Summer Summary - Q2 updates: Google, Netflix, Comcast and AI Investment

Speaker 0 · 0:00

Hello. Welcome to the summer edition of the Media Unfiltered podcast. It's gonna be a short one here, a little summary, if you like, of some q two results that we've seen here. We've got Google, Comcast, Netflix, Havas, Publicis. We'll have a look at that, and then we'll have a look at what's been going on in AI. There's been some interesting happenings, if you like, around financing and the impact on some of the major platforms as a result. And you've probably seen the stock market's taken a bit of a hit as as some of these impacts have come through to the wider financial industry. So so, Ian, let's crack on straight away. Q2 results that you've seen that have sort of taken your eye. Do you want to just take us through what has appealed to you, if you like, and generated the most sort of column inches in your eyes?

Speaker 1 · 0:46

Well, I think the the two interesting stories this week, I think. I think, first of all, you look at what Alphabet did in their results. And actually, in terms of numbers, you know, you would look at it at very, very strong cloud revenues. So, you know, over 60% growth. They also as well search continues to do very nicely up 17%. YouTube ad revenues up 13. So when you look to the financial numbers, you said, that's absolutely fine, yet the shares were actually down post the results. And the reason sort of what seems to be the key driver of that is really where the markets are becoming concerned about is the amount of CapEx spend. CapEx guidance has raised again. So it was a 180 to a 190,000,000,000 for 2026. It's now sits at 195 to 205,000,000,000. And the language suggests that 2027, there's gonna be another significant increase coming through in in the CapEx spend there. And so the point now that you're seeing, which would have been considered remarkable around two years ago, that you're getting quarterly free cash flow so that Alphabet turning negative, which, you know, when you look at that, yeah, is pretty staggering. Now if you take that sort of, 200,000,000,000 midpoint, roughly what you get is the CapEx is roughly around 40 to 42% of annualized revenues. The interesting thing here is if you look at that sort of ratio, that's typical for what you would get of a telcos or utilities company, not really what you would get for a software business. So you can see a fundamental shift here in terms of the nature of these businesses they put more into CapEx. And, of course, it's not just Alphabet who's doing it. It's all the tech platforms as well. And what you're also seeing at the back of that, sort of particularly from the financial markets, is the financial markets are now starting to say, well, you know, let's hold on. The amounts that you are spending just continue to go up and up and up. And investors are now demanding we heard before about we were prepared to back this up on the potential on the Thomas. What they're now asking for is they want to see proof of delivery. And you're seeing this in other areas as well. You're seeing it, for example, if you look at Meta, in terms of Meta's sort of building out new sort of data center financing around $12,000,000,000. And if you look at the yield on that, the interest that's payable on that bond, yeah, so around 40 basis points higher than it was several months ago. What that is a sign of is investors becoming essentially demanding more returns for the level of investment. So you have this sort of, position where the CapEx numbers for all these tech platforms platforms is gonna come under more scrutiny. It's gonna be the same when all the others come out with their numbers as well. There's also as well one other sort of thing that's behind this as well that where investors more concerned about is what's happening in China. And you think about their sort of some of the latest news that has come out from there in terms of the AI models. Yeah. And so the moonshot, so the the sort of ideas there in terms of, you know, can China keep up sort of with with The US? Well, we have the release last week of the k three model in China. And if you look what investors are thinking, investors are thinking, well, hold on a minute. The Chinese are doing AI. And it's not just, by the way, what so what's happened with NingXia. It's also as well what's happened with Alibaba and their models. What you're finding is that for the investors are saying, well, The US companies are are going down a more expensive route. The Chinese may have been considered behind, but there's an increasing feeling that they're they're rapidly catching up. And so the question becomes in investors' minds, who has got the better investment strategy in AI? So I think the market's reaction sending the Google share sending Alphabet shares down, what it shows you is that, yes, you know, numbers are being delivered. They're strong. Advertising growth continues to to perform quite nicely, but investors are looking ahead. And that's no surprise. Investors always look ahead in terms of the of the way that they judge these companies and, also, well, the way that they look at financial results. So that, for me, was the first one. The second one, which I thought was quite interesting as well, was what happened with Comcast. And Mhmm. You look at the numbers there, I mean, the numbers actually they were quite good. They probably sort of, you know, they beat the adjusted earnings number by around mid single digits, so that was absolutely that was absolutely fine. And yet you had a strong share price performance of the sort of off the back of that. And really there, what you've got is you've got a number of things that are are happening. Yes. You know, they beat on the numbers, and that's great. Peacock, the fact that it's profitable for the first time since it's launched, that also as well. I'd say probably the single biggest sentiment shift there because what investors have been concerned about was that was a drag on profits. And now the thing is, okay. Actually, it's an asset that not only is profitable, but also as well when it comes to the valuation where it sits within Comcast, looks a lot more attractive on there. Third, some of the trends were actually quite good in terms of improving broadband trends, which sort of, we're seeing quite quite well. And I think also as well what sort of, this spin off, is also as well being seen positively. And, again, I think there's always been this thing that Comcast was maybe a little bit too unwieldy, had this sort of focus on broadband, but then also as well, it had this sort of, this group of media assets, slightly unwieldy, maybe unbalanced. I think investors are thinking, you know what? Actually, the spin off made sense. It means that both sides can focus very much on what they do best. And, also, as well, of course, you know, with NBCU, there's gonna be the question, does somebody look to acquire it? Or, indeed, does NBCU become an acquirer as well? So, look, I think, you know, those for me would be the two that would stand out. We also had other ones. Havas in the agency world, again, performing quite nicely, not as fast growth as Publicis. But, again, Cummins quite positive. The Cummins from on AI not been as much of a threat, I think, would have been sort of, they would have been taken quite well. And maybe, I mean, if you I mean, you know, slightly outside our normal stretch out on media and, tech, but, you know, some interesting numbers coming out of The US telco sector as well in terms of things. I mean, AT and T in terms of its numbers, some good numbers came out there even though the shares actually sort of fell back. T Mobile actually raised the guidance, which is which is quite interesting. Although Verizon sort of, again, is a little bit sort of a of a messaged set of numbers. So, look, I think if you look at the results so far, they seem to be continuing the trend of what we've seen in previous quarters, that numbers tend to come in above expectations. And just to throw another one in here, we have that obviously as well with Intel. Coming out, they have very good numbers and and where the shares let. So that and that's simply driven by the demand. So

