Closing Bell - Closing Bell Overtime: Big Move In Netflix As Tech Earnings Begin; Activist Investor Ancora On What They Want At Norfolk Southern 4/18/24

Episode Date: April 18, 2024

Tech earnings begin in earnest as Netflix reports Q1. We have you covered from every angle on the big moves with Evercore’s Mark Mahaney, Deeperwater’s Gene Munster and Third Bridge’s Jamie Lumley. JC2 Ventures CEO and former Cisco CEO John Chambers on if the IPO window is opening again and the slide in tech stocks. Plus, Janus Henderson CEO Ali Dibadj gives his market playbook and Morgan sits down with activist investor Ancora on what changes they want to see at Norfolk Southern.

Well, five down days in a row for the S&P 500. This is the longest losing streak of the year for the broader market, but the Dow did eke out a slight gain here. That's the scorecard on Wall Street. The action's just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. Yeah, and buckle up for Netflix earnings.

It's out already, and we're going to check on that first big bellwether growth report of earnings season, and we're going to get you those numbers and analysis just as soon as we can. And Walmart-backed startup Ibotta getting a major boost in its first day of trading after pricing well above expectations. Look at that, an 18% jump in trading. We're going to discuss what that strong debut signals for other companies waiting in the wings with former Cisco CEO ceo turned venture

capitalist john chambers but as we await okay we've got the netflix results ready to go steve kovac what do we have hey morgan yeah it is a beat on the top and bottom lines and i'm subscribed subscriber net ads first eps coming in at five dollars and 28 cents Street was looking for $4.52. And as for revenue, a slight beat here, $9.37 billion versus the $9.28 billion the street was looking for. And net ads coming in at 9.33 million net ads. That smashes expectations of 4.5 million. Still digging through the numbers here, Morgan, but it looks like shares are up 2% so far in this. Okay. Steve Kovac, we'll be back to you for more as you dig through this report. In the meantime, let's bring in Vital Knowledge founder Adam Crisafulli and Evercore ISI head of internet research, Mark Mahaney. Mark, I'm going to go to you first. You've been bullish on Netflix for a

while. The fact that we're seeing 9.33 million in net ads, which is more than double what the street had been expecting. Your thoughts? Well, the stock is always going to trade off subs. I know the company would like not to hear that, but it is. And these subs were, the sub performance was really impressive. So, you know, we're going to look for the guide. We're going to look for commentary on the call as to what's the source of the upside. Is it the core business? Is it paid sharing? Or is it the ads, new ads business? And my guess, our strong guess is it's all three. You also have the pricing actions that are taking

place. I mean, they're accelerating sub ads when they're taking up pricing. Very few businesses, consumer businesses can do that. So it's kind of hard not to be bullish on this. Now, it's had a big run. Valuation is getting pretty full on this, but I think the stock continues to rise. If you can put up sub numbers like this and expand margins, that's good. You want to stick with a fundamental winner like that. Yeah. And of course, we're seeing shares move higher as investors digest this report. Adam, I mean, this is sort of the unofficial kickoff of tech earning season when we get this report. What does it signal here? How does it set the stage, especially on a day where once again, we saw the market try to rally in the regular session and basically pair those gains. But we did close closer to the flat

line than we were trading just a short while ago. It was kind of a failed rally, but also a failed sellout at the end. So it was almost a neutral sort of day. On the surface, the sub numbers look terrific for Netflix. I think, like Mark said, it will be interesting to kind of parse out how much of this is the end of password sharing crackdown. And then plus advertising, how much advertising is really ramping. If that's weighing on ARPU at all as the ad tier becomes a larger percent of the mix. You know, I will point out we had two really important tech reports out this week, probably the two most important tech companies on the planet at the moment with ASML and Taiwan Semi. And I think that really played into a lot of the weakness that you've

seen in the market the last couple of days, where a lot of people were really counting on tech to act as a continued source of stability in the market. And you had two of those names with pretty underwhelming results. So I think tech investors right now are quite anxious about, you know, the rest of the Q1 season over the coming couple of weeks. But for Netflix, it looks strong on the surface,

but, you know, going through the full letter will be important. Yeah, Mark Mahaney, speaking of the full letter, first of all, it's interesting, the stock is chopping around quite a bit in overtime, positive, negative. You know is chopping around quite a bit in overtime, positive, negative. You know, you talked about the valuation being full here. Netflix is forecasting for Q2 revenue growth of 16 percent and for the full year revenue growth of 13 to 15 percent and operating margin of 25 percent. They're kind of emphasizing the cash flow and stability in cash flow that comes from this engagement.

