Closing Bell - Closing Bell Overtime: Abbott CEO Talks Strong Quarter, Weight-Loss Drug Revolution; Ark Invest’s Tasha Keeney Reacts To Tesla Earnings 10/18/23

Episode Date: October 18, 2023

Stocks slid in trading, sending the major averages negative on the week. Earnings from Netflix, Tesla, Las Vegas Sands and Lam Research. Victoria Greene, G Squared Private Wealth founding partner, and Vital Knowledge Founder Adam Crisafulli break down the market action and company reports. Evercore’s Mark Mahaney and Wedbush’s Alicia Reese dig into Netflix’s big beat and the success of the password sharing crackdown. Ark Invest’s Tasha Keeney on the bull case for Tesla after its latest report. Abbott CEO Robert Ford talks the company’s strong quarter and how it is planning for the weight loss drug revolution. Plus, Nuveen CIO Saira Malik talks portfolio positioning.

Some buying into the close but nowhere near enough to make up for the ground loss. That is the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. It is one of the most exciting afternoons of earnings season, headlined by results from Tesla and Netflix in just a few moments, along with numbers from Las Vegas Sands, Lamb Research, Zions Bank Corp. We will bring you all the highlights, plus an exclusive interview with the CEO of medical device company Abbott, which reported before the bell, we will ask about the impact of the weight loss drug craze on the space.

But now let's get straight to our market panel as we await those big name earnings. Surging rates again in focus with the 10-year yield reaching 4.9 percent for the first time since 2007, putting pressure on equities. Joining us now are Victoria Green from G Squared Private Wealth, Adam Crisofulli from Vital Knowledge, and of course, CNBC's own senior markets commentator, Mike Santoli. Mike, what's going to determine whether the major indices break out to the upside or downside. What are people saying? Is it guidance?

Is it treasury yields or whether they move higher or stay this high? I think it probably would ideally be a combination of both. I think, you know, yields stalling out here, calming down, slowing their pace. Any of that might clear the way for a greater focus on some of the more corporate-based fundamentals, which have been coming in OK. So I think you have to have some combination of confidence that the bond market is not just flying. Mike, I'm going to interrupt you because we have Netflix earnings already. We're going to go to Julia Borson for those results. Julia.

Yeah, just breaking down these results here, I'm going to jump right away to the subscriber numbers because they are a big beat. The company announcing net subscriber additions of 8.76 million. That's ahead of the 5.5 million estimated. So more than 3 million more subscribers added than anticipated. Revenues coming in right in line with expectations at 8.54 billion. Earnings beating expectations, $3.73 versus the $3.49 estimated. The company also announcing that it is going to be raising the price of its basic and premium tiers in the U.S., the U.K. and France.

We see the stock has shot up an after hours trading now up about 8 percent. We're going to dig into this report. It'll be back to you with more. All right. Julia Borsten, thanks. Mike Santoli, got to let you finish your point there. I don't know if you want to. No, I mean, that's it. Basically, if the bond market gives permission, then we can focus on some of these numbers.

Now, I wouldn't say Netflix itself is a super bellwether for a lot else that goes on. But these are definitely positive numbers. Expecting fiscal 23 free cash flow of six and a half billion dollars. Prior forecast, at least five billion billion that's definitely a plus maybe some of that is just less spending uh as you've had the strikes in hollywood but uh that's been a part of the story this has to flow through uh to uh to shareholders hands okay mike now victoria subs high enough that maybe netflix feels confident in raising subscription prices, even in this environment. Is that at all a read-through into anything but Netflix or any of the names tonight, even outside of Netflix and Tesla, bellwethers that we should watch? Yeah. I mean, it shows they see strength in their consumer, but it's also they're trying

to protect their margins. They came under pressure this week. Analysts started downgrading them a lot because they said we're not going to really have this 300 basis point margin expansion but here comes netflix great numbers beat on subscribers they have the confidence that they can gradually raise prices and they have to do that in the u.s because they have basically full saturation yes the password crackdown should continue to generate more the ad base here is slow ramp up. But this is a way for them to protect their margins and investors should cheer it because Netflix is looking at playing the long game here. And it shows they do think they have the strength and that they also have a competitive moat that people are willing to pay a little bit more for their content versus

all the other options in the streaming. And I think it's a calculated bet by Netflix that they say our content is so superior. We have we have the confidence we can raise prices and we are not going to see a big move in subscribers. OK, we're going to go back to Julia because she has more color from the Netflix earnings report. Julia, I just want to flag here some commentary about advertising because there is so much. But there has been so much focus on the ads plan and whether it is working. They say adoption of our ads plan continues to grow with membership of these plans up almost 70 percent quarter over quarter and 30 percent of the sign ups in their ads countries are on average to the ads plan. So they do say more work to do to scale this business. But it does indicate that there has been greater adoption and that business