Speaker 0 · 8:08

We've we've got well, we've got a few things. I wanna just talk a little bit about the, agency results and, a little bit about Peacock as well. But, looking at the sort of macro trends with the the war has sort of kicked back up again, the oil prices back up above a 100, so it creates that uncertainty. Is Is that having an impact at all in the financial markets, or are we seeing this as a as a short term blip from your from your point of view?

Speaker 1 · 8:33

Well, look. I mean, the, you know, the thing with the war that most people have in their mind is that for Trump, you look at his his ratings, his approval ratings have fallen. We have the US midterms that are coming up in in November. This is having an impact obviously on oil prices to back up to, yeah, a $100. Yeah. There is a feeling here, I think, in the markets that, yes, you know, this is not this is not satisfactory, but we've been here before. It hasn't necessarily sort of it didn't necessarily lead to a slowdown in growth even what it leads to is more stagnation effect or or not stagnation, but more more the sort of thing that the hope of of greater increases in growth and greater decreases in in inflation, at least for the next couple of months, is very much gonna be put on hold. It doesn't look to have done had any impact in terms of advertising spend. If you again, if you look at numbers coming through, and I don't think that should be seen as surprising. One is just in nature of the context of the war itself. I think we maybe have mentioned this on the previous podcast. Yeah. If you look at not all sort of geographies are equally equally exposed to Middle East and all, tends to be more something that the Asian economies tend to rely on. So Europe less so, North America less so. So you've got that factor. It hasn't really had an impact in terms of people's everyday living. Yeah. It has a little bit of impact on inflation, but but that's really it. You know, also as well, I think corporate earnings can seem to be very strong, and that fundamentally is the main driver of, certainly, advertising growth when it comes to to the traditional advertising market, the part that goes through the agencies, the part that everyone tends to see. Now if this conflict, you know, if it was to turn into a multiyear thing, then, obviously, things may may be different, and it could continue to be a drag. But, certainly, the way things are at the moment is that investors are really just seeing this as, yes, it's not great. Yes. It obviously has an impact. For example, you look at the volatility in the Asian markets and what's going on there, particularly around their the tech stocks and semiconductors. There's definitely sort of some disruption that is causing you from there. But I think if we we look at it from a a sort of a sort of, in the western markets at least Mhmm. Then quite frankly, you'd say this would be quite limited. The resource is one I I would say one maybe sort of the mini elephant in the room that doesn't get mentioned so often here is what's happening in China. And there, again, you're seeing sort of a slowdown in GDP growth coming through. And that's probably more likely to be a concern for advertisers because China for many years was seen as their path to long term growth. It looks as though there's a question mark over this. It looks as though or at least the feeling is that some of the issues in China may be more structural.

