LT Weekly: Nov 8, 2024

We reached peak activity in the TMT earnings circuit this week, with a record 98 companies in our LionTree TMT Universe reporting their third quarter results (more than double the 46 companies that reported last week). Similar to the last two weeks, stock price reactions were biased to the downside, as 53 companies (55.2%) traded down post their results, while 45 companies (44.8%) traded up. CLEAR Secure was the worst performer, falling -25.8% in reaction to its report, while AppLovin was the best performer, soaring +46.3%.

Companies across sub-sectors were on the docket this week. Starting with the legacy media companies, Fox’s earnings report kicked off on a good note, with the stock trading up +2.7% during the day (see Theme #5). Warner Bros Discovery and Paramount followed suit later in the week, though stock reactions diverged between the two, with WBD trading up +11.8% and Paramount trading down -4.0% (see Theme #6).

In interactive entertainment, after EA and Roblox’s prints last week that were received positively by the markets, Take-Two also saw green in reaction to its report this week, trading up +7.5% (see Theme #3). Several of the online travel reports continued into this week after Booking’s report last week, though reactions were mixed, with Airbnb trading down -8.7%, and Expedia trading up +3.8% (see Theme #9).

In the live entertainment space, TKO reported, but the stock fell -1.9% in reaction to its print (see Theme #8). Over in sports betting, DraftKings also saw a positive reaction and was up +1.9% (see Theme #7). And in AdTech, The Trade Desk received a tough reaction from the Street, closing down -5.6% (see Theme #4).

Finally, we also took a quick look at Pinterest, which fell -14.0%, as well as Lyft, which jumped +22.8%, post their respective reports (see Theme #10).

The table below includes select TMT and consumer companies in our LionTree stock universe with $1bn+ market caps that reported this week.

The historic re-election of President Donald Trump this week sent ripples, and in some cases tidal waves, across many sectors far and wide, as investors assessed implications and tried to determine potential winners and losers. Close to where we live, Jeff Bezos, Sam Altman, Tim Cook and other tech leaders were quick to congratulate Trump on the heels of his election win, given that the Tech Sector is one that has been in Trump’s scope in various forms and fashions. Big picture, there is optimism about a more business-friendly administration and what this could mean for taxes, deregulation, and consolidation (among other things). However, there is also concern about potential challenges related to trade policies and immigration.

See below for some more detailed thoughts and perspectives (link /link/link/link/link/link).

• Trump’s administration is likely to favor deregulation, which could lead to incr’d M&A across the sector
  • WBD CEO David Zaslav on the Co’s earnings call…“It’s too early to tell, but it may offer a pace of change and an opportunity for consolidation that may be quite different, that would provide a real positive and accelerated impact on this industry that’s needed. These are great companies. If the best content is going to win, there needs to be some consolidation in order to have these businesses be stronger and have a better consumer experience”
• There is some mixed opinion about Trump’s impact on antitrust enforcement
  • It is widely expected that Trump will replace FTC Chair Lina Khan, who has had an aggressive stance on antitrust (Brendan Carr is seen as a potential front runner)
  • Trump has a history of critical comments towards Google, but has also more recently expressed reluctance to break up the Co (despite the fact that the DOJ’s case targeting its online search monopoly began in 2020 during Trump’s first term in office)
    • Trump heavily criticized Google throughout his campaign, saying the tech giant was “rigged” and called the Co “very bad,” and suggested he would “do something” about its power
    • But he also said during an event in Chicago last month that “it’d a very dangerous thing because we want to have great companies… [and] we don’t want China to have these companies. Right now, China is afraid of Google”
    • Trump referred to both Google and Apple as “great companies” during a conversation with radio host Hugh Hewitt
    • Trump said in October that if reelected he would do something to make Google more fair and told attendees at The Economic Club of Chicago that Google has too much power; However, he said breaking up the company is not the answer
  • The President-elect also slammed the European Union for stepping up regulatory enforcement against US tech firms
  • Trump has also expressed skepticism about the ongoing effort in Congress to force a divestment or ban of China-owned TikTok
  • But while on the campaign trail, Trump threatened retribution against some tech companies, including jailing Meta’s Mark Zuckerberg
  • However, respected DoJ antitrust authority George Hay highlighted that “it’s very rare that, at the presidential level, there’s any attempt to influence the course of cases which have already been filed”; But we know that Trump could be different…
  • And Vice President-elect JD Vance has been a major critic of Big Tech
• Changes to immigration policies, particularly regarding H-1B visas, could affect the tech industry’s ability to attract and retain international talent
• Trump’s approach to trade, including potential tariffs on foreign goods, could impact tech companies’ supply chains and international sales
• The impact on AI investment and development is unclear
  • Trump promised to rescind Biden’s executive order on AI, which outlines policies around AI governance, promotes competition, and addresses AI-enabled threats (he said the order challenged free speech)
  • While there might be less regulatory oversight, which could accelerate development, there could also be concerns about ethical and safety standards
  • He called AI “very dangerous” after posting what was deemed an AI-generated image of “Swifties for Trump”
• The Connectivity / Infrastructure sector is expected to see some impact
  • The FCC under Trump’s leadership is expected to maintain its stance against net neutrality: This could allow internet service providers (ISPs) to prioritize certain types of traffic, potentially impacting the open internet principle
  • The FCC’s spectrum auction authority, which lapsed in 2023, is expected to be reinstated: This would enable the allocation of more spectrum for 5G and other wireless services, which would be a plus for the telcos
  • Space and satellite are viewed as well-positioned to advance in a Republican administration
    • On a recent episode of the Joe Rogan podcast, Trump said of BEAD, “We’re spending a trillion dollars to get cables all over the country, up to upstate areas where you have two farms, and they are spending millions of dollars to have a cable. Elon can do it for nothing.”
  • The FCC might push for Big Tech companies to contribute to the Universal Service Fund, which supports telecom services in rural and low-income areas: This would be a plus for the connectivity players
• Crypto is seen as a big beneficiary of the new administration
  • Trump is expected to replace SEC Chair Gary Gensler, who has had a stringent approach to crypto regulation
  • Trump’s administration is expected to push for clearer regulations around cryptocurrencies: This could include moving regulatory oversight from the SEC to the CFTC, which is seen as more favorable for the industry
    • There are more pro-crypto lawmakers in Congress, hence the potential for new legislation that supports the growth of the crypto industry
  • Trump has floated the idea of establishing a federal Bitcoin reserve that could further legitimize Bitcoin as a strategic asset and encourage other countries to follow suit
  • There is likely to be a push to expand Bitcoin mining operations w/in the US, aiming to make the country a leader in crypto mining and reduce reliance on foreign mining operations

-> The strongest market reaction in our LionTree TMT & Consumer universe came from the crypto sector; Bitcoin itself was up +10.6% on the day and related stocks such as Coinbase and Robinhood were up +31.1% and +19.6%, respectively

After EA and Roblox’s prints impressed investors last week (see Theme #11 from last week’s Weekly), Take-Two continued the strong showing for the interactive entertainment space this week with headline results that broadly surpassed consensus estimates. Take-Two’s FQ2 net bookings came in +2.1% ahead of expectations, benefiting from stronger than anticipated growth in recurrent consumer spend that was driven by outperformances across the company’s core franchises. In particular, the NBA 2K franchise returned to y/y growth following the “stellar” launch of the 2K25 edition, which saw higher than expected levels of per user monetization despite flat unit sales. The Grand Theft Auto (GTA) series also outperformed. GTA V unit sales exceeded expectations, a new summer content pack, Billion Dollar Bounties, drove “sustained engagement” in GTA Online, and momentum continued in growing GTA+ membership. However, there were some puts and takes on the mobile side. Take-Two’s net bookings ended -1.6% below consensus forecasts, as strong growth in Match Factory! and Toon Blast was offset by declines in the hyper-casual portfolio. Otherwise, upside in the company’s margins was driven by a shift in marketing expenses out of FQ2.

Looking ahead, while Take-Two issued a disappointing outlook for FQ3, the Co reaffirmed its FY25 net bookings and earnings guidance. The implied sequential acceleration in FQ4 net bookings growth will be driven by the release of Sid Meier’s Civilization VII, WWE 2K25, and a PGA Golf title. Commentary was even more positive regarding FY26, which is expected to be a “milestone year” with “several blockbuster titles” on the horizon. Along with GTA VI still being scheduled for fall 2025, Take-Two also highlighted the upcoming releases of Borderlands 4 and Mafia: The Old Country in FY26. As a result, the company still anticipates sequential increases and “record levels of net bookings” in FY26 and FY27, though it is unclear whether sequential improvements in margins are still expected in both years as well. Partnerships could also be another interesting emerging growth channel for the company in the future, as Take-Two is “very, very happy” with its partnership with Netflix and “hope[s] to do more” with the company moving forward.

See below for more of our key takeaways from Take-Two’s FQ2 earnings.

-> Take-Two shares were up +7.5% in response to earnings and closed the week up +8.6%; YTD, Take-Two stock is trading up +10.5%

“Strong” FQ2 Operating Results Were Led By The Co’s “Diversified Portfolio Of Industry-Leading IP”

• Take-Two’s headline numbers beat across the board w/ MUCH better margins and EPS growth mainly due to a shift in marketing expense timing: Net bookings rose +2.1% y/y in FQ2 (vs +1.4% y/y in FQ1) and topped cons by +1.7%; Non-GAAP gross margin of 68.9% was better than cons’ 64.3%, and non-GAAP op margin of 11.0% surpassed cons’ 8.1%; Adj EPS of $0.66 came in +57.1% ahead of cons
  • Console net bookings (42% of total bookings) – MISS: Fell -8.3% y/y in FQ2 (vs -3.3% y/y in FQ1) and closed a slight -0.4% below cons
  • Mobile net bookings (49% of total bookings) – MISS: Incr’d +9.2% y/y in FQ2 (vs +2.9% y/y in Q2) but ended -1.7% short of cons
  • PC & other (9% of total bookings) – BEAT: Was up +24.5% y/y (vs +11.5% y/y) and beat cons by a wide +47.6%
  • Recurrent consumer spend (RCS) was better than expected: Grew ~+6% y/y in FQ2 (vs flat y/y in FQ1), exceeding the Co’s expectations for a ~+5% y/y gain; RCS accounted for ~81% of net bookings (vs ~83% in FQ1); Mobile incr’d ~+hsd% y/y, NBA 2K rose ~+lsd% y/y, and GTA Online was ~flat y/y
• A shift in timing of mkting spend was mainly responsible for the upside in the Co’s operating results: Indicated a portion of mkting expenses for both released and unreleased titles shifted out of Q2 due to timing, though they will all still occur “within the yr”

Nearer-Term Guidance Fell Short Of The Street’s Estimates… BUT The Outlook For FY26 & FY27 Remains Optimistic

• FQ3 outlook was underwhelming: Anticipates net bookings between $1.375-$1.440bn, representing a +5.2% y/y increase and missed cons by -4.5% at the mid-pt; The adj EPS range of $0.50-0.60 would mark a -22.5% y/y decline and was -40.2% below cons at the mid-pt
  • The largest contributors to net bookings: Include NBA 2K, the GTA series, Toon Blast, the hyper-casual mobile portfolio, Match Factory!, Empires & Puzzles, the Red Dead Redemption series, Words with Friends, and Merge Dragons!
  • RCS growth is expected to expand further seq: RCS is expected to rise ~+9% y/y (vs ~+6% y/y in FQ2), consisting of a ~+ldd% y/y uptick in mobile as well as an increase in NBA 2K, offset by a decline in GTA Online
  • OpEx growth is projected to decel seq: Forecasts OpEx growth of ~+11% y/y on a mgmt basis (vs ~+24% y/y in FQ2), driven mainly by addt’l mkting for Match Factory! and the addition of Gearbox, partially offset by savings from the cost reduction program
• FQ4 net bookings growth is expected to accel seq: The “big difference” vs last yr will be driven by the Civ 7 launch, as well as a PGA and WWE title being released during the qtr (last yr the Co only had the WWE title)

• FY25 net bookings guidance was reiterated: Still expects net bookings to grow ~+5% y/y to $5.55-5.65bn, which is slightly below cons at the mid-pt
  • BUT the Co now anticipates higher RCS growth due to NBA 2K: Now projects RCS to be up ~+4% y/y (vs prior ~+3% y/y) and account for 78% of net bookings; Continues to assume a ~+hsd% y/y increase in mobile and a decline in GTA online; NBA 2K is expected to grow ~+lsd% y/y growth (vs prior flat y/y)
  • The breakdown by labels is expected to be ~51% Zynga, ~32% 2K, and ~17% Rockstar Games (previously Zynga was projected to comprise ~50% of the mix and ~1% was assigned to “other”)
  • EPS guidance was unchanged: Still forecasts GAAP EPS net losses of -$4.33 to -$3.95; The implied adj EPS range of $2.35-2.60 is -1.4% below cons at the mid-pt; Reminder, Take Two originally guided for GAAP EPS between -$3.90 to -$3.50 at the start of the yr
    • OpEx is still projected to increase ~+10% y/y on a mgmt basis: Along w/ the addition of Gearbox as well as higher personnel costs, increases in ongoing mkting support for Match Factory! and other launches planned for next yr will be partially offset by savings from the cost reduction program
• Take-Two “remain[s] confident” it will achieve seq increases and “record levels of net bookings” in FY26 & FY27: The release of GTA VI, Mafia: The Old Country, and Borderlands 4 will all be drivers in FY26; Although the Co is “really excited” about the pipeline for FY27, it did not share specifics on titles
  • Unclear if margin improvements are still expected in FY26 & FY27: Although the Co highlighted these long-term targets on previous call, it didn’t comment on them this time around