is continuing to grow. We see the stock is now up about 7 percent. We're continuing to dig in here, especially when it comes to the guidance. But certainly it indicates that the ad supported plan is working. Julia, guys, Morgan, thank you. Investors like it so far. Adam, I want to go to you, though, because whether it's Netflix specifically with price increases for some of its tiers or even some of the other companies that we've seen report earnings that are consumer facing so far this earnings season. If companies feel like they can continue to price higher and have the power to do that, how much further can inflation fall? No, that's a great point. You know, obviously, this is a micro positive, but it could be a macro negative to the extent you see companies across the board really flex their muscles on pricing and start to push through aggressive increases. You know, I think for now it's relatively company or industry specific. There's been

price hikes across the board from a lot of the other streamers as these companies rush to achieve profitability and earn, you know, average margins in these businesses. Remember, a lot of them are losing money. So the fact that you're seeing all the other streamers increase prices gives Netflix that flexibility. I think for the most part, though, the price aggression, the aggressive price hikes in the last several quarters is losing a little bit of steam. And that was something that was actually talked about in the Beige Book today, which is kind of an economy-wide collection of anecdotes.

You know, companies are still increasing prices economy-wide collection of anecdotes. Companies are still increasing prices, but at a much slower pace. So I don't think for now it's company-specific. It's a good point. And we just want to note that Tesla earnings are out right now. We're going through those numbers, too. Mike, the Beige Book, another flurry of Fed speak today as well ahead of what's being considered by the market, the big event of Powell talking tomorrow. I mean, it would seem like a lot of the commentary has been in lockstep, at least around this notion of tightening financial conditions and what that's doing for the Fed's fight against inflation. Yep. It all builds toward essentially taking any suspense

out of the meeting in a couple of weeks. So it's going to be a hold on November 1st. The Beige Book showing a little bit of a pushback on the super strong things like retail sales and the GDP tracking numbers, suggesting maybe it's a much more mixed picture at the Fed district level. And that also does underscore the Fed's willingness to kind of be patient at this level. But the data are causing the odds of a hike

going up down the road. I think it's all about the data are causing, you know, the odds of a hike going up down the road. I think it's all about the long end of the yield curve, though, and credit costs that are attached to it. At this point, the Fed is secondary to what the bond market decides to price money at. All right, Mike, hold on a minute. We're going to fill the bow now with those numbers from Tesla. The stock's about flat at this point after hours, Phil. It may not be flat for long, John. We have a miss on the top and the bottom line with gross auto margins coming in lighter than the street was expecting. Earning 66 cents a share, the street was expecting Tesla to earn 73 cents a share in the third quarter. Revenue was expected at just over $24 billion, came in at $23.35 billion.

There is the impact of the price cuts that we've seen and slightly lower deliveries than expected during the third quarter. Put those two together and now you have the revenue number and gross auto margins. Another reflection on the pricing pressure that Tesla has been facing came in at 16.1 percent. The street was expecting 17.6 percent operating margin of 7.6 percent with operating cash flow of 3.34 billion dollars. But again, a miss on the top and the bottom line for Tesla company earning 66 cents a share. The street was expecting it to earn 73 cents a share in the third quarter. Don't forget, conference call coming up at 530. Guys, back to you. Can't forget that, Phil. Victoria, you were worried about this one. It is indeed a miss on the top and bottom lines. And yet the stock is moving at least initially higher after going lower right after the numbers came out. But now it's about

flat again. I don't know. What do investors need to hear on this call to decide whether this is an OK miss or a really problematic one? Yeah, and so I think there's three main things. One, when are we going to get to full self-driving? And I know he sent that tweet out about driving around a congested Austin, but is there actually going to be an unveil? Because they recently had to lower the subscription price on that, which confused investors. Two, are we sticking to the $1.8 million million euro on guidance for total amount produced and sold for cars? I think that'll be interesting if they update or not, because that'll

be a heck of a fourth quarter of deliveries there if they're still going to make it. And three, what's happening with the Cybertruck? Are you actually going to get that producing and sold in the fourth quarter or not? So I think the conference call is really going to be what moves the stock. You know, Elon typically is pretty tell it as it is. You know, he blatantly said, I'm willing to sacrifice margin to sell more cars, unfortunately, with the weak EV market in China, which again would be a spot I would watch if they were trying to protect market share, but they ended up selling less vehicles for less money. So the miss really didn't surprise me because of what was under the hood with the deliveries number. Yeah. Adam, I want to get your thoughts on this, because at 16.1 percent gross auto margins

compared to other OEMs, it's still so much higher. But Tesla doesn't trade like other automakers. It trades like a tech company. So unsurprising to see the stock maybe turning fractionally lower here, especially since it has doubled since the start of the year. Yeah, I mean, I think certainly these numbers, you know, the Q3 report alone in isolation was certainly negative. You know, like Victoria said, there is a lot of incremental information that gets provided on the call. Netflix gives you everything in their press release.

