Watch Alix and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF
Today's episode features:
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple card Playing and Broun Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Busy twenty four hours or so. Here in the ipo market, we've got Esteri Labs that price last lane at thirty six, indicating to open at fifty six, so that would be good for the ipo market. And then we've also got Reddit looking to price tonight. And we saw some Bloomberg reporting earlier today. It says they are considering the high end or perhaps even above it abobove the range. So let's break it all down with Bailly Lipschaltz. She covers the equity markets, including the new issue markets. So Billy, let's sell with Astera Labs. Boy, if this would open we had fifty six dollars again after pricing at thirty six, that would be huge news for the ico market.
The even more interesting thing this is an ipo that bumped up its rage, increased the allocation and number of shares, and then priced above. So we're already talking about it pricing almost twenty six.
Percent of government for this kind of bump necessarily.
No, and this is the deal that everyone had circled. We're all talking about Reddit. But when I talk to bankers and investors, they say a stair Labs, they're backed by Intel, they make AI chips, they fit into every tailwind that you want in this market. That's the deal that you want to keep an eye on.
And they're profitable, but they don't do the weight lossing.
As far as I know, they're profitable, which begs the question is Reddit profitable?
They are not.
They've been on the path to profitability, if you will. They talked up kind of the fact that they tightened spending. They have AI licensing, data licensing partnerships that really kind of bolstered numbers in three Q really four Q of last year. But when you talk to investors in some of the skeptical analysts, the big question is it's almost two decades old, it's not profitable. It operates in social media, which has its own flurry of issues. You look at Snapchat and Pinterest, who are the two best comps publicly traded? Those docks aren't doing too well. But if it does, price at the top of the range. That'd be a six point four billion dollar valuation haircut from the ten billion it raised at in twenty twenty one, but still maybe a bit of a green shoot. It does remind me quite a bit of the instacart ipo in the fall of last year, which took a quote unquote down round, but right now is trading up about twenty three percent from that IPO price, despite some choppy aftermarket performance.
So when Reddit, I also understand in addition to the advertising component, which again we've seen before as you mentioned with Pinterest and others Snapchat, there's also a data component to it, and they're trying to tie it into a little bit of an AI situation. You can explain what that pitch is.
Yeah, So I talked to one of the pitch book analysts who laid it out, I think pretty easily.
He said.
Basically, they're trying to license data for AI makers, so they have exactly what some of these AI companies want, which is engagement and human beings posting and talking to each other. He basically said, though the question is it's still in the early stages.
Well, exactly the human.
Beings, and that's one of the things I talked to a number of Wall Street Bets moderators about whether or not they're buying into the IPO.
They were very much divided.
But the big quest question for them, the boal case for these believers of Reddit, these redditors, is that as of now where we are in kind of the AI technology landscape, you need data, you need input, you need humans to create something. So that's one of the big kind of pitches from Reddit is that if you open up a partnership with Google or whoever and say, hey, here's the thousands and millions of people actively engaging with each other, do with it what you want. Though, that does kind of raise questions for users and whether or not they would maybe taper.
Off their usage.
Well also yes, and also I was going to say, like I've never been on Reddit. Do we want language models to know Reddit? Really like, do we like that relationship?
That's the big question.
I mean, I lurk, So I don't, Alex, I don't have a Reddit account, but I do.
You know, I lurk.
You know you're planning a trip, you kind of want to see what people recommend or if you're looking to make a purchase, see what what.
The forums are talking about.
But I think even if you talk to Reddit users, a lot of their content is not safe for work. A lot of it is shall we say, not family friendly, and they call each other a lot of names and taking.
Actually I did go on Reddit. I went down the Kate Middleton reddit rabbit hole.
Oh okay, did you find good content?
No?
I didn't know what to trust. I didn't know what was real.
I got really confused, and then I got scared and I left. But that's a great example of like what what reddit is?
It sounds about right, Yeah, And Reddit is built on so called karma points. So you get karma points when people upvote your comments or upvote your posts vote, which is just basically liking. It's liking, but you can also dislike it. I actually trying to get people to talk to me and said I was a Bloomberg reporter and wanted to talk about the IPO. Immediately had negative karma like.
That hurts.
