# SpaceX, Tesla Boards Study Possible $3.5 Trillion Merger

An episode of [Bloomberg Intelligence](https://invisiblenetwork.ai/podcast/326301337), 21 Oct 2026, 25 min.

Audio: https://podtrac.com/pts/redirect.mp3/tracking.swap.fm/track/UVBrz8bN8aM2Xe47PEPu/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/7f534b8c-9e91-429a-b102-ae3c00090c6d/e69d0e4c-8a76-49e0-827c-b4ea011267c7/audio.mp3?utm_source=Podcast&in_playlist=0ad812bf-fd15-4012-a18c-ae3c00090c76

Watch Paul and Scarlet LIVE every day on YouTube: http://bit.ly/3vTiACF. Bloomberg Intelligence hosted by Paul Sweeney and Scarlet Fu -Sana Pashankar, Bloomberg Space Reporter, discusses Elon Musk endorsing the prospect of combining SpaceX with Tesla, uniting assets from electric cars to AI data centers to rocket and satellite capabilities. Musk said the boards of both companies had formed special committees to consider the idea of a combination, but cautioned that getting enough support from Tesla shareholders may be tricky. -Matt Henriksson, Bloomberg Intelligence Senior Equity Analyst, discusses Abbott Laboratories planning to spin off its nutrition unit into a separate publicly traded company through a tax-free distribution to shareholders. The new company will have annual sales of about $8.5 billion from its key brands, including Pedialyte and Ensure, and will be led by Daniel Salvadori as chief executive officer. -George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense, & Airlines Analyst, discusses United Airlines forecasting weaker-than-expected earnings for the final three months of the year due to soaring jet fuel prices. United shares rose more than 4% after the carrier commented on strong operating revenue and reassurance on 2027 pretax margin targets. -Geetha Ranganathan, Bloomberg Intelligence Analyst on US Media, discusses Netflix earnings. Netflix reported its slowest sales jump in three years and forecast a fourth consecutive quarter of slowing growth, amplifying concerns about the performance of the world’s leading online TV network. The company blamed its sales shortfall on the advertising business, which is on pace to deliver $300 million less than expected, and has overhauled its leadership to address a decline in programming quality. See omnystudio.com/listener for privacy information.

## Transcript

[0:02] Speaker 1: Bloomberg Audio Studios.
[0:04] Speaker 2: Podcasts. Radio. News.
[0:09] Speaker 3: You're listening to the Bloomberg Intelligence Podcast. Catch us live
[0:13] Speaker 3: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
[0:16] Speaker 3: Auto with the Bloomberg Business App. Listen on demand wherever
[0:19] Speaker 3: you get your podcasts or watch us live on YouTube.
[0:24] Speaker 4: Let's get back to that Elon Musk story because it's
[0:26] Speaker 4: a story that just keeps on giving. And if it
[0:28] Speaker 4: comes together, mega deal for the bankers and the lawyers.
[0:32] Speaker 5: You look at the MAGO function and the biggest deal
[0:35] Speaker 5: of the year is already tied to SpaceX with XAI.
[0:37] Speaker 4: Yep, absolutely. So here we go. Elon Musk says SpaceX
[0:40] Speaker 4: and Tesla have formed special committees to explore a potential merger.
[0:44] Speaker 4: He spoke in a earnings call following SpaceX blowout earnings.
[0:48] Speaker 4: Let's take a listen.
[0:49] Speaker 6: I do think there's a lot of merit to combining
[0:51] Speaker 6: the companies as we are pretty much in the superintelligence singularity.
[0:57] Speaker 6: I think it would be a good idea, but it's
[0:59] Speaker 6: really up to the special committees of both companies.
[1:03] Speaker 4: Apparently, yeah. Very cool. That's good. If he says it's
[1:06] Speaker 4: a go, it's likely to be a go. We're seeing
[1:08] Speaker 4: that in the stock prices here, both SpaceX and Tesla
[1:11] Speaker 4: trading up here today. Let's get some more reporting on that.
[1:13] Speaker 4: Sana Pashankar is our space reporter for Bloomberg News down
[1:19] Speaker 4: there in D.C. Sana, what's what's the makeup of the
[1:22] Speaker 4: folks you talk to about the potential here for a
[1:25] Speaker 4: merger of SpaceX and Tesla? That's certainly what I think
[1:28] Speaker 4: a lot of Tesla investors are waiting for.