Tesla leaves a lot for the conference call. So there's a lot of kind of variables, Cybertruck delivery, the self-driving software on the last call. There was a hint that perhaps another OEM could license that. That really gets to the heart of the current valuation for the stock. So there are a lot of hints or kind of non-earnings comments that Elon can make that would help sentiment around this stock. But I think as far as just the underlying economics of the business are concerned right now,

there's definitely margin pressure taking place in the whole industry. A lot of that's coming from China, but it's occurring elsewhere also. And that's weighing on the reported revenue and earnings as we saw. Speaking of a read on China, Las Vegas Sands earnings are out. Contessa Brewer has those numbers. Contessa. Morgan, the casino giant reports earnings of 55 cents a share on revenue of $2.8 billion in line with the estimates, and it announced a $2 billion stock repurchase. When we dive into those numbers, we see a beat on the all-important earnings metrics in gaming. That's adjusted property EBITDA. In Macau, it came in at $631

million. The anticipated number was $622.1 million million in Marina Bay Sands, another beat in Singapore at $491 million in adjusted property EBITDA. The company says airlift is improving still to Singapore and that China's travel and tourism spending benefits both locations. The stock buyback announcement there, you can see the shares reacting up almost 5% in the extended trade, Morgan. That's a nice boost, Contessa. Thanks. Now we go back to Phil LeBeau for more on Tesla. Phil. John, two pieces of color regarding what Elon Musk is likely going to talk about at 530. First of all, full year deliveries. The guidance has been 1.8 million approximately is what they are expected to deliver this year. They are saying that they are on track to meet that, roughly speaking. They don't say

definitively it'll be over that, but roughly speaking, 1.8 million vehicles to be delivered this year. And the Cybertruck, they do say that they expect to deliver their first Cybertrucks in the fourth quarter, which has been the rough guidance that has been out there from the company. So you will see the Cybertruck deliveries beginning this quarter, according to Tesla. Guys, back to you. All right, Phil, thanks. And meanwhile, Lam Research moving lower after hours. Christina Parks in Nevels has the numbers on that one. Christina. Yeah, lower despite a top and bottom line beat. EPS coming in at $6.85, adjusted on revenues of $3.48 billion for the quarter Q1.

For Q2 guidance, if we're talking about the midpoint of the range, it's $7 EPS, so $7, which is higher than the $6.79. And Q2 revenue guidance, also the midpoint of $3.7 billion, a little bit higher than what the street was anticipating. Keep in mind that the exposure for this company, they do make way for fab equipment. The exposure is still 48% of revenue coming from China, just sifting through the report right now. But it seems like so far, top and bottom line beat and guidance beat as well. And yet shares are dropping over 2% right now. Okay. Christina Parts and Eveless, thank you. Adam, I'm going to go back over to you because semis have had a strong run as of late, but we also know they're also

economically sensitive. Surprised to see this stock moving lower despite a strong print? Yeah, the results and the guidance look pretty decent. I think there's definitely some anxiety. You had ASNL out this morning that had a pretty weak orders number for Q3. And then there's, you know, concern about the restrictions from China. The LAM's equipment doesn't meet the threshold as much as ASML does. So ASML is definitely going to be impacted a lot more. And then we'll get Taiwan Semi out early tomorrow morning, which will be another big data point for the industry. But there's definitely concern about, you know, inventory correction, ongoing destocking in the inventory channel, and then just the outlook for spending from some of the biggest players like Intel or Samsung.

But the numbers, at least for this quarter and the guide for the next quarter, look pretty decent. Okay. I'm Krista Fooley, Victoria Green, and our own Mike Santoli, who we'll see later this hour. Thanks for kicking off this conversation and this earnings rush. We have got much more reaction to today's After Hours action coming up. After the break, a panel of experts weigh in on this big jump, 9% right now on Netflix, and they're going to tell us what they want to hear from management on the call. And later, Cathie Wood deputy Tasha Keeney is going to join us with her take on Tesla. It's a key holding in ARK's funds. Overtime is back in two.

Welcome back. Netflix jumping after a big beat on subscribers up now about nine and a half percent after hours. Let's get back to Julia Borsten with some new details from the report. Julia. John, just want to talk a little bit about guidance. The company says that now that it's launched page sharing broadly, they've increased confidence in their financial outlook. They say they expect revenue growth will accelerate in the second half of this year as monetization grows from our most recent page sharing launch, and they expand that initiative across all remaining countries. I do want to point out, though, that the Q4 revenue guidance of $8.69 billion is just short of the $8.77 billion that is the analyst consensus. I also want to note here

that they are updating their outlook in terms of margins, saying they're now updating the full year operating margin guidance to 20 percent. That's at the high end of the prior range. And then one last thing here. They're talking about sports. Of course, we always speculate, John, will Netflix ever do a big push into live sports? They say they're having great success in the sports shoulder programming. They do have a golf tournament coming up, so we'll see if they hint at more about the potential for live sports on the call. Back to you. Interesting. OK, Julia Borsten, thank you. Joining us now to break down the Netflix results, Mark Mahaney of Evercore ISI and Alicia Reese of Wedbush. Good to have you both

here. Mark, I'll start with you because you were a little bit nervous. At least that's what you had told us coming into this print. And they they kind of just blew past expectations here on every metric, including subscribers, which was three million more than estimates. The biggest surprise to me, actually, the three things. One is the surprise subscriber growth outlook for the fourth quarter. They're saying that they could have relatively similar subscriber ads as they had in the December in the September quarter. So that means they're talking about eight, nine million sub ads in Q4. That's a record number. That would be close to a record number for sub ads for Netflix in what is a content somewhat challenged environment because of the strike. So that's the real big surprise. The other

one is it's buried in your newsletter, but they're actually taking pricing actions now. They're actually raising prices on their premium products. That's a gutsy move. And this company does have pricing power on its high end plans. We just thought, and the market thought, they would wait until next year. And then the third nice positive here is the free cash flow. They're up into free cash flow guidance for the year, $6.5 billion. A lot of that, though, is simply due to the fact that they can't spend it because they can't run, they can't produce films now with the strikes. But still, it's better to be able to show the flex, to flex the free cash flow muscle of the company. All those things, all those things are really nice positives, especially the subs outlet.