Is that good enough to put new money to work, you think, in Netflix? Or is this just along the lines of what investors were expecting, bidding it up as strong as it's been over the past 12 months already? It's not too far off from what investors were thinking. But, you know, the paid sub growth is really what matters more than anything else, as long as that doesn't come at the expense of margins, which the print and the forecast suggest is not the case. Then we're going to be listening for kind of these longer term initiatives. And the two that are kind of at the top of our list are gaming and more and more quasi and then real live sports on the Netflix network. But in the meantime, yeah, I think people underappreciate

the power, not just the paid sharing, but really the ad supported business. You know, that's what really changed our mind on this about two years ago. This is the number one pain point this company had. The prices were too high. They addressed that challenge. And then it turns out they can do this economically because plenty of other companies, other streaming companies were able to generate good ad revenue on these safe ad models, subscription and ad advertising video on demand businesses. So Netflix is right there in them and with them, and it can probably do better than that. So, you know, it's the free cash flow inflection is there. The industry is consolidating. Competitive risk is declining.

It'll rise again at some point, but right now it's declining. And so I think the call is still bullish on Netflix. But, you know, this is not a dislocated stock, so it's not one of our top picks, but it's still a solid buy for us. And Adam, I've been talking about this tug of war that's going on in at least these initial minutes after this report is out. Netflix now down more than 5 percent in overtime on what we've been talking about just in the numbers is a very strong report. At the same time, with the rates, interest rates looking to stay higher for longer based on the Fed's recent commentary,

growth stocks are facing quite a bit of pressure to go higher from here, aren't they? Yeah, 100 percent. You know, so you have the macro environment working against the sector. And now, you know, if earnings aren't perfect, that's just going to be an added headwind. And I think that's why, you know, tech inventors in particular, and tech's one of the few groups where you still do have a lot of technical imbalances in terms of positioning and sentiment and valuation being offside. So if you now have the macro plus the micro starting to go against you, that's one area of the market where there's still a fair degree of vulnerability over the coming weeks and months.

Mark, I just want to go back to operating margins for a second. It looks like Q1, 28 percent. What they're forecasting for Q2 is 26.6 percent. And for full year, as John mentioned, 25 percent. So even though we saw this big jump, it looks like a seven percentage point jump in operating margin for Q1. That's going to erode a little bit here as the year goes on. How much does that matter? I don't think that matters as much in terms of the aftermarket sell off as as the kind of the confirmed outlook for deceleration in the back half the year. You're going to get accelerating revenue growth from Q1 to Q2.

And then, you know, the multiple is fine then. But when the revenue growth starts to decelerate, which is kind of what's implied in their full-year guidance, then all of a sudden the multiple doesn't go higher. It holds or it starts to derate. And the question is at what rate, how quickly it can derate. That's probably what's behind the stock reaction right now in the aftermarket. All right. With the stock hovering around down four and a half to five percent, let's go back to Steve Kovach for more on the subscriber numbers. Steve. Hey there, John. Yeah, just an interesting thing here. Netflix saying starting with its Q1 2025 earnings, that's a year from now, they are going to stop reporting their

quarterly membership numbers and average revenue per membership. Those are two very important metrics. Like we were just talking a few minutes ago, blowing away subscriber expectations here, but pretty soon, or about a year from now, we're not going to be able to look at those numbers. They're going to stick to revenue, kind of like Apple has done with its gadget reporting segments. Just talk about complete revenue instead of unit sales. So that is going to start again in Q1 of 25. John. Steve, thanks. Mark Mahaney, back to you real quick on that. How much does that matter? Well, I don't know any investor who would like that. We like more disclosure rather than less. I think it's kind of a chumpy move. They should continue to disclose subs and ARPU,

but it's their prerogative. And they've been saying for a while they're really focused much more on revenue. I actually think this sub base has still got a lot of growth ahead of it. I still think they can get to this 500 million sub number, this sub goal within five to 10 years. So I think it's a good thing to disclose that. And it's always a negative when companies take a metric that a stock trades off of and they tell you they're going to stop disclosing it. It's always a negative. I get the trading reaction to that. Yeah, we like more numbers, not less. Mark Mahaney, Adam Cicifulli, thanks to you both. Thanks, John. Now let's bring in senior markets commentator Mike Santoli for more on Netflix and the bigger picture for growth stocks. Mike. Yeah, John. So obviously growth stocks have

dominated this last upturn in the market, but I like a three-year look of Russell 1000 growth versus value. Now, of course, growth's still outperforming, but it shows you how it got there, right? Ramping through 2021 into the ultimate peak in the market. Value holds its value a whole lot better than growth did in the bear market in 2022. And then growth kind of surges off the low. So it shows you that it's still where most of the market cap has been added on, but the cadence has been different. You kind of choose your temperament and your style within that. Now, one of the reasons that growth has still in this last several months been the leader