[1:31] Speaker 7: Yeah, totally. So from what I'm hearing from people I'm
[1:35] Speaker 7: speaking to and kind of what we heard from Musk yesterday,
[1:38] Speaker 7: it almost seems as if it's rather a when rather
[1:42] Speaker 7: than an if. Musk said that he thinks it's a
[1:45] Speaker 7: good idea. He was openly pressing for a deal between
[1:48] Speaker 7: the two companies. But ultimately, again, it's not up to him.
[1:51] Speaker 7: It's up to getting shareholder support, particularly on the Tesla side. But,
[1:56] Speaker 7: you know, it seems like there is a lot of
[1:59] Speaker 7: momentum for this. And, you know, as Musk has outlined,
[2:04] Speaker 7: at least a lot of synergies between the companies when
[2:07] Speaker 7: it comes to AI.
[2:09] Speaker 5: And I think you nailed it when you said that
[2:10] Speaker 5: this is something he wants, but it's not totally up
[2:12] Speaker 5: to him. What can he do in the meantime to
[2:15] Speaker 5: kind of sell the case for why these two companies
[2:18] Speaker 5: belong together?
[2:20] Speaker 7: Well, yeah, I think that he was honestly really selling
[2:23] Speaker 7: the case yesterday. And I think that's what he's trying
[2:27] Speaker 7: to do. I mean, obviously, he's not part of these
[2:30] Speaker 7: independent committees that are considering the mergers, but he has
[2:33] Speaker 7: a lot of influence. And there are a lot of
[2:36] Speaker 7: overlaps between the AI businesses as well, which he outlined.
[2:42] Speaker 7: So I think that he can push for it. And,
[2:45] Speaker 7: you know, there's no real question that he wants the merger.
[2:49] Speaker 7: And so he's kind of like getting people excited about it,
[2:51] Speaker 7: you know, talking about it on the earnings call, which
[2:53] Speaker 7: he like previously refused to do. I think that's a
[2:57] Speaker 7: really big tell of the enthusiasm he has for a
[3:01] Speaker 7: potential deal between the two companies.
[3:03] Speaker 4: Sana, is there any sense from the maybe the sources
[3:05] Speaker 4: you've talked to about when this could occur? I mean,
[3:08] Speaker 4: is this something that could occur? quickly, or is this
[3:11] Speaker 4: going to take forever and a day to negotiate?
[3:14] Speaker 2: Yeah.
[3:15] Speaker 7: So, I mean, with Musk, you really never know. I mean,
[3:18] Speaker 7: from the sources I'm talking to, it seems like they
[3:20] Speaker 7: would maybe potentially want to deal to close within this
[3:24] Speaker 7: administration because they see a favorable regulatory environment. But again,
[3:29] Speaker 7: it's hard to know exactly. You know, the XAI merger happened,
[3:32] Speaker 7: the SpaceX and XAI merger happened almost out of the blue.
[3:37] Speaker 7: So it's really, you know, it's up to Musk and
[3:40] Speaker 7: it's up to the shareholders.
[3:42] Speaker 5: Yeah, I think you also made the point that the
[3:44] Speaker 5: fact that he has talked about it publicly is significant,
[3:47] Speaker 5: given that in the past he shied away from answering
[3:50] Speaker 5: any questions on this. Given all of that, Sana, what
[3:53] Speaker 5: was your takeaway from the earnings report that SpaceX posted? Obviously,
[3:57] Speaker 5: investors like it because the stock is soaring.
[4:00] Speaker 7: Yeah, SpaceX really had a blowout quarter. It basically exceeded
[4:05] Speaker 7: estimates in net income, net profit, revenue. And that was
[4:10] Speaker 7: driven a lot by sales of Starlink, which is their
[4:13] Speaker 7: satellite internet business. And particularly sales for government and for
[4:18] Speaker 7: business customers, and also their AI business, which was surprising.
[4:22] Speaker 7: We know that they've been signing these massive deals to
[4:25] Speaker 7: lease out computing space to other AI companies, and that
[4:29] Speaker 7: was definitely reflected. Their losses were significantly lower than they
[4:35] Speaker 7: were last quarter. And I think it's also increased adoption
[4:39] Speaker 7: of Brock has contributed there as well.
[4:42] Speaker 8: Stay with us. More from Bloomberg Intelligence coming up after this.
[4:49] Speaker 3: You're listening to the Bloomberg Intelligence Podcast. Catch us live
[4:53] Speaker 3: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
[4:56] Speaker 3: Auto with the Bloomberg Business App. Listen on demand wherever
[4:59] Speaker 3: you get your podcasts or watch us live on YouTube.
