SpaceX, Tesla Boards Study Possible $3.5 Trillion Merger

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0:24 Let's get back to that Elon Musk story because it's a story that just keeps on giving. And if it comes together, mega deal for the bankers and the lawyers.

0:32 You look at the MAGO function and the biggest deal of the year is already tied to SpaceX with XAI.

0:37 Yep, absolutely. So here we go. Elon Musk says SpaceX and Tesla have formed special committees to explore a potential merger. He spoke in a earnings call following SpaceX blowout earnings. Let's take a listen.

0:49 I do think there's a lot of merit to combining the companies as we are pretty much in the superintelligence singularity. I think it would be a good idea, but it's really up to the special committees of both companies.

1:03 Apparently, yeah. Very cool. That's good. If he says it's a go, it's likely to be a go. We're seeing that in the stock prices here, both SpaceX and Tesla trading up here today. Let's get some more reporting on that. Sana Pashankar is our space reporter for Bloomberg News down there in D.C. Sana, what's what's the makeup of the folks you talk to about the potential here for a merger of SpaceX and Tesla? That's certainly what I think a lot of Tesla investors are waiting for.

1:31 Yeah, totally. So from what I'm hearing from people I'm speaking to and kind of what we heard from Musk yesterday, it almost seems as if it's rather a when rather than an if. Musk said that he thinks it's a good idea. He was openly pressing for a deal between the two companies. But ultimately, again, it's not up to him.

1:51 It's up to getting shareholder support, particularly on the Tesla side. But, you know, it seems like there is a lot of momentum for this. And, you know, as Musk has outlined, at least a lot of synergies between the companies when it comes to AI.

2:09 And I think you nailed it when you said that this is something he wants, but it's not totally up to him. What can he do in the meantime to kind of sell the case for why these two companies belong together?

2:20 Well, yeah, I think that he was honestly really selling the case yesterday. And I think that's what he's trying to do. I mean, obviously, he's not part of these independent committees that are considering the mergers, but he has a lot of influence. And there are a lot of overlaps between the AI businesses as well, which he outlined.

2:42 So I think that he can push for it. And, you know, there's no real question that he wants the merger. And so he's kind of like getting people excited about it, you know, talking about it on the earnings call, which he like previously refused to do. I think that's a really big tell of the enthusiasm he has for a potential deal between the two companies.

3:03 Sana, is there any sense from the maybe the sources you've talked to about when this could occur? I mean, is this something that could occur? quickly, or is this going to take forever and a day to negotiate?

3:14 Yeah.

3:15 So, I mean, with Musk, you really never know. I mean, from the sources I'm talking to, it seems like they would maybe potentially want to deal to close within this administration because they see a favorable regulatory environment. But again, it's hard to know exactly. You know, the XAI merger happened, the SpaceX and XAI merger happened almost out of the blue.

3:37 So it's really, you know, it's up to Musk and it's up to the shareholders.

3:42 Yeah, I think you also made the point that the fact that he has talked about it publicly is significant, given that in the past he shied away from answering any questions on this. Given all of that, Sana, what was your takeaway from the earnings report that SpaceX posted? Obviously, investors like it because the stock is soaring.

4:00 Yeah, SpaceX really had a blowout quarter. It basically exceeded estimates in net income, net profit, revenue. And that was driven a lot by sales of Starlink, which is their satellite internet business. And particularly sales for government and for business customers, and also their AI business, which was surprising.

4:22 We know that they've been signing these massive deals to lease out computing space to other AI companies, and that was definitely reflected. Their losses were significantly lower than they were last quarter. And I think it's also increased adoption of Brock has contributed there as well.

4:42 Stay with us. More from Bloomberg Intelligence coming up after this.

4:49 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.

5:04 We got a little M & A.

5:05 Going on here today in the healthcare space. As I always say, my next life I want to come back as a healthcare M & A banker, because they get paid every single day. Here's another one. Abbott Labs spins off embattled business that sells baby formula. No idea, but our next guest, he knows what's going on. Matt Hendrickson, Bloomberg Intelligence Senior Equity Analyst. Matt, what's going on with our friends at Abbott Labs?

5:26 Well, quick story is that they're finally spinning off their nutrition segment because that's probably the black sheep of the overall portfolio for them. And that allows them to focus on their kind of key growth drivers, which is in the medical device space.

5:43 So tell us a little bit more about this nutrition business. Why is it embattled? Why is it something that Abbott can't afford to keep on or doesn't want to keep on?

5:53 Yeah.

5:53 I mean, it's multifactorial. First, it's their nutrition business, which is their baby formula, their adult nutrition formula.

6:01 Oh, Ensure and everything.

6:03 Ensure, Similac for the pediatric patients. They've been hit by multiple levels of litigation. The first one is with regards to preterm babies and they're getting intestinal related diseases, which led unfortunately to some deaths. That led to a level of litigation there. They're in the process of getting those resolved.