is that it's really where the earnings momentum is. So this is from Barclays, and it shows the big tech, which is basically the old Magnificent 7 minus Tesla. And it shows the earnings revisions for the full year 2024. So how much earnings estimates have changed? Well, they've gone up a lot for those six stocks. And you see what's gone for the rest of the S&P and the rest of technology outside of those six. And it has been a modest decline. Now, that modest decline is really not a big deal. Over many months, the estimates often go down and then they're beat. But it does show

you that there is a fundamental basis at this point for why you have had that mega cap growth dominance. OK, so stepping back for a moment, you were talking here on Overtime this week about the outsized reactions to earnings lately. And, you know, I don't want to put too much on this initial reaction in Netflix. There's still the call to come and, of course, the trade in the regular trade tomorrow. But how high is the bar, you think, for growth stocks in this cycle, given what the market has done? S&P still above 5,000 and given what's happening with rates? I think it's generally high for the likes of Meta, which has had these tremendous stock moves, haven't given much of it back, and they've really had their valuation surge.

So I think for the leading mega caps, the bar is pretty high, at least psychologically. And I wouldn't necessarily say this Netflix move, at least not yet, is particularly erratic. It seems like four to five percent, given how much the stock is up, is kind of in the zone of what you might expect. Yeah, it's been pretty incredible to watch the fall in Tesla, too, which closed today. Now it's market cap below half a billion dollars. Big move there, talking about the magnificent half a trillion. Oh, my gosh. Thank you. I do that all the time. All right. Mike, we'll see you later in the show. Up next, much more reactions to Netflix earnings, including why one asset manager says the stock is too expensive.

Overtime, we'll be back in two. Welcome back to Overtime. Netflix out with first quarter numbers. Just moments ago, you can see it there, down a little more than 2.5%. Smashed subscriber estimates, though. A little light on revenue guidance. The company also says it's going to stop reporting quarterly subscriber numbers next year. Joining us now is Deepwater Asset Management Managing Partner Gene Munster and Third Bridge analyst Jamie Lundley. Welcome, guys.

Gene, what does this change in sub-reporting mean? It's an indication that the company recognizes that they've been through an impressive tailwind over the past 12 months. They've had, of course, the password, what's happened with the ads, also a price increase in November. So 2023 was packed with good news, good tailwinds. We're seeing that in the results now. They're thinking forward to next year. And I think understanding that they don't want to be held accountable to that metric. And I think that that is always a tell for investors in terms of when the pressure point on a stock, that metric is going to be less visibility. I think it is an indication that the scope, the trajectory of the story is going to change from these tailwinds to what are difficult comps

and less visibility. So I put this clearly in the camp of looking forward more of a negative than a positive. Okay. So Jamie, what are the numbers that are going to matter more, relatively speaking to investors now that they're not going to have that number, you know, eventually to look at? Well, certainly the subscriber numbers are the first metric that a lot of analysts have been looking at as one of the key areas where you can compare where these various streaming businesses and also understand the scale that Netflix has built. Going forward, there is, of course, the operating income and profitability, which are incredibly important and are, in addition to subscriber numbers, an area where Netflix is

particularly differentiated. If we look at that margin over this past quarter, well above 20%, having them raise their operating guidance for this year, if we think about where the rest of the competitive landscape is, Disney is targeting long-term, just double-digit operating margins in their streaming business, and Netflix is already well over that. So looking at that area, I think that's something they'll definitely want to focus on as they work on scaling their ad business, increasing revenue per user there. That's something we'll definitely be focusing on. But the valuation of the stock itself, is it still compelling at these levels? Jamie?

I don't think so. I don't even think it's... Well, from my perspective, it's not... If we think of where Netflix is today, they've come off an incredible past couple of months. Just look at the idea of these comparable periods. Netflix has built a ton of momentum. And coming into this quarterly earnings report, the big question would be, are they going to be able to live up to some incredibly high expectations? And if we think about one way from here, there is still the ongoing crackdown on password sharing. There could be room left to run there. Netflix initially targeted 100 million households, which were sharing passwords.