Take-Two Delivered Strong Performances Across Its Key Franchises

• The Grand Theft Auto (GTA) series has been seeing “cont’d success”: Performance has been broad-based, as “the title has been doing extremely well” and engagement has been “strong” coming out Q2; These trends are expected to continue throughout the rest of the yr
  • GTA V sales outperformed: The title has sold-in 205mn+ titles worldwide to-date (vs 200mn+ units exiting FQ1)
  • GTA online also exceeded the Co’s expectations: RCS for GTA Online was flat y/y vs expectations for a decline, driven by sustained engagement w/ the summer content pack Bottom Dollar Bounties and “an array of updates… and experience improvements”, such as a new anti-cheat system for the PC version
  • “Momentum also cont’d w/ GTA+”: Membership grew by +35% y/y (vs growth in the “strong double-digits” in FQ1); Added the classic title Bully to the library of available games
• NBA 2K25 had a “stellar launch”: The title was released on Sept 6
  • NBA 2K25 “achieved phenomenal RCS performance”: “Engagement on a player basis is up significantly over the last game”; Compared to 2K24 for the same period last yr, 2K25 saw “meaningful double-digit growth” in ARPU and +40% growth in avg games per user
  • BUT the gen 9 console transition weighed on unit sales: The title has sold-in nearly 4.5mn units (~flat y/y), as the Co is “still being hurt” by declines in gen 8 consoles outpacing growth in gen 9 ones; That said, bringing the gen 9 version of the game to PC has helped
  • NBA 2K25 “scored among the highest ratings on new gen consoles in recent franchise history”: The new edition added 9,000 new ProPLAY animations, an all-new dribble engine (“the biggest technological update in the series’ 26-yr history”), and a “more interactive and engaging” city experience
    • “There’s a whole lot more ground to cover”: “The NBA is making big strides internationally and obviously made new broadcast deals that are very robust… there’s every reason to believe that this is a huge growth biz going forward”
• “Read Dead Redemption 2 posted another fantastic qtr”: Has sold-in 67mn+ units to-date (vs 65mn+ exiting FQ1) and still ranks in the top 10 globally for unit sales six yrs after its release, per GSD; Commentary on Red Dead Online was sparse
  • Red Dead Redemption: Undead Nightmare for PC launched last week: Was a “successful” release, though details were limited
• The Borderlands franchise has been “immensely popular”: The “strength” of Borderlands contributed to the overall outperformance in TTWO’s FQ2 net bookings, and the Co sees “many potential growth oppties” for the franchise and other Gearbox titles moving forward
  • The Borderlands film was “economically positive” but “wasn’t material” to results: Acknowledged the film was “disappointing” but highlighted that it “actually benefited catalog sales”
    • Take-Two will be “really selective” about licensing IP moving forward: The Co “would really prefer that everything that comes out w/ [its] brands… is really, really successful” and “can’t guarantee that, especially when [it’s] out of [their] hands”

Take-Two Is “Confident In The Future Outlook Of The Mobile Biz”

• “Zynga delivered another qtr of solid results” – 
  • “Match Factory! is scaling rapidly”: The title grew +16% q/q in FQ2, driven by “engaging gameplay” and “strategic investments in user acquisition”; The game is on track to become Zynga’s second-largest title in terms of project annual net bookings by the end of this yr
  • Toon Blast has maintained its “fantastic” growth trajectory: Net bookings incr’d +50% y/y in FQ2, supported by “highly-engaging” new features; Key learnings from Toon Blast have been applied to Zynga’s other games, including Toy Blast
  • Blended monetization efforts in hyper-casual have been “advancing well”: Highlighted that Screw Jam, specifically, remains a top 50 game in the US Apple App; The Co has been encouraged by the net bookings and profitability milestones the title has reached and is optimistic about it going forward
• The Co is “really excited” about new titles coming out: Game of Thrones: Legends and Nordeus’ Top Eleven soccer manager game launched in FQ2, w/ the latter generating “positive sentiment around the community”; CSR 3 – Street Car Racing is coming later as well
  • The Co also continues to expand its offerings within its “highly accretive” DTC biz
• Take-Two is “feeling pretty sanguine” about the mobile mkt right now: Believes “consumers are actually rewarding people for taking risks and releasing new titles that are compelling and engaging”
  • “New IP is the lifeblood of the industry”: This has been “the biggest change in the mobile industry over the last couple of yrs”, and the Co’s “commitment to investing in new IP is serving [it] well”
• On mobile advertising – Take-Two is “a little bit less reliant on third-parties than some of [its] other competitors”: This is based on the Co’s “broad portfolio of mobile games” and its “enormous database” across those
  • Still, “working w/ third-parties is something… [it] will continue to do in the future”: Emphasized that the Co has “always used more than Chartboost” and “would never rely just on one”

The Co “Cont’d To Make Great Progress In Advancing Its Development Pipeline”

• Three major releases are slated for FQ4: Including Sid Meier’s Civilization VII, WWE 2K25, and a PGA Golf game
  • WWE 2K25 “is a really important title” for Take-Two: The iteration “promises to take the Co’s successful pro wrestling franchise to “new heights”; Will share more details in the coming months
• FY26 is expected to be a “milestone yr” w/ “several blockbuster titles” slated to launch:
  • GTA VI is still scheduled to be released in fall 2025
    • GTA Online: Rockstar also plans to bring the “much-requested” PS5 and Xbox Series features of GTA Online to the PC platform “in the new yr”
  • Borderlands 4 and Mafia: The Old Country are also coming during the yr
• Release timeframes for CSR Racing 3 and Judas still have yet to be announced
  • Tales of the Shire: A Lord of The Rings Game was omitted from the release schedule after being included last qtr

Other Highlights

• Take Two “hope[s] to do more” w/ Netflix moving forward: “We think very, very highly of Netflix. We value the relationship w/ them greatly. I think it is pretty important for them to offer a robust array of audio-visual entertainment to their subs, and that by definition has to include interactive entertainment’
• Regarding the decision to sell Private Division – 
  • “It became clear that our thesis… was going to be challenging at best”: Private Division’s strategy was to work w/ independent devs to create “huge, durable” IP; However, while some of these titles “pretty big breakouts”, they “were not big in the context of [Take Two’s] core IP at 2K and Rockstar”
  • Take Two’s “job really is to focus on making the biggest and best hits for the mktplace”: Take Two is focused on “being a top 10 player”, which is “the core of any mature entertainment biz”; “Those are the Cos that matter. Those are the Cos that grow. Those are the Cos w/ op margins”
• “It’s the big 4 [sports] that really matter”: “That’s a pretty competitive space… but the footprint is big enough now and the growth oppties are great enough now that even working on what we have gives us plenty to do with plenty of opportunity leavened by great optimism”

The Trade Desk has been one of the best performing stocks in our LionTree TMT/Consumer Universe, trading up +84.2% YTD ahead of results this past Thursday. While we would argue that performance was solid and the visibility to future growth remains high, it turned into a sell-the-news event, given that expectations were already high. Q3 results marginally topped Wall Street estimates but reflected a strong +27% y/y top line growth rate as well as strong 41% adj EBITDA margins. Q4’s revenue growth guidance of +25% is a slight sequential deceleration but was underpinned by several secular growth drives, which will support growth in 2025 and beyond. Mgmt did a great job on the call detailing the 10 “significant landscape changes” that are expected to drive the Co’s business looking ahead. We’ve heard about some of these growth areas already (like CTV and retail media), but the very bullish tone on the audio opportunity stood out as did some of the other factors mentioned. Big picture, the Trade Desk estimates that its business accounts for ~1% of the total global advertising market, and it has 99% more of the market left to explore.

See below for our main takeaways from the Co’s earnings and results.

-> TTD shares initially trade down as much a -12.5% on the back of results but came back a bit and closed the day down -5.6%

Solid Q3 Results Were Slightly Better Than Consensus, While Q4 Guidance Was In-Line

• Q3 results slightly topped consensus expectations: Q3 rev incr’d +27.3% y/y (vs +25.9% y/y in Q2), topping cons by +0.3%; Adj EBITDA rose +40.9% y/y (vs +41.4% y/y in Q2), beating cons by +1.7%; Adj EPS beat by +5.1%
  • CTV was the main growth driver
  • Percentage shr of the biz:
    • Video, which includes CTV, represented a high 40s% (and continues to grow as a % of mix)
    • Mobile represented a mid-30s %
    • Audio represented ~5%
    • Display represented a low double-digit %
  • For the past 7 quarters in a row, ad spend outside of North America has increased more quickly: North America represented 88.0% of the biz in Q3 and international represented 12.0%

• But Q4 guidance was in-line to a tad worse than expected: Anticipates rev to increase ~+24.8% y/y to $756mn, which was in-line w/ cons; However, adj EBITDA guidance was -0.2% below cons
  • Despite some caution from advertisers in certain verticals, such as autos, consumer electronics, and media, the Co remains optimistic for the remainder of Q4 and thinks the Co is well positioned in 2025, given advancements in Kokai platform, expansion in CTV, retail media and supply chain innovations, like OpenPath technology
• Political ad spending for 2024 is expected to be in the low single digits as a percentage of overall spend, down from the mid-single digits in 2020; Some brands are not as interested as advertising in a polarized political environment, and so those dynamics have made things a little bit different in this Q4 vs other Q4s

  Ten “Significant Landscape Changes” That Create Tailwinds For TTD’s Business Looking Ahead

  1. The macro environment itself: The Fed’s efforts to combat inflation through interest rate hikes mean consumers are more cautious about their spending
     • As a result, advertising becomes crucial in helping brands compete for market share, influencing which products consumers choose based on perceived value
  2. Increasing pressure on CMOs: They are under more pressure to drive revenue and are working more closely with CFOs in this regard
     • The Trade Desk’s AI and data science enhancements in their latest product, Kokai, are helping both CMOs and CFOs rely on TTD for delivering measurable growth
     • The Co’s Tools like UID2 and OpenPath are helping advertisers gain insights into their audience, leading to better monetization strategies; For instance, a news publisher using OpenPath saw their fill rate increase by +7x, leading to a revenue increase of more than +25%
  3. The move to AI: Kokai, which includes significant AI and data science advancements enhances ad optimization and targeting, allows for better data insights, and helps advertisers to make informed decisions about ad placements across various platforms
  4. Evolving situation at Google: Google excels in Search and YouTube, and it also has an incredible opportunity in Cloud and AI, most notably in Gemini, and is focusing priorities there
     • Expect Google to continue to de-emphasize its network business, where it competes with TTD
     • Believe that Google’s pending antitrust trial will cause the Co to change its behavior and become more “cautious” on the business where it competes with TTD
  5. Changes in CTV market dynamics: CTV is both The Trade Desk’s largest and fastest-growing channel, and advertisers can see the contrast between TTD’s offering and the role they play with brands and agencies compared to walled garden
     • Inventory is no longer an issue; Now it’s about the quality of the inventory as well as the quality of the signal
       • As inventory scales and scarcity decreases, advertisers have a lot more choice; They also have a harder job, which is assigning value to a lot more inventory
     • The competition for quality content is intensifying: Variety reported that the top six media companies will increase content spending this year by +9% to a record $126bn, all of which needs to be funded
     • Intl is a big growth driver: International spend growth outpaced North America once again with notably strong performance in CTV
       • Have been expanding in the UK and Germany; India is also a big opportunity
     • Not concerned about Amazon as a competitor in CTV: This is given Amazon’s conflict of interest; “They are going to be pushing ads on premium content that they own, meanwhile, neglecting premium content that others own, while we have no dog in the hunt, and we’re just trying to help people objectively decide”
     • “I could not be more excited about our position in CTV and the size of growth opportunity for us in the years ahead”
  6. There’s pressure to make the supply chain better: The advertising ecosystem is refining its supply chain to become more efficient than walled gardens; Companies focused on adding value will likely gain market share, while those focused on extraction will lose share
     • The Co remains optimistic about OpenPath’s long-term impact, believing it will play a crucial role in navigating the complexities of the advertising supply chain and improving market efficiency
  7. Trends in audio: The TAM of audio is wrongly defined in comparison to legacy radio; It is much bigger than understood
     • Digital audio is still in its early stages, similar to where CTV was a few years ago, with US consumers now averaging 3 hours of digital audio consumption daily
     • The recent partnership between TTD and Spotify aims to enhance addressability and insights for advertisers, leveraging tools like UID2 and OpenPath, and is seen as a promising opportunity to capitalize on the growing engagement in digital audio
  8. Retail media: There is significant opportunity in retail media, highlighted by Amazon’s success in using retail purchase data to enhance business performance
     • Major retailers like Walmart and Target can boost sales by advertising products that consumers frequently buy
     • Retail media’s rapid growth is expected to accelerate through 2025: “Retail data on our platform is transforming how many CPG advertisers approach measurement and attribution.”
       • Trade Desk continues to win incremental shopper marketing budgets
  9. Changes in live sports: The Co is experiencing strong engagement in live sports, with an avg of 1.5bn ad impressions per weekend during the football season; Live sports content is premium and often scarce, making it ideal for programmatic advertising
  10. Cumulative impact of various industry changes: The complexity of the advertising landscape, particularly in light of challenges faced by companies like Google, creates a need for guidance among clients navigating these shifts
      • The Trade Desk’s focus on the buy-side, and its objectivity align its interests with those of agencies and brands, positioning it as a supportive partner during these transitions
      • The Co has established itself as a leader in the open Internet, leveraging its global presence and innovative products, including recent platform enhancements

