Closing Bell - Closing Bell Overtime: Adobe CEO On Q1, OpenAI’s Sora; What Could Be Next For TikTok 3/14/24

Episode Date: March 14, 2024

Averages closed lower today after more hotter-than-expected inflation data. Ariel’s Charlie Bobrinskoy on small-caps and G Squared’s Victoria Greene on broader markets. Earnings from Ulta Beauty, Pagerduty and Adobe. Adobe CEO Shantanu Narayen talks the latest quarter, AI adoption and OpenAI’s Sora tool. Lux Capital co-founder Josh Wolfe on the many moving parts around a possible TikTok ban and what could be next. Plus, our Leslie Picker on why some rundown New York City apartments are turning into another headache for regional banks.  

A half an hour ago we were at session lows but not anymore. Stocks closing well higher than that after a hotter than expected inflation report. That's a scorecard on Wall Street but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Well the Dow is snapping a three-day win streak while the S&P and Nasdaq did fall for the fourth time in five days. Real estate and utilities the worst performers today. Energy and communication services the only sectors in the green. Keeping an eye on the bond market today, too, with all that inflation data.

Now investors turning their attention to a trio of big earnings. We will have instant analysis of results from Adobe, PagerDuty, and Ulta Beauty. And then we're going to speak exclusively with Adobe's CEO, Shantanu Narayan, before he joins the call with analysts. Plus, Lux Capital co-founder Josh Wolf reacts to former Treasury Secretary Steve Mnuchin's interest in buying TikTok. But first, let's get more on today's market weakness. Mike Santoli joins us now from the New York Stock Exchange. Mike, I do want to get your thoughts on what we saw in the markets, because it really does seem like equities took their cue from treasuries as we

saw yields push a little bit higher on that PPI report that was stronger than expected on the heels of a CPI report that was slightly higher than expected earlier this week to. Yeah Morgan seems like just one too many slightly warmer than

anticipated inflation numbers couldn't ignore it fully the bond market. Definitely getting a little bit more agitated. I would say still within the range we've been in for three months, but barely so. Not quite a full recasting of the likely Fed behavior from here on out. But you have to be open to the idea that we do defer rate cuts. And the longer that we wait for the first rate cut, in theory, the greater chance for some kind of an error of waiting too long. So that's the big backdrop. I think more tactically, this was a market that was waiting

for something to come along to skim some of the froth away and cool off areas that were overheating and sentiment and positioning by various measures looked like they were getting a little bit too giddy. And that's the kind of conditions that usually brings on some excuse for a broad sell-off. And really, the weakness below the surface of the S&P 500 was a good deal deeper than it would have led on if you just looked at the index. Interesting. Okay. Mike, thanks. So let's do that. Let's get to our market panel. Joining us now is Charlie Babrinskoy of Ariel Investments and Victoria Green of G Squared Private Wealth. Welcome to both of you. Victoria, on the S&P, after a little bit of

a rally attempt in the last half an hour, we're right back about where we were a couple of days ago, even after the hot PPI today and the CPI that wasn't ideal. So what does that say to you about the health, the strength of this market? I think the market's looking beyond some of the economic data. The assumption is, yeah, we'll still get rate cuts this year, maybe three, not four. We've been repricing that generally over the last few months. I think it was more concerned on retail sales than it was actually on the PPI. I think it was retail sales. And the concern is the consumer rolling over. To me, that's the big indicator we're going to have to look at. We need consumer strength. We need consumer spending to To continue to drive earnings and for me

earnings has taken front row to some of the economic problems. Which is what what we see in this rally continue I will remind people markets can go down. I know it's been a very long period of time since we've lost money at all

in the stock market. But this is a very normal happening we've been basically vertical since last October. So a little bit of a pullback it's okay it does not mean the market is rolling over and dying. It may just be a pause and a consolidation.

