QVC Group Inc. (QVCAQ) Earnings Call Transcript & Summary

Welcome back, everybody. Good afternoon. I'm Ben Swinburne, Morgan Stanley's media analyst. A quick disclosure. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales rep. Very excited to welcome to the conference, Greg Maffei. He is the CEO of Liberty Media and someone who I always enjoy speaking to at our conference for a variety of reasons, especially the number of trackers and various companies that he can opine on. So Greg, it's great to see you.

Thanks, Ben. Thanks for having me, and thanks to the audience for joining.

Absolutely. Thank you. I thought about your comments back in November about how COVID was impacting kind of the broader landscape and how Liberty thinks about putting money to work in this environment were really interesting Here we are kind of 3 months later, and I wanted to see if you would be willing to kind of revisit that a little bit with us. In particular, you talked about intangible capital per employee, higher asset utilization, which all makes sense. I was just wondering if there's anything you would add or reemphasize sitting here now in early March.

I think that point about intangible capital and -- is definitely true. I think you're going to see, and I know I touched on it, less physical plans, in some cases, people spending less on office space and other things, but much more on other kinds of investment in their personnel, either through connectivity or through other ways. I just think the nature of the investment in people is going to change, is changing.

One of the things that you talked about that I was -- as I revisited your comments was the sort of retail-driven volatility in the market. And that has certainly continued.

I was completely underestimating how much that would be. I made those comments as I think I said Charles Schwab meets Candy Crush. And I think I should have made something like Cocaine Crush or something, something a little more with octane. So...

I guess the question to you though is what do you do with that from a market point of view and from an investing point of view because you're sitting on a lot of capacity. You have a stack. We talked about that before we hopped on the Zoom. Do you think things have rebounded too quickly?

Well, there are certainly areas. You've seen massive rises that you have to make the case if they were massively underweighted before or that there is some new great opportunity. And I think in -- hard to explain GameStop, other than machinations, right, it's not fundamentals. And I think there are a bunch of other things which look like, to me, they have gotten ahead of themselves. And you have investor sentiment which does not feel fundamental. It feels either momentum-driven, FOMO-driven, excitement-driven, something other than, look, everybody wants to make money, it's just the willingness to stick it out through the long term doesn't feel necessarily there right now in every kind of stock.

Yes. One area of media or a sort of an extension of media that gets a lot of attention, that I think would be interesting to Liberty in a variety of ways, is sports betting. That's another area as where asset values have really gone up substantially. What's your take on the opportunity for Liberty and also the valuations out there?

Look, I think we play in that in some way, some of our other sports properties. We had a monetization scheme at the Formula One, which hasn't turned out perfectly with a partner, but we did do monetizing of our data. And we have a lot of proprietary data at Formula One, so that's a good place to be. I think the Braves, down in Atlanta, there's bipartisan support to get sports betting done in Georgia, and I think that will get done in the near term. And that should have not only better fan engagement, but potentially monetization opportunities as well. Though I don't think they're going to be massive for these teams at the end of the day. I think they're mostly on the margin. The -- I think sports betting will be a great business, is a great business. Can I justify some of the valuations? I wouldn't want to try. We looked at some of those things at earlier prices and couldn't necessarily swallow, and we were wrong, but -- and hard to see that -- some of these valuations.

The other slide, I remember from your presentation, you showed some of the kind of old media entertainment assets that had been really left behind as of November.

No more. No more. The fallen angels have all been risen.

Yes. No, that was going to be my question. I mean you've seen, whether it's live entertainment assets come back or even some of the -- what we refer to as kind of older media businesses, I mean, since at your Investor Day, I think Viacom's more than doubled since then. What do you see out there in terms of opportunities around either physical live entertainment stuff or just the traditional media world?

Well, Ben, as you know, I did that -- we did this presentation at our Investor Day this year about some bigger trends. But normally, we do kind of have a theme. And 2 years ago, the theme was that the video business was going to be a very hard business. I don't -- I still hold that to be true. I do not think -- there are people who are going to have defined niches. There are obviously going to be scale players that win. But I can't believe these are all going to be winners. And I think the market has given a lot of credit that some of these are going to be more stable and more long-term and more profitable than they will be, in my guess. I still like our thesis that the ear is a better place than the eye. Even John Malone did a podcast recently, come on. Everybody's got one. It's kind of like everyone's got us back. I do think that the -- there are better opportunities in audio than video. I think video space is a -- it's a big boy space and you better have deep pockets and some ability to play. Right now, the market is giving you credit that you don't necessarily need that, but I think that's, for the longer term, that's what it's going to take.