Yeah, and then you can't comment. So then I couldn't comment anything. I couldn't respond to people because I know exactly. And then yeah, I got hit with some of the Steve Belushia giffs and memes of like hey, cool, fellow fellow friends like what's going on?
Which?
All right, how important are these two IPOs to the new issue market here? I mean, do we have a whole bunch backed up and we're just looking for some good karma in the IPO market? How important these two names here? They're critical? And it's really because they both are in the tech space. They are what we would call kind of down the middle of the fairway IPOs in that five hundred to a billion dollar raise in terms of cash being funded.
You look at arm and armor sports, Yeah, big deals, they're their own thing. The big thing though, when I talked to bankers is that at this point in time, the new issue market is going to be idiosyncratics. So the reason for Asteria Labs going public is very different than the reason that Rerdeup's going public. And they're they're kind of trying to take or at least trying to read the signals from investors on who's willing to pay what multiple. But if these deals price as they are indicated and trade strongly, I definitely think, at least from my channel checks and conversations, that people will be drawn from the sidelines.
Is it do you think that these companies and I appreciate their all different companies. Do they need the money to go stuff? Is it a commentary on while this market's awesome when we get a piece of it, or is it we need investors need to cash out or employees have shares and they need a vehicle?
Like what is the reasoning?
A little bit of both, so you have in both cases insider selling is part of the IPO, so trying to get some form of a return. But when you look at a Steri Labs taking those proceeds and being able to kind of bolster on their operations. Again to your point, they're writing the AI wave. So if you can have Jensen wang As filming a video for your roadshow, that's going to get people excited.
So why not go public now?
Whereas write it again, you look at the business, the evolution of the business on that path to profitability. It's been private, it's about nineteen years old, so it's kind of due time for it to go public again, similar to instacart. So they all kind of have their own reasons. But the big thing when you talk to investors and bankers either profitability, path to profitability or some form of unit economics and that's been the big thing, and that's why we can see some of the more interesting names I think potentially going public in the next few weeks and months, those names that have been in the pipeline, but also some that just have good, strong, fundamental businesses.
I would think there'd be a lot of private equity sponsored deals that would like to come.
So we haven't seen a lot that was Homer Sports was essentially private equity, not necessarily bright Spring is just KKR back that was a disaster of a deal and traded terribly. That was at least when I talked to some investors and strategists, was kind of.
They just needed to get it out the door.
But to your point, when you're a private equity company, a private equity firm, you're kind of looking to recycle and get that fund of flows. We've had the IPO market really frozen for a few years at this point, so it's really a question of will they kind of cave on valuation and meet investors where they are Because a lot of those assets are big, they aren't necessarily growing, and you need to get someone to at least buy the IPO.
Will they do you think they will?
I don't know.
I think again, it goes back to the whole case by case argument.
That company a company.
The big thing is when you look at your comps. So if you're again an Asteri Labs, Semiconductors AI perfect, If you're Reddit, a little bit tougher again because Snapchat Pinterest, but you're pitching that AI kind of part of the business and also trying to get more tied to meta platforms.
All right, Bailey, great stuff, really really great stuff. I'm amazed that you can be that excited about so many different companies going ipo and Billy Lipschaltz, a Bloomberg News IPO reporter, joining us there.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station just say Alexa playing Bloomberg eleven thirty.
The other news item out there, in addition to the FED one of the key ones. It's just kind of in the chip business. Got a couple data points for you here. Today, Intel wins almost twenty billion dollars in chips incentives for US plants. That's good for Intel in the US chip business. On the flip side, the US ways sanctioning Huawei's secretive Chinese chip network. Let's get the latest on kind of what's happening there. We're joined by Mackenzie Hawkins. She is a Bloomberg News US industrial reporter. Mackenzie, thanks so much for joining us here. Let's start with Intel here here. I guess this is part of on shoring. You know, a lot of stuff on the US soil, particularly on the chip side, talks about this Intel story, right.
So today we saw the first preliminary term sheet for an advanced chip maker to come out of this broader US effort to bring semi conductor manufacturing back to American soil. So Biden signed the chips back into law in August twenty twenty two. Companies have been waiting for you know, well over a year to see those funds start flowing out the door. They haven't actually flowed out the door yet. Intel's award today is just a preliminary agreement, and it will be likely until the end of this year that they start to actually see money doled out in tranches. But this is a huge investment in you know, the real leading American chip maker, and I mean these chips will power you know, the AI friends. There are the types of tips that go into nuclear missiles and hypersonics, and this is a really significant investment for the company and for the states for they're building, including Arizona, Ohio, Oregon, and New Mexico.