OK. And Charlie, I mean, speaking of going down, the S&P and NASDAQ were just down fractionally. But the Russell 2000 was down almost 2.5% today. This, you know, for value investors, they might be a little frustrated now with how this is playing out. So what do you do? Bad day for me to be on today, no doubt about it. I've been making the argument that the S&P 500, obviously led by large cap growth, is stretching valuation, but that there's a lot more opportunity. The Russell 2500 value is trading at about 14, 14 and a half times forward, whereas the S&P is over 20. But the problem is,

on a day like today, when you get indications that maybe inflation is not dead, that maybe the Fed's going to keep rates higher for longer, that hurts names like housing-related names, auto-related names, some consumer-related names. And so today is a tough day to come out on the show. We're long-term investors, not going to get rattled by one day. But there was some bad data. Frankly, the McDonald's announcements about soft consumer, the consumer eating at home more than going to a restaurant. If the consumer feels that McDonald's is a stretch, that's a little bit discouraging. It's one name, but it wasn't great. Russell down just two percent, not almost two and a half, I should mention.

OK, still Still a move, a significant move nonetheless. Victoria, if we're operating in a bull market here, how does this compare to what we've seen through history, recent history? Yeah, and that's a great reminder. We're actually lagging behind the 2020 bull and the 2009 bull, and this is just a very normal bull market. People want to say, well, it's abnormal. This has happened before. If you look at the pace off the bear market lows, again, we're trailing those two. We're not quite in line with 86 and 82, but we're, I'm sorry, a little bit in front of those two.

But when you look at it, it's a normal bull market. This is what happens. You are very rapid off the lows. And so none of this is something I see as abnormal, that we're getting way too stretched. If we continue to see the E grow, which we can, if we continue to see increases in productivity, increases in margins, increases in earnings, we can continue to see this bull market run. I'm making the argument we're still in the early innings here.

And while there may be bubblish tendencies around the concentration and technology, it's happened before and it can continue to persist for years. It's not like we're going to roll over anytime soon. So for me, it's the bull is off and running and we're going to have a little bit of choppiness. Very, very normal to have a five to 10 percent pullback. But this is all just a normal correction out of a bear market. OK, I just want to note that we have Adobe earnings, PagerDuty and Ulta all out. Our team is going through those results. We'll bring them to you as soon as they're ready.

In the meantime, Charlie, when I look through your notes, OK, the moves we saw on the market today aside, when I look through your notes, you use the word dangerous a lot. And what I wonder is what is dangerous about this market? That people are too bullish about technology and momentum. Momentum works until it doesn't. We have a lot of evidence that this rally has been way too focused in the top names, that they are way ahead of the rest of the market. There are indicators of market sentiment that are at record lows for bearishness. In other words, you have to go back to 2019 to get this low a percentage of people who were bearish on the market. Barron's just had a very bullish cover. That's not a good sign when Barron's is pounding the table. So I do not like the absence of fear.

That's a little dangerous to me. All right, Charlie, hold tight. Adobe earnings, as we mentioned, are out. And Christina Parts Nevelis has the numbers. Christina. Yeah, it's a beat on the top of the line for Q1. We'll say $4.48 EPS on revenues of $5.18 billion, but you can see the stock is down 7%.

Why is that? You're seeing Q2 revenue guidance coming in a little bit light, and then a key metric that many were looking for is their net new digital media annual reoccurring revenue. The boogie number for that for BuySide was $440 million, but for this report, we're seeing $432 million. So a little light there.

The company also announcing a $25 billion buyback program as well. So shares still down over 6.5%. Yeah, we're going to get more on that. Thanks, Christina. When we speak exclusively with Adobe CEO Shantanu Narayan in just a few minutes. Morgan, this is one to watch because enterprise software and the AI connection with Firefly and more within Adobe, if the AI revolution is going to continue, the software makers need to participate. Yeah, and we know Adobe's been an early adopter,

and this is really where rubber is starting to hit the road, and you're starting to see the realization of that monetization of those capabilities here. So it's going to be one to talk to Adobe CEO about here in just a few moments. We've got Ulta Beauty earnings out too. Courtney Reagan has those numbers. Court. Hi, Morgan. Yeah, for the holiday quarter, Ulta putting out pretty strong results here.