When you look at something like WWE selling their rights back to Peacock, they sort of -- Vince and the company really were early in direct-to-consumer back in I think, '14, they launched that product. But here we are in 2021, and they've moved to -- someone said back into a bundle. Is that a trend you see? Is that a long-term evolution that you expect to happen?

I would not be surprised because I think it's hard to build enough scale for a point product. I'll take our own case. This is -- I think WWE has done a great job. This isn't a criticism at all. I think it's the opposite. I think they're smart to recognize that. And I also look at our own case in Formula One. Would we be able to build a huge global service off of a one sport? I think that's tough. Now I think there are digital services which will find our product very attractive, just as there are linear services which find that today. And I think they will, and you've seen precursors of that, the success we've had on Netflix. I think you'll see more of that where the live races have the potential. But that's because they have scale audiences and they can amortize the cost, which is not small across those audiences. Hard to see how you build enough. And WWE had more content. What have they got? 1,000 fights a year or something. I mean it's ridiculous, right? They're deep and rich, and they still couldn't get it done. And that's going to be true for a lot of people.

Let me ask, you mentioned everyone's got a podcast, everyone's got a SPAC. So let me ask you about LMAC the SPAC, which has obviously had a very successful start to its life. Are you...

Yes, on volume of about 17 shares. So I wouldn't necessarily stick. We were proudly told by our bank, one of which may be involved on -- what here is your firm, that it was the highest first trade in the history of a SPAC. That and $0.10 won't get you a cup of coffee anymore because you can't trade off of those. When you go to do something with the seller or the target or the partner, however you want to look at it, trying to argue that you get to use your $13 number, that's a hard argument. You've seen most of these be done off a $10 number. You've seen also where, until recently, all of the pipes were done off $10. Now they're beginning to see -- sell some premium pipes where the pipe player comes in at a higher price as an affirmation. That hasn't turned out well in at least a couple of the more recent cases. But SPACs are an evolving art. And what will be in -- what was in February and what will be in March and what will be in April are all -- it continues to change.

Yes. But you sort of -- I mean my question was going to -- I think your LMAC, when I came upstairs to interview you, was around 12 75. Do you need to buy something that's worth 27.5% more than notional, just to make it worth your while?

That's a complicated question. Obviously, we are investing at $10. The $250 million is coming from Juan, and we did get some founder share. So our cost is not really that 12 75. And is that a real market number? That's a hard argument to make that I hope our sellers, whoever we deal with, will take that 12 75 as gospel. Not sure I'm going to be able to quite shovel out the competition.

Are there enough attractive targets for all of the SPACs as we get into the deSPACing period over the next 18 months? Because obviously, we've had just a flood of these things come out.

Look, a couple of thoughts. One is probably not. But one could have made the same argument about private equity, how much capital is invested in private equities, even multiples more than is invested in SPACs. And SPACS are clearly filling a need where there are fewer listed equities. There are -- this is an IPO alternative. This is a PE alternative. So in a way, it's filling a niche, and I do not think every SPAC is going to find a happy home or vice versa. But it is a tool that's likely to be around, in my judgment, for a while. It's not going away.

And maybe just lastly for the Liberty Formula One investors out there. Do we know today sort of how much of the equity in the new company, when you deSPAC will be sitting at F1? Is it the 20%? Or is it part of the negotiation between the promote and then the sellers, et cetera?

I'm sure our 20% is in violet. No, I suspect that the target can argue what you give up, and we also did commit to -- in a Forward Purchase Agreement, an FPA, of basically commit to a pipe for another 250 at least. So it could be the case that if we found the right alternative and needed more capital, we might find it from third parties or we might put some of it in ourselves or both, right? And so exactly how much F1 we'll end up owning is a TBD.

Okay. And that Forward Purchase Agreement will come out of the F1 balance sheet then?

Yes. Actually, at the, to be fair, at the F1 level, the Holdco level.