So Mackenzie pair of this. So okay, I love covering energy. So I'm really into the IRA And like what you've seen a lot in the IRA is everyone got super excited, but then actually sort of putting shovels in the ground was a lot more difficult. So there's like, yeah, yeah, we're gonna get the money, It's gonna happen, but it's not happening quite yet. How do we think this plays out from the chips act? Like when does Intel put a shovel in the ground. What other companies are trying to put their shovels in the ground and get the funding and will it actually you know, happen.
So Intel's already building these facilities. They've had a twenty billion dollar Arizona expansion underway for some time. They're building multiple fabrication facilities, there. They're making some progress in Ohio, although there's been reporting that that's slightly delayed. We expect that construction to finish in twenty twenty six. Intel's rival Taiwan Semi Conductor Manufacturing Company and Samsung out of South Korea are also building plants in the US. Both of their sites have seen some delays that the companies and the Biden administration insist are in line with typical projections, but time will tell on this one. It will be years before these facilities are stood up. The Commerce Department has set a goal that the US will produce twenty percent of the world's advanced logic shows by the end of the decade. Currently we're at about zero, so that's a lot of progress to catch up on. Most of that productions happening in East Asia. The companies announced their projects before they got the funding from the federal government, but it is certainly their expectation that they will receive that funding, and they would like it to happen, probably a little bit faster than it did.
Hey McKinnie, how secure is this funding over time? Thinking about we may have a new administration in twenty twenty five, how secure is this funding particularly you know in the out years.
It's a great question. So today's announcement is a preliminary agreement. Then there's a due diligence stage, and then a final term sheet between Intel and the Commerce Department that will likely come closer to the time of the presidential election. And the Commerce Department is setting all types of benchmarks that Intel must need for the money to be doled out over time. So it's not that they get the final agreement and then they get eight and a half billion dollars in grants and eleven billion dollars worth of love loan guarantees. They have to meet benchmarks related to production, related to workforce development, and there are all types of requirements that Biden's Commerce Department might set that a potential from Commerce Department might not be as interested in. You've seen saying like child care facilities, which Intel and other companies have committed to community development agreements, all those types of things. It's entirely possible that that could shift over time. But the reality is, once they've got the equipment in the building, these are machines that cost hundreds of millions of dollars, they're committed to these facilities but Intel's CEO Podcassingers said just yesterday, we might need to shift back to two point zero companies buying for a lot more money than they currently have. The advance chipmakers together asked for more than double what the Commerce Department has available. So this is really something to watch over the next couple of years and decades.
I mean, is President Trump really going to go to Ohio and Arizona and Oregon in New Mexico and be like, just kidding, I'm gonna take this development back. I mean, I think that's going to be a tricky proposition since hearing it.
Is so much money.
So I just came back mackenzie from energy conference basically, and I was just telling Paul that all the talk there was that tech companies are finally getting wise to the fact that they're going to build all this stuff they need power, and that power isn't as easy to come by as they might have thought. Do you hear that at all on your industrial side, Like, hey, this is great, build all these data centers Intel, but like, who's going to how are you going to get that power?
What do you plug it in?
Absolutely, the infrastructure is a top concern for these companies. You know, a big part of their ability to apply for chap X funding is to demonstrate commercial viability and that they have buy in from state and localists to marshal the resources necessary to stand up factories that cost tens of billions of dollars to build, sometimes require entire new water pipelines or energy resources. You know, take Arizona, which has not just this massive Intel expansion but also a huge factory to factories under construction from PSMC. Arizona does one hundred year water planning. This is a desert and so they've had to very carefully plan their water development ensure residents that their water supply is not going to be impacted, and I mean down to the land parcels in Arizona, they've planned these industrial park. You see similar things happening in Indiana, which is expected to get a roughly fifteen billion dollar investment from Skhinex, which is one of the main advanced packaging companies out of South Korea. That announcement hasn't been formally announced yet on Boo Bloomberg has reported on it. So I mean, this is a massive infrastructural effort which, as you note, is coming alongside a lot of other investments in other sectors coming from the Inflation Reduction Act, things like UV's batteries, hydrogen, wind, solar, and sort of more traditional heart infrastructure from the Byparts and Infrastructure Law.