Earnings per share of $8.08, well above the street's expectations for $7.53 on stronger than expected revenues. Those also coming in at $3.55 billion. The street was looking for $3.53 billion. Looking ahead for the full-year revenue forecast is a range that looks to be above consensus and $11.7 billion to $11.8 billion. The street was looking for just under $11.7 billion.

Although the full-year earnings guidance, the EPS guidance of $26.20 to $27 is a hair below what the street is expecting at $27 even. Comparable store sales up 2.5% for the quarter, transaction and ticket higher. And a notable quote here from CEO Dave Kimball talking about international expansion representing an incremental long-term opportunity. They're looking at different operating models and partners and geographies. So that will be something to watch for Ulta Beauty and listen more for on the call when we get to it. Back over to you. All right. And we know you'll be watching that closely. Courtney Reagan, thank you. Okay, Victoria, I'm going to go back to you. You're an owner of Adobe. I realize you're still getting some of the details here, but in

general, what you've heard so far, your thoughts? Yeah, I'm a little bummed about that miss on annual recurring revenue growth. That was key. For me, it's going to be about the conference call. We need to know how they're going to react to OpenAI Soros. That's a big reason the stock is down a little bit. They need to defend this moat that they've had. They need to prove they're still a leader in image editing and getting it out there. And they have a huge market share, and they should have a huge opportunity as more and more content is being released online, even if it's AI-generated content. Typically, it still needs to be edited, and Adobe is absolutely still the trusted software for that. They continue to ratchet up prices. So for me, I'm a little disappointed.

It's a little bit light here, obviously a miss. I think it's key that, number one, they need to firmly defend their moat from open AI. Number two, prove their value. It's a make or break year for them. They need to come out with Firefly, text to image, text to video, and that needs to be something that drops first half of the year, not second. So they're a little bit on the clock here. I still have a lot of faith in this company, but yeah, a little bit light. That's always, that's never fun when they miss on their key matrix. All right. We'll see what Shantanu says. Victoria, Charlie, thank you both. PagerDuty earnings are out. That stock is dropping 10 percent. Kate Rogers has the numbers. Kate? Yeah, John, that's right. It was down by almost 12 percent earlier.

So a beat on the top and bottom line here. PagerDuty EPS, 17 cents adjusted, better than the 15 cents expected by analysts. Revenue is also a beat for Q4 here, 111 million for the quarter, higher than the 110 million estimated. But it's the guidance that's likely bringing the stock down here. Q1 revenue is in a range of 110.5 to 112.5 million. That's lower than the 113.4 million estimated. And also EPS of 12 to 13 cents, 5 cents lower here than the 18 cents estimated. And as you said, the stock down by just under 10 percent now. Back over to you. All right. Kate Rogers, thank you.

Well, let's bring back Mike Santoli for his market dashboard. Mike. Yeah, Morgan. So most of the damage was felt by the average stock as opposed to the market cap weighted S&P 500. Look at how the equal weighted S&P has fared. Now, it's important that it has been in this nice uptrend, even though it's been generally underperforming the bigger cap stocks. It has pulled back a bit, but still at this high level. And that confirms to some degree the bull market status that we've been talking about for a while right here. But take a look at the equal weight S&P, this index relative to the market cap weighted main S&P 500. And you'll see it's been just kind of, you know, the slinky rolling, going down the stairs here. And it has largely had these legs lower. In other words, a narrowing market, most stocks underperforming the mega caps when rates have bottomed and started to go up, when treasury yields have hit a bottom

and started to go up. That happened here in late July at some point, also in September and on down the first couple of days of this year. That was also a time when bond yields found a low and started to lift. And that sort of raises the question of whether, in fact, you know, inflation is rekindling. The Fed's going to be able to ease higher for longer. The idea that maybe the Fed would have to wait too long and maybe the economy couldn't handle it. So you see this broadening thing we've been talking about. It was great in the fourth quarter. It hasn't been a whole lot this year, even though it has felt like a less narrow market. Now, here is the 10 year Treasury over the past year. Just to illustrate where we are on this path. Very importantly, I've been talking about it's being