Fox had a stellar quarter, surpassing expectations with a +5% revenue beat and a +17.4% EBITDA beat, driven by strong performance in Cable Networks, in particular, which was across the board but included a notable +160% y/y increase in “Other” revenues, thanks to sports sublicensing. Advertising revenue saw a nice gain of +11% y/y due to Political ad spend (set a company “record”) at the local stations, but a re-acceleration of revenue at Tubi was also a key highlight (also bolstered by political advertising and benefitted from improved fill rates). Tubi is on track to hit the $1bn revenue mark this fiscal year. Ratings and viewership dynamics in Fox’s Sports and News properties continue to be positive. The MLB postseason and NFL games drew impressive audiences, while Fox News maintained its strong ratings. Despite some challenges, like increased rights fees and NFL scheduling changes, we’d expect that strong performance to continue in the coming quarters, with significant contributions from the Super Bowl and a solid entertainment lineup. Overall, Fox’s positioning in sports and news has been a differentiator relative to other big Media conglomerates, and this is certainly reflected in the Co’s shares rallying +50.3% YTD vs Paramount -25.2%, Warner Bros Discovery down -19%, and Disney up +9.7%.

-> Fox shares rose +3% on the back of result and is up a whopping 50% YTD

It Was A Blowout Qtr Relative To Expectations, Especially In Cable Networks

• Total revs beat cons by +5% (grew +11% y/y), and total adj EBITDA beat by +17.4% (grew +21% y/y), with the biggest upside coming from Cable Nets
• Cable Networks – Rev beat by +12.5%, and adj EBITDA by +17.5% with big upside in “Other”
  • Revenue grew +15% y/y
    • Other revenue grew +160% y/y, which was primarily due to higher sports sublicensing revenues at the national sports networks
  • Adj. EBITDA grew +23% y/y
• TV Stations – revs beat by +1.2%, and adj EBITDA beat by +7.2%
  • Revenue grew +10% y/y
  • Adj EBITDA grew +3% y/y
• Bought back $300mn so far this fiscal year

An Improvement In The Pace Of Cable Nets Subscriber Losses Stood Out

• Total affiliate revs grew +6% y/y, with +10% y/y growth at TV (vs +9% in FQ4) and +3% y/y increases at cable (vs +2% y/y in FQ4)
• Industry subscriber declines were “a touch under 8%”, a slight improvement from last quarter’s “mid-8% range”

Tubi Re-Accelerates Growth

• Total Tubi revenues accelerated significantly from +7% in FQ4 to +19% in FQ1
  • Tubi revenue growth has “accelerated” in FQ2 thus far
  • Pacing to surpass the $1bn revenue mark this fiscal year
• Drivers:
  • Tubi has the scale and marketplace awareness to be a must-buy for advertisers wanting to reach this audience
  • Tubi’s fill rate has improved significantly, helping drive revenue growth
  • Political was a key driver but seeing underlying core growth as well
    • Tubi has become a material recipient of and gaining share in political advertising
    • Ex-political, continue to see growth in FQ2 and “we think beyond”
• Haven’t seen any evidence of cannibalization from stations into digital or into Tubi: “Tubi was able to capture money that we couldn’t take entirely on the station”

Fox Should Continue To Outperform The Overall Ad Market Trends Given Sports & News

• Total ad revs were up +11% y/y (accel from flat y/y in FQ4), boosted by political advertising at the stations, continued momentum at Tubi, and “strong” audience growth at Fox News Media
  • Cable ad revs grew +11% y/y (accel from +3% y/y in FQ4), predominantly driven by FOX News media, which saw higher ratings, direct response pricing, and digital rev, partially offset by higher preemptions associated w/ breaking news coverage
  • TV ad revs grew +11% y/y (accel from -1% y/y in FQ4), led by the “strong” political cycle at their local stations, cont’d growth at Tubi, and the benefit of higher NFL ratings and NFL scheduling w/ week 4 of the season sliding back into the Sept qtr; Benefit of UEFA EURO and Copa America in the current yr qtr were “more than offset” by the absence of the FIFA Women’s World Cup
• Seeing “very healthy growth” across all the markets they participate in 
  • Helps that Fox is not “overly exposed” to general entertainment
• Achieved record political rev for both FQ1 and the full fiscal year: Inclusive of the “very substantial and dramatic” impact of the 2020 Georgia Senate runoff
  • Tubi has become a “material” recipient of political advertising: As campaigns look to maximize reach and efficiency, Tubi has “clearly differentiated” itself with its large, hard to reach audience coupled with its advanced targeting and geo targeting capabilities
  • “From a revenue perspective, it’s the local stations that are our election heroes” 
    • Local political advertising did push out some local-based inventory: Auto and retail was soft, though betting has returned growth and was “pretty strong”
  • Do you expect any affects from outcome of election? “I don’t think it would impact us”
• Sports continues to be a point of strength
  • Had a “tremendous” World Series that outperformed budget and expectations
  • Football has sold “very well”; Super Bowl is already sold out at record pricing
• News ratings were “strong”, particularly amongst the key 24-54-year-old key demographics 
  • Helped with direct response pricing being up “very significantly” in FQ1 and “almost double significantly” in FQ2
• Entertainment scatter is also “strong”

Having A “Strong” Fall Season Across Fox’s Sports Portfolio

• MLB postseason has been “both impressive and dramatic”: FOX had the highest rated divisional series ever on FOX Sports 1, the most watched league championship series in the past five years, and the best MLB postseason on FOX since 2017
  • World Series in particular was a big hit: Saw an avg of 6mn viewers tuned in each night of the 5-game series across their networks, with ~19mn viewers watching Game 5, making it the most watched World Series in Game 5 in 7 years
• NFL on Fox is off to its best start in five years 
  • America’s Game of the Week (“the #1 TV program on all TV”) is averaging ~26mn viewers, incl a +28% increase in viewership in younger demos vs last season
  • Successfully launched new Fox College Football Fridays in Sept, which is averaging ~3mn viewers each week, “handily out-rating” their prior Friday night programming by 40%+ in its first month

News Segments Sustained Momentum

• In FQ1, total News audience grew 40%+ y/y w/ 60%+ y/y increases amongst 25-54-yr-olds
• Fox News Channel was the second most watched network in all of television in FQ1, trailing the “Summer Olympics enhanced NBC”
• Fox News ended the quarter as the most watched cable network in total day and in primetime
  • Fox News was also the #1 cable news channel
• Momentum is continuing through October, with FQ2 total day ratings up +20% y/y and prime ratings up 30%+ y/y

Some Color On EBITDA Bridge That Will Impact TV Earnings In FY25

• General momentum from – 
  • “Enormous cyclical tailwind” from political advertising, across Cable and Tubi
  • Underlying momentum from Tubi
  • MLB postseason, which will be an uplift first from both a rev and margin perspective
• Some challenges in FQ2 – 
  • Increased rights fees across the board
  • NFL scheduling will be a headwind to ad rev b/c there won’t be a Christmas game, which they had last year
  • Reorientation in college sports rights will be a “big shift”, and weekend expansion will increase costs
  • Partially offset by no WWE for the rest of the year and the discontinuation of Pac-12
• Looking into FQ3 and FQ4 – 
  • Super Bowl in FQ3 will be “very, very” cash flow accretive but not from an EBITDA perspective
  • Impact of FQ3 entertainment schedule coming back vs last yr
  • Won’t have large soccer tournaments in FQ4 (like UEFA Euro or FIFA) which will be helpful in FQ4
• “Generally speaking… we think TV is going to have a really, really strong sort of second, third and fourth quarter”

Other Key Comments On Venu, Sports Betting, And Comcast

• No new news on Venu: Awaiting their appeal of the injunction, and “we’ll see where we go from there”
• The narrative on sports betting remains the same: Working through approvals process for Flutter / FanDuel; Have to get a license in every state that FanDuel operates in; Think this process will be completed in a year
  • Have 6 years in their option
• Doesn’t see any impact from a potential Comcast Cable Nets spin-off: And in Fox’s case, “breaking apart part of the business would be very difficult, both from a cost point of view and from a revenue and a promotional synergy point of view”

The legacy media names took center stage on the TMT earnings circuit this week. In addition to Fox (see Theme #5), Warner Bros Discovery (WBD) and Paramount (PARA) were the other two big reports out this week.

Starting off with WBD, there was a lot of enthusiasm about its DTC segment surprising the Street with profit that was ~+98% above expectations, fueled by its largest-ever quarter of subscriber growth since the launch of Max (added +7.2mn in Q3, which is double the +3.6mn added in Q2). Streaming profitability for WBD’s Max reached an “inflection point” where subscriber growth, revenue growth, and adj EBITDA growth is all happening at the same time, as years of investment are now starting to bear fruit. On the advertising side though, WBD posted yet another seq decline, with ad rev falling -6.3% y/y (from -3.5% y/y in Q2), with growth at DTC unable to offset the decline in Networks. Lastly, the Studios segment was a drag in the qtr. Several changes are in process, but it will take some time for the financial impact to flow through and benefit the top-line.

Over at Paramount, in many ways it felt like a déjà vu quarter. The top-line slightly missed vs Wall Street (by -3.0% in Q3, vs -5.6% in Q2 and vs -0.5% in Q1), but a strong adj OIBDA beat (by +33% in Q3, vs +53% in Q2 and vs +31% in Q1). Similar to WBD, Paramount’s DTC business was also its shining star, with the segment posting another profitable qtr (its second in a row), largely driven by marketing efficiency in acquiring subscribers across many of its channels. But the Co’s DTC business will move to a loss in Q4 (a negative surprise) due to the timing of content marketing spend. Nonetheless, mgmt still reiterated their guidance for domestic P+ profitability in 2025 and also mentioned that international streaming profitability is tracking 12-18 months behind domestic. On the positive side, Paramount’s ad rev outperformed Street expectations, growing +2% y/y, with particular upside in TV Media; however, total affiliate revs disappointed at down -1% y/y (but ex Showtime PPV events, it would have incr’d by +1% y/y). Like WBD, PARA’s filmed entertainment business disappointed. Mgmt still expects the Skydance transaction to close in H1:25.

Overall, there were a lot of moving parts and a lot to dig into… See below for more of our takeaways. There are 2 sections below – one for WBD and one for PARA.

-> The 2 stocks had divergent reactions to earnings, with WBD trading up a notable +11%, while PARA traded down -4%; YTD, WBD is now down -19%, while PARA is down -25%

1) WARNER BROS DISCOVERY (WBD) – See below for what we thought was most important and incremental from its results and conference call

WBD – Top-Line Disappointed in Q3

• Consolidated revs missed by -1.7%: Fell -3% y/y (vs -5% y/y)
  • Studios and DTC missed, while Networks beat
• Adj EBITDA missed by -1.9%: Fell -19% y/y (vs -16% y/y in Q2)
  • Studios missed, while Networks and DTC beat

WBD – Continue To Act “Aggressively” To Reduce Expense Base And Lift FCF Conversion

• FCF decreased -$1.4bn y/y and missed by -6.3% in Q3: Decreased to $632mn from $2.1bn in year-ago qtr, largely due to higher net cash content spend after lapping last year’s Q3 strike impact and unfavorable Olympics-related working capital dynamics
  • Looking into Q4, while another y/y increase in net cash content spend in Q4 is expected, FCF should represent a healthy conversion of EBITDA
• Saw seq increase in net leverage from ~4x in Q2 to 4.2x in Q3, which was directionally in-line with expectations, given the seasonality of free cash flow and Olympics-related free cash flow headwinds
• Continue to expect to delever y/y “albeit much more modestly than initially planned” (in-line with commentary last qtr), in part due to the Studios shortfalls and impairment
  • Repurchased and repaid ~$900mn in Q3; Have paid down $16bn+ in debt to-date
  • Continue to target 2.5-3x gross leverage for the longer-term
• Did not share updated view on M&A and potential asset sales/acquisitions, given recent political shifts and reports of Comcast splitting/selling cable asset
  • Reiterated belief that current stock price “doesn’t adequately reflect the underlying value of these great assets that we have”
  • Focused on driving growth through operational improvements worldwide and always looking at way to enhance shareholder value.