[5:04] Speaker 8: We got a little M & A.
[5:05] Speaker 4: Going on here today in the healthcare space. As I
[5:07] Speaker 4: always say, my next life I want to come back
[5:09] Speaker 4: as a healthcare M & A banker, because they get
[5:11] Speaker 4: paid every single day. Here's another one. Abbott Labs spins
[5:15] Speaker 4: off embattled business that sells baby formula. No idea, but
[5:19] Speaker 4: our next guest, he knows what's going on. Matt Hendrickson,
[5:21] Speaker 4: Bloomberg Intelligence Senior Equity Analyst. Matt, what's going on with
[5:25] Speaker 4: our friends at Abbott Labs?
[5:26] Speaker 9: Well, quick story is that they're finally spinning off their
[5:29] Speaker 9: nutrition segment because that's probably the black sheep of the
[5:33] Speaker 9: overall portfolio for them. And that allows them to focus
[5:38] Speaker 9: on their kind of key growth drivers, which is in
[5:40] Speaker 9: the medical device space.
[5:43] Speaker 5: So tell us a little bit more about this nutrition business.
[5:46] Speaker 5: Why is it embattled? Why is it something that Abbott
[5:50] Speaker 5: can't afford to keep on or doesn't want to keep on?
[5:53] Speaker 2: Yeah.
[5:53] Speaker 9: I mean, it's multifactorial. First, it's their nutrition business, which
[5:58] Speaker 9: is their baby formula, their adult nutrition formula.
[6:01] Speaker 1: Oh, Ensure and everything.
[6:03] Speaker 9: Ensure, Similac for the pediatric patients. They've been hit by
[6:08] Speaker 9: multiple levels of litigation. The first one is with regards
[6:12] Speaker 9: to preterm babies and they're getting intestinal related diseases, which
[6:17] Speaker 9: led unfortunately to some deaths. That led to a level
[6:19] Speaker 9: of litigation there. They're in the process of getting those resolved.
[6:23] Speaker 9: There's another one where one of their plants had issues
[6:27] Speaker 9: with contamination, led to a federal litigation against them.
[6:32] Speaker 1: And then lastly, as Robert Ford mentioned in the call,
[6:37] Speaker 1: it's changing.
[6:38] Speaker 9: It's changing from kind of a healthcare type of segment
[6:40] Speaker 9: to more of a consumer and a retail segment. And
[6:43] Speaker 9: being part of an overall conglomerate wasn't allowing them to
[6:47] Speaker 9: adapt quick enough. And so last year they had to
[6:49] Speaker 9: start working on getting some new brands out there. They
[6:52] Speaker 9: had to work on getting some pricing cuts out there
[6:55] Speaker 9: to be able to be more competitive. And it just
[6:57] Speaker 9: all came in line with, you know, they should be
[7:00] Speaker 9: focusing on the medical device side. This was just creating
[7:03] Speaker 9: distractions for both the medical device side, but also created
[7:06] Speaker 9: distractions for the nutrition side.
[7:08] Speaker 4: So Give us the core investment call for Abbott these days.
[7:12] Speaker 4: What are investors, how are they viewing this company right now?
[7:14] Speaker 4: Because the stock's down 4% or 5% today. It's down
[7:17] Speaker 4: double digits for the year. What's going on there?
[7:19] Speaker 9: Yeah, I mean, part of it is just the overall
[7:21] Speaker 9: medtech sector rotation is hitting the stocks in general. For
[7:24] Speaker 9: Abbott specifically, their main growth driver is their.
[7:27] Speaker 1: Continuous glucose monitor.
[7:29] Speaker 9: So those are those little patches you see on people's arms,
[7:31] Speaker 9: measures their glucose levels every five minutes. You're seeing that
[7:34] Speaker 9: growth decelerate from 20% in 2024, 16% last year to 7%
[7:39] Speaker 9: this year.
[7:40] Speaker 1: That's pretty stark.
[7:43] Speaker 9: It's very stark, especially for a unit that's 15% of
[7:46] Speaker 9: the total company. That's why you're seeing them have to
[7:50] Speaker 9: cut their comparable sales growth outlook for the year.
[7:53] Speaker 1: There was 6.5% to 7.5%. They had to cut it
[7:55] Speaker 1: to 6% today.
[7:59] Speaker 9: That needs to see a recovery, and they're dealing with
[8:02] Speaker 9: certain recalls there as well. They're dealing with competition from
[8:05] Speaker 9: companies like Dexcom and some other privately held companies like BioLink.