in the upper end of its three month range there you are that december moment right there was right before the december fed meeting with how moral i said rate cuts are coming so you know we're testing it it doesn't mean that we've uh... totally change the trend lower or that it's a punishing level of rates but we're sort of testing the equity markets tolerance

for somewhat higher yields i had so fascinating to me that you see this direct correlation that you just pointed out between equal weighted S&P and Treasury yields, because you would think that in some ways it would almost be an inverse or not an inverse relationship, but that the relationship would look more correlated, not with equal weighted, but with the S&P and the mega cap names being so top heavy traditionally, given the fact that we're talking about growth names there and the long term. I know we've talked about this before, but the long term relationship between rates and tech. I would say that that relationship was always somewhat overstated and it has not really been helpful recently. And I think part of the reason for that is the mega cap techs have secular growth that's somewhat independent of financing costs

or the economy and the AI trade, obviously has kind of overcome a lot of those things. So these relationships definitely can be in flux for a while. In 2022, it did seem like rates up meant NASDAQ down, but that hasn't held for some time right now. All right. Mike Santoli, thank you. Up next, Adobe CEO Shantanu Narayan is going to break down the company's quarter.

You want to hear that because the stock is down by 8% right now. He's going to be with us before the earnings call. And Lux Capital co-founder Josh Wolf, who has been highly critical of China on whether he thinks ByteDance will ever sell TikTok or risk a ban in the U.S. How all of this plays out, national security implications and more. We're back in two. Welcome back. Adobe's first quarter results out moments ago. Stock is down, let's see, about 9.5% right now in overtime. And joining us now in an exclusive interview is Adobe CEO Shantanu Narayan. Shantanu, good to see you, be it on the top and bottom line for the quarter you're reporting.

With the guide, though, the range that you're giving, the top end, $530 billion is right about what the street was expecting. And then on the digital media net new annualized recurring revenue guide for Q2, the street looks like was looking for $461-ish million. You got into $440. So what's your take on not just the quarter, but how things look from here? Well, John, first, to your point, let me start about Q1. And again, record quarter, tremendous profitability as it relates to how the company continues to perform. And I'd like to highlight a few numbers. RPO, which is clearly a strength of the underlying business, that grew 16%. So the fundamental business was very strong as it related to Q1 performance.

When we look at the product delivery and everything that we've delivered as it relates to AI, whether it's in Creative Cloud, whether it's in Adobe Express, certainly things that we're doing on the enterprise with respect to Gen Studio, as well as AI Assistant that's both available right now in Reader, as well as in Acrobat. I think the company has done a phenomenal job of embracing what's happening with generative AI and making sure that we invest both in our models, as well as we ensure that the interfaces that people use, whether it's Reader, Creative Cloud, or certainly Acrobat, that we continue to make sure that we're delivering great innovation for the customers.

I think when you unpack the results, a couple of things that I would highlight. The first thing I would highlight is the usage of Firefly and AI generation within our applications, over six and a half billion. So people really appreciate both the responsible manner in which we've created Firefly and they're using it. So the adoption of Firefly,

whether that's in Photoshop or in Illustrator, is really pretty good. When you unpack ARR specifically as it relates to your question, the thing to remember is that when you normalize it for some pricing actions that we took both in Acrobat as well as in Creative Cloud last year. We actually had record Q1 commercial net ads in terms of subscriptions, as well as the creative ARR, which is what people are focused on, that grew 20%. So, you know, when I look at it and I look at it from the perspective of the innovation that we've delivered, when we look at it from the results