All Right, more news mackenzie on the chip front, which you're reporting as well. Well, you're all over this stuff. The US ways sanctioning Huawei's secretive Chinese chip network. This sounds like another round of what may be a technological cold war between China and the West. What's the latest year with Whuahwei?
Certainly so this is I would say the strongest potential US reactions so far. So a pretty significant breakthrough that Huawei had last August. So Huawei has been the target of US efforts to curtail China's text development for years now. Is originally sanctioned in twenty nineteen the Biden administration that was under Trump. The Biden administration followed up with sweeping export controls on the ability of US companies and foreign companies that use US technology to ship advance shifts and ship making equipment to China, and the goal was to cap Huawei and other Chinese companies chip development. At what we consider an older generation or mature node. And then while the Commerce Secretary Junior Raimondo was visiting China in August, Huawei unveiled a smartphone that was powered by an advanced seven nanimeter chips produced by their chip making partner, Smick, also a Chinese company, and a lot of people who've been watching the industry for a while saying this isn't actually hugely surprising. Of course, China's doubling down on efforts to build a full domestic semi conductor supply chain. They figured out how to retool some older generation machines from the main Dutch equipment maker to produce these chips. But a lot of folks in Washington were caught a little bit by surprise and has been working on a response. And so this is what the response could look like. There's a network that Bloomberg reported on last year. The Semi Conductor Industry Association of Washington based trade group identified several companies that could potentially produce chips for Huawei in the future. And so this list affirms that BIDEN is considered sanctioning, meaning that any shipments to those companies would require a formal license from the Commerce department includes four companies that might make chips for Huawei and two companies that they're worried. These are not actual shipmakers themselves, but they could import advanced equipment and then send that to Huaweis or to Huawei's other infomating partners to continue producing these chips.
Really great stuff. You were coming out all the time at Kensie Hawkins. Thank you so much, Bloomberg News US Industrial Reporter. It's just the whole decoupling thing. Yeah, exactly, really hard. It's take out a lot of time.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Appo, Cardplay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Speaking of Boeing, I'm looking at the stock here. It's up about one point eight percent, as Abigail suggested, so still down twenty nine percent year to date and off about ten percent over tilling twelve months. There really some concerns there from investors. So let's check in with George Fergus and he's an aerospace and airlines analyst for Bloomberg Intelligence. He joins us a via a zoom from Princeton. God for Biddy gets on the train and comes to New York. But anyway, he's the best on the street, so we appreciate getting a few minutes at his time. George, you know, I love Boeing. It's just a great American company. I love aerospace. But boy, these guys have just seems like every day something's happening here.
Now.
I guess it's partly you know, the press is just picking up on any little thing. But what's going on there with Boeing? Really, do you think?
Well?
I mean, I think we heard it from Brian West this morning. He was in London at the Bank of America conference. And you know, besides, I think the cash flow guidance he provided, he provided few details about anything else.
And so.
He describes a lot of processes, you know, processes at the FAA to get airplanes certified, processes and refining, the manufacturing process, curing, you know, the excess outsourcing they've probably done over the last couple of dedys aids.
So I think what you really get.
Is a sense of a company that's in a state of a lot of flux, and you know, I think that the markets have shown us, you know, the stock prices sort of reflects that.
So George, does that mean so if the stock is up two percent, does that mean that it could have been worse? Like?
Is that my takeaway?
Like that cash burn and the cash outflow could have been worse than foreign a half billion.
Well, that's my biggest takeaway from this was that, you know, the market likes the fact that he talked about cashual being positive by the end of the year. So it sounds like they've got a pretty nice ramp up in you know, sort of resuming build rates of their factories across the year.
That was better than what I expected.
But again, the storyline inside the company is still one that's all about flux and not about details. So I just wonder. I think I got a sense there's some risk in that cashlow projection.
So, George, you've covered Boeing for decades here, can you recall a time when maybe they're they've had these quality issues before? Is this how unprecedented disease? You know, last couple of years?