[8:09] Speaker 9: All these things are being a headwind there that they
[8:13] Speaker 9: need to focus on and get that recovery started.
[8:17] Speaker 5: Is a company like Abbott Labs affected at all by
[8:19] Speaker 5: the midterm elections?
[8:23] Speaker 1: Yes and no. I mean, not too much.
[8:25] Speaker 9: You could say that if with the elections, you're talking
[8:28] Speaker 9: about ACA cuts, Medicaid cuts, that could hurt some of
[8:32] Speaker 9: their procedure volumes, which then would hurt revenue. But most
[8:36] Speaker 9: of their procedures are for those acute cases and very
[8:40] Speaker 9: sick patients, and they're going to be treated regardless.
[8:43] Speaker 4: So these medical device companies, what's the upside catalyst? When
[8:47] Speaker 4: do they perform well?
[8:49] Speaker 9: Well, I mean, if you're looking at it from a
[8:51] Speaker 9: procedural volume standpoint, things are steady. It's just right now
[8:56] Speaker 9: valuation is so low because of the shift to the
[8:59] Speaker 9: AI sector. What they need to continue to do is
[9:02] Speaker 9: get their product pipeline, get new products out there to launch.
[9:06] Speaker 9: because that helps offset pricing cuts for their legacy products.
[9:11] Speaker 9: And if you get that volume still going with the
[9:13] Speaker 9: aging demographic and disrupting kind of the standard of care
[9:17] Speaker 9: for certain procedures, that should be fine. You just have
[9:21] Speaker 9: to get through kind of this kind of headwind of
[9:24] Speaker 9: the macro environment related to the AI trade.
[9:27] Speaker 4: Do you just think AI is seen as a threat
[9:29] Speaker 4: to this industry?
[9:32] Speaker 9: AI, it's basically a sector rotation right now. And so
[9:35] Speaker 9: a lot of money is coming out from the MedTech
[9:40] Speaker 9: side into the AI side. So anytime you see AI
[9:42] Speaker 9: stocks pop, you see my MedTech stocks get cut.
[9:47] Speaker 8: Stay with us. More from Bloomberg Intelligence coming up after this.
[9:54] Speaker 3: You're listening to the Bloomberg Intelligence Podcast. Catch us live
[9:58] Speaker 3: weekdays at 10 a.m. Eastern on apple carplay and android
[10:01] Speaker 3: auto with the bloomberg business app listen on demand wherever
[10:04] Speaker 3: you get your podcasts or watch us live on youtube.
[10:09] Speaker 4: Well united airlines reported some uh numbers here stocks up
[10:12] Speaker 4: four percent here today but they reported weaker than expected
[10:15] Speaker 4: earnings called out soaring jet fuel costs. CEO Scott Kirby
[10:19] Speaker 4: spoke with Bloomberg Surveillance earlier to talk about what it
[10:23] Speaker 4: will mean for airfares. Let's take a listen.
[10:25] Speaker 10: We've passed about 72% of the increase in fuel price,
[10:27] Speaker 10: but I think it's pretty remarkable demonstration of the industry changes,
[10:31] Speaker 10: the resilience, and also decommoditizing air travel at United Airlines
[10:36] Speaker 10: that while we're not earning as much in the second
[10:38] Speaker 10: half as we did last year and as much as
[10:39] Speaker 10: we were expecting to this year, because of the run-up
[10:41] Speaker 10: in fuel, we're still solidly profitable and it portends better
[10:45] Speaker 10: times ahead when the situation does normalize, and eventually it will.
[10:49] Speaker 4: That was CEO Scott Kirby, United Airlines, speaking with Bloomberg
[10:52] Speaker 4: Surveillance earlier today. Scarlett, did I happen to mention that
[10:55] Speaker 4: I'm a million-mile flyer for United Airlines?
[10:57] Speaker 5: Just remind us of what that means and what happens
[10:59] Speaker 5: and how you get treated when you get on board.
[11:01] Speaker 4: Well, I've flown cumulatively a million miles United over my career,
[11:04] Speaker 4: so I get, like, special little medallion and stuff. I
[11:07] Speaker 4: got a little handshake and a call-out by the pilot.
[11:09] Speaker 4: It was all very— Do you have to.
[11:10] Speaker 5: Do anything to maintain that status, by the way?
[11:12] Speaker 8: No.
[11:13] Speaker 4: It's just there for life.