That's a surprise to me. Yeah. Alicia, do you see it the same way? And just going back to the subs specifically, how much of this is the crackdown on password sharing versus organic growth and new subscribers? I think a large portion of it is crap down on the password sharing. A lot of those people that were kicked off of the password, they're, you know, piggybacking on other accounts. They have opted for their own accounts, by and large, and I think there's still plenty left to go, at least in terms of the survey work that we've been doing inter-quarter. What was pleasing to me was to see our domestic ARPU and the other

ARPU numbers come in relatively in line with what we were expecting for the quarter, which assumes that the ad tier is still dilutive, but that the family plans are tracking quite well so far. People are opting for those family plans and paying extra for those extra members that they want to keep on their plans. Interesting. Mark, is that part of the calculus here? Perhaps they're raising the prices to try to drive some of these subs. There's still strong demand toward the advertising supported product. How much of this is about the password sharing versus how much of it is that or the strike actually driving subscribers toward Netflix? I don't think it's the strike driving subscribers towards Netflix. That's possible. I think what Netflix is doing is they euphemistically called widening the price points, but it's actually

literally true, but they're really raising the price points at the high end. They can, because there's a lot of really committed Netflix customers who don't like ads, who love all the content, and they're throwing a lot of nice features in there. So that's where the pricing power is. The question is, did they expand their TAM, their total adjustable market, by lowering the price point and making it ad supported? And I've been strongly of the view that they did that. That's why I upgraded the stock a year ago. And I'm not sure the evidence has yet come through. Password sharing has been a real strong boost. And I think the most interesting, most useful piece of information I'd like to get from a company on the earnings call is, tell us how much of your paid sub-ad this quarter and next

quarter are driven by the paid sharing program so we can figure out what's happening to your organic growth. I don't know the answer to that. It was huge in the June quarter. I assume it was big in the September quarter, but I'd love to find out. All right. Not sharing is caring. If you're a Netflix shareholder. Mark, Alicia, thanks. Thanks, Jeff. Meanwhile, breaking news on Costco.

Christina Parts and Neveless has details. Christina. Yeah, Costco announcing their CEO will be stepping down as of January 1st, 2024. This would be Craig Jelinek. He will be replaced by Costco's current CEO. That would be Ron Vakros. According to the press release, they've been working together for the past 21 months, and this is part of a longstanding succession plan. Nonetheless, shares of Costco unchanged. They were down 1% when the news came out, but back flat now. Guys?

Okay. Christina, thank you. We've got more earnings. Zion's Bancorp are out, and Leslie Picker has those numbers for us. Leslie. Hey, Morgan. Yeah, Zion's lower today on a miss on the bottom line, reporting EPS of $1.13 per share on an adjusted basis. That was compared to estimates of $1.15. So you can see shares down about 5% on this.

On the top line, they posted an adjusted taxable equivalent revenue. That's a non-GAAP basis of $765 million. It's unclear if that's exactly comparable to estimates. So the net interest margin, it was up slightly quarter over quarter, but 293%, 2.93% in the quarter. That was well below 3.24% from a year ago. Non-performing loans, though, they also ticked up to 0.38%. That's about 10 basis points higher than a year ago. Still very low, though, by most measures. Chairman and CEO Harris Simmons saying in the release that while loan demand weakened in the third quarter, we were pleased with the growth in customer deposits, which increased 5% over the past three months,

while higher cost broker deposits and short-term borrowing funds decreased 23% and 21%, respectively. But you can see shares down more than 5% on that bottom line miss. Morgan? Yeah, slowing loan demand, something the Beige Book talked about today, too. Leslie Picker, thank you. After the break, reaction to Tesla from one of the company's most outspoken shareholders. We'll talk to ARK Invest's Tasha Keeney about her read on the quarter and her outlook for the stock, which makes up more than 10% of the ARK Innovation portfolio. And later, don't miss our exclusive interview with the CEO

of $165 billion market cap company Abbott. On the back of today's results this morning, we will find out how the medical device firm is being impacted by the surge in popularity of weight loss drugs. Overtime will be right back. Welcome back to Overtime. Tesla shares moving a little bit higher right now after reporting Q3 numbers. They've been down and up. Joining us now is ARK Invest Director of Investment Analysis and Institutional Strategies, Tasha Keeney. Tesla is the number one holding in ARK's flagship innovation fund, making up about 10% of the portfolio. Tasha, welcome. So Tesla's been cutting prices,

global deliveries, missed expectations. But I suspect you're going to tell me that this miss is OK. Is it because people thought it was going to be a lot worse? Yeah, I think there's a couple of things. So one, we're hearing that the Cybertruck, you know, slated for the end of November. I think people are a couple of things. So one, we're hearing that the Cybertruck slated for the end of November. I think people are happy with that. Tesla has continued to make progress cutting the price to produce vehicles, of course, which is very important for future sustainable gross margins. Although, of course, margins this quarter were impacted by the price cuts.

