22Scarlet Fu:Let's talk about health care for a second. It doesn't always work the way people expect it to. If you've ever waited on a prescription refill or had a hard time getting the care you needed, you know the feeling. The system should just work better for everyone. That's exactly what the people at Optum are trying to do every day. They're a health care company linking patient care and pharmacy services and using data and technology to drive the whole system so care is connected, not complicated, for patients and providers. Things like making it easier to get care that looks at the whole person, from primary care doctors to mental health support and even in-home care, and then using technology to make sure they all work together.

16:00Scarlet Fu:Technology designed to help doctors spend less time on busy work and more time with their patients. And those prescriptions? Optum is working to bring costs down, save patients money, and make it easier to get refills. Little by little, Optum is helping make healthcare work as one for everyone. Head to business.optum.com to see how.

16:47the business. Let's create smarter business. IBM. You're listening to the Bloomberg Intelligence

16:55Scarlet Fu:Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Boeing is one of the big gainers here, and there is a report that the company will regain more powers from regulators to conduct final safety checks. This is initially reported by the Wall Street Journal. The FAA has since come out and made it clear that this is the plan starting September 29th. So let's bring in George Ferguson. He is our go-to authority on aerospace. He's the senior aerospace defense and airlines analyst for Bloomberg Intelligence.

17:34Scarlet Fu:George, it would appear that this is big news given the stock market reaction. Was it unexpected? Was it expected? You know, I think it was expected, but I think you always breathe a sigh of relief when it actually happens, right? Boeing needs to have this cap lifted, the production cap lifted, in order for it to push to higher build rates next year. That's a big part of the turnaround strategy, right? That means building more airplanes, you know, diffusing their high overhead costs over more built. that means better cash generation, better profitability, everything hinges on them cranking up build rates.

18:15And so I think if you're an investor in the stock, you know, you're again, breathing a sigh of relief because this is one obstacle, maybe had a little bit of a difficult time sort of cuffing. And it seems like the FAA is comfortable. And I think it's a good sign. It means the FAA must see progress in quality and stability and builds. And so I think it, But again, I think it's if you're an investor, I think you breathe a sigh of relief when you see it. Yeah, I'm calling this thing has turned, George. I think they've finally gotten all the bad stuff behind them here. Hopefully that continues to play out.

18:50George, when they're making deliveries these days, how much is out of existing inventory versus coming right off the line? Yeah, it bounces around month to month. But I think in the last month, we saw five or six airplanes, at least, that we think came out of inventory. What we typically look at is we look at first flight date. And if there's a first flight date on the airplane that's prior to 2025, we're pretty sure it's coming out of inventory. So the majority are going through the factory. But again, they're getting rid of that, what they call the shadow factory, that inventory at a decent clip now.

19:28I'm hoping we hear an update during 3Q. It got a bit hard to keep track of how much inventory they had, but it seems like they're getting pretty depleted. They're running that inventory off pretty well, which would be another big positive for this company.

19:44Scarlet Fu:Well, speaking of positives, the company does report earnings on October 23rd. And these are the kinds of news events that lead to a productive earnings conference call where the management can point to all these signs of progress. and talk about how they're going to move forward and build on this momentum. What are you looking for the company to say when it does hold its earnings report, earnings call? Yeah, so we would probably love to hear some targets for 2026 for build rates, for cash generation, for reduction of that shadow factory. I'm just not totally sure management's ready to give that out yet.

20:24Kelly Ortberg seems to play a little bit conservative, hold things back a little bit. But we'd love to hear what their expectations are. Right now, I think what you have in the marketplace is just a bunch of analyst views without company guidance to sort of tether some of those views on build rates. And so if you look at some of the EEB numbers on the Bloomberg Terminal for Boeing, the spread is pretty wide in that. So we'd like to hear about that. We want to hear as well, the defense business, you know, looks like it's turning around too. I think which just, you know, adds to some of the gains the company should be able to make in profitability.

21:05They won the F-47 program. We'd love to hear some commentary there too on how they're rolling off some of those fixed price contracts that have really clipped them. We think they've turned the corner there too. And defense ought to be profitable. and cash generative going into 2026 too. So love commentary on that. George, one of the headwinds you called out for Boeing over the last several years is the lack of enough skilled laborers to get these planes off the assembly line. It's a lot more complicated than building an automobile, you pointed out. And during the pandemic, a lot of high-skilled industries lost some other high-skilled people, and that certainly includes the aerospace industry.

21:47What's the status of that as the industry looks to continue to rebuild? I mean, I think it's improving, right? I think one of the things you can look to is the job situation in the country, in the U.S. has definitely switched up from the world where there were more job opportunities than there were job seekers. We've turned that around to now there's more job seekers than opportunities. That's not so good for the workers, but it is good for the companies. I think it means more stability. You don't have people that join Boeing or, more importantly, join their suppliers and then have a bid away pretty quickly, get trained and leave.

22:26Because training in aerospace takes a while. So you invest in a person and to have them stick around for six months and leave means you never really get the productivity. And you even probably knock down some of the productivity of your existing workers to train them. So I think that's an indicator that their labor force is probably going to become more stable. And like I said, I think Boeing will offer a wage and a benefit package that pulls people into that business. There's a lot of people coming to these businesses, to aerospace, that hadn't done this work before because there was a lot of baby boomers that retired.

23:02The more concerning part is the supply chain and the backfill in the supply chain. And I think, again, this indicates that we're getting more stability. You know, the FAA confidence indicates there's more stability in that supply chain. And given this change in sort of the labor supply demand situation, I think it bodes well for keeping those people and improving productivity in the business.

23:28Scarlet Fu:This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

23:53Scarlet Fu:Healthcare doesn't always work great. If you've ever waited on a refill or couldn't schedule an appointment, you get it. That's the kind of stuff Optum is changing. They're using data and technology to integrate patient care, pharmacy, and everything else. So healthcare is connected, not complicated. What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person. How you need it. Optum is helping make healthcare work as one for everyone. Learn more at business.optum.com. These days, it seems like AI agents are just about everywhere you turn. Every field and every function.