that we've accomplished, the enterprise traction that we're seeing as it relates to Gen Studio, as well as the forward looking, I'm really pleased. Yeah, that's interesting, especially I was going to ask you about those Firefly generations. It looks like it's solidly two billion just since you reported last quarter. Now, give me some context here on the broader picture of customers. We've seen multiple reports from retailers, even discounters that have been doing well, where guidance is coming in lighter than expected from them. So what's the impact then on digital experience and spend and even on creative spend when retailer margins might be under pressure? Are they leaning in to get a share of the pie or are

they easing up on their spending growth at least because the revenue opportunity might not be as big? Well, you know, John, we are going to have summit and I hope to see you there in a few weeks. And we're going to give a lot more insight into the innovation that we're unveiling. But I think big picture of people really trying to do campaigns and they want to understand how generative AI can be used to drive more personalization at scale as well as accelerate the campaigns. But they are also looking to understand the efficiency of their marketing spend. And so, you know, our marketing business had a very strong quarter, you know, tremendous, as I said, RPO and record revenues, again, in digital marketing. And so I think the emphasis on delivering appropriate personalized content to engage with customers, that urgency is only

increasing and not decreasing. And whether you're a retailer, whether you're a financial services, whether you're a pharma company that's going direct, I think everybody is looking to see how they can engage directly online with customers. Shantanu, it's Morgan. With the termination of the Figma acquisition in December, investors have been looking for updates on capital return, game plan for future M&A strategy. I realize you just announced a $25 billion stock repurchase program this afternoon, too. How much does that speak to that strategy now that that acquisition isn't happening? I think it's a great question, Morgan. And I think it just reflects that Adobe is one of these unique places where we can not only invest in our future, we're investing in these fundamental Firefly models.

You know, we're clearly the leader and pioneer in what's happening with digital experience. But given the cash flow and the profitability, that we will continue to return, you know, excess capital to shareholders. When you think about it, we've returned, I think, something like $26 billion over the last decade. And we've announced that we're going to be returning another $25 billion over the next four years. So clearly, we are able to straddle both investing in the future and making sure that we focus on product while continuing to return excess capital to shareholders. Finally, Shantanu, I've got to ask you about OpenAI's Sora. That's been a big thing that's happened in the creative space since the last quarter. Text to video, we just saw some survey information out that a lot of people can't tell the difference between this and real video. We saw people like Tyler Perry pulling back from building out studios because of it.

Should investors be concerned about text-to-video and what Adobe, with how you plan to indemnify customers as you develop these things, how Adobe is going to respond? I think the research that exists as it relates to text-to-video is incredible. Not just what OpenAI has done with Sora, but Adobe as well. And I look at the tremendous advances that we've made in text-to-video, not only as it relates to the models, but also embedding that within Premiere Pro.

Just today, we actually released a little bit of a sneak of what we call auto-dubbing and lip sync, which allows you in real time to do translation and accelerate the production of videos externally. So I firmly believe that all of these technologies are just going to be an accelerant. The state of the art as it relates to Sora allows you to create these really small snippets of video. And the technology is amazing in that it now understands physics, it understands interactions. That's going

to cause more video to be ingested into the system. But after you ingest that, you really need products like Premiere Pro or After Effects or Photoshop to edit with it. So I think it'll cause another explosion in the amount of video. And Adobe is going to be one of the beneficiaries because people will need more authoring and editing tools to take advantage of that. And I am planning to be there with you at Summit in Vegas, Shantanu, so looking forward to seeing you there soon. Shantanu Narayan, CEO of Adobe, great having you before the call here on Overtime. Thanks for having me, John and Morgan. Vegas, baby. All right. Former Treasury Secretary Steve Mnuchin is trying to put together an

investor group to buy TikTok. That news broke on our air earlier today. Up next, Lux Capital co-founder Josh Wolf and why he's skeptical that China's ByteDance will sell the social media company. And check out shares of Dick's Sporting Goods, a big winner on Wall Street today after easily beating earnings estimates, issuing strong full year guidance, and hiking its dividend. We'll be right back. I think the legislation should pass and I think it should be sold. I understand the technology. It's a great business and I'm going to put together a group to buy TikTok. You're trying to buy TikTok. I am because this should be owned by U.S. U.S. businesses. There's no way that the Chinese would ever let a U.S. company own something like this in China. Well, that was former Treasury Secretary Stephen Mnuchin