Really, I think thoroughly unprecedented. Right, So, even as I was leaving Blackrock, you know, on the during the global financial crisis. I remember Boeing stock was down at thirty three dollars a share, pretty cheap than what it is today. But the discussion then was just about like a defense portfolio, who products really weren't that modern, you know, and and angst about the company's future, but not these kind of problems inside their manufacturing business, which is the core business of this company, right, it's an engineering and manufacturing company. If you can't manufacture things well in aerospace, that's a bad science. So I don't think it's ever been this bad ever.
So just to recap today, at a Bank of America conference in London, the CFO, so the cash outflow is going to reach four to four and a half billion in the first quarter. Analysts we're looking for maybe five billion plus, and like you said that maybe we'll get cash flow positive by the end of the year.
That was the indication from Boeing. Do we believe.
Okay, that's not the right question. How did they come up with this estimate? Like what are the factors that go into this kind of estimate?
That's exactly we don't know, right, And so some of it's all about deliveries, it's all about deliveries of commercial airplanes. And so what I heard, you know, listening to it this morning was I heard what I thought was, we're going to be at rate thirty eight by the end of the year, which is the rate they should have probably built out.
All year long.
And then we'll move to the next higher rate, that's thirty eight a month, sorry on the seven thirty seven, and we'll move to the next higher rate when.
The FAA lets us.
So we'll publish tomorrow on the Bloomberg Terminal our view at Bloomberg Intelligence of what we think build rates were. I can tell you we have factored in a fourth quarter at rate thirty eight, but it sounds like quarter one is going to be a really rough quarter. So they'll have to pull a lot of things back together to get rate back to thirty eight by the end of the year.
I think it's everything has to go right, yeah, for that to happen, Paul, And as we know, that never happened.
Never happens. But George, you've told us in the past, in the airspace business, there is no hey, we did a pretty good job on this plane. It has to be perfect every single time, otherwise it's disastrous. And from their customers perspective.
Georgia.
If I'm a big buyer, like a Southwest or United, what am I saying to these guys? I mean, I fly thousands of these planes every single day in my fleet. What am I telling Boeing these days?
Yeah, so you're watching very very closely. Of course, you're telling Boeing the quality is job one. Safety quality is job one. But if you're especially if you're like a Southwest or a Ryanair where you're a pure fleet, right, you really can't afford your most important supplier to have problems like this. So I think you're quietly coaching them to improve things, hoping for better, but you're probably biting your nails a little bit, right because if they it continues to be serious problems, You're not switching to Airbus, you know, overnight.
And I don't know that those people are considering it.
I'm not saying that they are, but you got to be concerned. You've got to be watching very closely.
Does the cash burn that they're looking at for the first quarter would that I guess the answer is no. But I'm just wondering if they wind up buying Spirit what that does to their cash burn, Like, they look optimistic about getting back to their ramp rate of thirty eight per month by the end of the year, But what if they buy Spirit. Doesn't that get worse? Isn't there cash burn get worse?
Well?
I mean so, I guess to some degree, there's some things that end up getting hidden when you start buying Spirit, right, because there's no If Spirit's showing a loss because they're selling a fuselage to Boeing at a loss, you know Boeing is getting some excess out of that, that whole thing washes out. So you can't always say just because they're pulling Spirit in it's going to be a loss. It depends how they structure that whole thing too, Right, if they hive off the airbus businesses, we think some of those are loss making that can make things better. I think it's I think it's really really hard to tell. But for sure there'll be a lot of work down at Spirit to make sure they stabilize the production at Spirit, and that's not going to help cash burn either. But I'd assume Brian had that built into his assumptions.
George, Let's talk about the other half of your research coverage, which is the airlines themselves. I just flew Newark to Salt Lake City seven thirty seven Max eight fully packed to the gills both ways. How are the airlines doing these days?
Yeah, so in one queue, I think a bunch of them are going to show losses. So they're filling airplanes because I think the revenue managers never let airplanes go down the runway with almost you know, being entirely full. But everything what counts, as you know, the most is going to be the ticket prices. And you know, when we looked at four Q as we closed out of four Q, the biggest challenge to the higher revenue that they were bringing in was all about out these higher pilot salaries.