You know, what we're focused on is the long term. So I'm really excited to hear about their progress towards a future robo taxi platform. Again, I think it'll be much more profitable than the electric vehicle business and it'll totally change the business model. So I'm looking forward to hearing more about that. I'm puzzled by that idea because if there's robo taxis, I don't need to buy a car, right? And so I'm not sure how profitable that, how are you modeling that and how soon do you need for it to arrive for it to make sense the way you're modeling it? Yeah. So, you know, you may not need to buy a car.

Basically, you know, we think incremental car buyers will might forego that decision, especially if you're located in an urban area, but you But, you know, it'll be a fleet model. So Tesla already has this partnership and integration with Hertz. You know, they talked a little about that in the letter, some of the, you know, app integration that they're doing this quarter. But I think in the future, you can imagine that Hertz could be a potential company that maybe, you know, houses and maintains these vehicles for customers. Ultimately, the reason that we think robo taxtaxis are so exciting is because ultimately they'll be priced, they could be priced below current ride-hill prices. That'll expand the market for ride-hill as we know it today. And we think this could be very profitable. So our estimate for, you know, our 2027 price target, which is published,

is that we think gross margins could be around 50%. So that's north of, you know, our 2027 price target, which is published, is that we think gross margins could be around 50 percent. So that's north of, you know, the around 20 percent that we're seeing today, of course. And that's really driven by the autonomy business. We think this will be a services business model where they're charged per mile and they'll get very attractive margins on that business. OK. And of course, that's five years out, to your point. But looking at the results here today, I mean, have margins bottomed? How are we going to know that margins have bottomed? And I ask that because we knew deliveries had missed already coming into this report. So the implication here potentially is that they're seeing softening demand even as they're cutting prices. Yes. I mean, I think the auto market as a whole is right now immune to

the macro changes that we're seeing happening today. So I think it's, again, something that people somewhat expected going into this quarter. You know, we've seen them. They're continuing to cut prices. But here's the big story. Right. So EVs as a category, you know, the prices are down like 20 percent year over year. That's really driven by Tesla. But now a Model 3 is cheaper than the average car in the U.S. That is huge. That sticker price difference is what consumers who are, you know, the current auto buyers before we have robo taxis, and that's what consumers look for when they purchase a vehicle. So the total cost of ownership of an electric vehicle has been cheaper than a gas-powered car for some time. But that sticker price is what really changes,

you know, consumer purchasing decisions. So I think, you know, EVs will continue to take share. The growth of electric vehicles will outpace that of gas-powered car platforms. And that's not changing. So that's what we're focused on, again, for this long-term picture for Tesla. Yeah. You mentioned Cybertruck and the expectation that deliveries start happening here in the fourth quarter. I mean, Americans specifically love their trucks. How big could this market be for Tesla? Can they take share from the traditional ICE-powered pickup trucks? I certainly think so. And again, I think it'll be driven by price and performance. We see that electric vehicles offer better performance for the price. They're bringing down sticker prices. You know, we saw that in this past quarter that an early reservation

Cybertruck was auctioned for $400,000. So, I mean, it's already a collector's item before it's even in consumers' hands. I think that gives you an idea of sort of the excitement that we see out there. But past that, we've looked at Google Trends data. We see that the geographies in the U.S. that are heavy truck buyers are very interested in the Cybertruck. I think that analysts are expecting, some analysts think that that could be somewhat of a niche product. I don't think so. I think it could be huge. You know, we're seeing Ford cut a production shift at their F-150 Lightning line. I think that, you know, I would be worried if I were Ford about the Cybertruck coming out. Tasha, thanks for joining us. Shares of Tesla are up 1%

now. It's time now for a CNBC News Update with Christina Partsenevelis. Christina. Thanks, Morgan. A U.S. official said more than 350 U.S. citizens want to leave Gaza and have submitted requests to the State Department. The Rafah border from Gaza to Egypt is still closed despite U.S. efforts to open the crossing, allowing foreign nationals to leave and let humanitarian aid in. The closest State Department officials are over 150 miles away in an Egyptian city. The Biden administration committed today to maintaining its sanctions on Iran's ballistic missile and drone program even after U.N. restrictions expire. The administration announced a new round of sanctions and measures that would stop Iran

from buying or selling parts or technology related to missiles or drones. Hundreds of Jewish Americans and allies are protesting on Capitol Hill. The demonstrators gathered to pressure the Biden administration and lawmakers to call for a ceasefire in Gaza. The protesters entered the Cannon office building, chanting as well as singing. Among several arrests have been made so far, Capitol Police say three people have been charged with assaulting a police officer. Guys, back to you. Christina, thank you. After the break, Netflix is jumping after earnings. But has the stock lost its premium over the long term?