6:23 There's another one where one of their plants had issues with contamination, led to a federal litigation against them.

6:32 And then lastly, as Robert Ford mentioned in the call, it's changing.

6:38 It's changing from kind of a healthcare type of segment to more of a consumer and a retail segment. And being part of an overall conglomerate wasn't allowing them to adapt quick enough. And so last year they had to start working on getting some new brands out there. They had to work on getting some pricing cuts out there to be able to be more competitive. And it just all came in line with, you know, they should be focusing on the medical device side. This was just creating distractions for both the medical device side, but also created distractions for the nutrition side.

7:08 So Give us the core investment call for Abbott these days. What are investors, how are they viewing this company right now? Because the stock's down 4% or 5% today. It's down double digits for the year. What's going on there?

7:19 Yeah, I mean, part of it is just the overall medtech sector rotation is hitting the stocks in general. For Abbott specifically, their main growth driver is their.

7:27 Continuous glucose monitor.

7:29 So those are those little patches you see on people's arms, measures their glucose levels every five minutes. You're seeing that growth decelerate from 20% in 2024, 16% last year to 7% this year.

7:40 That's pretty stark.

7:43 It's very stark, especially for a unit that's 15% of the total company. That's why you're seeing them have to cut their comparable sales growth outlook for the year.

7:53 There was 6.5% to 7.5%. They had to cut it to 6% today.

7:59 That needs to see a recovery, and they're dealing with certain recalls there as well. They're dealing with competition from companies like Dexcom and some other privately held companies like BioLink. All these things are being a headwind there that they need to focus on and get that recovery started.

8:17 Is a company like Abbott Labs affected at all by the midterm elections?

8:23 Yes and no. I mean, not too much.

8:25 You could say that if with the elections, you're talking about ACA cuts, Medicaid cuts, that could hurt some of their procedure volumes, which then would hurt revenue. But most of their procedures are for those acute cases and very sick patients, and they're going to be treated regardless.

8:43 So these medical device companies, what's the upside catalyst? When do they perform well?

8:49 Well, I mean, if you're looking at it from a procedural volume standpoint, things are steady. It's just right now valuation is so low because of the shift to the AI sector. What they need to continue to do is get their product pipeline, get new products out there to launch. because that helps offset pricing cuts for their legacy products.

9:11 And if you get that volume still going with the aging demographic and disrupting kind of the standard of care for certain procedures, that should be fine. You just have to get through kind of this kind of headwind of the macro environment related to the AI trade.

9:27 Do you just think AI is seen as a threat to this industry?

9:32 AI, it's basically a sector rotation right now. And so a lot of money is coming out from the MedTech side into the AI side. So anytime you see AI stocks pop, you see my MedTech stocks get cut.

9:47 Stay with us. More from Bloomberg Intelligence coming up after this.

9:54 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.

10:09 Well united airlines reported some uh numbers here stocks up four percent here today but they reported weaker than expected earnings called out soaring jet fuel costs. CEO Scott Kirby spoke with Bloomberg Surveillance earlier to talk about what it will mean for airfares. Let's take a listen.

10:25 We've passed about 72% of the increase in fuel price, but I think it's pretty remarkable demonstration of the industry changes, the resilience, and also decommoditizing air travel at United Airlines that while we're not earning as much in the second half as we did last year and as much as we were expecting to this year, because of the run-up in fuel, we're still solidly profitable and it portends better times ahead when the situation does normalize, and eventually it will.

10:49 That was CEO Scott Kirby, United Airlines, speaking with Bloomberg Surveillance earlier today. Scarlett, did I happen to mention that I'm a million-mile flyer for United Airlines?

10:57 Just remind us of what that means and what happens and how you get treated when you get on board.

11:01 Well, I've flown cumulatively a million miles United over my career, so I get, like, special little medallion and stuff. I got a little handshake and a call-out by the pilot. It was all very— Do you have to.

11:10 Do anything to maintain that status, by the way?

11:12 No.

11:13 It's just there for life.

11:14 You can do one mile a year from now on.

11:16 Yes, but I'm doing a lot more because I am in my empty nester years, so we are traveling like crazy. George Ferguson also spends a lot of time on airplanes.

11:23 Why?

11:23 Because he's a senior aerospace defense and airlines analyst for Bloomberg Intelligence. George, what'd you learn from the United Earnings Report here?

11:32 Look, I think I learned that One thing we knew, they were having a hard time passing through all the fare increases they needed to manage higher fuel prices. They mean the US airline business. And look, United and Delta have reported so far, they're the two sort of best positioned companies. to capture this premium flyer, which should mean they're cushioned to a degree, and they're having a hard time pushing through the full increase they need. I think the low-cost carriers, some of the guys in the hybrids in the middle will also have a more challenging time.

12:09 Scott's a big believer in differentiation. I personally think people largely fly with where they get the best price and they feel like they're not going to get banged up too much. So it'll be interesting to see as we get into 2027 if this differentiation makes a difference. And I guess the last thing I'd add quickly here is that.

12:29 I think United found– the reason the stock really took a beating yesterday was that United found a good off-ramp to get a pullback from their commentary that they would recover all of the fair increases they needed to manage the higher fuel prices. I think this was a good juncture to reset expectations. Delta didn't do that, but I think– Scott saw it as a good opportunity and really put out a really high fuel price, like $ 4. 60 for this, for 4Q into next year. They really don't, they don't provide a lot of guidance. I think he kind of uses this as a nice off ramp to get out of that discussion when they're going to recapture.

13:05 George, the way that these Airlines deal with higher fuel fares is to either raise ticket prices, so Paul has to pay more when he travels, or trim their flight schedules. What's the calculus between doing either of those? Which is more effective? Which provides immediate relief to its bottom line?

13:28 Yeah, so this is a really hard equation for the airlines. And that's one of the challenges they're starting to have, right? And that is, you trim the flight schedules so you can get flyers to pay more. You need your competitors to do the same. Because if your competitors decide they just want to get market share, then you're just going to see fares stay low. And as you trim your flight schedules, you lose your economies of scale. You're flying less available seat miles for the airline. And that means all your costs start to rise, especially your overhead, based on less capacity. And we're seeing a bit of it. Look, United didn't do a lot of cutting in 3Q, right?

14:09 They flew 1.5% more available seat miles. If you look at seats... They put four and a half percent more seats into the marketplace. That's like double GDP growth, right? So, and even there, if you look at every single expense item on their income statement, it's all rising faster than inflation, even many of them, if you adjust it for the increase in seats. And so this becomes the real challenge is they need everyone else to come in and cut capacity as well to see fares firm. And there's just too many airlines in this business. Some that are just trying to survive. But I think you're going to see this in the near term, this sort of combined cut capacity, raise prices so you can cover costs.

14:51 George, I also want to talk to you about Boeing. I'm seeing some reporting here from Bloomberg. Boeing won U.S. regulator approval for its 737 MAX 10 jet. What does that mean for Boeing?

15:01 I think they're probably doing somersaults over there in Seattle. And I mean, it's now headquarters is Washington, D.C. Look, that 737-10 is the primary competitor to the Airbus A321. They're both the largest narrowbodies. They carry like 200 plus people, depending on how you want to rack and stack people inside an airframe. You know, airlines love those people movers.

15:26 Scott Kirby, a big buyer of the 737-10, couldn't get him fast enough. Went to Airbus for an A321 order. Still has 737-10 on the books. Dead today. I'm getting this call. Excited to get that airplane. If you look at Airbus, I think the majority of their backlog for narrowbodies is that A321. Boeing, there's 2,000 of them in their backlog that we see. We think there's more that could be converted on 5,000, 6,000-plus backlogs. It is in high demand by airlines because it lowers economies. It provides bigger economies and helps lower per seat prices. So it was good to see Boeing get that. That keeps them very competitive with Airbus.

16:10 Stay with us. More from Bloomberg Intelligence coming up after this.

16:17 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.

16:32 Netflix reported results last night. Revenue growth came in a little bit below forecast, stock trading off about 5% here today. It's hitting a 52-week low here today. We're off about 30% year to date. The leadership team says the streaming service recent price increase has gone well, and the company is seeing good results. Speaking on Netflix earnings call, co-CEO Ted Sarandos repeated that the U.S. is not growing as fast as legalism.

17:00 Our content around the world is largely working, as you heard a couple examples there from Greg, but we see titles across Latin America, EMEA, APAC, driving engagement, subscriber growth, revenue, and profit.

17:12 Now, the U.S.

17:13 Is also working.

17:14 It's just not growing as fast as it could or as fast as we'd like.

17:17 All right. That was Netflix co-CEO Ted Sarandos. He was repeating, again, that the U.S. is not growing as fast as they would like here. We're seeing that in the Price action today in the stock is trading down about 5% here. Geetha Ranganathan, she is the media analyst for Bloomberg Intelligence. Geetha, again, the street looks a little bit disappointed in these results here, just judging by the stock price movement here today. What did you take away from the earnings release?

17:44 I think the biggest source of disappointment, Paul, was really the advertising outlook. So they had initially guided for $ 3 billion in advertising. Remember, this is a nascent business for Netflix, but obviously there's a lot of anticipation that this will end up becoming a major growth driver as subscription growth starts to kind of mature and slow down. But the fact that they pulled guidance down for the advertising revenue by about 10 percent for this year, which then weighed on the 4Q guidance as well as the 2026 overall revenue guidance, I think definitely kind of spooked investors a little bit.

18:21 So how do they solve for that? How do they get more people to subscribe to the ad tier?

18:25 Is it?

18:26 Moving people from the premium tier to the ad tier because that will pay off more down the road? Or is it you just have to sign up new people? Or is it a further crackdown on people who might be sharing their passwords?

18:39 I think it's a little bit of all of the above, Scarlett, but what they actually highlighted in terms of the delay, and they said that this is really just a timing issue. It's not that there's any structural problem with the ad business. They just haven't been able to ramp up some of the ad product capabilities and some of the integrations that they were hoping to get done by this point. And so remember, again, they are the latest or they do not have the first mover advantage that so many of our traditional media companies have. You take a Disney with Disney Plus or Peacock, all of those products or even Paramount Plus, HBO, all of those products have had success.

19:21 advertiser relationships in place for their traditional TV business, which they then extended to their digital ad business. Netflix does not have that advantage. So they really have to kind of build this whole business from scratch. They have to build the advertising relationships. They have to build the technology, the ad stack, the tech stack. So there's a lot of different components here. And so it looks like things are progressing a little bit slower than what the street was basically expecting.

19:45 Talk to us about programming expense, Geetha. I mean, at the beginning stages, of this company, it was like the street was like, hey, you can spend as much as you want because you're driving subscriber growth. And then it became, well, maybe you want to dial that back because we need to focus on profitability. But where are we now? It seems like they're increasing spending and maybe there's concerns that they're not getting the return on that spending.

20:05 Yeah, this is really a big source of concern for the street, Paul. So, you know, this year, for instance, they took up their programming budget by about 10 percent, which is really a pretty high, considering that in the past they've only taken it up by about six to seven percent. I mean, at the end of the day, as you just pointed out, keeping that programming expense increase under control is really important for their operating leverage, for their operating margin story. And remember, Netflix has gone from becoming just a subscriber story to really a profit and a margin story. And so when you have that programming cost increase by the amount that it's increasing, And what's worse is the fact that they really, even with that

20:46 increase in programming costs, they've really not been able to produce any big breakout show or any home run, as they call it, which would really drive engagement. So I think what's really worrisome is the fact that you're having a major step up in programming costs. But you're not necessarily having that return on investment, as you just pointed out, and that is going to weigh on revenue growth in the future.

21:13 And it's resulting in people being taken out as well, right? is a former chairman of Walt Disney Television. Dan Lin, who is the head of the Netflix's film division, also leaving the company. Does a change in personnel usually lead to the development of blockbusters? Or blockbusters are just kind of random, Geetha. I mean, everyone wants blockbusters. Movie studios are always chasing them, but you can't predict them. You can't manufacture them.

21:44 Absolutely right, Scarlett. I mean, Paul always would say, like, you know, media is such a hit-driven business, but it is so, so difficult to predict the I mean, the thing that, you know, we get with Peter Rice and Ted Sarandos actually brought this up in the call yesterday is that he has some some really good content and talent relationships. And we've seen. So what we got with Bella Bajoria was was that she really went, you know, very broad in terms of content. She tried to get.

22:12 something for everybody on the platform. So whether it's, you know, live programming or reality TV or, you know, sports, all kinds of different things, you know, international content, that was her big thing. She really built up that business. But the fact that they really haven't had any huge, you know, sleeper hit this year, I think has really been weighing on the management team and which has kind of finally led to her removal from You know, with Peter Rice, I think he's known he's always had this track record of really less is more and really being more focused on prestige shows, prestige, you know, movies. And so it's going to be interesting to see if he can come and kind of work that magic here at Netflix. Although

22:57 we do think that, you know, the turnarounds always take a little bit of time. But absolutely, I think if Netflix can deliver that one big hit like a K-pop Demon Hunters, like a Squid Game, I think the sentiment really changes.

23:11 Geetha, how many streaming services do people have on average now? It's been 10 years or something.

23:17 It's about three and a half, three to four. Yeah, that's the average.

23:22 Yeah, see, I don't know.

23:24 It's so easy to cancel it these Right, unless for some reason it's tied into one of your other payments, like your cell phone carrier offers you a special deal or you get the home internet service as well. Geetha, is Netflix doing enough of that, teaming up with different partners to make sure that it's attractive for people to sign up to Netflix?

23:44 They have done a lot of these partnerships, Scarlett, especially in areas outside the U.S. And it has helped them. But I think we're kind of hitting a wall here because there's only so much that you can do to kind of really get that whole subscription momentum going. Again, it's going to be something much more drastic, dramatic that they do in terms of revamping their content offering, maybe doing more short form type of content, you know, to compete with the likes of Instagram and Snap and TikTok.

24:18 So we'll have to wait and watch.

24:21 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.