Right. They gave a bunch away to the pilots, and so while.
We're all paying more for the ticket, the pilot's getting more in the front seat.
They probably deserve it. They work pretty hard.
And it's so happy you do.
Actually, So profitability is still challenged.
Compared to what we saw last decade, I think fares would have to go even higher, and we've seen them softening a bit. This summer could be a little bit better for the airlines. You know, if we have a bunch of Airbus A three twenties out of the market because of the gear turbo fan problems. If Boeing deliveries are slowing down capacity gains in the.
Marketplace, it could be a little bit better.
But we're not looking at an environment where we think they're going to see twenty nineteen levels of profitability, not twenty nineteen, you know, even last decade levels of profitability this summer.
So I'd say profits still a little bit weak. As the airlines recover, I think there might.
Be just too much capacity in the marketplace to get at the cutting right.
Like getn't just blu anounced they're going to cut capacity. They're getting out of certain markets and stuff like. I mean, it feels like the capacity cuts are underway.
There's a lot of discussion at the airlines about how to optimize schedules to try to improve fares. Like you said, airlines like Jet Blue Spirit pushing back some of their new deliveries as they manage balance sheets a little better and think about, you know, their their financial health. I wouldn't say that all signals are rosy inside that market. I think they're especially on the low cost budget side. I think there's probably too much seat capacity in the in the budget world, and folks have to think about how they could fix that in order to get better fares and improve profitability.
I have a question, why do some of my business class tickets I have Sometimes I have a TV on the back, and sometimes I don't, And it gets really confusing.
Why is this? George?
You know, it's all about how you know the airplane they're using, how it's been outfitted. Sometimes it's on length of haul and how important the market is.
Right.
I've had overnight flights that come out of San Diego where I can't even get a live flat seat on it, and I'm a business class. You come out of LA you get a live flat seat. Because competition is a lot more intense than it. It depends about competition in those marketplaces. It's about airlines using older equipment. But there is even a school out there that says, why bother putting a screen behind any seat anymore? Because everybody gets on the airplane with an iPad or an iPhone will stream them their content. Save all those electronics behind the see save all that weight. Maybe it's a better world. Sounds like you vote no exactly.
That's a good point.
Yeah, well it's just not consistent. So it makes me scratch my head. So going to Houston. I've been back and forth and called last couple weeks TV super nice plane, all good.
Coming back.
Both times I'm like, oh, okay, this is an old plane, isn't it, And like you don't have a TV.
George Ferguson, what's happening? I mean, right, George Ferguson, Thank you very much. You can go back to work here George Ferguson Aerospace Airlines and.
You're listening to the Bloomer Intelligence podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with a Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
Looking at the shares of Caring. That's the owner of a bunch of luxury good manufacturers, most notably Gucci. And if you're looking for a good book in a good movie, the House of Gucci is awesome and it really gives a good sense what's happening there in that world. But boy, the stocks down thirteen percent here today. I need to figure out why. So I go to one person, one person only. That's Debacon. She's a senior in retail annalys of Bloomberg Intelligence covering the luxury space, amongst others. But I think your real forte is the luxury space. Got a really good sense of what's going on out there Bloomberg Intelligence in London. So deb carrying this is a big company, it's got a forty five billion dollar market cap stock, but it's really taking it on the chin today. What did the company announce? And what's going on with friends of Gucci.
Right high? So it was a prelimb on the Q one in the knowledge that Gucci was by far weaker than the market had expected, particularly out of Asia. So the idea here a guided ten percent for coring overall in the one queue. This whole group will start reporting mid April, and then for Gucci in particular, they expected to be down around twenty percent. Now what that does Gucci into these numbers was fifty percent of cells and a much higher contributor to profitability and cash flow. We already know that the whole sector is up against very high comps, including but not actually Gucci, because we know that it's been going through almost two years of transition, but the brand did. The underlying product that's behind the brand while it transitions to a new creative director, is just not resonating out in Asia or is not being backed perhaps in the way that it should with investment and direct advertising.
How much of it is also that Gucci in some ways I appreciate it's not cheap, but it became like an aspirational thing for young people. And if that's the area of consumer that's also getting hit, like it's not our mes right, Like it's not like insane high end. They're trying to be sort of cooler. They're trying to get that aspirational buyer.