Mike Santoli looks at the company's journey from being valued as a category killer to a more mature media stock. And take another look at Costco, initially moving a bit lower on news that CEO Craig Jelinek is stepping down at the end of the year. Now, again, fractionally lower. The company's current COO, a 40-plus year veteran who started as a forklift driver, will take over at Costco. We'll be right back. Welcome back. Netflix soaring in extended trading after topping earnings estimates up about 12 percent. Right now, let's bring back Mike Santoli for a closer look at how its valuation stacks up against its peers. Mike. Yeah, Morgan. And also, what exactly are its peers? Take a look at how Netflix has traded

relative to other pure media stocks such as Comcast, our parent company, really in lockstep over the past five years, point to point. Of course, Walt Disney also has done worse, but it's closer to alpha than it is to alphabet and meta, which are really, you know, in terms of Jim Cramer's original fang, Netflix was the end. It belonged there a decade ago. But right now it operates differently. It's also a different scale, 160 billion dollar market cap, meta and alphabet together, well over two trillion dollars. But on a valuation side, Netflix does look somewhat like or it's converging with the valuations of Alphabet and Meta, which are now both highly profitable and maturing

Internet businesses, as we know. So you take a look at the forward PEs. Netflix, of course, was valued as this kind of one of a kind. It was the only game in town for streaming. And it was valued accordingly way back when, before it really was harvesting any profits. Now it has been building up its profitability, and its valuation has been trending down toward that 20 times forward earnings, which is where, at the moment, Alphabet and Meta have settled out. So it's a sign of maturity. It's a sign of maybe a little more predictability, but definitely also a sign that the breakneck growth period is probably past, Morgan. Yeah. It's ironic to me, though, because this is a company that's actually

generating free cash flow finally now. And yet the valuation, to your point, has continued to come back down to earth. Well, it absolutely is generating free cash flow, but just not nearly as much as Meta and Alphabet relative to their market cap. So even right now, Netflix has a similar free cash flow yield to something like an Amazon, which is, you know, it's positive, but it's not that generous as opposed to Alphabet and Meta, which are, you know, 5% almost free cash flow yields as to less than 4%, I believe now for Netflix. So that was before today's guidance. All right, Mike, thank you. Up next, CEO of global health company Abbott on his

company's better than expected earnings and whether he sees any risks for his business from the huge demand for weight loss drugs. We'll be right back. Abbott Labs reporting Q3 results this morning, beating on the top and bottom lines and raising its full year EPS guidance. The stock higher today, but recently hit 52 week lows on investor concerns about the impact weight loss drugs like Wegovy and Ozempic might have on the business. Joining us now for an exclusive interview is Abbott chairman and CEO Robert Ford. Robert, good to see you. So big results.

And you made a very interesting case, numbers based case on the call. I thought about why the excitement or lack thereof, if you're looking at medical device companies over GLP ones, might be overdone. Well, make the case. Well, John, it was it was it was a great quarter for us. And I would say these are great drugs. Let's start off with that. They've got great, great outcomes. And we've seen that. I think over the last couple of months here, there seems to be this debate about trying to pin these treatments versus medical device or medtech products. And we just don't see that. And obviously, there's a question on the future of the total available markets as these drugs grow.

But we didn't see that. We didn't see that. Libre, our glucose monitoring business, had record sales this quarter, $1.4 billion, up 28%. Our cardiovascular procedures were up 10%. And I suspect that as the earnings of other companies report, I think you'll see kind of similar growth numbers and some of those fears kind of going away. And I would say the other thing is we looked at our glucose, we looked at data from Freestyle Libre users. So a lot of them were using GLP-1s. And what we discovered was users that were using Libre and GLP-1s, they were actually using more of both of the products. So

they were using more sensors for Libre and they were using more GLP-1s. They were being more adherent to the GLP-1s. So I think this is actually a story of, you know, both products in combination providing great outcomes and outcome benefits. So then the question was always the long-term, like if you think five, 10 years out. And, you know, what I was trying to show today was this mismatch between revenue and patient uptake. You know, if you look at the consensus forecast for these drugs in the next five years, they get to about 60 to 70 billion dollars. That equates to about 10 to 15 million people on these drugs. When you look at diabetes, there's half a billion people in the world. Cardiovascular disease, another half a billion. So it's still a small percent of what that total available market

is. I also want to ask you about elective surgeries and some of the other areas in general. MitraClip, which has to do with heart procedures, it had been driven by international growth for you over the last few quarters, but you're seeing a U.S. rebound now. I believe you said it was up 5%. What are some of the mechanics there and are they going to continue even particularly in the U.S.? Yeah, we saw a little bit of a slowdown. I mean, MitraClip in the U.S. was growing, you know, double digits. And then obviously when COVID hit, you know, that kind of slowed down. And as we're now coming back to normal procedures, you know, some procedures are, let's say, a little easier and faster to start up. MitraClip, given the imaging and some of the some of the pre-op work that's necessary, there's a little bit more work there.