Even if we look at the numbers they've had today, there could still be a substantial opportunity to continue to scale. So if we think towards the future, if they do stop reporting those metrics, we could still be seeing the benefits of those growth numbers translating to both top line growth and ongoing expansion to the bottom line. Along those lines, Gene, I mean, they do mention in this letter, quote, today our share of TV viewing is less than 10 percent in every country. So we have plenty of room to add value for our members and grow our share of viewing by broadening our slate, including live events, comedy, sports, competition shows, music. I mean, this has been a thing investors have been focused on

as they have started to dip their toe into the sporting event world. How meaningful is that lever for them to pull? Well, if it's kind of these one-off sporting events or kind of eclectic sporting events like wrestling, things like that, I don't think that that's going to NASCAR. I don't think that that's going to move the needle. For them to really have growth drivers that can complement, that can add to what the drivers that they've had over the past year, for them to add to that, they got to get into some

mainstream sports and that's going to be an impact on margins. They talked about margins going down. They're typically conservative, so you need to take that into factor. But Morgan, I think that you have to look at this in the context of these growth drivers are going to come at a cost. And I think this is a it's a solid business. It's not a business that should trade at after the downward revisions tomorrow at 40 times earnings. Jamie, I know it's a bit early for this, but journey with me, if you will, into the broader media industry now. What's the impact on everybody else who's been trying to chase Netflix using subscriber numbers sort of as a proxy and been losing money doing it? What's the impact on them of Netflix

eventually not reporting those sub numbers anymore? And maybe analysts focusing more on not just revenue, but also profitability. So even if they do start to make real sub gains, how much does it help? Well, it's a bit of a double edged sword here because we think in terms of advantages, you think about the Paramount Pluses, the Disney Pluses of the world, they're no longer on a quarterly basis have to compare their scale and or lack thereof in comparison with Netflix. But there's also the point if they do start to just focus on those underlying fundamental operating numbers,

most of these companies still trail Netflix by a significant portion. So the focus across the industry is just on what that operating income is, just on where that revenue growth is going. Many of these businesses continue to lose substantial money per quarter. Disney is trying to break even this year.

Paramount is very far away from this. Warner Brothers Discovery, depending on how much you read into the way they report their streaming business, is or is not quite to break even at this point. So by focusing on those numbers, it might continue to really bring into contrast the differences between these businesses and how Netflix is still ahead

if it's not highlighting in scale. Okay, Jamie Lumley and Gene Munster, thanks for joining us. Thank you. The share is down about 2.5% right now. Well, Ibotta coming out of the gate hot today with a surge in its first day of trading, another sign of a comeback in the IPO market where proceeds are up 300% from this time last year. We're going to discuss with former Cisco CEO turned venture capitalist John Chambers. That's next. And as we head to break, check out KB Home moving higher in overtime after the company announced a new billion dollar stock buyback and upped its quarterly dividend by 25 percent to 25 cents per share. Stay with us.

Welcome back to Overtime. Ibotta making its debut on the New York Stock Exchange, pricing well above its range at $88 and opening at $117 per share. Will that encourage other companies waiting in the wings to jump into the public markets? Well, joining us now is JC2 Ventures CEO and former Cisco CEO, John Chambers. John, it's great to have you back on the show. Let's start right there. Is this a strong enough debut to coax more companies out of the wings? Well, Morgan, I think it's a good start would be the right way to word it. When I think about the IPO market, I think first about the general market, which clearly has been on a pretty good movement over the last six to nine months. Last couple weeks, hopefully, will be an exception. Then I look at M&A activity, and that's starting to increase again. And I'm fortunate enough to have two of the top three M&A exits of VC-backed companies to

strategic partners, where Pensando was bought by by AMD and OpenGov was bought by Cox in terms of the direction. Usually then you see VC spending loosen up. We're starting to see that. It's still very tough on the multiples, but I've done more investments in the last four months than I've done in the last 18 months in terms of opportunities. The IPO market should follow, assuming the economy does well and continues to look good. I look at how the consumer holds up as the key variable there

personally in terms of costs that are incurring in the area of housing and gas. But when I talk to the large financial organizations, the consumer is still holding up pretty well, although beginning to eat into their savings. So it's playing out the way I would expect a market to turn. What you haven't talked about is the AI implications for the IPOs. I think AI will dominate not just the IPOs coming to market, but established companies. If a established company does not have a good AI strategy, I think they're in real trouble. And different than a year ago when I talked about being an AI for seven years and made my bets seven years ago, you were just starting to get companies into customer service, et cetera. You're now seeing large companies across the board moving

very rapidly and you're seeing AI startups to develop at a tremendous speed. So I think when you look out over the next two to three years, it will shock you with the number of AI startups that play on the market at very high multiples. Yeah. Astera Labs is a good example of that, right? Went public about a month ago. It's still trading at about double its IPO price. It has continued to offer strong returns to investors here, even as some of the other IPOs we've seen come out in the last couple of months, maybe not quite as strong after their initial pops. Is that really the type of company that is actually going to come to market, at least come to market first, companies that have strong balance sheets and companies that do have a strong AI story to share with investors?