Right. Yes. Last sort of big picture, then I want to dive into some of these specific trackers with you, is you mentioned that back in November, it's going to be big, it's going to be digital. But there certainly has been a lot of regulatory heat on large tech, which is not irrelevant from a Liberty point of view as you guys survey the landscape and you look to get paid where you can. What's your perspective on the long-term implications of what we're seeing on the regulatory front, including what we saw in Australia with the sort of the news-related decisions and regulations that impact Google and Facebook?

Look, from my experience at Microsoft, which went through a lot of this, it's not the cost of either the fines or the cost of even like the Australian example, where Facebook is going to pay. It's that on the margin, these businesses become less aggressive. Lawyers are more overseeing the things that are being done. People are more cautious, therefore. And opportunities are missed or companies are less nimble. And that's, I think, a risk for the big tech guys, is that it's harder to stay flexible, harder to stay moving in that kind of environment. It's not that they don't have great prospects, it's just the market changes, they're less flexible to respond to it. It certainly was the problem of Microsoft. I think Bill saw -- I remember reading those memos, Bill saw pretty much all the changes, whether it be mobile or whether it be the cloud. But your ability to react, when you feel like you're under the microscope all the time, is a lot tougher.

That's a great point. All right. Let's shift to Liberty SiriusXM. We had Jennifer on this morning. So we've got a new management team. You've got a tax-sharing agreement in place. I just wanted to start with your perspective on the business because I'm surprised...

Let me just interrupt for 1 second. A new management team, she's only been with us 18 years. So she's a brand. And she has had -- she was the #2 person in finance. She was the Chief Marketing Officer, the Chief Revenue Officer and has appropriately acceded to the CEO job. So I think, really, this is continuity, and nobody is more enthused about or other than me, is potentially Jim Meyer, the only person who's more of an endorser. So we'll -- I think it's a lot of continuity of success.

Fair point. Fair point. Well, I asked her this. I want to ask you. I have been surprised the stock hasn't acted better this year because it's got some reopening tailwinds. You've been invested for a long time. What's your take on the connected car competition versus opportunity debate for Sirius?

I think it is a two-edged sword. Ease of use is one of the things that we offer, and potentially, our relative advantage around the ease of use might decline. But on the other hand, it is an opportunity in the sense that 360L, our 2-way extension, is a great way for us to get the best of both that with linear and with broadcast and taking advantage of the large pipe we have from satellite, but also being able to pull data rather than push where necessary, pull information and really get the best-of-breed, I think we have a solution which can be unparalleled in the car and outside, but particularly in the car. So our job is to try and keep our competitive advantage around ease of use and take advantage of the fact that our technology actually can do more than almost anybody when you combine both those elements.

Yes. And maybe also another big investor debate I wanted to get your view on is around content spending. You mentioned the ear is more attractive than the eye from a return on capital point of view. But we're certainly seeing a lot of money thrown around in the audio space. We actually had Spotify. I was talking to them earlier this afternoon about exclusives, which you got to pay for, right? Are you concerned at the direction of some of the investment trends we're seeing in audio that we might be moving in as some -- something that isn't as scary as video but maybe negative for margins and returns long-term?

Well, look, you've got 2 areas at least where you're seeing increased spending, to your point. Some are around exclusives, particularly on podcasts. I mean we've seen exclusives for a long time. Remember, we really got built, our name, off probably the premier exclusive in Howard Stern. You're seeing that now in podcasts. I'm not sure all of those numbers can be justified. We'll see. And you're seeing that also in the fight for what is the value of streaming music rights and the push on that side. You're seeing those get bid up, and you're seeing pressure for those to go higher. So both of those are pressures. I still think we have an incredibly attractive business on an ROI basis. We have an incredibly attractive business in terms of the cost structure, in terms of the fixed cost structure and the incremental margin. So while we will feel those pressures, I think we can absorb them, and I do think it's still a far more attractive space than most for investment.

Yes. I couldn't help but notice, when you reported on Friday, you've been buying back stock at Liberty Broadband at about double the rate, at least dollar-wise, from Liberty SIRI. You got a lot of capacity. You've actually freed up more at Liberty SiriusXM. I think I ask you this question every year. But what would need to happen for you to be more aggressive on the buyback at the L SIRI level?

Well, first of all, the sheer discount at L SIRI, Liberty SIRI, is higher than the discounted broadband, they're both annoying and both opportunities. But the reality is we just have a lot more capacity of capital at broadband than we do at Liberty SIRI. And we watch that and we keep chipping at it, and we're taking advantage of it. And the NAV of Liberty SIRI is growing faster than the NAV of SIRI because of our continued buyback. And guess what, as we get to 80, I suspect that discount is going to shrink. We'll see. But we continue to go after it, and I expect we'll continue to go after it until we get to that 80 or 90 and beyond that.

Yes. This came up a little bit on the call on Friday, but for investors who are following this, when you get to 80, essentially a dividend from Sirius to Liberty, I think the tax leakage goes from 7.0 to 0.0, which I know every basis point counts, especially for Liberty Media. But is that a dramatic enough change that would really swing the pendulum towards dividend. Because obviously, if you've shifted all the dividends here, you're not going to get to 90, right, because you're self-accreting.

So look, there are a couple of things. First of all, we don't set the policy, ability set by the Board and their independent directors. I think the Board will weigh these issues, including, as I mentioned on the earnings call, what does it mean to get to 80, probably nothing. We have a tax-sharing agreement, so that's fine. What does it mean to get to 90? Well, that may be more of an issue because suddenly, our ability to do a short-form merger to squeeze out becomes possible. We -- yes, I think you're right, a 7% drag on taxes is not massive, but it is something. And if the spread between that 7% and the 30-odd percent that we are running as a NAV discount is attractive, obviously, the spread between 0 and 30 is only that much more attractive to go after that discount.

Yes. The way this ends, I presume, at least I think this is the way. I think about another, is that these 2 companies become a single entity over the long term. Is that likely?

Yes, I think that's right. And it could go, and I think I've been asked this before, it could go 1 or 2 ways. It could be that SIRI gets absorbed into Liberty SIRI and probably Liberty SIRI changes its name, it becomes SIRI. Or it could be that we spin the whole entity off and there's Liberty Media on the one side and a completely separate SIRI on the other side. I don't know where that will go. It somewhat depends on what prospects we see, what we see as the alternatives to do with the capital, what else we want to do. But we'll -- those are both good. My guess, in either case, obviously, that discount shrinks. We tighten those numbers and they become one. There's no discount between the Liberty SIRI and the new SIRI. They're the same.

Yes. Yes. And do you need an ATB in your SiriusXM spin, if you were to do that version of the outcome?

No, I think we could pull that off. And actually, we're going to be, for us, relatively ATB-rich come January a year from now because you can never have enough ATB. It's just kind of like too rich or too thin. It's the -- we will have both Formula 1 and the Braves become an ATB. So the issue would have been we need to have an ATB on both sides. SIRI would be its own ATB. We need to have a similarly active printer business on the Liberty Media side. The Braves is one and Formula One will become one. We'll have a plethora.

Good. Got it. Let's shift to -- I want to talk about Liberty Broadband. Obviously, also, I should note, not a tracking stock. Charter has been an absolute home run for all investors, including and especially Liberty.

We're up about $30 billion.

I can remember when you guys announced the investment because I wasn't recommending the stock at the time.

We'll make sure you know next time, Ben. No, I'm just kidding.

Yes. But what's your view on the stock from here? I mean you guys -- we know you're starting to sell a little bit, and we know why, but just what's your view on the outlook for cable as we look out over the next 3 to 5?

Well, let me pause for 1 second because we're not really selling, if you think about it. Our economic interest is staying consistent because of the buyback, really. On a per-share basis, you're actually increasing your percentage in Charter because as we get that capital, we sell to them and we buy back our own stock, which is discounted. You're actually increasing your exposure to the underlying asset at a faster rate. But look, on the business as a whole, I think it's very well-positioned. Obviously, the business has molted from a, I think it was a 30% broadband, to well over half in terms of profitability in the time we've been in it. It's the -- a case where our positioning both as are the things we're doing to grow the footprint, things like our docs; the strength of our ability to upgrade at relatively low cost with DOCSIS; the continued decline in capital intensity as you move from video to broadband business; the continued demands for broadband, all of those are great trends for the business. And on top of that, I think we have a really interesting opportunity around mobile, both as a bundle and ultimately as its own profit center. So we remain quite optimistic. Free cash flow will -- has been rising dramatically, will rise back, continue to rise, and free cash flow per share will continue to rise yet as we spend -- the company spent close to $12 billion to buy back stock last year. I mean it has the impact even on the side of its balance sheet.

And you guys have talked about your view on 5G as a competitor to broadband. And I don't think anyone is arguing that 5G is a better mousetrap. But do you worry that it will take some pound of flesh, which will inevitably impact multiples, and this is obviously a levered stock?

Yes. Look, could it take some business on the margin, we'll see. Our friends over at Verizon certainly talked the book up that they were going to be in our shorts by now in the millimeter business. Well, it seems like the millimeter business is out. I think these guys just spent $9 million -- $100 million, including the cost of moving the incumbents off that spectrum. They're going to be relatively constrained in rolling out those costs. And I think they're going to have their own challenges in their space, to think they're aggressive attackers and ours is optimistic. I like our hand.

Yes. Makes sense. Just one more on broadband. I think your proxy agreement with the Newhouse family expires in a couple of months in May. Does that mean anything from a Liberty Broadband investor point of view?

Now really, that was to help us ensure that we were not -- in compliance with the 40 Act, which said we had to be both over 25 and the largest shareholder. Now we're at the other side of the problem. We're over 26. So it's not -- it was only meant to help, and really, the strength of the partnership that John Malone and the Newhouses have had, both at Discovery and over the years, is what enabled that. And it was in -- it was very helpful to us and thank you to the Newhouse family and the Mirons. But really, we don't need that today given where our stock position is. And frankly, given the continued repurchases by Charter, it's the other way, we're up against the cap, not below the 25.

Yes. Yes. That's what I thought. I would imagine sort of like our conversation with SiriusXM, that if the NAV-discounted broadband shrinks enough, it gets close to that 5.5% tax leakage number, there's incentives that I would think, on both sides, yours and Charter's, to potentially collapse there as well, right? Does that make sense?

Maybe, look, we have governance rights. We have preemptive rights not relevant today, but at lower numbers. We have valuable rights there, whether Charter would want to extinguish those and try and absorb the company, we'll see. Look, if we have a high-quality problem where we've taken the discount from $18 million to $5.5 million we'll probably come up with other clever things to do with the capital, I believe.

Okay. Let's talk about Liberty Formula One. Chase, obviously, it's amazing to me that he came in and went through this 5-year period and all the changes he made and the pandemic, and then he leaves. Right when everything is fixed and...

He would be right to declare a victory. I mean then, that's so Chase, isn't it? Chase is just a workhorse. I mean the guy is -- he's indefatigable. He just is amazing. And he did a tremendous job changing the tone and changing the direction of that business to his credit.

Yes. So how do you guys assess the health of the sport? We -- you talked about the TV ratings were down a tick in '20 from '19. I think that's been kind of true across a lot of live sports, but...

And I feel, if you look on a relative basis, I feel very good about ours compared to the vast majority. Look what happened with basketball, look what happened with hockey. I mean we're nothing like that. We're talking down small single digits.

Yes. And when you look at your broadcast renewals and the sponsorship interest, do you see positive trends in terms of the demand for this product coming out of the pandemic?

So as you know, and most of our listeners know, we really have 3 revenue streams. Broadcast is first. How do you get broadcast interest? Well, you have a great product on the track, and I think we tried to do those things in terms of building more competitiveness in, both with new car design, with the cost cap, with things designed to even out some of the prize money. Hopefully, all those kick in. I think we've done other things to build fan interest, whether it be fan festivals or e-sports or social media. We've been the fastest-growing major sport in social media for the last 3 years. So all of those, I think, had helped increase fan interest, and that will help with broadcasters. Candidly, the single biggest thing that makes broadcasting numbers go up is competition. And to the degree we see more distributors, potentially digital distributors that we were talking earlier, I think that will be the best thing that could possibly happen because you need to have a product people want to watch. And ours is a very valuable product and relatively low cost compared to many, like the Champions League and the like. But the thing that will really drive success in terms of getting broadcast numbers is competition. The second area is promotion, and we have increased the number of races this year to 23, forecast. We see lots of demand for races. The real challenge is who will pay us the right amount of money and also and/or have a race that is a showcase that helps our other elements of our business, including those things which roll into advertising and sponsorship. We have some great places we're talking to here in the U.S., for example, Miami and Las Vegas, which could be real showcases on top of the Austin race we have, which is helpful. And those would help, as I said, drive other parts and other sorts of fan interest, would have a positive impact on broadcast, would have a positive impact on sponsorship. So the last one, sponsorship, they all tie together. To the degree you have a great audience, to the degree you have iconic kind of races, like the Monaco equivalent, the Silverstone equivalent in other parts of the world, and we do have some of those, Singapore, Mexico City. There are races which are truly exciting places to visit, exciting events. Then we help grow the advertising and sponsorship high, and we have new categories which people are continuing to want to inhibit -- invest in rather and then continue to want to be a part of. So I'm excited on all 3 levels.

We touched on this earlier, we were talking about the SPAC, but you guys have a lot of cash at Liberty Formula One. This is going to be a bit of a transition year. So should we expect you largely delever? And other than the SPAC investment, do you sort of remain patient? Or are you looking to acquire some stuff this year, just something else aggressive?

Well, look, we are -- we would like to think we're opportunistic. There is no motor sports acquisition, which we haven't -- that's gone down in the last 3 or 4 years, which we haven't considered. And we would be, I would think, a natural home, if anybody wants to sell a motor sport business. So we'll look at those. We'll look at other things around live events. We'll see what makes sense that is helpful for the business and that we can be additive to.

Maybe, Greg, in our last couple of minutes here, ask about the Braves, but then more broadly, live sports, live events, what are you guys seeing at the Braves and maybe Live Nation as well that gives you confidence that we're going to have a robust return to live events, public gathering as we get into the back half of this year?

Well, we've seen enormous fan demand at the Braves. Now it doesn't hurt that we have an exciting team. We won the National League East 3 years in a row. We were one game from the World Series last year. And most people think we've added the team, enhanced the starting pitching, signed Ozuna, again, to come back. He had a great year for us. So look, we are very excited about the prospects, and I think our fans are excited. We -- I think we will anticipate starting with 25% capacity in Georgia. Hopefully, we'll be able to increase that. We're lucky that Georgia is a relatively open place. 97% of the facilities at The Battery, are commercial development around Truist Park, are already operating. So I'm optimistic we should be able to push that up. But demand is high, and we continue to sell tickets at a tremendous rate. On the Live Nation side, lots of things. I think I mentioned one on the earnings call, The Weeknd sold 1 million tickets out in some ludicrous amount of short time. We have a massive amount of demand when we turn these on. And I was on a Zoom call recently on another topic, and we're talking about how things would open up with a bunch of CEOs. And 2 CEOs told me that they'd already bought tickets for fall shows. They were guys in the 50s. So there is just huge demand for that. I think as I talked about, you mentioned my Investor Day presentation, look, we've shut down enormous parts of the service economy, and we pumped a couple of trillion dollars extra personal income. What has been the result? Products have gone up, whether it be used cars or houses or boats. And savings has gone up. But when we reopen that floodgate for live events, I think there's going to be a ton of pent-up demand, a ton of people who want to travel, a ton of people who want to get out to eat, a ton of people who want to go out into concerts and events like that, sports too. It seems like the market -- when you look at that Live Nation stock price, there's a fair amount of optimism.

Agreed. I noticed, to wrap up here, that PointsBet has the Braves and the Mets, plus 135 to make NL East. Are you concerned with the new ownership of the Mets, that you might have a more formidable competitor in the NL East?

You would be reluctant to get that against Steve Cohen's wallet. And -- but it takes a while to fix these things. And I think that Mets fans are long-suffering, and they may have a little longer to hold their breath. I'm not sure this is their year. They play the game on the field, not in the PointsBet. But spreads are made by the fact that there's a lot more guys betting in New York probably than there are in Atlanta. I still think most observers would call us the favorite, and I certainly would for the NL East.

Good. Well, that's a great point to end on. I want to thank you, Greg, for joining us virtually.

Thank you, Ben.

Great to see you. Thanks, everybody, for joining us. Have a great rest of your evening.

Thank you to all our investors.