WBD – Advertising Continued To Decel Seq Across The Board In Q3 / Taking Measured Approach With DTC Advertising, Which Is Still In Early Stages

• Q3 total ad rev fell -6.3% y/y, which was a seq decel from -3.5% y/y in Q2: Seq step-down was expected and was in large due to their seasonally slower sports schedule, as well as the Olympics, which Europe benefitted “modestly” from, but the much larger US biz was adversely impacted by
  • DTC ad revs were up +49% y/y (decel from +98% y/y in Q2), driven by “healthy” demand for Max in the US
    • While the intl contribution to DTC advertising is still “quite small”, see oppty ahead as they scale the subscriber base and drive monetization
  • Networks ad revs were down -13% y/y (decel from -9% y/y in Q2)
• Still in the “very early innings” of advertising scale and rev growth and still have “enormous runway” in qtrs ahead: Plan to grow through –
  • Expanding availability of their ad-supported streaming svs to more markets
  • Increasing the number of ads shown (ad load) within their content, as they currently have a lighter ad load than many competitors
  • Developing new, creative ad formats that are more appealing to advertisers and provide better engagement for viewers
• Focused on balancing ad load w/o hurting viewer experience: Learned lesson from cable that too much advertising impacts quality of the experience
  • “As others add a lot of inventory, we really like the idea that we’re not doing that. You’re not going to be interrupted watching House of the Dragon or White Lotus, at least for the foreseeable future”

WBD – Q3 Was A “Material Inflection Point” For Max / Profitability Beat Was A Standout And Subscriber Adds Doubled Q/Q

• Saw a big beat on profitability, despite revenue miss in DTC in Q3
  • DTC rev missed by -3.2%…: Grew +9% y/y (vs -6% y/y in Q2) to $2.6bn
  • … But DTC adj EBITDA turned positive and beat by substantial +97.0%: Came in at $289mn vs Q2’s -$107mn
• Expect continued strength in Q4 / “Highly” confident they are on track to “meaningfully exceed” $1bn adj EBITDA target in 2025 
  • Q4 outlook: “Expect similar levels of subscriber-related revenue growth and EBITDA contribution”
  • Longer-term outlook: “Expect every quarter that we’re going to be seeing revenue growth, profit growth and subscriber growth”
• Max added 7.2mn subs in Q3 to reach 110.5mn (beat by +1.0%): Was double the +3.6mn subscribers added in Q2
  • Driven by Olympics in Europe, traction from recent intl launches, momentum on bundles, and a more consistent and resonant content lineup
  • ~40% of global gross adds signed up for the ad-lite tier and global ad-lite subs grew 70%+ y/y
• Max is now available in 65 markets: Started the year of only available in the US
  • Later this month, will launch in 7 markets across Southeast Asia
  • In 2026, will be available in Australia and over a dozen other markets, with more to come, including three of the biggest mkts in Europe
• “We have 2+ years of growth ahead of us” – What have been and will be Max’s growth drivers? 
  • “Great content”: “We believe our content will continue to provide us a meaningful, competitive advantage and we are only scratching the surface of what we can achieve through added scale”
  • Consistent release of tentpole series, new originals, and feature films through at least 2026 
    • Beginning this past June, with S2 of House of the Dragon, and continuing now with The Penguin and expanding forward with titles like Dune: Prophecy, White Lotus, The Last of Us and Peacemaker
  • 15+ years of local sports and region-specific content across Europe and Latin America, creating a competitive advantage few can rival
    • Exclusive streaming of major events, like the Olympics, in many markets across Europe
    • “Even without the Olympics, we expect our momentum in driving Max subscriber growth to continue going forward”
  • Only in just over half of the addressable broadband markets around the world (excluding markets like China, Russia and India)
  • Password-sharing crackdown
  • Improving product experience, where “we’ve gotten better, but are not great yet”
• Factors impacting growth of Max in the US 
  • Headwinds –
    • Mix is changing, and the shift from HBO’s older, wholesale model to Max means they’re losing some subscribers through traditional pay-TV but making up for it with retail subscribers
    • Penetration gap is largely in lower-income, more price-sensitive households (sub-$100k) which may already have 1-2 streaming svs and Max becomes an “in-demand but harder-to-finance proposition”
  • Solutions – 
    • Ad-lite offering is “best way” to penetrate more price-sensitive consumers
    • More bundles, like those w/ Disney and Hulu
    • More partnerships, like those they have with Charter and DoorDash
    • Industry consolidation to improve the consumer experience, as viewers are overwhelmed by a variety of apps with different pricing, which can be confusing and inconvenient
• Continue to be a big proponent of bundling and shared several learnings – 
  • Consumers not only want lower prices for more svs, but also the ability to navigate seamlessly between those products
  • Seeing “a lot” of strength in partnership w/ Disney and Hulu; It’s early, but subscriber growth is “significant” and consumer satisfaction is “quite high”
  • Seeing “big” advantage from leveraging relationships they have in intl markets, and entering them w/ local sport, local entertainment, and the HBO and Max content
• Financial framework by which DTC biz is managed has not changed, despite increased options to reach consumers
  • Whether it be directly, bundled, in partnership, or more traditional wholesale agreements, which all have implications for certain KPIs
  • Focus is on lifetime value vs subscriber acq cost, making tradeoffs between distribution channels and models based on ARPU, upfront investment, and churn
  • Focus is also on subscriber-related rev (subscription + ad rev) as best measure for progress being made in scaling the DTC biz
  • Expect ARPU to trend lower in the near-term…: Given cadence of Max’s rollout over the next ~18 months in intl mkts and launch of ad-supported offering in many more markets
  • … But strong future subscriber-related rev and adj EBITDA growth, as well as enhanced retention, the cadence of which will reflect when, where and how heavily they invest in subscriber acquisition
• On price increases – Highlighted “premium nature of our product” is providing WBD a “fair amount of room” to continue to push price 
  • Have been “judicious” about prior price hikes, but each one done so far has seen churn come in lower than projected and retention continue to be strong
  • Have password sharing kicking off in 2025 and into 2026 which “in effect is a form of a price rise…you’re going to see that as an additional kicked”
  • Room to increase price internationally, though still early as international rollout began just 6 months ago

WBD – The Studios Biz “Must Deliver More Consistency”

• Studios missed expectations on both rev and adj EBITDA in Q3 
  • Studios rev missed by -6.3%: Down -17% y/y (vs -5% y/y in Q2) to $2.7bn
  • Adj EBITDA missed by -43.2%: Down -58% y/y (vs -31% y/y in Q2) to $308mn
• Anticipates improved profit results for overall Studios biz in Q4, driven by what is expected to be “another successful quarter for Warner Bros TV”
  • Expect Studios Q4 EBITDA to be up “a few hundred million dollars y/y”, depending on the timing of certain content licensing deals
  • Longer term – “Our ambition is to get back to at least $3bn and then start growing… Over the next several years, we expect our Games and Motion Picture businesses to deliver more consistency, resume industry-leading performance, and contribute substantially to Warner Bros. Discovery’s business success”
• Have held back ~$1bn worth of content that could have been sold, investing instead in Max and HBO streaming platforms: While this impacts short-term profitability in Studios, it is expected to enhance DTC growth over the coming years
• TV is on track to have its most profitable year in scripted content in the last five years / TV rev grew +30% y/y (vs -27% y/y in Q2) 
  • Q3 benefited from y/y comp against impact of strikes last yr, though “the underlying performance remains robust”
  • “We believe we’re benefitting from a flight to quality”
  • Currently making 80+ live action scripted, unscripted and animated series for nearly 20 platforms, including all the major US broadcast networks and key US SVOD platforms
  • Expect momentum to continue in Q4, and TV is expected to be up “significantly” y/y
• Motion picture biz continues to face issues of inconsistency / Theatrical rev fell -40% y/y (vs +19% y/y in Q2) 
  • Q3 was largely driven by “strong success” of Beetlejuice Beetlejuice, though Barbie in the prior year and bulk of marketing spend for October release of Joker: Folie à Deux weighed on y/y comps
  • Looking into Q4, expect film biz to be “more or less in-line” with yr-ago qtr: Despite Joker’s underperformance weighing on Q4 profitability
    • Easier comp in Q4: Had 3 theatrical releases in last two weeks of 2023, for which they realized “hefty” marketing spend with a “relatively limited” amount of rev; Have only one release remaining in Q4 this year, which is the “modestly budgeted” The Lord of the Rings: War of the Rohirrim
  • Longer-term, have been focused on improving greenlight governance and franchise mgmt for the past two years, and believe these strategic shifts will deliver improved outcomes in the coming years
    • Will start to see lineup of films that new mgmt has been involved w/ from start to finish (vs inherited from prior mgmt) starting this year
    • Characterize film slate under new mgmt as “more balanced, both creatively and financially”
• Games biz is “substantially underperforming its potential right now” / Games rev fell -31% y/y in Q3 (vs -41% y/y in Q2) 
  • Q3 decline was primarily driven by the better performance of the prior year slate, mainly Mortal Kombat 1, compared to the current year slate
  • Have four “strong and profitable” game franchises with “loyal global fans”: Hogwarts Legacy, Mortal Kombat, Game of Thrones, and DC (in particular, Batman)
    • Focusing development efforts on those core franchises to improve success ratio (vs “trying to launch 10, 12, 15, 20 different games”)
  • YTD write-downs in Games biz are $300mn+, which are a “key factor” in this yr’s Studio profit decline: Includes $122mn in Q3 that were due to underperforming releases
  • Looking into Q4, expect Games biz to be flat to modestly better y/y, as last year’s launch of Hogwarts Legacy on the Switch platform in November is offset by lower costs
• Role and impact of content licensing strategy in 2024, which have burdened consolidated adj EBITDA and FCF in a “material” way, but will benefit future financial performance –
  • Limited library licensing, which are expected to return to more normalized availability levels next year
  • “Significant” y/y increase in internal licensing to support the rollout and growth of Max, “which will pay dividends in top and bottom-line performance of the DTC biz for years to come”

WBD – Adapting To Industry Shifts Within Networks Biz By Leveraging Partnerships To Drive Rev Growth Across Distribution Channels

• Networks was the only segment to beat on revenue and adj EBITDA in Q3 
  • Networks rev beat by +5.5%: Grew +3% y/y (vs -8% y/y in Q2) to $5.0bn
  • Networks adj EBITDA beat by +2.7%: Fell -12% y/y (vs -8% y/y in Q2) to $2.1bn
• Linear TV “is still an extraordinarily important part of our business” 
  • “Core vehicle to deliver WBD storytelling to hundreds of millions of fans worldwide”
  • “The significant profits it generates helps fund building the investments that will carry Warner Bros. Discovery into the future”
• Renewal agreement struck w/ Charter is “the best evidence of the important role our linear business continues to play for Warner Bros Discovery” 
  • Extending Charter’s carriage of WBD’s linear networks while also giving their subscribers ad-lite access to Max was beneficial to Charter, WBD, and consumers
  • “This is a sign that these types of agreements will create more stability in our industry”
  • Similar deals in the works? “We’re in some discussions with some that are quite interested in doing it, and we’ll just have to see”
• Confidence as they approach renewal negotiations w/ Comcast in the US and Sky internationally? “I suspect we’ll be doing a lot more stuff in the future”
  • Can’t go into details about specific deals, but have built decades of various successful partnerships across several markets, including the US, UK, Germany, and Italy
  • WBD also has “highly valued” content that strengthens the appeal of cable bundles, which distributors like Comcast recognize
• “Our affiliate renewal pipeline is active, and we remain focused on working with our partners across the fluid distribution landscape”
  • Seeing net growth in total Co revenue through these partnerships, as reductions in linear have been “more than offset” by gains in DTC

2) PARAMOUNT (PARA) – See below for what we thought was most important and incremental from its results and conference call

PARA – Q3 Reflects Continued Outperformance On DTC Profitability

• Missed on total revs by -3%, while adj OIBDA beat by a huge +33%: Total revs fell -6% y/y (vs -11% in Q2), while adj OIBDA grew +20% y/y (vs +43% y/y in Q2)
  • Revenue miss was from Filmed Entertainment
    • TV Media rev – IN-LINE: Revs fell -6% y/y (vs -17% in Q2)
    • DTC rev – IN-LINE: Revs grew 10% y/y (vs +13% y/y in Q2)
    • Filmed Entertainment rev – MISS by -16%: Revs fell -34% y/y (vs -18% in Q2)
• Adj OIBDA upside was mostly due to better marketing efficiency in DTC division
  • TV Media OIBDA
  • DTC OIBDA
  • Filmed Entertainment adj OIBDA
• EPS of 49c was well above cons 24c, and the Co delivered $214mn in FCF, which was much better than cons $62mn

PARA – Making Progress On Restructuring Plans, Which Will Have More Of An Impact In Q4

• “Continue to successfully execute” cost reductions that will result in $500mn in annual run rate saving, which will reduce US-based workforce by -15%
  • To date, have executed 90% of these reductions and expect to have a remaining completed by EOY
• Restructuring work should have more of an impact in Q4: It was relatively modest in Q3, given timing
• FCF in Q4 will be negative due to content spend timing and cash restructuring payment headwind, but proceeds of Viacom 18 transaction will offset
• Overall puts and takes on Q4:
  • Tailwinds: More benefits from the restructuring, political, and it is the strongest ad quarter of the year generally
  • Headwinds: Higher content expenses with sports and streaming originals, no true ups from under reporting like before, and some shift of marketing expenses from Q3 into Q4.