[11:14] Speaker 5: You can do one mile a year from now on.
[11:16] Speaker 4: Yes, but I'm doing a lot more because I am
[11:18] Speaker 4: in my empty nester years, so we are traveling like crazy.
[11:20] Speaker 4: George Ferguson also spends a lot of time on airplanes.
[11:23] Speaker 2: Why?
[11:23] Speaker 4: Because he's a senior aerospace defense and airlines analyst for
[11:26] Speaker 4: Bloomberg Intelligence. George, what'd you learn from the United Earnings
[11:30] Speaker 4: Report here?
[11:32] Speaker 2: Look, I think I learned that One thing we knew,
[11:37] Speaker 2: they were having a hard time passing through all the
[11:40] Speaker 2: fare increases they needed to manage higher fuel prices. They
[11:43] Speaker 2: mean the US airline business. And look, United and Delta
[11:47] Speaker 2: have reported so far, they're the two sort of best
[11:51] Speaker 2: positioned companies. to capture this premium flyer, which should mean
[11:55] Speaker 2: they're cushioned to a degree, and they're having a hard
[11:58] Speaker 2: time pushing through the full increase they need. I think
[12:02] Speaker 2: the low-cost carriers, some of the guys in the hybrids
[12:05] Speaker 2: in the middle will also have a more challenging time.
[12:09] Speaker 2: Scott's a big believer in differentiation. I personally think people
[12:14] Speaker 2: largely fly with where they get the best price and
[12:17] Speaker 2: they feel like they're not going to get banged up
[12:18] Speaker 2: too much. So it'll be interesting to see as we
[12:21] Speaker 2: get into 2027 if this differentiation makes a difference. And
[12:25] Speaker 2: I guess the last thing I'd add quickly here is that.
[12:29] Speaker 2: I think United found– the reason the stock really took
[12:31] Speaker 2: a beating yesterday was that United found a good off-ramp
[12:34] Speaker 2: to get a pullback from their commentary that they would
[12:38] Speaker 2: recover all of the fair increases they needed to manage
[12:42] Speaker 2: the higher fuel prices. I think this was a good
[12:44] Speaker 2: juncture to reset expectations. Delta didn't do that, but I think–
[12:49] Speaker 2: Scott saw it as a good opportunity and really put
[12:52] Speaker 2: out a really high fuel price, like $ 4. 60 for this,
[12:56] Speaker 2: for 4Q into next year. They really don't, they don't
[12:59] Speaker 2: provide a lot of guidance. I think he kind of
[13:00] Speaker 2: uses this as a nice off ramp to get out
[13:02] Speaker 2: of that discussion when they're going to recapture.
[13:05] Speaker 5: George, the way that these Airlines deal with higher fuel
[13:10] Speaker 5: fares is to either raise ticket prices, so Paul has
[13:13] Speaker 5: to pay more when he travels, or trim their flight schedules.
[13:16] Speaker 5: What's the calculus between doing either of those? Which is
[13:19] Speaker 5: more effective? Which provides immediate relief to its bottom line?
[13:28] Speaker 2: Yeah, so this is a really hard equation for the airlines.
[13:31] Speaker 2: And that's one of the challenges they're starting to have, right?
[13:33] Speaker 2: And that is, you trim the flight schedules so you
[13:37] Speaker 2: can get flyers to pay more. You need your competitors
[13:40] Speaker 2: to do the same. Because if your competitors decide they
[13:43] Speaker 2: just want to get market share, then you're just going
[13:46] Speaker 2: to see fares stay low. And as you trim your
[13:49] Speaker 2: flight schedules, you lose your economies of scale. You're flying
[13:53] Speaker 2: less available seat miles for the airline. And that means
[13:57] Speaker 2: all your costs start to rise, especially your overhead, based
[14:01] Speaker 2: on less capacity. And we're seeing a bit of it. Look,
[14:06] Speaker 2: United didn't do a lot of cutting in 3Q, right?
[14:09] Speaker 2: They flew 1.5% more available seat miles. If you look
[14:12] Speaker 2: at seats... They put four and a half percent more
[14:15] Speaker 2: seats into the marketplace. That's like double GDP growth, right? So,
[14:20] Speaker 2: and even there, if you look at every single expense
[14:23] Speaker 2: item on their income statement, it's all rising faster than inflation,
[14:28] Speaker 2: even many of them, if you adjust it for the
[14:30] Speaker 2: increase in seats. And so this becomes the real challenge
[14:34] Speaker 2: is they need everyone else to come in and cut
[14:36] Speaker 2: capacity as well to see fares firm. And there's just
[14:39] Speaker 2: too many airlines in this business. Some that are just
[14:41] Speaker 2: trying to survive. But I think you're going to see
[14:44] Speaker 2: this in the near term, this sort of combined cut capacity,
[14:48] Speaker 2: raise prices so you can cover costs.