Is that a mistake?
So the idea actually with Gucci's that that's where they ended up after three years of thirty to forty percent of sales and into so many categories and their brand. It reminds me of something that happened a few years ago also with Birbury. So their brand became more of a fashion focus brand, a lot of a listers in the younger generation, a lot of products that were kind of niche in their product portfolio, and it lost what I would classes the exclusivity, the high end, the level of production that is expected for one of the names you've given at the very high end, and what has actually tried to do over the last two years is to elevate luxury and identity and it's failed on that. So it has a new creative director in place. Products adjus in from mid February are only and ready to wear, which is fifteen percent of the business there, and it needs the rest of the year to roll that out. And in the meantime, particularly in Asia, it's very much a wholesale backed market where those wholesale accounts aren't willing to take the risk on inventry which could become very quickly obsolete from the prior creative director, and separately where the new creative director is not yet tested.
So I know from talking to you in a pass and reading your research the Asian consumer is so key. The Asian market is so key, particularly China. What do we hear because I don't see the Chinese shoppers on Fifth Avenue. I'm not sure if you've seen them on the high streets in London.
But nothing. There's French people now in for that avenue.
There's all the Europeans are everywhere here, which is great. They're always welcome in New York. But I don't see the Asian shoppers. So talk to us about China. What that means for luxury?
Oh, what's happening at the moment. There's a lot of domestic spend. Now there is certainly what's propping up in positive comments. After these results, we went through searching as a reminder what was said by Mmes, by Kushin Ali, Bipradra and others, and will certainly pop some of that information out there. But overall, when you think about the Chinese consumer, the numbers for the Chinese consumer or Asia overall is still only about eighty percent recovered where it was. Chinese consumer is shopping on the mainland. Excuse me, shopping on the mainland. But also I was hearing from one of our colleagues, Thailand is very very popular right now because of price sensitivity. They can get a very good break over there. Hong Kong, you only have a seven day permit to stay from the Chinese mainland and so therefore others are becoming more popular, like traveling to Singapore where you have thirty day visa free. So there is movement around, but it's just not really long haul yet, and we weren't expecting that until the second half the year. With what's happening with real estate another we're kind of pushing that into end of the year twenty twenty five.
So clearly this news is driving down most luxury stocks today, all lugsury stocks today, which one shouldn't be beaten.
Up if I look at the end of twenty twenty three. First of all, I should highlight half one twenty four. We came into this year saying it was very much going to be a tale of two halves. That's not on a big pickup in the market per se, but it's on the fact that the first half comps are particularly heavy versus the second half. Even for emes, you're looking at almost thirty percent growth in the first half and half of that in the second half, so they're up against big comps. But what doesn't get beaten up it's the very high end of the hierarchy. So generally it's MS. It's also prot should do very well. It's Kushnelly, it's within the alviumhor portfolio. There are some brands which they really pick out. Louis Vitandi or and others which should still hold well.
But even with your stand I know they're really nice, it's really expensive and they're pretty, but it's like it's like suits and stuff, it's like regular clothes, Like it's not I don't get it right.
I think with the Kushinelli side, it's about the quality and what it offers, the fact that the product is there with longevity, very well made, so it's a piece that you can but in your wardrobe. A lot of it is not seasonal, so you're buying a piece for an event or the office or so, and it's something that you can regularly use.
How is the luxury shopping? I know, as part of your duligiens you'll go around to some of the luxury stores in London. How are things in London and maybe even Paris and the other places you go?
Yeah, and I would say quite mixed. Actually you see more of the high end where they're in there and really being highly serviced and not so many not so many bags on the high street. We are still seeing decent numbers in terms of e commerce growth, but there are there are very high end product. There's very high end product out there in bags if you're in particular stores, but then you're only in selective stores where the brand is stocked, and so it is quite mixed out there in any major cities.
Okay, Dev, thanks so much for joining us. As always, debiecon she covers all the retailers, including the luxury names. For Bloomberg Intelligence based in London again Carringstock, owner of several luxury brands including Gucci. Down about thirteen percent here today.
This is the Bloomberg Intelligence podcast, available on Apples, Spotify, and anywhere else you will get your podcasts. Listen live each weekday ten am to noon Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal