Closing Bell - Closing Bell: Nasdaq sinks as Netflix weighs, two blue chip CEOs break down earnings 4/20/22

Episode Date: April 20, 2022

Stocks finished the day mixed – with the Dow gaining and the Nasdaq sinking. Netflix weighed sharply on the tech-heavy index after reporting a decline in subscribers. Analyst Will Power discusses what’s really to blame for the miss, and what comes next for the streaming company. Meantime IBM and P&G helped boost the Dow on the back of strong results. The CEO of IBM joins to talk about the strength in the cloud and tech spending. And the head of P&G weighs in on what he’s seeing from consumers and the impact of inflation.

The Dow is higher, but the Nasdaq is falling hard, and your session lows as Netflix weighs on tech. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Here's where we stand right now in the market. Dow remains higher. It's up half a percent, thanks in part to some earnings winners like IBM and Procter & Gamble. S&P 500, though, lower by two-tenths. That's masking some strength in groups like real estate, consumer staples, health care utilities. Slightly

defensive, but the financials are up. So are industrials, materials and energy. What is not? Technology, communication services. Thanks to Netflix. That's the chart of the day. It is shedding tens of billions of dollars in market cap right now, down 37 percent, about 50 billion dollars of market cap loss right there after posting a surprise subscriber loss. Much more on that in just a moment. Coming up on today's show, the CEOs of those two Dow components that are driving the Dow higher right now. We'll hear from IBM chief Arvind Krishna as that stock sits at the top of the Dow after strong performance in its cloud business, stock jumping more than 7%. And later, the CEO of P&G also getting a lift today on earnings on the impact on inflation

and their ability to keep raising prices. Let's start with the biggest decliner, though, on the S&P today, and that would be Netflix, of course, down 37%. Stock is plunging after the company reported a shocking subscriber loss, its first in more than 10 years, when it reported quarterly results last night. Mike Santoli is back, and he's taking a closer look at Netflix, of course, for the dashboard today. What specifically are you keying into? Well, the radical revaluation of the business, Sarah. I mean, take it from me, the approach of middle age happens gradually, then suddenly. And this is what's happened to Netflix. The market's saying you are now a mature company. You're now slow growth. You may be even

X growth, as they say. And it's converged here, the valuation on an enterprise value to cash flow basis forward looking with Walt Disney. Now, you can see they almost got together a couple of years ago at a much higher, significantly higher valuation. And right now it's down around 15 times forward enterprise value to cash. So it's a good way to value these, you know, media businesses when they do have a little bit of debt on them. And it does tell you, of course, we have the caveats here. The cash flow estimates could go down. Disney's not a perfectly comparable business. It's not really all about streaming.

They have the parks. It's a different mix of businesses. But the pure media companies are even cheaper than this. So if you looked at a Paramount 10 times, Comcast 8, 7 times, something like that. So it shows you that people are essentially saying, we can't count on this being a growth business anymore. Well, and it's a cascade of selling across these names. Disney is down a lot today. We're also seeing it in Paramount, in Warner Brothers, Discovery, that newly formed company.

I guess, Mike, the question is, if these are growth stories on streaming, is this a ceiling? It's the growth at the expense of what? At the expense of the more stable cable, linear cable business, for sure, for some businesses. The other piece of it for Netflix is the model was going to work at a certain subscriber number. In other words, continuing to spend this heavily on content was going to be fine. It was going to generate good returns down the road if they relatively quickly got up to whatever the number is. You call 300 million global subs higher than wherever they've gotten to now. We're going to talk more about Netflix right now.

Stick with us, Mike, because the company laying some of the blame for its quarter on inflation, some on password sharing. But is the consumer really the culprit? Several CEOs have come on to CNBC lately to say the consumer is actually doing just fine. Listen. The consumers are out there spending. So, so far, you know, we're seeing the consumer actually, you know, do quite well. We continue to see strength in the consumer.

We're watching the consumer very closely, but the consumer is robust right now here in the U.S. So is it a Netflix problem, a streaming problem, or a broader consumer problem? Let's bring in our panel on this top story. We've got Will Power, senior research analyst from Baird, CNBC senior economics reporter Steve Leisman, and, of course, Mike Santoli. Steve, it does make you wonder whether there's going to be a problem here with consumer discretionary spend. Netflix is not like buying P&G soap and shampoos. Is that an issue that you've seen pop up? We're just starting to see the first signs of it, Sarah, actually, in the Beige Book

and, of course, some of the anecdotal reports that you're talking about there. First of all, our CNBC All-America survey from last week showed 84% of respondents doing something in response to higher prices. Some of them are cutting back on entertainment, about 62%. Some of them are driving less. You have this whole panoply of things that people are doing to make ends meet. You just can't have higher price. A lot of people have some reaction. Entertainment is taking a bite out of that. But the Beige Book, Sarah, showed that overall companies are passing along what were called swiftly rising costs. At the same time, we're finally getting to see some pushback. I thought I'd share, Sarah, this this this quote from the Beige Book from the Cleveland Fed.

Some consumer facing contacts reported that spending picked up as concerns over the latest COVID-19 wave subsided. But hold on, because here's the other side of that. While others noted that spending slowed as consumers became more concerned about rising prices, we did see a bunch of other districts report that at least in some cases, these high prices have hit a limit, which is the beginning, perhaps, of some pushback here. Well, I'll ask you, is the consumer slowdown a valid excuse or is this more a Netflix problem or a broader streaming problem? Yeah, Sarah, good afternoon. Thanks for having me. Look, I think this is precisely what's impacting the stock so sharply today. It's just the uncertainty around that. And it felt like, as you listened to the company in the newsletter and the call yesterday, that in some respects, they're kind

of grasping at straws. And I think it's a little bit of everything. And I think as you think about the consumer, I think without question, they are facing at least some incremental pressure in parts of Europe and Latin America. That seems to be where the more acute macroeconomic pressures are to date. It's not clear they're really seeing that in the U.S., but the reality is three of their four major regions saw a decline in subscribers. I mean, the lone positive grower was Asia-Pac, which is this much earlier for them. So it's a combination of macro, but also, you know, reaching a penetration ceiling much more quickly than expected in some of their more mature markets. And I think that surprised them.

So, Will, on the stock, you were neutral going in. So I guess you're feeling pretty good not recommending it to shareholders, even though it was already down double digits sharply for the year. Though I was looking at the Fidelity retail data, very heavily bought stock among retail traders today on this dip. Is that a wise decision? You know, we're still at a neutral rating. I think there's still a lot of uncertainty ahead for the stock. And look, this is a classic broken stock right now. I mean, the company aspires to be a double-digit grow. We're only forecasting 7%, 8% growth this year,

something comparable next year. And until you see an inflection point on growth reaccelerating, which they're betting on some new initiatives to help with, including trying to monetize password sharing, introducing an ad-supported model over time. But until you have greater confidence in that inflection, it's tough for me to see what the catalyst is going to be to get the stock working again here, even on the weakness. Is the growth story dead, Mike? Well, yeah. I mean, the hyper growth story is dead. The idea that the overall pie is growing so fast that effortlessly and with password sharing, Netflix can continue to meet its subscriber growth numbers, that seems to be past. I don't think overall growth is dead.

TV is going to be internet TV. If it's part of a bundle, it's going to include Netflix at the core of it. So I don't think it's really that desperate. But the transition or the consideration of a lower- advertising supported tier of Netflix, a lot of folks thought that was a matter of time. It probably makes a tremendous amount of sense, but it's a less clean story than it has been for Netflix, where we have pricing power. Well, because then what happens to subs? Yes. And so presumably people would go from wanting to pay $15 for the ad free level to downshifting or trading down to a cheaper one.

I do think they'll be phenomenally successful at gaining advertising market share in a hurry because the brand marketer business is desperate to reach digital eyeballs. If you consider how many eyeball hours are out of reach of advertisers right now, the fact that Netflix is going to open themselves up is going to be welcomed by the uh by the industry it just doesn't necessarily mean for netflix's own bottom line it's going to be a quick score what do you think about that will and and what would happen then to the billions of dollars they've been spending on content doesn't that economic model get broken because if they lose a bunch of subscribers they can't fund it as well well yeah actually i think the economic model is probably still OK because they'll be able to recoup fees from the advertisers, right, to supplement what they're not receiving directly from subscribers relative to today. And I do think it provides an incremental

opportunity, particularly in international markets where they're earlier and customers might be more price sensitive. Right. It's important to remember that cable services relative to Netflix pricing in international markets, particularly in parts of Asia Pacific, India, Indonesia, Thailand, et cetera, Netflix looks relatively expensive. So being able to introduce a lower price service to the end consumer could help stimulate demand, which ultimately helps stimulate revenue. But part of the challenge for them here, Sarah, is this is probably more of a 2024 event. This isn't something they've even started to work on

in a significant fashion yet. So it's not going to be a stock or revenue mover here for a couple of years still. Netflix now almost 70% off the highs. Will, Mike, Steve, we'll leave it there. Thank you all. With the Dow up still more than 200 points, IBM surging to the top of the Dow Jones today,

turning positive for the year after first quarter earnings topped estimates. We'll talk to the CEO, Arvind Krishna, about what drove the beat next. You're watching Closing Bell on CNBC. Take a look at shares of IBM popping today at more than 7%, making it the best performer and biggest contributor to the Dow gains today. This comes on the back of earnings that beat expectations, revenues rising nearly 8% from a year ago. But gross margins did contract. Joining me now for an exclusive interview here at Post 9 is IBM CEO Arvind Krishna. Welcome.

Nice to see you. Sarah, great to be here with you. You must be feeling pretty good, 8% revenue growth, and the stock is reacting nicely. Where is the growth coming from, and why did it come as such a surprise? Look, I think it's a great testament to the strategy we laid out. We talked about hybrid cloud and AI will drive demand, and we saw that drive demand both in consulting and in software. And that is where really the growth is coming from. It's coming from all geographies and in all parts of software and consulting. That makes us feel really pleased with the start to the year,

and I think puts us on a great trajectory towards mid-single-digit growth for the year, probably on the high end of mid-single-digit. Right, which you told us, Sri, and that was also good news, though the margins were disappointing. So what is the story there? I wouldn't call them disappointing. Look, we are investing ahead in consulting. We saw this growth coming early in 2021,

so we started getting ahead of the curve in terms of bringing capacity on. That allows us to fulfill the demand that we see in consulting. But with underlying wage inflation, there is going to be a lag of six, nine months, something like that, but not a whole lot more. But when there is demand in the market, I'd much rather be on the side of getting that demand, getting that market share. And then over the next six to nine months, fixing the margins. And the margins in software were very good. So I don't see an issue with the software margins. When it comes to fixing the margins, so are you going to be able to pass on higher prices? And when does that happen and why hasn't it happened yet? So typically contracts and consulting are anywhere from 12 to 18 to 24 months. Not really, they're not really five years or so,

but they are typically a year ahead. It's very hard to go back to somebody and say, look, I know I signed that six months ago, but I want to raise there. That's not going to happen. But everything that we sign now on will have some of those newer inflationary pressures built into them. Now, as that becomes the revenue, then you begin to see in six months, you replace some of it. In 12 months, you replace a lot more and you begin to get that in months you replace some of it. In 12 months, you replace a lot more. And you begin to get that in there. So, yes, so we are putting in that there should be inflationary pricing. It is expertise-based.

And so that is going to get passed on. Two, also as supply chain prices go up, while hardware is not a huge part of our business, there are inflationary pressures in the supply chain as well. So those two are where we are going to be able to pass some of that along to our clients, and they should expect that. You feel good about that. The other question that people are raising today is there was a positive contribution from Kindrel, which you spun off, and it was five points of revenue.

So it was pretty significant. And some are wondering if that shows sort of lesser quality of the underlying business and how much longer that is going to sort of distort results. So we've been very, very clear. The Kindle contribution will carry until this October and then come to a dead stop because it is sort of a, we can call it inorganic bolt-on. At that point, it'll go away. We said we expect about three and a half points for the whole year. Q1 was a bit more than average, and we kind of expected that because of how the revenue profile plays out through the year. So we expect three and a half points for the year, and then it goes away.

What we have committed is mid-single digit, on the high end of mid-single digit, without Kindle. So if you look at the constant currency growth, we were close to 11%. You take out Kindle, we were still not at the 5%. And so that is right on the model. And that's what we should expect going forward. So software is obviously the baby. That's the sexy part of the story. AI, cloud. How big of a business do you want to make that? It's what, about 40% of overall revenues right now in this structure? Software is about a little over 40% of the revenue. I expect that as time goes on, we're going to get it closer to 50 percent. I think consulting is at 30 and it should remain about 30. And then 20 percent is going to be there

in infrastructure. But as time goes on, we'll see that software will rise a bit more and infrastructure will be a bit less because we are saying software should be a mid single digit grower now. You can expect maybe more at some other time, but right now, mid-single-digit, infrastructure is flat. So when one is 40, one is 20, one is growing at 5%, and one is at zero, that's just math. Yeah, it's a better equation. But a lot of people are wondering, you know, with the big valuation loss that we've seen in the software and cloud sector and the public markets, whether you could get out there again and do another Red Hat-style deal to grow that business.

Because we have seen these prices come down. Look, we are always open to, I'll call it strategic M&A. So we're always open to that. We have flexibility that lets us do that. Now, that said, size is not really the criteria, while Red Hat was very large. But if something comes along and it makes economic sense and the valuation is correct

and we believe it will be accretive for our shareholders, then we would take a close look. All that said, we set out a model that we expect one to one and a half points on average of our growth to come from M&A. The other is going to be organic, meaning driven by what we do from organic R&D as well as organic investment in skills and expertise.

Once in a while, something else may come along, but that's once in a while. Can't predict that. Well, can't predict also what's happening in the economy. And there are concerns right now about the spending environment. If we do get a slowdown or even a recession, you've said that you're well protected from a slowdown in IT spending. But usually, IT spending does fall a lot in those kinds of environments. I actually think that this is going to be different because economies do change in terms of what's more important and what's less important. So slowdown and recession are different. So if

there's a slowdown, I think that technology spending is going to be one of the last ones to get touched. And when I say technology, I really mean enterprise technology, because I think technology has become the source of competitive advantage. So all enterprises are going to spend on that, because slowdown means they want to emerge stronger. Now, if there's a mild recession, I'd say the same statement applies. If there's a severe recession, that's different. But I don't think any of us are expecting a severe recession.

Do you see any evidence of slowdown? You operate in Europe, which is feeling the Russian impact. I know you operated in Russia as well. Are you seeing any signs of weakness? Not in our business right now. And that is reflected in the results where we had strong growth across the geographies. Now, if I was to try to predict, I would say that energy prices with inflation may cause a GDP slowdown in some countries, but that's going to be a slowdown, not a recession. But I don't think tech spending is going to be very much touched. Maybe it goes from 8 percent to 6 percent. Well, the stock has acted defensively all year long. Arvind, thank you so much

for taking the time today. Always a pleasure. Arvind Krishna, CEO of IBM, which is up 7 percent. We are getting some breaking news here on Apple. Turns out workers at an Apple store in Atlanta are the first in the nation to file for a union election today. The move sets up a battle between Apple and organized labor that's also been playing out recently, as we've been covering at Amazon and at Starbucks. The NLRB confirming that they have received the petition to unionize a store in Atlanta. According to Bloomberg, the proposed union would include 107 workers at the store. Apple telling us, quote, we are fortunate to have incredible retail team members and we are deep and we deeply value everything they bring to Apple.

Obviously, though, this will be one to watch. It's a first for the company. And it follows in a wave of unionization efforts across this country right now. The workers have the power. It's a tight labor market. That is for sure. We'll keep an eye on it. Let's give you a check here of where we stand in the markets. Dow continues to go strong, up nearly 300 points, which stands in direct opposition to the Nasdaq, which is down 1%. It's Netflix taking down a lot of the tech stocks today. The streamers, the FANG names like Facebook, Tesla's lower ahead of its results after the bell. S&P 500 is flat. Given all that, you still have strength in a lot of the defensive groups and also in financials and materials. Still ahead, from computers to consumers.

We just heard how IBM is faring in this uncertain landscape. Coming up, we'll talk to the CEO of consumer giant Procter & Gamble, also moving higher today. After posting the strongest sales it's seen in more than a decade. And tomorrow, quick note, I'll be hosting the IMF's debate on the global economy featuring Fed Chair Jay Powell, ECB President Christine Lagarde, IMF Managing Director, Finance Minister of Indonesia, and the Prime Minister of Barbados. Global growth is a hot topic right now. You can watch it on CNBC and CNBC.com, Twitter, Facebook, and YouTube. We'll be right back.

Check out today's stealth mover. It's Wayfair, shares of the online furniture and home goods retailer falling sharply after Morgan Stanley slashed its price target on that stock to 90 from 145, citing inventory and supply chain issues, as well as higher marketing expenses, a turn in the housing market, also not helpful for Wayfair. Up next, the CEO of Procter & Gamble on whether the consumer products giant has any pricing power left after missing profit margin expectations last quarter, but posting their highest sales growth in decades. We'll be right back. Procter & Gamble shares up about 3% now after topping earnings estimates this morning. The consumer goods giant was able to offset the impact of rising inflation by passing along higher prices to consumers.

Joining us now is Procter & Gamble CEO John Moeller. John, nice to see you from Cincinnati. Likewise, Sarah. So how should we think about that 10% jump in organic revenue growth? Because a lot of it was higher pricing. What does it say about what you're seeing from the consumer? Actually, I'd start with very strong volumes. Volumes up 3%, volume growth in almost every category. And then you're right, pricing added on top of that and so did mix as consumers continue to trade up within our product categories. A couple other

characteristics of that 10% that I think are important to share. Every category grew sales. Our personal health care business up over 30%, our laundry business up in the low teens, baby care, feminine protection up double digits, on and on. Same thing geographically. So our focus markets grew 9 percent, our enterprise markets grew 12 percent. So the growth is very broad-based, and it's predicated on a very nice mix of volume, price, and mix. Do you continue to see that kind of consumer strength going forward? Because there are growing concerns about a slowdown.

So as inflation keeps setting in, how do you see the consumer responding? We'll have to see how that goes. We're keeping our eye on that very carefully. But to date, you can look at a couple of pieces of data to see if there are indications of consumer trade down in the market today, and so far we're not seeing it. So if you look at private label market shares as a proxy of trade down, in the US they're down past 3, 6, and 12 months. If we look at them in Europe, they're down past 3, 6, and 12 months. If we look at channel data and look at channels

where budget-constrained consumers would be most likely to shop, our share growth in those channels, take the dollar channel as an example, are some of the highest across channels. So you're absolutely right to raise the forward-looking question. I don't have a crystal ball. We're watching that very carefully. But so far, we're in a very good place. The other thing is that we're ensuring that we take the kinds of actions that won't immunize us from significant consumer pressure, but will certainly help. For example, being more proactive in communicating the mileage that our brands provide so that the entire value is framed in a way that's not just price per bottle.

Yeah, innovation too, I would think helps. So do you have more room, John, to keep raising prices? Is that part of the plan for consumers? It's part of our business model again coupled with innovation so that value improves every step of the way. If you look at pricing as a component of our top line it's been neutral to positive mostly positive for 43 out of the last 46 quarters 16 out of the last 17 years. So at a fundamental level, it's part of what we do.

And then really the question, you mentioned it, is can we continue to innovate in a way that allows that value accretion to continue? And I'm very hopeful we can. What about the margin story, John? Clearly the cost pressures are intense right now. Transportation, supply chain, commodities. How long do you think it takes to fix some of these big issues where it's not weighing on profitability so much?

Because it looks like you revised forecasts for those costs to continue to climb. We did. Those costs, if you look at commodities, transportation, and you throw in foreign exchange, that impact is about 3.2 billion dollars after tax this year over last. So it's significant. As you've seen, we've been able to offset that through both continued investment in the top line as well as our strong productivity program. So we grew earnings per share 6%, 10% on a constant currency basis, and we'll have to keep at that. Yeah, Forex, you've been your CFO before CEO for a long time. We're starting to see some extreme moves, especially in the dollar against the Japanese yen,

which is at like a 20-year low. How much is this impacting your business? And do you think broader multinational earnings in this country relative to other periods where we've seen this thing happen? It's significant. There's no way around it. And you mentioned the relationship between the dollar and the yen. Look at the relationship between the dollar and the Turkish lira when you talk about extreme moves. So it is extremely significant, and as a dollar-based company, you know, we can't hide from it.

But we've been very successful in pricing for it and developing markets and continue to do so, and using, again, top-line strength, bottom- line productivity programs to help offset the impact elsewhere. Why did you mention China? Because you did see sales down there. Clearly, they're dealing with these rolling shutdowns, the zero COVID policy. I'm just wondering, John, what it's like to operate a business there right now, both on the production side and on the consumption side, given what they're dealing with. Yeah, it's tough. That decline in China on the top line, though, needs to be contextualized against the year-ago base period where we were up 22 percent. So if you look at it on a two-year stacked basis, that's still a very attractive number. But no doubt the shutdowns have directly impacted us,

both from a consumption standpoint. I read something the other day that said 25 percent roughly of Chinese citizens were impacted in one way or another by those shutdowns. And then we have factories in some of those areas as well that are not operating as we speak. So it's difficult. But if we look at China, you know, the last 10 years, we've doubled our business. We've grown at about a 10% average rate each of the last four years. It continues to be a very important market for us, second largest in sales and profit. And we have high hopes for the future. John Moeller, thank you for giving us a snapshot of the business. Appreciate it. Thank you, Sarah. CEO of Procter & Gamble, which is a winner today, off the back of those very strong sales numbers.

Here's where we stand over on the markets. S&P 500 is pretty much unchanged, which tells you the story of technology being the weaker link in the market. Pretty much everybody else is up in terms of sectors. It's defensives like staples and utilities and health care, but also industrials, materials, energy and financials are higher as well. That explains the Nasdaq's more than one percent decline. It's Netflix and all the mega cap growth names in technology, while the Dow continues to soar. It's up almost 300 points. Lululemon just announcing an aggressive sales goal, but that's not helping the stock today. Coming up, a top retail analyst, Matt Boss of J.P. Morgan, tells us whether this pullback

is a buying opportunity on the investor day. We'll be right back. Check out some of today's top search tickers on CNBC.com. No surprise, Netflix is drawing the most interest by far, dethroning the 10-year Treasury yield, which is the number two spot. And yields are actually moving a little bit lower today, a big change from yesterday, 285 on the 10-year. Netflix down 36 percent. Remember, this comes on top of a day where Netflix already fell 20 percent in its last quarter when it reported in January. It's now down more than 60% for the year after reporting that it lost subscribers in the first quarter last night. Other names on the list, Disney's falling in sympathy.

All the streamers are down 5%. Tesla down almost 5%. And Meta as well. The Fang name is getting hit hardest today. Meta down 7.5%. As Netflix potentially gears up for an ad model, which was mentioned yesterday on the call. Today has been a nightmare for Netflix investors. Coming up, we'll discuss whether the crackdown on password sharing could signal more trouble for the stock.

They made a big deal about that yesterday. Plus, an aggressive sales goal for Lululemon and a look at what to expect from Tesla's earnings after the bell. We'll take you inside the Market Zone next. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Julia Boorstin on Netflix's epic stock plunge and JP Morgan's Matt Voss on Lululemon's plan to double sales by 2026. Let's start with the broader market. Major averages moving in different directions today. The Dow and the S&P are in the green. Dow solidly so. While the Nasdaq is trading lower, dragged down by big tech stocks.

Mike, clearly it's the Netflix effect. How do you look at the drop that we're seeing across Fang, the advertiser names, like a meta, the streaming names, like a Disney? Is it justified? Well, it's a slightly more dramatic version of, I think, what's been going on for months now, really since the arguably November highs in the FANG type stocks, which is just valuation compression, giving up that pandemic premium, kind of trying to reconcile what the longer term growth rates is. I don't know if every dollar of the declines is justified, but it is telling a very consistent theme that we've had is the equal weighted S&P outperforming the market cap weighted one. That's happening again today. Equal weights up almost eight tenths of a percent right now. It's late cycle leadership. You could take

that as a net negative for sure on a macro basis. But it shows you that the market's rotating toward those areas that seem like they can provide some stability. That's been the case again today. And, you know, Netflix is obviously a huge damper on earnings season. But overall, it hasn't been that bad. I'm looking at M&T Bank. It's at the top of the S&P right now. Regional Bank, this is after Citizens yesterday. We had the CEO on.

That stock shot up. They are the real beneficiaries here of these higher net interest margins and the higher interest rates. Overall, how do you characterize earnings season? IBM, by the way, number two, also on earnings. Exactly. And IBM and United Health are kind of the story on the Dow today in terms of the upside. I can see it as better than feared, mostly across the board. We've had a different type of earnings season this time, mostly because stocks in general had had a massive pullback going into them. So I do think there's some relief in the numbers. The forward going guidance, definitely mixed. I can still see the case for the second

half of the year earnings forecast being a little bit too high, but we're not at the point right now where that has to be the primary worry. We're very much in, have we priced in what the Fed's going to do and what the likely recession or non-recession outlook is. Well, we should talk about Netflix because what a nightmare for Netflix shareholders today. Again, the stock plunging after missing revenue estimates and announcing the first subscriber loss in more than 10 years. Multiple analysts downgrading the stock as a result. Julia Borsten joining us now. Julia, how big of a factor is the crackdown on password sharing? Because they really put some big numbers around it. They did.

So Netflix said that in addition to their 222 million subscribers, there are an additional 100 million households that are sharing passwords with those subscribers, effectively watching Netflix, getting it for free. You might use the word pirating Netflix. And until now, Netflix has not been all that concerned. They've been testing a number of different ways to try to convert those people to paying subscribers. But revealing that 100 million number just shows just how big of an issue this has been, how much it is possibly weighing on that subscriber number, preventing

them from being able to grow because people have been used to getting it for free. So how does this change the competitive landscape? How do the other companies that are seeing their stock prices fall today look at what just happened in Netflix? Well, so the big question for investors is, are we going to see all the other streamers follow the same trend as Netflix and see their subscriber numbers suffer? Or because Netflix was the first mover, because Netflix is so much more saturated in the market and the biggest player by far, are we going to see that these other players are actually taking share from Netflix and they've been able to grow despite the fact that Netflix is now shrinking? And the key factor to watch here, Sarah, is ad-supported

services. Are we going to see more strength in ad-supported services as consumers facing inflation, economic uncertainty? They're saying, I want to keep watching. I want to see more strength in ad supported services as consumers facing inflation, economic uncertainty? They're saying, I want to keep watching. I want to watch more content. But maybe I'd rather watch something for free or less expensive than paying for something that's ad free, which is what Netflix has stood by all these years until just now. They're they're going the opposite direction. Mike, it occurs to me that they're developing a little bit of a credibility issue when it comes to shareholders, because first you saw that big decline when they lowered the guidance last quarter.

And then and then this loss, I think, took everyone. But is this the sort of thing that they could have come out before the quarter and warned about because it is so material? And then then they make the big U-turn on the ad supporting, which is even more confusing. What's going on here? so material. And then they make the big U-turn on the ad supporting, which is even more confusing. What's going on here? It's always a judgment call as to whether to pre-announce a poor outlook. I mean, I guess you could fall back on the idea that the revenue and earnings for the trailing quarter were not a big surprise. In fact, they kind of beat on the bottom line. So they probably felt they had the leeway to wait until this date to say the next quarter is going down. But they had to know that an absolute decline in subscribers for last quarter was going to be unfriendly to the stock. And I do think the street feels a bit blindsided by maybe one component of why so many analysts

kind of threw in the towel and downgraded today. Down 36 percent. Julia, thank you. Want to hit the fintech stocks as well. They're sinking today, led lower by PayPal, which got a price target cut from 125 to 105 at Japanese bank SMBC. The firm citing increasing uncertainty after PayPal announced the departure of its CFO last week. Other big players in the space like Block, Affirm, Robinhood, all trading significantly in the red today as well, Mike. These companies should actually get a boost from inflation if you think about it, because the higher prices get passed on and they would benefit. But I guess if there's a big economic and consumer slowdown, there are concerns there as well. What else is going on in this group? Yeah, I mean, total dollar volume is going to be supportive. I mean, it's been really a very prolonged unwind of a super hot area of the market

where basically so much capital got thrown at it. People got very excited about the total addressable market story. And it's just kind of unspooling from there. For PayPal, I think there's some concerns in general about e-commerce volumes. People's estimates of what Venmo was worth probably got way out of hand to the upside. That's being reversed. But anything with a credit component, the affirms, SoFi, look at Upstart, they're down a lot today because people are getting a little bit worried about consumer delinquencies and some of the lower quality lending products. I don't know if that's a critical moment today where this is a recognition point of that, but I do think that's one of the overhangs. Just speaking of management, PayPal is kind of a story unto itself. A lot of buzz, a lot of rumors, other executives could follow suit after the CFO left. Is this an activist target? I think arguably, I mean,

a lot of the ingredients are there. The stock is down so much. It does obviously have a very good core franchise. It's still, you know, it's way smaller market cap wise than it had been, you know, but it's still over $100 billion. So it's not as if it's that easy to muscle around a company of that size. But I'm sure there's enough dissatisfied shareholders out there to try and, you know, make a fuss at some point. Moshe Khatri, the analyst at Wedbush, putting that out there, you could see a situation like an ADP where Bill Ackman came in and made some changes there. That's right. Want to hit Lululemon as well, laying out a series of ambitious goals at its analyst day today, including doubling its 2021 revenue in the next five years

and quadrupling its international revenue. Despite the plan, the stock is sinking today, down 4%, more than that now, almost 4.5%. Joining us is JPMorgan retail analyst Matt Voss, who was at Lulu's analyst day, just published on the stock. Matt, I think you like it. What's with the reaction today? Look, Sarah, and first, thanks for having me on. Stock's up 25% into the event. I think the management did a great job today. The key takeaway was early innings growth across every part of the business.

But they embedded prudent conservatism in my view, meaning beyond 2022, the plan embeds basically low teens revenue growth. That's coming off of five years pre-pandemic in the high teens. And right now operating the business at a mid-20s revenue CAGR. So you have operating margin expansion.

You have consistent mid-teens growth over the next five years, but you back out 2022 and it's low teens revenue. So despite, to your point, international quadrupling, digital doubling, and men's opportunity to double, I actually think the plan is more than reasonable and presents a pretty nice opportunity from here. There are some execution risks in that they're going into new places. They're doing a membership program. They're doing new categories like sneakers and running. What did you hear about that? And what gives you the confidence that this team can expand beyond the core products? So great point. And I'm glad you brought it up because it's actually the other area of clear conservatism. They embedded virtually nothing for footwear, tennis, golf and hiking. Those are the new ancillary

opportunities. What Calvin McDonald, the CEO, is the most excited about is actually the halo opportunity and what they've seen so far from these launches. Materially above plan, but what they're seeing is traffic to the website, traffic to the stores, and a halo effect over to the core and organic of the assortment. So the plan they outlined today is really continuation of the core. They've basically doubled the revenue growth heading right into this plan relative to what they laid out five years ago. And now they're more or less embedding beyond this year a similar top line plan that involves,

to your point, men's digital and international material growth, but actually very realistic with not a whole lot of additional embedded. So I want to ask you about valuation, Matt, and especially in comparison to a Nike, which you published on last week, sent the stock up higher because you were very constructive on China, interestingly, which has been kind of a weak spot for Nike and also some concern there around the COVID shutdowns lately. So where does Alulu stack up against a Nike, which you're also very positive on? Yeah, I'm glad you mentioned it. So Nike was in town last week. We met with them.

To me, the two key takeaways were product and assortment normalization by the fall. So Nike's second quarter globally, they expect that inventory allocation across all regions will be normalized. In my opinion, a huge takeaway for this company, which has suffered on the footwear front, especially not only in North America, but internationally. And then secondly, they are much more encouraged, in my opinion, on the underlying demand that they're seeing in China. They are mindful of the COVID lockdowns and the zero tolerance policy. And they did cite that relative to three weeks ago, that is more material than it was then. But they are seeing better demand on the ground

and the inventory allocation and the response that they're seeing to innovative and new product on the ground in China is materially improving. And they're excited about that underlying momentum that they're seeing. So if we are going into a consumer slowdown globally, I mean, we heard it from the IMF yesterday that that's happening and we get a more severe slowdown in the U.S. than maybe we're hearing from some of the companies. Which company of all these, you like both of them, which of all the retailers do you like best? Who's most insulated or defensive? So selective stance. And I think the way that you like best? Who's most insulated or defensive? So selective stance. And I think the way that you approach it is twofold.

One, you have value and convenience. To me, that would be dollar general, five below, dollar tree, off pricers. To me, where does the consumer potentially trade down? Where do they seek value? Where do they find convenience? And then secondarily, I think you want to position strong brands with pricing power and expanding total addressable markets. That's active athletics.

So that would be your Nike and your Lulu, as you cited. To me, that also includes a Levi's. And lastly, companies with stronger margin profiles, direct-to-consumer expansion. That would be the handbags and accessories companies. So I think you want to be looking at companies that exit the pandemic stronger, as well as companies that are positioned for value and convenience. Matt Boss, just looking at the retail ETF, down about a percent right now. Appreciate it. From J.P. Morgan. And don't miss an exclusive interview with Lululemon CEO Calvin McDonald tomorrow in the 9 a.m. hour of Squawk on the Street to talk about the long-term plan there for investors.

Tesla's the big name on today's After the Bell earnings calendar. The stock is falling into the print. Phil LeBeau here with the key numbers to watch for, Phil. Though I have a feeling the conference call is going to be a little more interesting than the numbers. It will be, Sarah. And look, aside from the earnings and the revenue, the one number that analysts will be focused on is what Tesla says when it comes to automotive gross margins. They came in at 29.2 percent last quarter or fourth quarter. They're expected to come under a little bit of pressure in the first quarter. How much that remains to be seen on the conference call. What do they say about the chip supply outlook?

What's happening in China? And then most importantly, what do they say about the chip supply outlook? What's happening in China? And then most importantly, what do we hear from Elon Musk? Not only about Tesla, but about Twitter, because you know he'll be asked about it. Sarah, back to you. Oh, he better be. Phil, thank you. Phil, about two minutes to go in the trading day. Mike, what do you see in the market internals?

Better than the indexes would imply, Sarah. Positive breath most of the day. As I mentioned earlier, the equal weighted S&P is outperforming a little bit so the mega caps are dragging things down you see there about over 2 billion advancing volume to 1.5 billion declining volume on the day take a look at the commodities index or a proxy for it it's about 3% off the highs it's taking a little bit of the pressure off this chart looks very much like any bond yield chart that you want to see just slightly lower but a very strong uptre momentum behind it, likely longer term. The volatility index been waffling around the 20 mark all day, so just modestly lower on a Monday. Sort of a stable picture as the index is really right at the S&P 500, right at the middle of its range, or it's been it for the last few months. As we head into the close here, let's take a look at the Dow, which is the strongest of the major averages. IBM, UNH, Home Depot, Goldman Sachs, Procter & Gamble. Those are the biggest contributors to the Dow gains right now, which are up about 242 points overall. That stands in contrast to the S&P, which just dipped into negative territory again. It's just being weighed down by communication services, consumer discretionary and technology names. That's what's

weaker today, thanks in part to Netflix. names. That's what's weaker today, thanks in part to Netflix. But if they're selling across the board, especially in the mega caps, you've got strength in real estate, staples, healthcare, financials, utilities, materials, industrials, and even energy. That's why the Russell 2000 index of small caps is bouncing a bit today, up four-tenths of a percent, actually building on gains from yesterday, at least for the small caps and the Dow. There the bell 252 higher on the dow that's it for me on closing bell