Yes. And you asked three component parts. First, if you haven't got a strong AI story, whether you're an established company or startup, you've got a problem already. And it needs to be more than a strategy, it needs to be well into the implementation stage in terms of it. In terms of AI's implication,

let me just give you some numbers that I see with the startups. It used to take a startup literally five years to get to a $5 million run rate. I'm now seeing startups do that in 18 months. And you're seeing coding that used to take two years. Everybody talks about customer service being a big payback with AI. Actually, the developers and the coders, think of them as the industrial revolution

manufacturer workers. Their productivity is up sometimes three to four times what it was before with higher quality. So you can develop a product in three months. You can bring it to market on the fourth month. You can be at a product in three months. You can bring it to market on the fourth month. You can be at a run rate that was normally what you'd see 18 to 24 months out in four months. That's what you're going to see in the market. And if I were your investors, that's really what I'd begin to watch is the new AI startups and their ability to deliver code, but also with profitability and free cash flow in mind, as opposed to multiple that would be hard to justify. Well, John, let me ask you about that. First of all, you were good to see you.

You were mentioning your track record on exits. I know you're also in Rubrik, which is expected to IPO as soon as next week. I know you can't talk about that one, but I want to ask you about valuations and especially the impact in some of these AI startups of this just insatiable demand for accelerators. How much of the money that these software companies, enterprise software companies are raising is going, if not directly to NVIDIA, into people who have access to those accelerator chips to generate some of these AI results that the companies need. So in reverse order, NVIDIA is the best indicator of how AI is going. And I think Jensen's doing an amazing job there.

I'd watch AMD as well, much like Cisco was. If you want to know the health of the internet, you just watch what Cisco's revenues were doing during the internet era. In terms of the evaluations, John, I actually think it's going to be more. I think you're going to see, if I remember the numbers right, there are about 40 companies that have a current high tech valuation of the $20 billion to $250 billion range. I think that number will double and triple over the next five to six years.

So you're going to see a lot of companies come to market with a high evaluation. Will there be some spectacular train wrecks? Oh yes, but will it tie in very much to that? And do I think in total, if you had an AI index on these companies that are moving to that market, either the new hot startups or the ones that are in the 20 billion to $250 billion type potential range,

will that outperform the overall market? Absolutely. You clearly saw that with high tech over the last 10 years in the S&P indexes as an example. Did that answer the question okay, John? It did indeed. Very thorough. John Chambers, thank you. Appreciate your insights in this exciting space. John, it's a pleasure. You have a great day. Morgan, enjoy it as always. All right. And time now for a CNBC News update with Christina Partsenevelis. Christina. Well, we have two more jurors that were seated in the Trump hush money trial, bringing the total number seated back up to seven after two were dismissed earlier today. Prosecution and defense in the challenge phase with this group of potential jurors where they can try to strike jurors for, quote, for cause or use their remaining preemptory challenges to excuse people without a reason. Robert F. Kennedy Jr.'s running mate, Nicole Shanahan,

donated $2 million to his campaign the day after joining the ticket. That's according to NBC News' review of the latest Federal Election Commission filings. Shanahan has already donated millions to a super PAC supporting the independent campaign. Boeing is planning to bring flying cars to Asia by 2030 as it looks to tap into the demand for faster travel alternatives in the region. The company's chief technology made the announcement in an interview with Nikkei today and said it was considering which country to enter first, including Japan, where it opened an R&D base today. Boeing is developing the aircraft at its subsidiary, Wisk Aero. Guys,

back over to you. Yeah, I think we're going to be seeing a lot more of this before the end of the decade in general. Could be one to watch. Christina Parts Nevelis, thanks. The proxy battle between activist investor Ancora and Norfolk Southern. It's heating up with Ancora making a pitch today. It's heating up with Ancora making a pitch today to Wall Street about overhauling the railroad's board and C-suite ahead. Two key players in the fight, the man leading the charge at Ancora and his pick to run Norfolk, make their case. But first, Blackstone finishing in the red today despite solid earnings before the bell. Mike Santoli is going to come back with a closer look

at sentiment around the company when Overtime returns. Welcome back to Overtime. Another earnings mover to tell you about. $130 billion medical device company Intuitive Surgical moving higher by about 2% in overtime after the company reported results. Earnings came in above estimates at $1.50 a share, beating by 9 cents. Revenue also topping the street at $1.89 billion, up 11% from the same quarter last year. Morgan. All right.