Speaker 0 · 11:29

Yeah. Yeah. That's interesting. And also the impact in The Middle East and, Africa as well has been I think have been impacted by the war too. You can see that actually from the agency results. But before we get on to some of the agency stuff, quick look at Comcast because we we do focus a lot on the on the television side. Peacock, obviously, is looking at, growth now, which is great. Advertising revenues up, around 70% and paid subscribers too. They've done really well, increased 17% up to 48,000,000, which is which is great. Do you think Peacock is just taking the lost linear money as sort of substituting it, if you like? Or is it is it finding new pastures of growth, or is it, just substitutional at this point?

Speaker 1 · 12:15

Well, I think most advertising money still remains siloed. So, you know, people still will will mainly put the likes of of Peacock in a TV bucket. You know, obviously, within that, you've got CTV and other buckets as well. But I wouldn't say that necessarily any of the streaming services yet have broken out into the much larger digital video, but, budgets. I think, also, as well, you know, there's an interesting clip from when we had Sean Wright on, a number of weeks ago. He's talking about the the leakage out of sector and how much of linear leakage is actually captured in the streaming services. And UK was around 15%. It may be served as right. So that in The US, it was around a quarter of that. So it's pretty clear based on that data that what's happening here is the likes of Peacock, that's great. It is capturing some of the potential lost revenues that are coming out of the system, but not necessarily all. I think, again, sort of a, you know, a wider question, you know, for and this is more of a strategic one that they need to consider. It is where exactly does Peacock sit? You know, we have WBD and and Paramount, which, okay, you've got the state attorney generals are pushing back against that. But Mhmm. My feeling is that will probably go will go through. You've got sort of what happens with Netflix. Where exactly does Peacock sit in the future in the future direction of travel? Does it look to get bigger? Does it think that actually it just needs to that its current strategy is absolutely fine? Because bear in mind, you're or certainly for Peacock anyway. Yeah. The focus would have been on and Comcast management in general. The focus for the past couple of years is really on making sure that Peacock becomes profitable so they can please the financial markets that have been considered worrying about the amount of all money being spent on stream. Now that it's reached profitability, what's next? What's next for that platform? Where does it go? Does it just become another streaming provider? Is there a wider sort of strategy that is behind that? They're it's not entirely sure at the moment with this. I mean, there's the usual sort of comments about, you know, its positioning and how well it's doing. And, obviously, in terms of the numbers, the numbers are definitely turned more positive, and that's great. But as I say, I think that there probably needs to be within Peacock a wider discussion about where's next with strategy?

Speaker 0 · 14:57

Well, I think some of these numbers here will give you some sort of indication. So Peacock actually accounted for around about 33% of total NBCU advertising revenue, which was up from about around 25%. So shows you how much contribution to overall ad income that Peacock is accounting for, which is getting becoming fairly substantial. Comcast video subscribers, so how TV is delivered in The US traditionally was through these expensive pay TV services was down about 10% year on year year on year in the in The US market. So you can see what PCOD's doing is picking up all those subscribers. So it's gonna become a really important portal, if you like, or access point for consumers in that market to access NBC content. So you can see it's replacing the, the cord cutters, if you like, in those markets. And, and now you look at its ad revenue, it is becoming substantial. You can see that 33% becoming 50 as the

Speaker 1 · 15:55

shift from those big pay TV packages to To a to a degree oh, sorry. To a to a degree, though. I mean, this is yeah. 33% is a very good number, and as I said, the ad growth number the ad growth is also very good as well. But, look, I mean, you can get 32% can come by two ways. I mean, you can either, you know, grow substantially what you're doing or, actually, what you're denominating against actually is falling. And, again, this is why I raised the question of of what exactly here, sort of where exactly is Peacock's sort of position in the overall strategy? Because, you know, yes, you know, it it is certainly picking up some of the lost cord cutting subscribers. But when you look at the overall sort of picture with this, there is I don't think anyone would explain that, you know, when it comes to the, you know, the streaming services, you know, outside, obviously, Netflix, which didn't have a legacy broadcasting business, that there has been that it is recovered sort of the monies that have been lost from the linear revenues. And, again, that goes back to what Sean was saying a number of weeks back.

Speaker 0 · 17:08

Yeah. I I think I think Peacock will will follow a similar model than what you're seeing with with the streamers becoming more sticky and maybe be maybe be a super aggregator as well, which is what Comcast was with, or is with their pay TV services. So having a single access point to also access other services as well, Netflix is doing that around the world, so Disney and, you've got you you've got to see that with with others in in The US too, you would assume. So maybe that's where they build it up, become this sort of super aggregated service as well, so you can actually you log in with with your Peacock service and you access your other your other feeds as well. I'm sure everyone's would love to be that sort of point of access for the consumer. How that how that unravels, I do not know, in in The US. Looking at The US and looking at the sort of agency market, we we've discussed this before. We saw the q one results. You looked at Havas and Publicis. Havas growing around 3%. Compared to Publicis, it's about 5% they're showing in their q two results, which is which is very good. I guess the the average there across the whole coast is about the 2% level, so they're they're growing above that as they have been in the last few few years. But most of the growth still remains in The US. When you compare Europe to, to The US, Europe is pretty flat. The US is is where where all the growth is at. Still remains there, Ian. I don't suppose you see that changing in the short term, do you?