So we're starting to see that now bounce back. It was pretty much flat, I would say, in the second half of 2022. And now it's starting to get into mid-single-digit growth. And I think that'll start to kind of move, given the incredible outcomes that that product provides, especially with people with mitral regurgitation. So that's done very well. But I'd say overall, you know, cardiovascular procedures, not only in this country, but around the world are growing. Our business was up 15 percent in cardiovascular or med device and total med devices. So that's I think that's that's going to see a trend that we're going to see continuing going into next year. Robert, you also had sales increase 18

percent nutrition, pediatric nutrition, which speaks to baby formula, up 25% in the quarter as you continue to recapture that lost market share coming off of the shortages last year. Walk me through what you've been able to do to bring formula back online and make sure that we don't see recalls and shortages like we did last year? Yeah, well, listen, our focus is always on market and market supply. Our quality policy here, Morgan, is we build products as if they're intended for our own family members. So throughout last year, the team did an incredible job about bringing back supply back to the market.

We use our entire manufacturing network to be able to do that. I think you see shelves now pretty much stocked. And our market share is about 90 percent back to where we were pre-recall. Regarding prevention, I mean, listen, we're the only U.S. company right now that is making investments to add additional capacity for infant formula in this country. We announced a half a billion dollar investment in Bowling Green to bring a new manufacturing site to this country. And we've also committed to increasing our inventory levels. So, you know, we're working really hard. The team's done an incredible job over the past 12 months.

I want to quickly ask one on diagnostics, excluding COVID testing. It was up 10 percent. How much of that was because of the blood transfusion business, and how much of it was other? I'd say about 75% was other. It was nice to see the blood transfusion business start to see those donations come back up. I mean, we use a lot of big data to be able to see where there could potentially be shortages. So we were a little bit concerned end of last year, but it's great to see now, you know, those donations pop back up again. And I think the country's better off for it. So, but again, a lot of growth and routine

diagnostic testing that we're seeing, not only in the U.S., but around the world. All right. Strong quarter stock up more than three and a half percent in the day's trade. Robert Ford, CEO of Abbott. Thanks for joining us. Don, thank you. Now, cue the QR code because this interview leads perfectly into the latest installment of my On the Other Hand newsletter, which is going to be out after tomorrow. I'm going to do this debate on Squawk Box in the morning. The question, will weight loss drugs slim demand for diabetes devices? You can sign up using that code on the screen or go to CNBC.com slash OTOH. It's still not particularly clear to me. It sounds like it's a tide that lifts all boats. Okay. We have a news alert on VC firm Sequoia. Eamon Javers has details. Eamon.

Morgan, that's correct. We've got a letter here now from the chairman and ranking member of the House Select Committee on the Chinese Communist Party. They are requesting from Sequoia Capital in California some information here about Sequoia Capital's investments in sensitive technological areas in China. They're also asking questions about Sequoia Capital's decision to separate from its Chinese business. They want to understand exactly how that's going to separate from its Chinese business. They want to understand exactly how that's going to happen. This is a detailed list of questions from the committee to the VC firm. They are saying that it is their understanding that roughly 50 percent of Sequoia Capital, China's limited partners, are U.S.-based. They want to know whether that is in fact true. They

want information about Sequoia's investments in artificial intelligence, quantum computing, and semiconductor companies in the PRC. And they're citing here a list of questionable investment decisions that they say that Sequoia has made in the past, including investments in EverSec, which the committee says is a Chinese company developing AI for the People's Liberation Army, helping raise $700 million for 4Paradigm, a Chinese company building AI for PLA battlefield programs and investments in DJI, a Chinese drone maker that facilitates, the committee says, the CCP's surveillance and genocide of Uyghur Muslims in China. So a detailed list of questions here from the committee for Sequoia Capital. We'll reach out to Sequoia and see what they have to say about all this, guys. Back over to you. And of course, we know

we split this business off, Sequoia did, back during the summer, perhaps in anticipation of this increased scrutiny. Eamon Javers, thank you for reporting on this. Up next, all the after hours earnings movers that need to be on your radar as we count down the calls to the calls from Netflix and Tesla. Speaking of earnings, check out Discover Financial, which just came out. The company posting better than expected revenues, but a big miss on earnings, reporting $2.59 a share versus estimates of $3.19 a share. It's a 27% decline year over the year.

Shares are down about 1.5% right now. Stay with us. Welcome back to a very active After Hours session. Here's a look at the key movers. Netflix is up about 12% after subscriber addition soared past estimates. Earnings beat as well while revenues were in line. Tesla missed on the top and bottom lines, but the company says Cybertruck deliveries are on track for later this year. And chip design company Lamb Research beating on both lines, but the stock is moving lower.