[14:51] Speaker 4: George, I also want to talk to you about Boeing.
[14:53] Speaker 4: I'm seeing some reporting here from Bloomberg. Boeing won U.S.
[14:56] Speaker 4: regulator approval for its 737 MAX 10 jet. What does
[15:00] Speaker 4: that mean for Boeing?
[15:01] Speaker 2: I think they're probably doing somersaults over there in Seattle.
[15:05] Speaker 2: And I mean, it's now headquarters is Washington, D.C. Look,
[15:10] Speaker 2: that 737-10 is the primary competitor to the Airbus A321.
[15:15] Speaker 2: They're both the largest narrowbodies. They carry like 200 plus people,
[15:20] Speaker 2: depending on how you want to rack and stack people
[15:22] Speaker 2: inside an airframe. You know, airlines love those people movers.
[15:26] Speaker 2: Scott Kirby, a big buyer of the 737-10, couldn't get
[15:29] Speaker 2: him fast enough. Went to Airbus for an A321 order.
[15:33] Speaker 2: Still has 737-10 on the books. Dead today. I'm getting
[15:37] Speaker 2: this call. Excited to get that airplane. If you look
[15:40] Speaker 2: at Airbus, I think the majority of their backlog for
[15:44] Speaker 2: narrowbodies is that A321. Boeing, there's 2,000 of them in
[15:48] Speaker 2: their backlog that we see. We think there's more that
[15:51] Speaker 2: could be converted on 5,000, 6,000-plus backlogs. It is in
[15:58] Speaker 2: high demand by airlines because it lowers economies. It provides
[16:02] Speaker 2: bigger economies and helps lower per seat prices. So it
[16:06] Speaker 2: was good to see Boeing get that. That keeps them
[16:08] Speaker 2: very competitive with Airbus.
[16:10] Speaker 8: Stay with us. More from Bloomberg Intelligence coming up after this.
[16:17] Speaker 3: You're listening to the Bloomberg Intelligence Podcast. Catch us live
[16:21] Speaker 3: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
[16:24] Speaker 3: Auto with the Bloomberg Business App. Listen on demand wherever
[16:28] Speaker 3: you get your podcasts or watch us live on YouTube.
[16:32] Speaker 4: Netflix reported results last night. Revenue growth came in a
[16:35] Speaker 4: little bit below forecast, stock trading off about 5% here today.
[16:38] Speaker 4: It's hitting a 52-week low here today. We're off about 30%
[16:44] Speaker 4: year to date. The leadership team says the streaming service
[16:48] Speaker 4: recent price increase has gone well, and the company is
[16:52] Speaker 4: seeing good results. Speaking on Netflix earnings call, co-CEO Ted
[16:55] Speaker 4: Sarandos repeated that the U.S. is not growing as fast
[16:59] Speaker 4: as legalism.
[17:00] Speaker 11: Our content around the world is largely working, as you
[17:03] Speaker 11: heard a couple examples there from Greg, but we see
[17:05] Speaker 11: titles across Latin America, EMEA, APAC, driving engagement, subscriber growth, revenue,
[17:11] Speaker 11: and profit.
[17:12] Speaker 10: Now, the U.S.
[17:13] Speaker 1: Is also working.
[17:14] Speaker 11: It's just not growing as fast as it could or
[17:16] Speaker 11: as fast as we'd like.
[17:17] Speaker 4: All right. That was Netflix co-CEO Ted Sarandos. He was repeating, again,
[17:22] Speaker 4: that the U.S. is not growing as fast as they
[17:24] Speaker 4: would like here. We're seeing that in the Price action
[17:27] Speaker 4: today in the stock is trading down about 5% here.
[17:29] Speaker 4: Geetha Ranganathan, she is the media analyst for Bloomberg Intelligence. Geetha, again,
[17:35] Speaker 4: the street looks a little bit disappointed in these results here,
[17:38] Speaker 4: just judging by the stock price movement here today. What
[17:41] Speaker 4: did you take away from the earnings release?