Speaker 1 · 18:32

I am not not too sure from an agency standpoint. That's, you know I mean, yes. You know, you look at publicist, I mean, definitely, in terms of The US. The US was a big sort of driver for them. And, certainly, when you take a sort of a vase yeah. Again, I mean, their European revenues, I mean, is 50% of their net loan news and organic was was no point 3%. So it wasn't particularly it wasn't particularly fantastic. Having said that, you know, you can get if you go back into public support, the numbers from several quarters ago, you would have seen sort of the your in some quarters would have been outpacing The US. I don't think there's a doubt that structurally, The US advertising markets probably have more growth drivers than they do in Europe. I mean, the the growth I mean, GDP is just is just higher sort of in The US than it is in the European markets. And, obviously, then there's a question mark of where corporates decide to spend. But I think, yeah, York itself is a very interesting ecosystem. I think, you know, the the it could be easy to look at the overall advertising market in the context of the the sort of what might be characterized as a sluggish macroeconomic environment. But, actually, you know, when you then go down into individual markets, when you see what's happening, you know, you take The UK ad market and so forth, you have this situation where, actually, according to the the forecasted numbers, we're probably looking at high single digit growth there, which noticeably is a part of what the agencies are actually actually doing. But, again, this sort of the wider point we'd say from this for both US and, and Europe, and it's got relevance for the agencies and, also, as well the way we think about the advertising market is, you know, the advertising market is essentially two beasts. And I keep coming back to this sort of analogy is it's like an iceberg. You know, there is the bit which is above the surface, which is the traditional advertising market, the big advertisers like Unilever and Procter and Gamble. That money flows through the agencies. You know, that's the visible part of the market that we all see. There's an increasing sort of, you know, in size, part of the iceberg that sits below the waterline, which is opaque, which is non visible, which is hard to really measure, which is coming out of the SME spend. And, yeah, it is that SME spend that is powering much of the results that's coming from the the tech platform. So what we'd say here in in Europe is I think if you were to look at traditional advertisers, certainly, the numbers that come from the agency groups would would show that, yes, growth is is probably behind The US in aggregate. However, when you take into account what's happening in the SME side, the picture's a little bit more nuanced.

Speaker 0 · 21:18

It is indeed. And, yeah, I think Publicis was around about 5% in Europe from their q fours and but, Havas, a lot lower. But, it does it does feel as though that the the European well, we don't we we mentioned it before. APAC, Middle East, pretty much down for all agencies, but Publicis, Havas, growing slightly well, Publicis, indeed, growing way above the sort of HoldCo level. Omnicom WPP around the 2%. Publicis is outperforming that, Havas is too, but again the growth looks like it's nestled nicely in The US. I just wonder whether that will change though, particularly after the midterms. I think if we if the results come in that we expect may maybe the, The US, there'll be a flip in that, and and maybe the numbers will turn in favor for for Europe, but that remains to be seen. So just a little bit of an update from from our side. We, we've got a new website, as you know, some some new marketing. We've got some mailers as well. So if you're if you're not registered, do register, and you'll get an you'll get an email as as soon as a episode is available online. It'll go straight come straight to your inbox. That's nice, isn't it? And It is and seen. It is, isn't it? It's nice and simple. We've got this lovely AI led platform that does it all for us. It's it's rather wonderful. And, on top of that, we're gonna we're gonna cover some some areas. So so we I really wanna do a deep dive on the influencer space. Ian has been writing about that recently. We're gonna look at radio. We did a big piece on Out of Home, which was very popular. And we'll be doing that in the in in the coming months. And do continue to contact us as well if you wanna be speakers. There's there's a lot of outstanding messages I gotta get back to people on. It's just been a bit of a slow period of time, but do continue to get in touch with us for that. Ian, anything else to sign off with or you could have just sign off with our usual sign off? No. I think let's just sign off with as usual. This is investment advice.

Speaker 1 · 23:11

It is definitely more. Not investment advice. No. It is sorry. Apologies. It's not. It is not investment advice. That was a bit of a slip up from my part. Actually, it shows this is not investment advice.

Speaker 0 · 23:21

Just to be clear, Ian slipped up there. This is most definitely not investment advice. Thank you for listening.