PARA – DTC Profitability Will Take A Breather But The Positive Trajectory Is Intact

• DTC posted another profitable qtr (its second in a row), largely driven by marketing efficiency in acquiring subscribers across many of its channels
  • BUT DTC will move into a loss in Q4 due to the timing of content marketing spend, but reiterated P+ profitability in 2025
• Intl streaming profitability is tracking 12-18 months behind domestic given relative maturity of the launch; That is “the right way” to think profitability for the streaming biz as a whole
• Paramount+: Revs up +25% y/y, which is a seq decel from +46% y/y in Q2
  • Big boost in P+ subscriber adds – Added 3.5mn subs vs -2.8mn in Q2
    • Drivers: Helped by an expansion of an international hard bundle deal and the return of NFL and college football, new originals, and theatrical releases; Charter renewal also had a contribution
    • Outlook: Expect cont’d subscriber growth (but do not expect to add another new hard bundle partnership in Q4); Impact from Charter renewal will also grow
  • P+ global ARPU grew +11% y/y vs +26% in Q2
    • Tough comps with last yr’s price increase and a greater than expected shift in the mix to the essential tier and hard bundle subscribers
    • Price hike annc’d in Aug 2024 will take some time to be reflected due to the grandfathering of existing essential tier subscribers
    • These dynamics will “continue to influence” ARPU growth in Q4
  • Some content call outs looking ahead for P+- 
    • Return of big hit series, like Mayor of Kingstown and Tulsa King
    • Internationally have South Park exclusively for SVOD
    • South Park return to P+ in the US starting in June of 2025
    • Return of Lioness followed by Landman (premieres November 17)
• Pluto reached record engagement: YTD, Pluto delivered its highest consumption increase ever of +5% to 5.6bn viewing hours
  • Growth is being driven by incr’d use of VOD w/ more available content, enhanced discoverability, and a better user experience
• Open to evaluating potential partnerships in streaming: Feel good standalone but will be “opportunistic” at looking at partnerships

PARA – Advertising Growth Trends Are Anticipated To be Similar In Q4 vs Q3 & Underlying Affiliate Growth Was Positive

• Total advertising rev incr’d by +2% y/y, beating expectations in both TV Media and DTC
  • DTC ads revs were up +18% vs +16% in Q2 due to double-digit increase in sold impressions and higher CPMs
    • Outlook: These trends are continuing and expect another quarter of double-digit DTC ad growth in Q4
  • TV media advertising rev fell -2% y/y (better than Q2’s -11%), reflecting the return of football and higher political spending
    • Similar to last qtr, international advertising benefited from the recognition of previously underreported revenue by an international sales partner
    • Outlook: Expect TV media ad growth in Q4 to be similar to the growth rate reported in Q3
• Total affiliate revs disappointed at down -1% y/y, but excluding Showtime PPV events, it would have incr’d by +1%, with growth in DTC more than offsetting declines in linear
  • TV media affiliate rev fell -6.6% y/y due to ecosystem trends and the impact of Showtime PPV
  • DTC subscription rev grew by +6.8% y/y, with P+ subscription rev up +27% y/y

PARA – Revenue Is Under Pressure

• Licensing and other revenue fell -9% y/y in Q3 and missed cons estimates, given lower volume of licensing in the secondary mkt and lower home entertainment revs: For FY24, expect licensing revenues to decline y/y
  • More than half the y/y decline will come from made-for-3P productions which are strategically valuable, but the scale of the business has been impacted by the decision to steer more content to internal platforms
  • A smaller part of the y/y decline in licensing is related to second run in library licensing activity, partially reflecting lingering strike impact on the business; It will take longer than expected to return to pre-strike level of output.

PARA – Hopeful Regarding A Resolution Of The Nielsen Dispute But It Is Not Having A Neg Impact On The Business In The Meantime

• Regarding the dispute with Nielsen:
  • The Co remains engaged w/ them and are” hopeful for a resolution”: It has been five weeks of this impasse
    • “So far, we’re encouraged by our partners’ willingness to lean into innovation and adopt alternative measurement solutions”
    • But the economics have to make sense for the business
  • What has the impact been from not having Nielsen data? None: “We haven’t seen any adverse impact on ad revenue to date, and we don’t expect a material impact in Q4”
    • There is a lot of speculation in the market that PARA’s savings could reach hundreds of millions of dollars a run rate basis

Amid all the other earnings updates out across the tech, media, and entertainment spaces this week, investors also received a glimpse into how trends in the sports betting industry have been playing out, as DraftKings reported its Q3 results. The company’s headline numbers finished mixed relative to consensus expectations, with revenue coming in -1.3% below estimates, but adj EBITDA beating forecasts by a wide +21.5%. In terms of some of the main highlights from the quarter, the impact of structural sportsbook hold was neutral (though DraftKings didn’t provide a figure on it this time around), while customer acquisition efforts have continued to be more effective than anticipated with the NFL season in full swing and the recent kick off the new NBA season. DraftKings took a “cautious” approach to customer acquisition during the quarter, which was reflected in a +300bps y/y improvement in its promotional reinvestment rate and a nearly -20% y/y decline in CACs; however, the company’s MUPs still exceeded expectations by +3.7%. Additionally, the more “muted” promotional stance helped drive a better than expected top-line flow-through, resulting in the outperformance on adj EBITDA.

Despite DraftKings’ solid showing in Q3, the more incremental commentary on the company’s earnings call was related to its downward revisions to FY24 guidance and its updates to the FY25 outlook. Beginning in October, DraftKings was “stung” by “the most customer-friendly stretch of NFL sport outcomes [it has] ever seen”, and this prompted the company to lower its forecast for FY24 revenue and adj EBITDA by -$250mn and -$120mn at the midpoint, respectively. Nonetheless, DraftKings’ FY25 outlook was still better than the sell-side anticipated, with revenue that is expected to finish +2.6% ahead of estimates and adj EBITDA that was projected to beat the Street’s expectations by a slight +0.2%. Notably, the company emphasized that its adj EBITDA guidance for next year incorporates a degree of conservatism, given the recent strength of the company’s recent user acquisition. In the meantime, DraftKings will look to get the ball rolling on launching in Missouri, which approved OSB earlier this week. There are paths to regulatory approval in Texas, Georgia, and Minnesota as well, but Florida still appears to be far off. All said, the company’s business fundamentals look “healthy” heading into Q4 and 2025.

See below for more of our key takeaways from DraftKings’ Q3 print:

-> DraftKings shares rose +3.0% in reaction to the print, ending the week up +12.4%; YTD, DraftKings stock is trading up +13.8%

DraftKings’ Headline Results Reflected “Healthy” Biz Fundamentals

• Headline numbers were MIXED, with a miss on the top-line but a beat on adj EBITDA: Rev was up +38.7% y/y in Q3 (vs +26.2% y/y in Q2) but closed -1.3% short of cons; Adj EBITDA of -$58.5mn (vs -$153.4mn the prior yr qtr and $128.0mn in Q2) was +21.5% better than cons; Adj EPS of -$0.17 beat cons’ -$0.41
  • Adj gross margin returned to y/y growth and was better than expected: Q3 adj gross margin of 40% incr’d ~+300bps y/y (vs ~-400 bps y/y in Q2), driven by declining CACs, higher structural sportsbook hold, and an improvement in the promo reinvestment rate

Lowered FY24 Guidance Was Disappointing, But The FY25 Outlook Surprised To The Upside

• The FY24 outlook was revised downwards due to customer-friendly sport outcomes 
  • Rev is now projected to be -$250mn lower at the mid-pt: Now anticipates a rev range of $4.85-4.95bn (vs prior $5.05-5.25bn), representing a +33.7% y/y increase and missing cons by -4.5% at the mid-pt
    • Guidance assumes that mkt share will be flat: The Co is basing its cohort data and customer acquisition estimates on what it’s seen in the past for mkt share and what that would imply for mkt growth
  • Adj EBITDA is now expected to be -$120mn lower at the mid-pt: Forecasts Adj EBITDA between $240-280mn (vs prior $340-420mn), which was -33.1% below cons at the mid-pt

A year into WWE and UFC completing a merger to create TKO, CEO Ari Emanuel’s “conviction in this business is as strong as ever.” Q3 saw a top-line beat driven by better-than-expected performance at WWE, more than offsetting weaker UFC results due to unfavorable timing of events (the qtr only had 10 UFC games vs 13 in the prior-yr qtr). That being said, those three events will benefit Q4, and given the momentum in the business, full year revenue and adj EBITDA is now expected to come in at the upper end of their provided guidance (though analysts had expected more).

Digging into the qtr, demand across both WWE and UFC remains strong, with both leagues hosting several record-breaking events in the quarter. While WWE remains strong in the US, momentum is growing internationally, with 18 shows in Q3, up from 11 in the yr-ago period. Meanwhile at UFC, despite fewer shows in qtr, the league still managed to host its highest grossing event ever in UFC history, which was UFC 306 at the Sphere Las Vegas. It was the first event to feature a title partner sponsor and is expected to be the first of many more title sponsorships in the future, in addition to other sponsorship opportunities that may arise, particularly through its upcoming partnership with Netflix (kicks off in January). Touching on distribution, confidence in the pay-per-view model remains solid, but that doesn’t mean they aren’t open to exploring broader distribution options, especially as new partners may emerge as DirecTV and Dish explore consolidation and Paramount and Skydance close their deal next year.

2025 will be a busy year and will include the absorption of PBR, On Location, and IMG from Endeavor, which is scheduled to close in H1:25. On that front, TKO made it clear on the call that it does not plan to bid on any other Endeavor assets moving forward and emphasized its vision of being a “sports pure play”. And while boxing is a “ripe” oppty that they are open to exploring, it would have to come about in an “organic way”, as M&A is not a route they are looking to pursue on that front.

Also in 2025, TKO will begin a $2bn stock buyback program and pay its first dividend to shareholders in March.

See below for more of our highlights from the qtr.

-> TKO’s stock fell -2.0% in reaction to its report, but ended the week up +0.9%; YTD, the stock is up +47.3%

As Expected, Q3 Was The Toughest Qtr Of The Yr

• Revenue – beat: Grew +52% y/y (vs +179% y/y in Q2) to $681.2mn, which reflected an increase in revenue at WWE, partially offset by a decrease in revenue at UFC
• Adj. EBITDA – beat: Grew +29% y/y (vs +142% y/y in Q2) to $310mn, due to an increase in adj EBITDA at WWE, partially offset by a decrease at UFC and an increase in corporate expenses
• Adj EPS – miss: $0.28 vs cons $0.52
• Authorized a $75mn quarterly cash dividend program, and will make the first dividend payment on March 31, 2025

Expect To Hit Upper End Of FY Guidance Ranges (Though Analysts Expected More)

• What drove the increase in expectations on rev and adj EBITDA? Related primarily to “strong” operating performance on a YTD basis, particularly in live events and sponsorship at both of bizs and visibility through the end of the year
• 2024 revenue – miss: Guided to the upper end of $2.67bn-$2.745bn range vs cons $2.76bn
• 2024 adj EBITDA – generally in-line: Guided to upper end of $1.22bn-$1.24bn vs cons $1.24bn
• Reaffirmed target for FCF conversation in excess of 40%+

Integration Update – “We’re Still In At Least Mid-Innings” In Integration Of WWE And UFC

• Reiterated expectations of exceeding $100mn in annualized net savings
• Expect continued improvement in margin: Driven by –
  • Continued cost savings measures and initiatives flowing through to make the Co more efficient top to bottom
  • Structuring deals at higher margins than in the past
  • Having UFC, WWE, and PBR events on the same week, weekend, or subsequent weekends, which will help save on the cost side
  • Selling “Triple Headers”, allowing someone to come in and sponsors all three events, which will be “huge for us and will drive local ad sales”
• Expect FCF conversion to be 60% on a standardized basis and in excess of 60% over time 
  • For the year, guided to ~50% estimated FCF conversion from adj. EBITDA, impacted by timing of working capital, investments in WWE headquarters, and certain one-time items
  • Will make organic investments to further fuel growth, but in conjunction w/ media rights renewals slated for 2026, have a “clear path to continued conversion in excess of the numbers that we’ve said historically”
• Despite recent acquisitions, 85-90% of adj EBITDA going forward will come from WWE and UFC

WWE Posted Strong Results Across The Board, With Adj. EBITDA Margin In Particular Shining Through

• Q3 WWE rev grew +72% y/y (vs +11% y/y in Q2) and was primarily driven by an increase in media rights and content, live events, and sponsorship revenue
  • Media Rights & Content grew +8% y/y, which was primarily related to the contractual escalation of media rights fees as well as the timing of their weekly programming, which resulted in one addtl episode of Raw in the qtr compared to the prior year
  • Live Events rev grew +31% y/y, which was primarily related to an increase in ticket sales
  • Sponsorship rev grew +54% y/y, due to new partnerships and renewals across multiple categories, including beverage, QSR, spirits, entertainment and communications
• Q3 WWE adj. EBITDA grew +18% y/y (vs +45% y/y in Q2), reflecting the increase in rev and decrease in expenses (which primarily reflected lower personnel costs and production costs related to their planned cost reduction initiatives implemented following the formation of TKO)
  • WWE’s adj EBITDA margin was 54%, up from 36% in the prior-yr period
• Q4 Outlook: Results will reflect the short-term domestic rights deal reached earlier this year with USA Network for Raw for Q4, which will have an unfavorable impact of ~$50mn to both revenue and adj EBITDA as compared to Q4:23, which is purely timing related
• Live events outperformed in Q3 set 42 individual market records for ticket sales 
  • “Evidence that the strategies we have been implementing around ticket pricing and event routing are bearing fruit”
  • US “remains strong” … 
    • SummerSlam in Cleveland achieved record breaking results, becoming WWE highest grossing non-WrestleMania event in history; Also included three in-ring sponsors for the first time, as well as a record # of partners
  • … While momentum is becoming “increasingly evident” in intl markets / Held 18 shows outside of the US in Q3, up from 11 in yr-ago period 
    • Returned to Japan after 5-yr hiatus and sold out in Tokyo with a record gate
    • Hosted Germany’s first-ever premium live event, which became WWE’s highest grossing arena event (a record they have been broken 3x this year)
  • Have an exciting lineup of live events looking ahead, including UFC 309 at Madison Square Garden later this month, WrestleMania in Las Vegas, and the first-ever two-night SummerSlam at MetLife Stadium, as well as closing their acquisitions of PBR, One Location, and IMG
• Had “successful” debuts on USA Network for Smackdown and the CW network for NXT 
  • Through the first five weeks, NXT is up 12% in viewership vs when it was on USA Network last yr
  • Already seeing “strong and sustained” viewership from SmackDown’s return to USA Network under their 5-yr domestic media rights agreement w/ NBCU
    • Partnership w/ NBCU “further strengthens” their “longstanding relationship”; Anticipate a “strong draw” for the upcoming debut of quarterly primetime specials starting Dec 14
  • “Actively preparing” for “impactful” debut of Raw on Netflix on Jan 6

Unfavorable Timing Of Events Made Q3 UFC’s “Most Challenging Quarter Of The Year” But That’s Expect To Improve In Q4

• Q3 UFC rev fell -11% y/y (vs +29% y/y in Q2) and was impacted by the timing of the events calendar (had 10 total events in Q3 vs 13 in the yr-ago qtr); Health of the biz “remains extremely strong” and UFC continues to benefit from the “meaningful” tailwinds of the experience economy
  • Media Rights & Content rev fell -19% y/y, primarily related to holding one less numbered event and two fewer Fight Night events in the current year period as compared to the prior year period
  • Live Events rev fell -1%, as an increase in ticket sales related to the mix of event venues and territories was offset by three fewer events as compared to the prior year period
  • Sponsorship rev grew +16% y/y, and was primarily related to new sponsors and an increase in fees from renewals compared to the prior year period, including the first ever title partner sale made in connection with UFC 306
• Q3 UFC adj EBITDA fell -18% y/y (vs +23% y/y in Q2), reflecting the decrease in rev
  • UFC’s adj EBITDA margin was 55%, down from 60% in the prior-yr period
• Q4 Outlook: Results are expected to improve as the current calendar includes an addt’l event and two addt’l events with live audiences compared to the prior-year period
• UFC Fight Night in Paris became Accor Arena’s highest grossing event to date
• UFC 304 in Manchester drew the largest attendance for a UFC event in the UK 
  • Became the highest grossing event at Co-op Live
• UFC 305 in Perth set the record for RAC Arena’s highest growing event
  • Marked the “successful start” to a multiyear partnership with the Western Australian government
• UFC 306 at Sphere Las Vegas broke records, including for the highest grossing event in UFC history 
  • Was Sphere’s highest grossing single event
  • Achieved UFC’s highest event merchandise and sponsorship sales
  • 89% of ticket buyers came from outside Nevada, one of the highest out-of-town attendance rates for any UFC or Sphere event
  • First event to feature a title partner sponsor, which was sold to Riyadh Season
• While event at Sphere was a “one and done”, expect more events at a similar scale at other venues
  • Will be at the Intuit Dome in California “very soon”, and likely at upcoming Sphere in Abu Dhabi “probably two decades from now”
  • “We do not intend to do another event at the Sphere…but in terms of creating more spectacles…that’s our job”
• Have been “really pleased” with growth of UFC Fight Pass, but there continues to be “truly untapped potential”
  • Have been seeing subscribers grow internationally, especially in Brazil, “where we finally got out act together after a slow start”
  • Live events are key to driving more subscribers, so in future renewals, will explore adding exclusive live fights, as well as expanding into related combat sports like karate, jiu jitsu, boxing, and potentially more live events for around-the-clock content
  • “We expect to keep that as a proprietary asset that we control. It’s not for sale, but it will have more original content, less taped programming and more live events”

Confident in PPV Model’s Performance, But Open To Exploring Broader Distribution Options

• Thoughts on distributing UFC PPV directly vs relying on ESPN for domestic distribution? “We’re not looking to upend or change for change’s sake… we are looking to maximize our rights” 
  • UFC continues to drive subs on ESPN+ and more advertising on ESPN, ESPN2 and ABC
  • Will be “creative” if they need to drive up the rights’ value, but always with the goal of maximizing financial returns for shareholders
• PPV is “still a strong model” and the broader landscape of distribution options is evolving 
  • Contributed to ESPN+’s growth and deliver “solid” results internationally
  • Potential new partners may emerge as DirecTV and Dish explore consolidation and Paramount and Skydance close their deal next year (“they’ve already signaled…that sports will be a banner vehicle of content for them”)
• When it comes to negotiating renewals, “at the end of the day, it’s what the market will bear”, and partners have been willing to pay 
  • UFC’s strong viewership demographics — with 50% of its audience aged 18 to 34 and high Hispanic and female engagement — “is what most platforms and companies are chasing”
  • “So, we will not have a shortage of suitors. We feel great. But we love Disney. I can’t underscore it enough”
• “It’s really just demonstrating and signaling to the market that we have flexibility and a willingness to play ball on a myriad of business models… [we] are very focused on not just communicating that, but actively discussing those potential models with all of the partners and then some”

Very Open To New Sponsorship Oppties, But Not At The Expense Of Brand Authenticity

• Strategy on title sponsorships given success at Sphere w/ Riyadh Season? “Will absolutely deploy title sponsorship inventory if it makes sense”
  • “If there are opportunities to sell more title sponsors, we’re going to pursue them”
  • BUT “It has to be authentic. It has to be seamless and we certainly don’t want to over-commercialize the UFC”
• Netflix has been “terrific out of the gate. Very creative, very innovative. And because they’re new at it, they really want to explore” 
  • Enabled unique deals, like a recent global sponsorship by Minute Maid that combines WWE programming with Netflix’s promotional space
  • Expect “even more” y/y growth in WWE sponsorship once Netflix deal kicks off in January

Remain Committed To TKO Being A “Sports Pure Play”

• Won’t be involved in any part of the bidding process for any of Endeavor’s assets up for sale, such as the Frieze Art Fair, Madrid Open, Miami Open, or OpenBet
  • Reminded that sales are exploratory and subject to decision-making by Endeavor and Silver Lake Partners
  • Ari Emanuel (also CEO of Endeavor) may also explore buying these assets in his personal capacity
  • But reiterated that PBR, On Location and IMG are the only assets that TKO will acquire from Endeavor
• No intention of diversifying into non-sports sectors: TKO’s model centers around “sports rights, ticketing, and premium experiences” and any future acquisitions would align strictly with this strategy
• Thoughts on Dana White’s comments about getting into boxing with “guns blazing”? “Nothing to announce today, but this is one area we’re going to continue to explore”
  • “Boxing at its best is confused and fragmented. At its worst, it’s broken. And we think the sport presents an interesting growth opportunity for us”
  • But will not pursue oppty through M&A: “If we were to get involved in boxing, we would expect to do so in an organic way…we’re not writing a check. And if we launch the vertical at any time, we kind of see it as doing it with a partner who would fund it and pay us to operate”
  • “We don’t necessarily need to add anything to our model. But boxing is ripe. It is ripe for a fix…if an opportunity presents itself or we can chase one down that does not put much risk, or any risk for that matter, on us financially, then we’re going to pursue it”

On Location Experiences (OLE) Partnership w/ NFL Is Expected To Drive Sustained Rev Growth Across TKO’s Portfolio

• Extended OLE partnership w/ NFL through 2036, remaining the official hospitality provider at premier events, including the Super Bowl, NFL Draft and NFL International Games for years to come
• Did not share economics of the deal, nor do they plan to in the future 
  • BUT stressed that TKO will provide clear and comprehensive reporting on the performance and profitability of On Location, and detailed information on On Location’s growth within TKO’s portfolio
• Seeing increasing demand for On Location’s premium event packages, which can include airfare, hotel, F&B, personal svs, etc
  • NFL Commissioner has indicated plans to increase international games, and On Location is already seeing strong interest for these events, exemplified by the recent Chicago Bears-Jacksonville Jaguars game in London, where nearly 500 patrons participated in an On Location package
• Aligns with TKO’s “sports pure play” vision is what drew the NFL to choose TKO for the extended partnership

No Issues Retaining And Attracting Top Talent

• Leveraging mgmt experience in creating compelling narratives and rivalries: Including Paul Levesque, Dana White, Nick Khan, and Lawrence Epstein; “They are experts like David Stern was in building and marketing stars”
• Haven’t had challenges in hiring and retaining talent b/c “talent wants to get to the UFC and WWE level” 
  • This has helped keep costs in control, but “we don’t take that for granted”: “We’re not arrogant about it and we want to incentivize all of our fighters at UFC and all of our superstars at the WWE to put out their best every day and aim for the top of the mountain”
  • Expect this to continue as “as long as we do our job of continuing with that storytelling, continuing to build our fan base, continuing to surround ourselves with the right partners”

In the online travel agency (OTA) industry this week, Airbnb’s and Expedia’s Q3 results sparked some mixed reactions from the market, though the two companies’ prints echoed many of the same trends that Booking highlighted on its call last week (see Theme #10 from last week’s Weekly). After dealing with “softer” demand in July, which caused the OTAs to temper their full-year outlooks in Q2, both Airbnb and Expedia saw travel rebound in August and September, driving a stronger than expected performance in their gross bookings. Notably, this recovery in demand came despite the impact from the hurricanes, the uncertainty caused by the elections, and other macroeconomic factors. Another common thread was the strength of the international business this past quarter. Booking cited an improvement in trends in Europe as a key contributor behind its business in Q3, and Airbnb and Expedia benefited from similar tailwinds, with the former reporting a slight acceleration in its growth of Nights & Experiences Booked in EMEA and the latter flagging stronger demand in its international markets compared to the US. That said, the two companies’ marketing efforts likely played a role as well, as Airbnb and Expedia both have made global expansion a top priority and have been ramping up their investments in overseas markets accordingly.

While there were many similar themes across the Airbnb and Expedia’s results, there were some differences that caused some angst in the case of Airbnb. While the Co reported stronger than anticipated headline results and guided for an acceleration in Q4 Nights & Experiences Booked, it indicated that Q4 adj EBITDA margins will be down y/y, and investors were skittish about Airbnb’s comments regarding its ‘incredible opportunity to invest in growth” heading into 2025. The company has ambitious plans to expand in 9 countries and will also invest in new services ahead of launching them later in the year. Airbnb’s declining supply growth is another potential cause for concern and a topic that sell-side analysts homed in on during the earnings call. While the company pointed to its efforts to remove low-quality listings as the main reason for the deceleration in its listings growth to +10% y/y (vs +14% y/y in Q2 and +17% y/y in Q1), it is worth noting that Booking and Expedia are rapidly catching up in the alternative accommodations space (Booking ended Q3 with 7.9mn total alternative accommodation listings, while Expedia added +1mn more to Vrbo last quarter). Airbnb is optimistic that its new Co-Host Network will “unlock millions of listings… in the coming years”, but it appears that competition in the space is picking up.

In contrast to Airbnb, the market reacted positively to Expedia’s print. Although the company’s revenue fell short of consensus estimates, its other headline metrics all exceeded expectations, supported by an acceleration of gross bookings from the Consumer business. Beyond the improvement in underlying travel demand, the Expedia also received an uplift from higher airline ticket pricing as well as a turnaround in the Vrbo vacation rental business. The One Key program was a contributing factor as well with a 12-month member repeat rate that was +150bps higher y/y. The bigger focus on Expedia’s earnings call was on how the company plans to achieve marketing leverage moving forward, given its ongoing investments in Vrbo and international expansion. However, management provided assurance that Expedia will be able to “drive more marketing efficiencies” moving forward. Speaking of management, there were some notable changes to Expedia’s team, as it was announced that Julie Whalen will step down as CFO and as a board member after five years with the company. Separately, Ramana Thumu will be joining the company as CTO after working on scaling the multi-brand platform at Fanatics.

See below for more of our key takeaways from Airbnb and Expedia’s Q3 prints:

-> Airbnb shares fell almost -9% on the back of results while Expedia rose almost 4%; YTD, Airbnb is flat vs Expedia up 19%; Bookings has been the big outperformer though, up +39% YTD

The OTAs’ Headline Results Reflected A Recovery In Travel Demand

• Airbnb – Headline results were broadly better than expected: Gross booking value grew +8.3% y/y in Q3 (vs +11.0% y/y in Q2) and beat cons by +1.3%; Rev was up +9.3% y/y (vs +6.0% y/y in Q2) and closed a slight +0.3% above cons; Adj EBITDA incr’d +6.8% y/y (vs +9.2% y/y in Q2) and topped cons by +5.3%
  • Adj EBITDA margin came in ahead of estimates: Q3 adj EBITDA margin of 52.5% expanded +1060bps y/y (vs -50 bps y/y in Q2) and beat cons’ 50.0%; Sales & mkting expenses were up +30% y/y, given investments in global expansion and “highly efficient” performance mkting

• Expedia – Headline numbers were MIXED, as gross bookings and adj EBITDA beat while rev missed: Q3 gross bookings incr’d +7.1% y/y (vs +5.5% y/y in Q2) and topped cons by +2.8; Rev was up +3.3% y/y (vs +6.0% y/y in Q2), falling -1.2% short of cons; Adj EBITDA grew +2.8% y/y (vs +5.2% y/y in Q2) and beat cons by +1.6%
  • Adj EBITDA margin exceeded expectations: Adj EBITDA margin of 30.8% was down -10bps y/y in Q3 (vs -10 bps y/y in Q2) but was better than cons’ 29.9%
    • Cost of sales decr’d -6% y/y (vs -11% y/y in Q2): Saw ~90bps of leverage y/y when combined w/ higher rev growth, as ongoing initiatives have been delivering “transactional efficiencies”
    • Direct sales & mkting expense grew +11% y/y (vs +14% y/y in Q2): Primarily driven by higher commissions to partners from the strong growth in the B2B biz as well as investments to support Vrbo and international expansion efforts in the B2C biz

There Were Some Puts & Takes W/ The OTAs’ Q4 Guidance

• Airbnb – Q4 rev is projected to grow ~in-line w/ the Street’s forecasts but margins will contract: Anticipates Q4 rev to range from $2.39-2.44bn, representing a +9.3% y/y increase and beating cons by a slight +0.2% at the mid-pt
  • Implied take rate (rev divided by GBV) is expected to be “slightly lower” y/y: Primarily due to one-time benefits recognized from unused gift cards in Q4:23; Excluding these, Q4 rev growth would be ~+2% higher
  • Y/Y growth in Nights & Experiences Booked is forecasted to accel seq: The Co is seeing “strong demand trends… across core and expansion mkts for both long and short lead times” in Q4TD
  • ADR is expected to “increase modestly” y/y: Driven by “cont’d demand larger and higher priced listings” as well as a “small benefit” from FX
  • Anticipates a y/y decline in adj EBITDA margin: Given higher mkting and product development expenses
• Expedia – Gross bookings growth is expected to be ~flat seq in Q4: Projects gross bookings growth between +6-8% y/y (vs +7.1% y/y in Q3), which is higher than what was implied by the Co’s previous full-yr guidance due to “a more favorable outlook” for the air travel biz
  • Rev growth is projected to be ~-1% lower than gross bookings growth: Given that the air biz contributes more to bookings growth and less to rev and earnings
  • Adj EBITDA and adj EBIT margins will be “relatively in-line” w/ last yr: The Co plans to continue leaning into its mkting investments in Vrbo and international mkts

FY24 Guidance Was Revised Upwards

• Airbnb now expects a higher adj EBITDA margin: Now anticipates an adj EBITDA margin of ~35.5% (vs prior “at least” 35%)
  • FCF margin is still forecasted to close “several points” above the adj EBITDA margin
• Expedia raised its FY24 top-line guidance: Gross bookings are now expected to increase +5% y/y (vs prior ~+4% y/y), following the Co’s “strong” Q3 results and improved Q4 outlook; That said, this is still below Expedia’s initial forecast for gross bookings growth to be ~in-line w/ last yr’s +9.5% y/y gain
  • The rev outlook was unchanged: Continues to project ~+6% y/y growth
  • Adj EBITDA and adj EBIT margins will be “slightly up” y/y: This represents an improvement from the prior expectation to be flat y/y

Macro Commentary – Travel Demand Rebounded After a Tough July, But The Hurricanes Will Impact Q4

• Airbnb – “Global lead times… normalized throughout the qtr”: Indicated lead times “came back almost in line” to 2023 levels across all four major regions
  • The Olympics caused “some of the long lead times softness in EMEA”: There was “some distraction around the Olympics”, but the Co saw EMEA bookings pick up after the Olympics passed
• Expedia “continue[s] to see healthy travel demand”: Sees “the underlying health of the biz being really strong… if you take things out of the picture for things like the hurricane [and] the election”
  • BUT there were some “mixed” trends throughout the qtr: Demand was “softer” in July but improved into Aug and Sept, despite “unfavorable macro trends”, including weather events and FX
    • The air travel mkt has been rebounding…: Air ticket prices rose in Sept for the first time this yr
    • … While the car rental space has remained under pressure: As “cont’d pricing pressure” persisted throughout Q3
  • There was a “negative impact” from the hurricanes in Sept and Oct: Along w/ Hurricane Helene, the Co “definitely saw an impact” from Hurricane Milton in Oct that was “material”; Still, the outcome was better than Expedia originally expected
  • “International demand was stronger than the US and compared to last yr”: Growth in room nights was ~+lsd% y/y in the US (vs ~+msd% y/y in Q2), ~+ldd% y/y in Europe (similar to Q2), and ~+high-teens% y/y in RoW (similar to Q2)
  • B2C hotel booking windows expanded y/y in Aug and Sept: This provided a tailwind to Q3 gross bookings and was a welcome change after booking windows started to shorten “just a little” in July

Expedia’s Gross Bookings Benefited From A Seq Improvement In The Consumer Biz

• Expedia – Gross bookings growth was stronger than anticipated and accel’d seq: Q3 total gross bookings grew +7.1% y/y (vs +5.5% y/y in Q2) and ended +2.8% ahead of cons
  • Growth in lodging gross bookings was ~flat seq w/ similar underlying trends: Lodging gross bookings rose +8.2% y/y in Q3 (vs +8.3% y/y in Q2), w/ the hotel biz growing +10% y/y (vs +11% y/y in Q2); Like last qtr, the Co grew or held hotel gross bookings share in “virtually all of [its] key mkts”
  • Growth in air tickets booked took a step up seq: Q3 booked air tickets were up +7.8% y/y (vs +6.6% y/y in Q2)
  • There was no commentary on ADRs: Indicated hotel and vacation rental pricing held up, but air ticket and car rental pricing experienced “cont’d softness”; Otherwise, metrics on ADRs were absent after the Co previously forecasted that ADRs would “increase modestly” on a y/y basis in Q3
  • Consumer gross bookings growth improved seq: Q3 Consumer gross bookings were up +3% y/y (vs +1% y/y in Q2); Highlighted “cont’d strength” in Brand Expedia, Vrbo’s return to growth, and “good results” in international mkts
    • “Brand Expedia cont’d to be strong”: Brand Expedia’s room nights incr’d ~+mid-teens% y/y, supported by the launch of new product features, such as destination comparison, flexible date search, and live flight tracker
      • The brand’s product package is “a real differentiator”: New product features have made it easier for travelers to plan and book multi-item trips and when combined w/ targeted promo activity, drove a +25% increase in package bookings
    • International consumer brands saw a +5% accel in bookings growth: Highlighted “healthy double-digit growth” for hotels.com in Scandinavia as an example; Believes there’s “a big oppty ahead to grow internationally and to win share”
  • B2B gross bookings growth decel’d slightly seq: B2B gross bookings were up +19% y/y in Q3 (vs +19% y/y in Q2); Saw “broad-based” growth from all partner segments and regions
    • Expedia signed notable deals w/ existing partners…: Shipped new solutions for existing partners, such as Hilton and Alaska Airlines; Also secured long-term renewals with Despegar and Traveloka
    • … And also signed some important deals w/ new ones: Including new partnerships with both Canadian Bank, CIBC and Microsoft Bing
    • The Co “believe[s] in this biz”: Highlighted that B2B “has a massive mkt” and that the biz will continue to grow at “healthy double-digit rates”, though “perhaps not at the elevated levels” previously seen, given that recent growth was boosted by Asia “really coming back”

Alternative Accommodations Bookings Were Strong, Despite Volatility In The Macroenvironment

• Airbnb – Gross bookings value (GBV) growth decel’d seq but still topped estimates: Q3 GBV incr’d +8.3% y/y (vs +11.0% y/y in Q2) but still finished +1.3% above cons;
  • Nights & Experiences Booked surprised to the upside: Nights & Experiences Booked were up +8.5% y/y in Q3 (vs +8.7% y/y in Q2) and beat cons by +1.2%; “Guest demand accel’d throughout the qtr” and global lead times “normalized”, driving an accel in bookings each month in Q3 “after a slower start in July”
    • International expansion efforts have been paying off: The avg growth rate of gross nights booked on an origin basis in Airbnb’s expansion mkts was more than +2x the rate of its core mkts
  • Implied take rate (rev divided by GBV) was flat y/y at 18.6% (vs 13.0% in Q2): Rev generated by the addt’l svs fee amount for cross-currency transactions was offset by investments in customer svs, which impact contra-rev
  • ADR growth slowed seq but was ~in-line w/ cons: GBV per night grew +1.4% y/y in Q3 (vs +2.1% y/y in Q2), closing ~on-par w/ cons; Excluding FX, ADR would have incr’d +2% y/y (Vs +3% y/y in Q2) and was “flat to up across all regions”, largely driven by price appreciation and mix shift
• Airbnb – Regional breakdown of Nights & Experiences Booked: 
  • North America saw “cont’d growth” of room nights on a y/y basis: Bookings rebounded “after a slower start to the qtr”; Domestic travel accounted for the vast majority of room nights, and non-urban destinations and larger group travel cont’d to see faster growth in room nights
    • Growth in short-term stays cont’d to outpace growth in long-term stays: This helped drive ADR growth of +1% y/y (ex-FX) in the region; Still, long-term stays accounted for 23% of room nights booked in North America (similar to the prior yr qtr)
  • EMEA experienced a “slight accel” in growth seq: Domestic and in-region travel remained the majority of nights booked, and the Co saw the highest y/y growth in non-urban destinations; ADR grew +3% y/y, excluding the impact of FX and shifts in mix
    • The Olympics and Paralympics “buoyed” growth in room nights: Airbnb hosted almost 700,000 guests and saw a ~+35% increase in supply in the Paris region during the Games
  • Growth in LatAm room nights decel’d further seq: Q3 LatAm Nights & Experiences booked were up +15% y/y in Q3 (vs +17% y/y in Q2 and +19% y/y in Q1); Benefited from “cont’d strength” in domestic room nights, which grew +21% y/y, as well as growth in active listings
  • APAC growth was flat seq: APAC Nights & Experiences booked rose +19% y/y in Q3 (similar to Q2’s rate); Cross-border travel to APAC, which the region is “generally reliant” on, incr’d +23% y/y (+22% y/y in Q2), and the Co has been encouraged by the recovery of the China outbound biz
• Expedia – Vrbo delivered its first full qtr of bookings growth in Q3: Indicated Vrbo’s bookings returned to growth and were “up modestly”, w/ traffic and conversion both growing despite the headwind from Hurricane Helene; Q3 is the busiest for Vrbo due to summer stays
  • There was an “incredible accel” in the biz after July: The Co didn’t provide monthly comps but indicated the “biz is cont’ing to accel”, though “hurricanes and things” have created “some bumpiness in the results”
    • Mkting investments have helped drive growth: These have been helping to “drive improving growth”; The Co’s mkting campaign w/ Nick Saban “drove a lot of conversion”
  • The Co is “meaningfully improving Vrbo app performance”: The focus has been on making the app faster and adding new features to streamline shopping, which has contributed to an accel in app traffic growth
  • Vrbo has “quite a few” B2B partners: But also acknowledged “there is some complexity that is different from hotels” (i.e., communication between the traveler and owner)
    • B2B is a “real oppty” for the Co in the long-term: However, it’s “probably not” at the top of the list of priorities

Alternative Accommodations – Enhancing The Quality Of Supply Has Been A Focus For Both OTAs