[17:44] Speaker 12: I think the biggest source of disappointment, Paul, was really
[17:47] Speaker 12: the advertising outlook. So they had initially guided for $ 3
[17:51] Speaker 12: billion in advertising. Remember, this is a nascent business for Netflix,
[17:55] Speaker 12: but obviously there's a lot of anticipation that this will
[17:59] Speaker 12: end up becoming a major growth driver as subscription growth
[18:03] Speaker 12: starts to kind of mature and slow down. But the
[18:05] Speaker 12: fact that they pulled guidance down for the advertising revenue
[18:08] Speaker 12: by about 10 percent for this year, which then weighed
[18:11] Speaker 12: on the 4Q guidance as well as the 2026 overall
[18:15] Speaker 12: revenue guidance, I think definitely kind of spooked investors a
[18:19] Speaker 12: little bit.
[18:21] Speaker 5: So how do they solve for that? How do they
[18:23] Speaker 5: get more people to subscribe to the ad tier?
[18:25] Speaker 12: Is it?
[18:26] Speaker 5: Moving people from the premium tier to the ad tier
[18:29] Speaker 5: because that will pay off more down the road? Or
[18:32] Speaker 5: is it you just have to sign up new people?
[18:34] Speaker 5: Or is it a further crackdown on people who might
[18:37] Speaker 5: be sharing their passwords?
[18:39] Speaker 12: I think it's a little bit of all of the above, Scarlett,
[18:42] Speaker 12: but what they actually highlighted in terms of the delay,
[18:46] Speaker 12: and they said that this is really just a timing issue.
[18:49] Speaker 12: It's not that there's any structural problem with the ad business.
[18:53] Speaker 12: They just haven't been able to ramp up some of
[18:57] Speaker 12: the ad product capabilities and some of the integrations that
[19:00] Speaker 12: they were hoping to get done by this point. And
[19:03] Speaker 12: so remember, again, they are the latest or they do
[19:07] Speaker 12: not have the first mover advantage that so many of
[19:10] Speaker 12: our traditional media companies have. You take a Disney with
[19:12] Speaker 12: Disney Plus or Peacock, all of those products or even
[19:17] Speaker 12: Paramount Plus, HBO, all of those products have had success.
[19:21] Speaker 12: advertiser relationships in place for their traditional TV business, which
[19:24] Speaker 12: they then extended to their digital ad business. Netflix does
[19:27] Speaker 12: not have that advantage. So they really have to kind
[19:29] Speaker 12: of build this whole business from scratch. They have to
[19:31] Speaker 12: build the advertising relationships. They have to build the technology,
[19:35] Speaker 12: the ad stack, the tech stack. So there's a lot
[19:37] Speaker 12: of different components here. And so it looks like things
[19:40] Speaker 12: are progressing a little bit slower than what the street
[19:43] Speaker 12: was basically expecting.
[19:45] Speaker 4: Talk to us about programming expense, Geetha. I mean, at
[19:47] Speaker 4: the beginning stages, of this company, it was like the
[19:50] Speaker 4: street was like, hey, you can spend as much as
[19:51] Speaker 4: you want because you're driving subscriber growth. And then it became, well,
[19:55] Speaker 4: maybe you want to dial that back because we need
[19:56] Speaker 4: to focus on profitability. But where are we now? It
[19:59] Speaker 4: seems like they're increasing spending and maybe there's concerns that
[20:02] Speaker 4: they're not getting the return on that spending.
[20:05] Speaker 12: Yeah, this is really a big source of concern for
[20:08] Speaker 12: the street, Paul. So, you know, this year, for instance,
[20:11] Speaker 12: they took up their programming budget by about 10 percent,
[20:15] Speaker 12: which is really a pretty high, considering that in the
[20:18] Speaker 12: past they've only taken it up by about six to
[20:20] Speaker 12: seven percent. I mean, at the end of the day,
[20:21] Speaker 12: as you just pointed out, keeping that programming expense increase
[20:26] Speaker 12: under control is really important for their operating leverage, for
[20:29] Speaker 12: their operating margin story. And remember, Netflix has gone from
[20:33] Speaker 12: becoming just a subscriber story to really a profit and
[20:37] Speaker 12: a margin story. And so when you have that programming
[20:40] Speaker 12: cost increase by the amount that it's increasing, And what's
[20:43] Speaker 12: worse is the fact that they really, even with that
[20:46] Speaker 12: increase in programming costs, they've really not been able to
[20:51] Speaker 12: produce any big breakout show or any home run, as
[20:56] Speaker 12: they call it, which would really drive engagement. So I
[20:59] Speaker 12: think what's really worrisome is the fact that you're having
[21:02] Speaker 12: a major step up in programming costs. But you're not
[21:05] Speaker 12: necessarily having that return on investment, as you just pointed out,
[21:08] Speaker 12: and that is going to weigh on revenue growth in
[21:13] Speaker 12: the future.
[21:13] Speaker 5: And it's resulting in people being taken out as well, right?
[21:23] Speaker 5: is a former chairman of Walt Disney Television. Dan Lin,
[21:25] Speaker 5: who is the head of the Netflix's film division, also
[21:28] Speaker 5: leaving the company. Does a change in personnel usually lead
[21:32] Speaker 5: to the development of blockbusters? Or blockbusters are just kind
[21:35] Speaker 5: of random, Geetha. I mean, everyone wants blockbusters. Movie studios
[21:39] Speaker 5: are always chasing them, but you can't predict them. You
[21:42] Speaker 5: can't manufacture them.
[21:44] Speaker 12: Absolutely right, Scarlett. I mean, Paul always would say, like,
[21:47] Speaker 12: you know, media is such a hit-driven business, but it
[21:49] Speaker 12: is so, so difficult to predict the I mean, the
[21:53] Speaker 12: thing that, you know, we get with Peter Rice and
[21:56] Speaker 12: Ted Sarandos actually brought this up in the call yesterday
[21:58] Speaker 12: is that he has some some really good content and
[22:02] Speaker 12: talent relationships. And we've seen. So what we got with
[22:06] Speaker 12: Bella Bajoria was was that she really went, you know,
[22:09] Speaker 12: very broad in terms of content. She tried to get.
[22:12] Speaker 12: something for everybody on the platform. So whether it's, you know,
[22:15] Speaker 12: live programming or reality TV or, you know, sports, all
[22:21] Speaker 12: kinds of different things, you know, international content, that was
[22:24] Speaker 12: her big thing. She really built up that business. But
[22:27] Speaker 12: the fact that they really haven't had any huge, you know,
[22:31] Speaker 12: sleeper hit this year, I think has really been weighing
[22:34] Speaker 12: on the management team and which has kind of finally
[22:37] Speaker 12: led to her removal from You know, with Peter Rice,
[22:40] Speaker 12: I think he's known he's always had this track record
[22:43] Speaker 12: of really less is more and really being more focused
[22:48] Speaker 12: on prestige shows, prestige, you know, movies. And so it's
[22:53] Speaker 12: going to be interesting to see if he can come
[22:54] Speaker 12: and kind of work that magic here at Netflix. Although
[22:57] Speaker 12: we do think that, you know, the turnarounds always take
[23:00] Speaker 12: a little bit of time. But absolutely, I think if
[23:03] Speaker 12: Netflix can deliver that one big hit like a K-pop
[23:07] Speaker 12: Demon Hunters, like a Squid Game, I think the sentiment
[23:10] Speaker 12: really changes.
[23:11] Speaker 4: Geetha, how many streaming services do people have on average now?
[23:14] Speaker 4: It's been 10 years or something.
[23:17] Speaker 12: It's about three and a half, three to four. Yeah,
[23:21] Speaker 12: that's the average.
[23:22] Speaker 4: Yeah, see, I don't know.
[23:24] Speaker 5: It's so easy to cancel it these Right, unless for
[23:26] Speaker 5: some reason it's tied into one of your other payments,
[23:29] Speaker 5: like your cell phone carrier offers you a special deal
[23:33] Speaker 5: or you get the home internet service as well. Geetha,
[23:36] Speaker 5: is Netflix doing enough of that, teaming up with different
[23:39] Speaker 5: partners to make sure that it's attractive for people to
[23:42] Speaker 5: sign up to Netflix?
[23:44] Speaker 12: They have done a lot of these partnerships, Scarlett, especially
[23:48] Speaker 12: in areas outside the U.S. And it has helped them.
[23:53] Speaker 12: But I think we're kind of hitting a wall here
[23:56] Speaker 12: because there's only so much that you can do to
[23:59] Speaker 12: kind of really get that whole subscription momentum going. Again,
[24:04] Speaker 12: it's going to be something much more drastic, dramatic that
[24:09] Speaker 12: they do in terms of revamping their content offering, maybe
[24:12] Speaker 12: doing more short form type of content, you know, to
[24:15] Speaker 12: compete with the likes of Instagram and Snap and TikTok.
[24:18] Speaker 8: So we'll have to wait and watch.
[24:21] Speaker 3: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
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