Paints and Coatings Company, PPG, beating EPS estimates and matching on revenues. And Las Vegas Sands matched on EPS and announced a $2 billion buyback. That company's CEO is going to be on the exchange tomorrow, 1.30 p.m. Well, the 10-year yield's crossing above 4.9 percent today. Fed officials weighing in this week on the sharp rise, including Patrick Harker, who said, quote, anything that would reduce financial accommodation will be doing some of the work of monetary policy. On the other hand, Richmond President Thomas Barkin saying, quote, the challenge with depending on long term rates is they can move. And we'll hear from Chair Powell tomorrow when

he speaks at the Economic Club of New York. Joining us now is Sarah Malik, CIO of Nuveen, which has over one trillion dollars in assets under management. Sarah, it's great to have you back on the show. That is where I want to start with you, is expectations for the commentary we get from Powell tomorrow, given the fact that we've seen the long end of the yield curve move so dramatically so quickly. Well, markets were generally pleased with other Fed speakers over the last week or so, where comments have been dovish and they've been talking about perhaps taking future rate hikes off the table. I expect Powell to come in a little more hawkish tomorrow. Inflation is still an issue. The employment markets are still strong. The consumer is still spending. I think all of that together makes him lean a little bit

more hawkish. Our expectation is for one more rate hike on the table before the year ends. But with 10-year yields almost hitting 5 percent levels, they may be doing the work for the economy in terms of tightening that rate hikes would be doing the work for the economy in terms of tightening that rate hikes would be doing. But I think Powell is still going to be conservative and leave the door open to one more rate hike before the year ends. OK, there's a lot of macro factors at play here for investors, whether it's what the Fed does and what the economic data shows us in inflation or obviously geopolitics, all of the uncertainty and risk there that's always so hard to price into the market. You balance that against earnings season, which so far has been

pretty good. I mean, look no further than Netflix this hour, spiking by double digit percentages. How do investors navigate the macro versus the micro? Well, investors have a host of macro and micro issues to contend with, ranging from geopolitical issues, earnings, 10-year yields in the economy. So starting with geopolitical issues, those were taking center stage today. Investors were cautious, worried that the conflict in the Middle East may start to expand in return. That causes oil prices to increase, and that could tilt the global economies into a recession. That's not our base case, but it is a fear that's not our base case but it is a fear that's out there and very valid for earnings i think this is going to be the quarter that ends

the three quarters of negative earnings growth that we've seen for the past for earlier this year i think earnings are going to beat and raise in general uh led by technology stocks looking at yields uh approaching five percent that could lead to the tightening of the economy that finally tilts us into recession. And then, of course, the economy as of now is quite strong, led by the consumer, led by employment markets. But if you take a closer look at the consumer, you are seeing some stress there. Auto and credit card debt is rising significantly. I think eventually this consumer spending that we're seeing will start to roll over. Sarah, yeah, I mean, speaking of yields,

you guys at Nuveen have a whole lot of bond funds. And I think the popular wisdom at the beginning of the year was, oh, the Fed doesn't have that much farther to go, but on rates. But yields are up a lot despite what the Fed has or hasn't done. So what's the message now for investors who have been eyeing bonds and thought that maybe what happened this year wasn't going to happen? Well, investors have been holding a lot of their portfolio in cash, about 25 percent of portfolios in cash, earning about 5 percent on T-bills and CDs. And for investors to leg out of that cash, they need to find returns that can beat the risk free cash returns that they can get. You can find that fixed income in certain areas that have been hit hard and are earning returns that are greater than five percent. So municipal bonds, the fundamentals remain very strong. Their

state savings rates, their coffers are at very high levels. Rainy day funds are very high. They're in good shape fundamentally. I think you can invest in AAA and BBB munis and earn a nice return there. Switching over to equities, you can also earn income there. A segment of the market that's been left behind is dividend growers. These are companies that consistently increase their dividend yield. As the Fed starts to put rate hikes behind us, I think these companies in equities that provide income to investors will also be important. And that will help investors get out of cash.

Because once the Fed pauses on rate hikes, return on cash will start to decay. So you want to be careful about holding onto that cash for too long. What do you say to investors who are getting nervous seeing bond prices head down as yields go up? You know, it's hard for people to be patient, but any historical perspective on why, for example, what you were saying about munis makes sense? Well, this is going to be a continuous short-term issue as long as yields, as long as a 10-year and the yields keep moving up the rate that they have been. Our view is, though, this will start to settle as the Fed gets to its final rate hike. This is also tightening the economy pretty significantly. So given that, we do expect to see the consumer slow and U.S. growth eventually to

start to slow down as we go into 2024. I think that'll start to unwind some of what we've been seeing year to date. Sarah Malik, thanks for joining us. Thanks for having me. A lot of earnings movers after hours, most of them in the green today. Netflix particularly will be in focus. Interesting to see what they have to say on the call. And Tesla, of course, where we get so much of the color and the guidance from Elon Musk and the staff there in terms of what the current quarter and beyond looks like. I got to think the big thing people are going to be talking about tomorrow, though, and trading on has got to be Netflix. I mean, thus far, it's up 12 plus percent after hours.

We'll see where it goes after the call. But keeping that in a one month perspective, though, it still hasn't regained what it lost over the past month.. We'll see where it goes after the call. But keeping that in a one month perspective, though, it still hasn't regained what it lost over the past month. So we'll see. That's right. And of course, we mentioned Powell's speech tomorrow. You've got jobless claims, LEI as well, and more earnings, including Union Pacific and CSX, which I'll be watching after J.B. Hunt helped tank the transports today. Guidance going to be really important. Of course, we're heading even more into the thick of earnings season with more and more tech names, for example, coming up. All right. That's going to do it for us here at Overtime. Yeah. I mean, busy hour. Fast Money starts right now.