• Airbnb – Supply growth decel’d further seq due to removals: Supply growth on Airbnb’s platform was over +10% y/y in Q3 (vs ~+14% y/y in Q2 and +17% y/y in Q1), slowing seq “based on the removals”; Over the past yr, Airbnb has removed 300k+ listings
  • Still, supply growth on the platform “continues to be very healthy”: Underscored that supply growth outpaced bookings by ~+2% in Q3
  • Quality initiatives have been producing the intended effects: The introduction of Guest Favorites a yr ago and efforts to remove low-quality listings have improved the guest experience, allowed for improved re-booking rates over time, and “more broadly increases booking confidence around Airbnb”
    • Other benefits from removing low-quality supply: Have included declining customer svs contact rates, improving guest MPS, and an almost -30% reduction in host cancellations
    • 200mn+ room nights have been booked Guest Favorites listings since launching last Nov: Compares to 150mn+ room nights exiting Q2
• Expedia “further strengthened” Vrbo’s supply: Added +1mn units that were previously only available on Brand Expedia and that were “a little bit different” from Vrbo’s other inventory, skewing more toward urban mkts and shorter stays
  • Enhancing the quality of the existing supply has also been a focus: Added more discounts for long stays and more flexible cancellation policies for guests
  • There’s a “bigger oppty” in selling vacation rentals on Brand Expedia: The Co has a made a “big concerted effort to sell vacation rentals well on Brand Expedia” and already has some vacation rental inventory on the platform
  • Highlighted that Vrbo is also underpenetrated in the mkts that it’s in internationally

The OTAs Remained Focused On Differentiating Their Platforms To Drive More Direct Biz

• Airbnb’s app strategy continues to drive more direct biz: Nights booked on Airbnb’s app rose +18% y/y in Q3 (vs +19% y/y in Q2) and accounted for ~58% of nights booked (vs 53% in the prior yr qtr and 55% in Q2)
  • The Co also saw cont’d growth of first-time bookers: W/ the highest growth among young travelers
  • The Winter Release included 50+ upgrades to make Airbnb a “more intuitive and personalized app”: Including features like recommended destinations, suggested search filters, and personalized listing highlights
  • Airbnb wants to “mkt everything in one app”: The Co views itself as a “branded house” instead of a house of brands” and “really like[s] the idea of mkting all of Airbnb”
• Expedia has been “pleased w/ the results so far” w/ the One Key rollout: In Q3, global active membership rose +7% y/y, and the program’s 12-month member repeat rate was up +150bps y/y
  • Growth in the percentage of bookings through Expedia’s apps decel’d seq: Incr’d +300bps y/y in Q3 (vs +500 bps y/y in Q2); Global app downloads for the Co’s core brands grew nearly +10% y/y, led by EMEA’s +20% y/y growth
  • The Co has been “especially pleased” w/ its tiered membership deals: Silver, Gold, and Platinum members, which account for ~30% of the Co’s travelers, booked nearly half of its total room nights in Q3
  • One Key has also been driving more cross-selling oppties…: 30% of travelers redeeming their One Key cash on Vrbo after earning it from other brands are net new to Vrbo
    • … As well as providing the Co w/ more selling capabilities: Including things like gifting One Key cash that has an expiry date, which allows the Co to be “more promotional in order to… drive purchases in a short window”
  • Efforts to enhance the One Key value prop in the US and UK have seen “great early results”: The Co introduced member-only discounts for the first time on Vrbo and expanded redemption options to include more airlines on Brand Expedia during the qtr

Both Airbnb & Expedia Plan To Continue To Lean Into Growth Investments

• Airbnb sees “an incredible oppty to invest in growth”: Including both in its core accommodations biz as well as its new offerings; Will continue to “lean into” growth initiatives around core optimizations, global mkt expansion, and new products & svs moving forward into 2025
  • “There are massive oppties in emerging mkts”: Airbnb is focused on nine mkts, in particular, including Mexico, Brazil, Germany, Italy, Spain, Korea, China, India, and Japan; Views this as a medium-term oppty
    • Expansion mkts only represent a ~lsd% share of the Co’s GBV: Given that the core mkts (US, Canada, Australia, France, and the UK) account for ~75% of GBV, while RoW comprises ~25%, w/ expansion mkts making up ~15% of RoW’s GBV
    • The Co has been thoughtful about scaling in each mkt: Cited Brazil as an example; There, the Co introduced localized brand campaigns, localized its offerings, and provided incremental payment methods to become more locally relevant
  • Investments in new svs will front-run rev in 2025: Will provide more detail on next call but indicated that expenses for investments in new products and svs for the Spring Release will be reflected in early 2025
  • More personnel and spend will be required to support the Co’s growth levers: Otherwise, Airbnb’s investments are intended to be “capital-light”
• Expedia continues to “lean into [its] mkting investments in Vrbo and international markets”: Excluding these, the Co has seen mkting leverage in its B2C biz; After the Co gets these channels “back to where they need to be, it sees an “incredible oppty to deliver more efficiencies”
  • The Co is being “surgical” w/ its international mkting strategy: The Co is “looking mkt-by-mkt” to understand where its brands have strength and then is going in w/ a mkting plan “to start to regain share”

Color On Other Growth Initiatives (Airbnb’s New Co-Host Network + Expedia’s Advertising Biz)

• Airbnb – The Co-Host Network has received more interest than the Co expected: After launching three weeks ago w/ 10,000 hosts across 10 countries, 20,000+ potential new hosts have expressed interest in the program
  • Early participants are “super experienced hosts with an exceptional track record”: 73% of them are Superhosts, and 84% manage a Guest Favorite
  • Airbnb believes the Co-Host Network will enable it to “unlock even more high-quality supply”: By matching “the best hosts [on] Airbnb” w/ people that have properties but no time to manage them, the Co thinks it can “unlock millions of listings… in the coming yrs”
  • BUT it will “take time” to scale co-hosting to a meaningful level: Results from the Co’s pilot runs have been “extremely encouraging”, and it will “continue to build out the network from here on”
• Expedia – Growth in the ad biz accel’d seq: Ad rev was up +32% y/y in Q3 (vs “at least in the high-20s%” y/y previously), as the Co has cont’d to add more advertisers and evolve its products; Mkting activities have also helped “bring more partners into the auction”
  • Recent improvements are driving a nearly +30% increase in engagement w/ ads: The Co has simplified its sign-up process and is testing new product capabilities like video ads and search results to deliver higher value and better returns for advertisers
    • More effective ads “then translates to pricing”
  • There continues to be a “big oppty” in sponsored listing and display ads: “A lot more partners” have been participating in both areas, “especially in sponsored listings”; Highlighted that advertising is still low a percentage of Expedia’s rev compared to other big retail Cos

Other Highlights

• Airbnb – New York City and Paris both “made some major decisions on Airbnb recently” 
  • Highlighted that New York rent prices are +3.5% higher a yr after banning Airbnb: Hotel prices are also up +7%, providing a “cautionary tale” that banning Airbnb hasn’t resulted in more inventory hitting the mkt; It is now more expensive both to live and travel to New York
  • BUT Paris “took a different approach”: Airbnb started working w/ the city to prepare for the housing rush caused by the Olympics a couple yrs ago, and now cities all over the world are coming to Airbnb and saying, “We want to be Paris, not New York. Can you help us?”
• Airbnb will provide more details on its upcoming launch of the reimagined Experiences offering in May: Indicated the new offering is “very unique, very scalable”, and will be “available around the world”; Compared the growth potential dynamic to Apple’s decision to make iTunes compatible w/ Windows
  • Experiences are going to be “one of many offerings that can increase frequency”: Believes Experiences “can make Airbnb go from an annual app to a monthly usage app, or even a, for some people weekly usage app”
• Expedia’s tech platform and AI capabilities are “contributing to better conversion and enhanced customer svs” – 
  • Conversion: Some of the most compelling use cases so far have been property question-and-answer, smart and natural language filters, and review summaries
  • Customer svs: Leveraging AI to enable travelers to self-serve has both lowered costs and improve the customer experience; Virtual agents now handle nearly half of traveler inquiries through self-svs, and the agent copilot feature has significantly reduced after-call work for call center agents
• Expedia made some changes to its executive leadership team – 
  • Julie Whalen will be stepping down as CFO and as a board member: The Co expects to announce a successor prior to Whalen’s departure to ensure a smooth transition
  • Ramana Thumu is joining the Co as the new CTO: Thumu previously built and scaled the multi-brand platform at Fanatics

Finally, following up on the digital advertising reports from last week (link to Theme #2 from last week’s Weekly for the drilldown on Alphabet and Meta, and Theme #4 for Snap), as well as last-mile company Uber’s report last week (see link to Theme #8 from last week), we wanted to highlight key takeaways from Pinterest and Lyft’s reports this week to round out the sector updates.

See below.

• Pinterest stumbles despite Q3 earnings beat, as Q4 guidance comes in weaker than expected 
  • Q3 beat on headline #s: Rev of $898mn beat cons by +0.2%; Adj. EBITDA of $242mn beat cons by +8.3%
    • ARPU was in-line with expectations, while MAUs of 537mn beat cons by +0.8%
  • But Q4 guidance was weak, with seq decel in rev particularly disappointing: Rev expected to come in at $1.125-$1.145bn, which missed cons by -0.4% at the midpt and implies growth of 15-17% y/y (vs +18% y/y in Q3)
    • Expect adj EBITDA margin expansion in H1:24 and H2:24, but at a more modest level in H2:24; OpEx is also expected to increased b/w 11-14% y/y to $495-510mn
    • That being said, “feel really good about the levers we have to drive revenue growth in 2025”
  • Continue to drive depth in user engagement: Continue to see “steady improvement” in WAU to MAU ratio in 2024, even as they bring in “record” amounts of new users
    • Most mature markets are most engaged, w/ engagement per MAU being highest in UCAN and continuing to grow
  • Strengths and weaknesses across advertising verticals – 
    • Continue to see “broad strength” in retail
    • Emerging verticals like financial services, automobiles and tech continue to be a source of strength
    • Growth was partially offset by ongoing softness within the food and beverage sub-sector of CPG, where advertisers continue to navigate broader industry headwinds
  • Despite rev from 3P demand partnerships continuing to ramp seq, seeing softness in some verticals: Particularly amongst food and beverage advertisers who are navigating broader headwinds within that category, which is expected to continue into Q4
    • Amazon partnerships is being expanded internationally, starting with Canada and Mexico
  • Strength in lower funnel rev expected to continue into Q4 and 2025 onwards: Seen strength in lower funnel rev over the last 3 qtrs, driven by product innovation over the last 18 months
  • Performance+ is still in the early rollout phase, and many advertisers are limiting budget shifts and adoption of new features during holiday peak period
    • However, advertisers who use Performance+ for their shopping ad campaigns, on average, see a 20%+ cost per action improvement
  • Announced board approval for a $2bn share buyback program, canceling its previous plan, which was authorized in September 2023 for $1bn in share repurchases, half of which had been used

-> Pinterest plunged -14.0% post its report and ended the week down -8.9%; YTD, the stock is down -21.2%

• Lyft sees surge in stock as Q3 beat on the top-line and key rider metrics + FY outlook is raised 
  • Q3 headline results beat on all fronts: Gross bookings of $4.1bn beat by +0.7%; Rev of $1.5bn beat by +5.7%; Adj EBITDA of $107mn beat by +14%
    • Q3 FCF beat particularly stood out, reaching $243mn and beating cons by huge +867.3%
    • Saw all-time highs across both driver and rider metrics: Ride frequency increased for the 7th consecutive qtr; Rides reached 216.7mn and beat by +1.7%, while active riders of 24.4mn was in-line; Driver hours also reached an all-time high
    • Bikes and scooters also break another record in quarterly rides in Q3
  • Q4 guidance beat expectations / raised FY guidance
    • Q4: Adj EBITDA of $100-$105mn vs cons $85.6mn; Bookings of $4.28-$4.35bn vs cons $4.23bn
    • FY24: Reaffirmed rides growth in the mid-teens; Bookings growth of ~+17% vs prior guidance of “slightly faster than rides growth”; Adj EBITDA margin of ~2.3% vs prior guidance of 2.1%; FCF to exceed $650mn vs cons $444.5mn
  • Incentive spend efficiency improving: Was 6.7% of gross bookings in Q3, which is down from 7% in Q2, and also the lowest mark as a %age of gross bookings in the last 6 qtrs
  • Price Lock is outperforming, particularly with commuter rides: Commuter rides make up ~half of ride Monday-Friday; Price Lock users take an avg 4 more rides/mo than they did before purchasing the pass
    • Have already reached 200k+ active passes as of end of September
  • Prime Time (surge pricing) continues to decrease, and is now down 40%+ y/y and 20%+ q/q on a per ride basis, driving increased conversions, rides, and market share
  • Lyft Media continues to gain traction, with in-app ads growing ~3x y/y in Q3
  • Lyft-DoorDash partnership will allow both companies to be “the best at what they do”: For Lyft, that’s being “100% focused” on rideshare, and for DoorDash, that’s food delivery
    • “These partnerships tend to…take time to build…but we certainly like what we see so far”
  • ALSO announced autonomous vehicle partnerships with Mobileye, May Mobility, and Nexar (link): “Each of these partnerships plays a different role, but collectively, they help Lyft become the best option for AV stakeholders and asset holders to go to market
    • “Will continue to partner with additional industry leaders to shape the future of mobility”
    • “Our strategy is to become the partner of choice to any AV stakeholder”

-> Lyft shares surged as much as +31%, marking their biggest intraday gain since February, and closed the day post its report up +22.9%; The stock ended the week up +31.9% and is up +18.6% YTD