telling Squawk Box's plan to buy TikTok as TikTok as the crackdown on the app heats up. Joining us now is Josh Wolf from Lux Capital. Josh, it's always great to have you on. I want to glean your insights on this one. I realize there's a lot of ifs, and this is very much a developing story, and there are a lot of moving parts. If this were to make its way across the finish line, pass through the Senate, get voted into law here, how could this actually play out? Would ByteDance ever be willing

to sell TikTok or would a ban be the more likely scenario? And why is this so necessary from a national security standpoint? So I think it's a no-brainer, first of all, and whether it's Mnuchin or others that put this together to buy it and put it into American hands. It is a great asset. It's got a terrible liability. And that liability is that every piece of data goes to the Chinese Communist Party as part of their laws. And the influence that they have on the American public is just absolutely insidious. Imagine if we gave Nazi Germany in the 1930s a TV station alongside ABC, CBS or NBC, or imagine that we gave USSR when we were fighting communist Russia in the 80s, its own TV station. stood with Hong Kong and they shut down all Houston Rockets stuff on TikTok, or whether it's things like the Hong Kong protests that you'll see hundreds of thousands of posts on Instagram

and other social media and virtually nothing on China. So if we care about our democracy, the public town square, sanctity of our elections, you want this in American hands because we know that they are tipping the scales, amplifying things that are pro-China, suppressing things that are not in their interests. In India, it's highlighting conflict with Kashmir. Here, it's highlighting anything that will create American divisiveness, and it's just corrupting our democracy. So that's why it's key for national security. Yeah. Not to mention the treasure trove of data, which we know is a powerful commodity in this day and age of ever-growing AI capabilities on the world stage. I mean, the counterarguments to this are going to be First Amendment concerns. Expectation, as you could see, court challenges

if this does become law. The other social media companies, it's very interesting. They've been sort of sitting this one out in terms of lobbying and taking a stance. Meta is a good example. It hasn't taken a stance to oppose or to support this bill. I was speaking to a source close to Meta who said that the company recognizes the national security concerns raised by Congress about TikTok, but is also concerned about the precedent that this would set if the U.S. government can target one company. This could set up a precedent where Meta, for example, could be targeted by other countries around the world under the same framing. How real is that risk for U.S. companies? It's a great point. That risk already exists.

If China just followed simple reciprocity rules, the fact that Facebook and Twitter and all of our social media apps are not even allowed in their country, let alone their version of TikTok, which only shows their children science and technology videos and limits it to 40 minutes a day, whereas they're piping in just horrific, depressing, horrible, divisive stuff here. As it relates to the First Amendment, it's a key point. And I think that Mike Gallagher and Congress did such a thoughtful job, which is why it passed with 352 votes in the House. And now I think that Chuck Schumer on the Senate, Rubio, Warner all have tremendous opportunity to set leadership here in a bipartisan, non-divisive way to recognize that this is a national security threat. It doesn't touch the First Amendment. In fact, I've banned

TikTok in my household and I've got three kids. You put this in American hands, I'll put them on it tomorrow. So this is not about freedom of expression. This is about a foreign adversary with ill intent, hyping content directly into influence our citizenry and doing something about it. And for the first time, I've got to say, I am super proud of our electorate to actually take this on and do something historic. Josh, good to see you. So algorithm aside, going back to the data, I believe you just said that China's seeing every bit of U.S. data that moves across this platform.