Well, Blackstone finishing the day lower despite solid earnings before the bell. Mike Santoli is back with a check on sentiment around that name. Mike. Yeah, Morgan, sentiment specifically relative to BlackRock. Now, these firms have shared roots. BlackRock was started under the auspices of Blackstone way back in the 1980s. They've been independent for most of the time since then. You see the stocks here, though, over the last decade, pretty much in on par with one another until the early part of this decade when you had real divergence from Blackstone. So that's private markets. It's leveraged buyout funds, real estate, private credit, things like that. Whereas BlackRock, of course, is much more public market funds, ETFs,

lower fee institutional type funds with a mix of equity and fixed income. And it's much bigger in assets under management, which is the interesting part. Take a look at the market caps of these two companies. And Blackstone is well ahead by about $30 billion. Now, Blackstone has a trillion dollars in assets under management. BlackRock has over $10 trillion in AUM. It shows you the preference for the higher fee, lower liquidity, private markets type assets in this world, where endowments and pension funds have also been sending money more in that direction. What's interesting, though, final point, is that one of the hesitations, I think, about the quarter for Blackstone today was that they've kind of been slow in realizing the value of some of the private equity firms. IPO market's been

slow, as you guys were talking about. And so that's a little bit of the downside of having the illiquid portfolios where you got to make your money on the back end. Yeah. Go ahead. I was going to say, I was going to say, I know John Gray from Blackstone was on Squawk Box with you guys this morning. And what got my attention,

one of the things that got my attention was the fact that he was talking about the strength in private credit with Kip Devere from Aries on yesterday, also talking about what we're seeing in private credit. Although he had talked a little bit about the fact that maybe it's been a bit quieter in terms of deal making within the credit space than folks had been anticipating to start this year. Yes. So I guess just how much of this is public market investors not fully appreciating what we're seeing in the private markets, particularly in something like private credit?

Well, there's no doubt about it that private credit is winning in the asset gathering game. What we don't know yet is whether that capital can be really profitably put to work over the course of a cycle. Probably it can, but it's all on the com. So I do think that there are reasons why Blackstone has the higher valuation here. It seems like they're in more of the growthy sectors of the industry. But it is still kind of stark, and there's nothing saying that this can't converge a little bit. All right. Mike Santoli, thank you. And now up next, the CEO of Janus Henderson Investors,

which manages more than $300 billion in assets on where his clients are putting money to work in this choppy market. And check out shares of audio and industrial parts maker Genuine Parts, by far the biggest winner in the S&P 500 today after beating first quarter profit estimates and issuing a stronger than expected full year earnings outlook. We'll be right back. Welcome back to Overtime. Another check here on Netflix. Those shares are still under pressure right now, down about 3.5%,

despite a blowout beat on subscribers, more than doubling estimates. Revenue guidance was soft, though. The company says it will stop reporting quarterly subscriber numbers starting next year. As you can see right there, investors are reacting negatively to that disclosure. Yeah, and in the meantime, the S&P is on its longest losing streak and on track for its worst week since October. Sentiment remains on shaky footing. So where should you be looking for opportunities now? Well, joining us now is Ali Dabaj, CEO of Janus Henderson, which manages more than $300 billion in assets.

Just rang the closing bell at the New York Stock Exchange to celebrate Janice Henderson's 90th anniversary. Happy birthday to you, a little older than CNBC. So you say that a lot of investors are looking toward fixed income in this environment. What type and what's driving that, given that we're in a hire-for-longer environment where some people might feel they don't have to move immediately? Yeah, John, good to see you. Thanks for having me. Fixed income is definitely on people's minds right now. The higher cost of capital that's out there has really made fixed income relevant to people right now.

People were worried a little bit that there would be a big drop-off in rates at this point. It doesn't seem like that's going to happen as soon as people anticipated, so they're looking for longer term rates. They're also looking for things that are more floating in nature. So we're seeing a lot of demand, for example, for a securitized suite of products, whether they be ETF form like JAA, JBB, JMBS and JSI, or whether they be things that have longer durations associated to them as well, just to lock in current rates. You think that's a shift more toward the mindset that leads to a 60-40 portfolio? Or is this more a parking spot that people are looking to just bide their time until equities aren't so expensive? It's a great question. I think right now there's this

cautious optimism, but the caution, as you said about the S&P, has started to really play through. So what we're seeing a lot of folks is they want to take a little bit more risk, but they don't want to go all the way. And so a balanced portfolio is getting in very high demand right now. Balanced portfolios obviously have the fixed income returns now that there is a return given interest rates and where they are. And that's also a ballast relative to the equities. And equities gives you that growth opportunity. So right now, the balanced portfolio is very high on people's lists. We think that's one of the right places to go as well. If you don't want to go all the way to a U.S. equities portfolio or even emerging market equities portfolio and