My understanding is that as of June 2022, TikTok said that 100% of new U.S. user traffic was running through Oracle's cloud infrastructure. I would think Safra Katz and Larry Ellison would notice if China were exfiltrating off of their cloud all of that data. I mean, would you allow that? Well, I'll give you two things. First of all, I think Safra Katz and Oracle and I think Larry Ellison are amazing. It's a great deal for them to be able to house data in the U.S. That doesn't mean that it's not being piped back and that the algorithm is not allowing things to go back into

China. You have to parse what TikTok and their CEOs say because they're very clever with their words and these narrow definitions and the way that they spin things. So is Oracle housing it? Sure. Are they saying definitively that it's not going back to China when it is a law that any Chinese-owned company has to provide full access to all data, all user information, all content back to the CCP, I mean, that's, to me, unquestionable. The second thing is, Chu will say, well, we're keeping the data here and the algorithms are here, then that should make the problem very easy. If it's, as he purports, meaning the CEO of TikTok, difficult to sever from TikTok, then it doesn't reconcile with the fact that the algorithms and the data are here. If the algorithms and the data are here, then it should be easy to separate ownership. And that's

all we're talking about. And by the way, separating ownership for those, whether they're venture firms, growth funds, individuals, it's an amazing opportunity because I would put the odds that somebody that's a stakeholder today in TikTok actually being able to sell is going to be like Ant Financial. They are going to get just killed and maybe literally, but they're going to not be able to get liquidity on their investment. Divesting TikTok, great for investors globally, great for Americans, and frankly, great for TikTok that can let this go out into the world and let people continue to use TikTok, but just have it in American hands.

Right. Yeah. I don't know about the algorithm. Just talking about the data on Oracle servers there. Josh Wolf, thank you for being with us. Great to be with you guys. Speaking of TikTok, the QR code, it leads perfectly into the latest installment of my On the Other Hand newsletter. And this week's debate is, is a potential law forcing TikTok to be sold or banned a good idea? You can scan that QR code on the screen or type in cnbc.com slash O-T-O-H to get that and sign up. And don't forget, tomorrow, exclusive interview with venture capitalist Keith Raboi, who has promised to cut off campaign contributions to any Republican in Congress who votes against this TikTok bill, which would ban or force them to divest. Well, time now for a CNBC News update with Bertha Coombs. Bertha?

Hey, John. The judge overseeing Donald Trump's classified documents case said in a hearing today that she would return a ruling promptly. Judge Eileen Cannon expressed some skepticism over Trump's argument that the case should be dismissed based on the Presidential Records Act, which he says allows him to keep the documents as personal property. It comes on the same day that in Manhattan, the district attorney agreed to push back the start of the hush money trial by 30 days, while Trump's team had asked for 90. A federal appeals court ruled today that former Trump adviser Peter Navarro must report to prison in Miami next week to serve his four-month sentence, declining to put his

sentence on hold. Navarro was convicted of defying a subpoena from the January 6th committee. And the White House announced $120 million in funding today for tribal nations to fight the impacts of climate change. The funding is part of an effort to help the tribal nations adapt in the face of environmental changes, which are already threatening water supply and food sources. Back over to you, John. All right. Thank you, Bertha. Now we have a news alert on U.S. Steel. Pippa Stevens, what are the details? Hey, John, I just spoke to Cleveland Cliffs CEO Lorenzo Gonsalves, who told me he is now the only game in town to buy U.S. Steel amid scrutiny around Nippon's offer.

This comes after President Biden this afternoon called U.S. Steel an iconic American company, saying it is, quote, vital for it to remain domestically owned and operated. Gonsalves told me he has no intention of bidding right now, saying U.S. Steel is in, quote, no man's land and that U.S. Steel needs him more than he needs them. Gonsalves said he would bid in the 30s, a long way from the 55 per share offer that Nippon put in. And you can see their stocks down slightly after hours. Morgan. All right. Pippa Stevens, thank you. Want to watch here in this election season.

Ulta Beauty's earnings call is underway. Up next, an analyst with a buy rating reacts to the results and tells us what management is saying about the quarter. And later, why the high cost of renovating rent-stabilized apartments in New York City could have a major fallout for New York Community Bank Corp and other regional banks. Stay with us. Welcome back to Overtime. Shares of Ulta falling after reporting earnings. The company beat on the top and bottom lines, but its earnings guidance coming in lighter than expected. Joining us now, Canaccord Genuities, Susan Anderson. Susan, it's great to have you on. Thanks for having me. I mean, we saw comparable store sales. It looked like those were a beat as well, but I guess the guidance a little bit light here. I guess walk me through your take on these results as this call started 10 minutes ago? Yeah, so the bottom line looked great.

They beat earnings quite a bit. Top line, they did beat consensus by, you know, they reported 2.5 comp, consensus went up 2.2. I think investors were maybe hoping it would be more like a three comp. So maybe that was a little bit light there. But then I agree, the guidance also was a little bit light.

On the top line though, the comp guide was very good. They guided a 4% to 5% comp. So that, I think, shows that they're confident in continuing to grow sales this year. But then on the bottom line, earnings guidance came in just a bit below at the high end. So I think that's where investors maybe hope for a little bit more. But typically, Ulta is pretty conservative in their guide. So, you know, I would hope they can beat that as we go throughout the year. Yeah, I mean, beauty has been one of those categories that's been really resilient on the discretionary side with consumers. I realize that we got a weaker than expected retail sales number this morning. We've been sort of dissecting every retail earnings report that comes across the desk to decipher

the cracks in consumer spending. What do we learn from this report? Yeah, so I think the confidence in the top line with that 4% to 5% comp guide shows that beauty has continued to be very strong. And they also noted that in the report as well. So I think that, you know, it's just an area that consumers kind of look to give up last and sometimes even buy it to make them feel better when they're cutting back elsewhere. So, you know, I do think that beauty can continue to do well this year. You know, also Ulta's up against easier compare. So this whole year they were up against mid to high teen comps from, you know, just that COVID bounce. But now they're up against high single digit comps for the most part of the year.

So I think that'll be, you know, we're just seeing those sales normalize. And I think it's good that they still feel very confident in that four to five percent range. At the same time, Susan, I can't help but notice from discounters that have been traditionally strong like TJX and now from Ulta, we're seeing continued good results, but maybe not as good on the guide as some had expected. What does that signal, if anything, from investors about entry points here? Yeah, I think companies are just being cautious as we go into this year. You know, inflation is still up there and still eating into consumers' wallets. So I think companies just want to be, you know,

cautiously optimistic as we head into this year and not get ahead of themselves. So, you know, as we kind of go throughout the year, if we can see the consumer keep spending, I think, you know, we can continue to see some very good numbers out of these companies. We'll see. Susan Anderson, thank you. Thanks. Still ahead, much more on all of today's overtime movers as Adobe and PagerDuty get set to begin their earnings calls. Plus, SpaceX's most ambitious launch yet. It brings Elon Musk's Mars ambitions one step closer to reality. We've got those details when Overtime returns. turns. Another milestone for Elon Musk's SpaceX as Starship blasted off this morning from South Texas and traveled to space. The most powerful rocket ever built reached orbital velocity.

It carried out a number of ambitious tests in flight, demonstrating new techniques that will be crucial to future Moon and Mars missions. But just before its plans splashed down, the spacecraft was lost in reentry, breaking up over the Indian Ocean. Now, system built to be fully reusable, Starship's super-heavy booster was also lost after it did reenter the atmosphere for the first time, but lost in an attempted re-landing.

NASA's chief Bill Nelson lauding the, quote, successful test flight on X. And SpaceX does have a multi-billion dollar contract with NASA to use Starship to land Artemis astronauts on the moon. It matters to investors, too. Chad Anderson, the founder and managing partner of Space Capital, says Starship isn't even factoring in yet to the $180 billion valuation that makes space. Factoring in yet to the $180 billion. Factoring in yet to the $180 billion. Factoring in yet to the $180 billion. Factoring in yet to the $180 billion. Factoring in yet to the $180 billion. Factoring in yet to the $180 billion. Factoring in yet to the $180 billion. Factoring in yet to the $180 billion. Factoring in yet to the $180 billion. Factoring in yet to the 180 billiarding in yet to the 180 billiarding in yet to the 180 billiarding

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