take on more risk, balance is a real focus for people right now. We have something like $6 trillion sitting in money market funds right now. Is there a point at which we start to see some of that convert over to equities or to other asset classes? Is it going to hinge on a rate cut? Yeah. So we've seen historically, absolutely. When you see a rate cut come down even a little bit, not just in the U.S., but around the world, people do immediately go to more risky asset classes. Now, to your point, Morgan, there are folks who are trying to be a little bit more forward-thinking, take advantage of some of the dips in the S&P right now, some of the opportunities in fixed income, and they're going there today. They're going there now. But where you see the

real money come off the sidelines, which is what everybody's hoping for, everybody's talking about to try to help clients get better returns, you really have to see the rates dip down even a little bit. That'll play out in terms of movement of money. Is your expectation that we're actually going to see that? And I ask that knowing that we had more Fed officials doing more jawboning and raising more questions or at least tilting a little more hawkishly even today based on some of the data we've gotten. You take that, you factor in geopolitical risks that we've been talking about here this week, the fact that yields have been moving back up, maybe the fiscal piece of that playing into the bond market. I mean, there's a wall of worry that seems to be growing here. And I just wonder how much of it is scalable and how much of it is perhaps not or poised to become a bigger issue

than the markets are realizing right now? Well, we were never, Janice Anderson, in the camp of the six or seven or eight drawdowns that we were going to anticipate this year from an interest rate perspective. We were a little more conservative on that. We still think it'll happen, right? We still see really positive signs around the consumer, really positive signs as earnings have reported for the past little while. We think that's going to continue. We do think there will be rate, obviously, declines, but maybe not as immediately as people had anticipated initially, maybe towards the end of the year. Ali, how risky are emerging markets right now, given what's happening with geopolitics and given just how hot overall global markets have been?

And where is it worthwhile to take that risk? So we're having a lot of demand on the emerging markets, but emerging markets aren't all created equally. Right. Very little demand right now among our client base on the emerging Asia emerging markets. Developed Asia, yes, but emerging Asia emerging markets not there. People are absolutely looking at the Middle Eastern area, even with some of the geopolitical questions that are happening right now, North Africa, Eastern Europe, and Latin America is very, very hot. So emerging markets, both from the equity perspective, we've got a great portfolio manager, very focused on that, as well as emerging market debt. We do think emerging Asia comes in maybe a little bit later in this year or next year, but there's no demand right

now for that market. Currency market, seeing a lot of moves. Commodity market, seeing a lot of moves. Obviously, we've seen things like cryptocurrencies as well. Are there other asset gold at an all-time high? Are there other asset classes that investors should be thinking about, too, here in a multi-strat world? Well, we think one of the most basic asset classes that sometimes has been overlooked is active equities. We find a lot of folks, again, to the earlier question from John, people are looking how to get involved in some opportunities where the valuation may be a little lighter. And you can separate the wheat from the chaff.

You can separate a good company from a bad company in an increased cost of capital world. Active equities is a really interesting place, which is often overlooked. And we think there's a lot of opportunity there. A lot of demand in that marketplace should be around the corner. We think that's one that's quite interesting. I do think, though, that there's other opportunities here. So we're getting a lot

of questions around innovation, biotechnology, health care, technology funds that we have are in very high demand because thick or thin, if you can pick a good innovation company, a company that's going to survive and do better for their consumers, you do see a pickup, whatever happens to the market, and they can outlast. They can be the wheat relative to the chaff. Ali, thanks so much for joining us. Good to have you on. Thank you. Good to see you again. Well, activist investor firm Ancora telling me earlier on CNBC why Norfolk Southern shareholders should back their fight against the railroad giant. We've got those highlights next.

And plus, get your phone ready with the camera. Get the QR code right there. Check out the latest installment of my On the Other Hand newsletter because it's Thursday. This week's debate is the massive pay gap between the NBA and the WNBA fair in light of college superstar Kaitlyn Clark's rookie contract to pay her just under $77,000 this upcoming season. You can scan that code or you can just type in CNBC.com slash OTOH to join the conversation. We'll be right back. Welcome back to Overtime. Norfolk Southern just releasing an investor presentation outlining what it says is a, quote, safer, more profitable railroad with longer term with long term upside for shareholders and pushing back against a proposal by activist firm Ancora to overhaul the company's board and management.

And Norfolk says Ancora's plan presents, quote, safety, service and financial risk. And what it says is a, quote, tear it down to the studs strategy. Norfolk says it is on a, quote, clear and achievable path to a sub 60 percent operating ratio in three to four years operating ratio. A key metric for the industry, lowers better. So prior to this, earlier today, I sat down exclusively with Encora's president of alternatives, Jim Chadwick, and his firm's pick to become CEO of Norfolk Southern, Jim Barber, the former COO of UPS. They met with investors and analysts this morning to make their case ahead of next month's shareholder vote. Ancora is seeking a board majority, wants to overhaul the C-suite to more aggressively

implement precision scheduled railroading, PSR. Their target, get the operating ratio below 60% over the first, within the first 18 months. Now it currently sits at 69.9% based on Norfolk's recent pre-announcement. They've still been working through the East Palestine derailment issues and some other things over this past year. But I asked how they would do that, Ancora, without disrupting the railroad and without sacrificing safety. The economics that we're putting forth here, the first $800 million of that, Morgan,

comes straight out of the implementation of PSR. It's fuel, it's locomotives, it's handling cars less, it's the fuel efficiency, and it's miles that move out. 800 million of the first 1.1 billion come out of there. Then you move into a couple of pieces of growth, and then you move into making sure your workforce is efficiently placed in the network, and all of a sudden you get to a 60 OR. And one thing to point out, we're also getting there without addressing headcount. So I think that's important to know is that the first 18 months of our plan where we get these first significant increases here in profitability is not done through laying people

off or furloughing employees. In fact, we don't plan any in that period of time. But you're doing it through attrition. We know turnover rate tends to be very high, high churn rate when it comes to the railroad industry. So in a sense, you're still reducing workforce? Well, yeah, we're going to let attrition work for us, right? So it's about 7% to 8% in the industry. We plan to reinvest about half of that. In other words, put the right people in the right places at the right time to run this railroad going forward and just let the natural attrition of the business work for us financially and then turn it into a growth machine. That's we plan to do question for you what a success look

like I know you have seven board nominees which would be the majority of the board looking to change the management but it could go a variety of ways here so how are you gaming it out and what are the lessons learned from some of your previous proxy fights including at other freight and logistics companies like CH Robinson a board that is prone to making bad decisions will continue to make bad decisions. And this board here at Norfolk Southern has shown over and over again, just as they did here with this Meridian Speedway arrangement for John Orr, that they are concerned about themselves and entrenchment. And ultimately, I think if shareholders want

a plan and want a team that's going to execute and really win that, you know, look, there's a lot of versions of success. I mean, but I think the message around around the seven, the vote for seven is ultimately that's how we control our own fate. And we have a plan and we believe we're going to execute it. Of course, that reference to John Orr. John Orr is the new CEO at Norfolk Southern who is helping Alan Shaw, the current CEO there, implement what they're calling PSR 2.0, a version of precision scheduled railroading. The back and forth continues. We're going to go through this most recent release from Norfolk Southern. In my interview, though, we did also talk more in depth about safety. So you can watch that entire interview right now on CNBC.com or by

scanning the QR code on your screen and follow us on LinkedIn where we post a ton of exclusive content. So check it out there. All right, will do. And meantime, Netflix shares under pressure, still down more than 3% in overtime. Up next, the other overtime earnings movers that need to be on your radar. And check out shares of satellite communications company Iridium. It's rallying today after beating earnings estimates thanks to a 14% jump in total billable subscribers. Space. Welcome back. One more check on some overtime movers. Netflix lower by about 3% right now after a big subscriber beat,

but the company is saying it's going to stop reporting quarterly subscriber numbers next year. Now, Intuitive Surgical, that's up by about 2.5% after posting beats on both lines, citing growing installations of its DaVinci surgical robots and increased procedures. And KB Home, also hired by about 2% on news of a billion-dollar buyback. The company also hiking its quarterly dividend by 25%. Tomorrow's going to be another big day for earnings. Dow Components, Procter & Gamble, and American Express are the big names on the calendar. Regions Financial, Fifth Third Bank, SLB, the company

formerly known as Schlumberger, also set to release results. But John, we're still just warming up because next week is when it's truly the deluge of earnings, but certainly here in overtime, Netflix kind of setting the stage for the broader tech complex and what we can potentially expect and media complex, what we can potentially expect, and media complex, what we can expect to hear from others as these reports begin to pick up pace. Yeah, curious to see if the stock reacts in overtime, beyond overtime, to the commentary on the call. That's going to be important. Also, some interesting consumer data to dig into based on Amex and P&G, right?

Because Amex is that higher-end consumer that's been holding up better. And, of course and P&G, right? Because Amex is that higher end consumer that's been holding up better. And of course, P&G is everything. Shampoo, I really think of shampoo, and I think of razors. Yeah. And we've seen a lot of these consumer staple companies take price crease after price increase and sacrifice actual sales in the process to do it. So what does that dynamic continue to look like in a disinflationary environment, dare I call it still, even though we know it's a little sticky right now? We'll have to see.

Commodities stocks, though, have been one to watch, too, just given what we're seeing on the industrial side of the economy. Continue to watch that as well. I don't use a lot of shampoo, so I don't know why I think of that when I think of P&G. That's going to do it for us here at Overtime. Fast money starts now.