Closing Bell - Closing Bell Overtime: Cathie Wood On Stocks’ Record Run, Tech Picks; Earnings Parade Starts With Netflix 1/23/24

Episode Date: January 23, 2024

Ark Invest’s Cathie Wood talks her underperformance to start the year and names she still likes despite record highs. Netflix is the first big tech company to report; Evercore’s Mark Mahaney and Third Bridge’s Jamie Lumley break down the numbers and the investor reaction. Susquehanna Senior Equity Analyst Chris Rolland on Texas Instruments’ latest earnings. Vital Knowledge’s Adam Crisfulli on positioning as stocks continue to charge higher. 

Record closing highs for the S&P and the Nasdaq 100. The Dow, though, finishing under pressure today. That's the scorecard on Wall Street. The action is just getting started as the S&P does close at a new record. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John DeFort. And Consumer Staples and Communication Services making up for real estate and consumer discretionary weakness here. These are driving the benchmark index into record territory for a third straight day. And now investors turning their attention to earnings. That's from Netflix and Texas Instruments. We're going to break down those results as soon as they cross. Plus, ARK Invest CEO and CIO Kathy Wood on her market outlook, her expectations for Tesla's earnings,

what's your tomorrow, Bitcoin, so much more. Guess what? We already have Netflix results. We're going to go to Julia Borson now for those. Julia. Yes, we have a beat in terms of revenue. The company reporting 800, I'm sorry, the company reporting 8.83 billion in revenue ahead of the 8.71 billion in revenue expected. Earnings per share coming in lower than anticipated at $2.11 versus the $2.22 that analysts have been looking for. But the stock is higher in after-hours trading because of the net subscriber additions, $13 million in net ads. The company had been expected to add about 9 million, just under 9 million new subscribers, but instead it reported $13.12 million. We will be digging

through the numbers and back to you with more. Okay, Julia Borson, we'll keep our eye out. In the meantime, let's bring in our market panel. Joining us now is Vital Knowledge founder Adam Christofoulis and CNBC senior markets commentator Mike Santoli. I was going to start, Adam, with the record closes we just got, but now I'm going to start with Netflix and the fact that that stock is surging right now as we get the print here. What does it tell us about the stage that is now set for the big, big cap tech names that we know have led the rally for the better part of a year? Yeah, so this is, you know, on the surface for the quarter, it looks very healthy. It's a huge subscriber number. Obviously, it's going to be a lot of detail within the print

on a whole host of subjects, including the end of the strike and how that impacted cash flow. Yeah, look into next year, live sports with that big wrestling deal they announced today, passport sharing, the new advertising initiative. So a lot of moving pieces to dissect. But on the surface, it's another very strong report. Remember, the tech season really kicked off last week with that big Taiwan summer report and then the super micro upside for the announcement. So now this is the latest name out of tech. Tech's obviously the most important sector in the market from a weighting perspective. OK. And, you know, this is the first thing. We'll see how the rest come in. But this is a great start. Hang tight there. We also got Texas Instruments earnings out. Christina Parks,

that will have some. Christina. Yeah, we're seeing earnings per share of $1.49, which is a two-cent beat on revenues, though, for Q4 of $4.08 billion. So that is slightly less than what the street anticipated. But you're seeing the negative reaction in the stock right now because of the Q1 guidance. EPS for Q1, as well as Q1 revenue, are both light. So that is causing the 2% drop in this stock at the moment. Guys. All right, Christina, thank you. Mike Santoli, go to you with this before going back to Adam. I mean, a 2%, 2.5% drop in Texan, not great, but it's been up quite a bit lately. That doesn't take it down too far, considering where it's been. No, and obviously that's also just the first twitch reaction. You see how it goes, whether it deepens from here or if they're able to reassure

that maybe the light guidance in the current quarter is just more or less going to be made up. It's deferred. It's not really demand that's gone away. So we'll see how it does play. But, you know, it does represent a little bit of a high hurdle because of the aggressiveness of the gains in Texas Instruments. It was not an advantage spot within the industry in terms of its end markets, people trying to make the bet that it was on the turn and therefore the stock gets up to these levels. So yeah, see how it plays once they have the call. You know, Adam, if I just zoom out and look at what we're seeing so far in earnings season, I realize we're still in early innings, but it's been a very mixed picture.

That was the case in terms of the results we got this morning across a variety of industries, and it's the case even just when you look at the screen right now with Netflix higher and Texas instruments lower. What does it tell us? Yeah, absolutely. We're done with banks, so we have a good sense of how the financials perform, but we're really not just getting into the non-bank earnings season. The first big ones, like go back to last week with Taiwan Semi, and then this morning you had, you know, Verizon was positive.

Procter & Gamble was well received. We had Netflix. So we're just now getting into the non-bank earning season. We'll have to see how everything unfolds. But I think as far as the broader market is concerned, the big critical takeaway will be if the full year estimate can hold in at around $240 to $245 for the S&P for this year. And I think so far the takeaway is that it can. Now, there are nuances from each report that disappoint people with, you know, D.R.

Horton this morning on margins for homebuilding fell short of expectations. So there are definitely going to be specifics around each report that could disappoint. But I think for the broader S&P, the earnings picture is holding steady for the year as far as the expectations. OK, devil's in the details. Speaking of more details, Julia Borsten has more for us regarding Netflix. Julia. Yes, we have some guidance here. The company says it sees its first quarter revenues at nine point two four billion versus the nine point three billion estimated. So that's a bit lighter than expectations. But the company is guiding to earnings per share of $4.49 ahead of the $4.10 estimated. I also just want to point out here some key commentary in the earnings,

the letter to shareholders. And they say it's logical to expect further consolidation, particularly among companies with large and declining linear networks. But they say we are not interested in acquiring linear assets. And they say, nor do we believe that further M&A among traditional entertainment companies will materially change the competitive environment, given all the consolidation that's already happened here. So very clearly saying they're not going to be playing in all this M&A conversation that's been happening. And then they do say that since they don't give actual guidance when it comes to subscribers anymore, they do say that they expect paid net additions to be down sequentially due to some of this typical seasonality,

as well as some likely pull forward from the strong Q4 performance. So that big outperformance in the Q4 subscribers, they're warning that that's not going to be continuing into the first quarter. They do say that the Q1 net ASDA will be up versus Q1 of 2023. That was a very low number of just 1.8 million. So such a different story here, John and Morgan, in the 13 million range versus less than 2 million in the year ago quarter for Q1. Yeah, Julia, thanks. So interesting that not only are they not playing in the M&A, but they're trying to pour cold water on their competitors' efforts to bulk up in order to compete. Well, let's get back to Christina Parts and Nevelis also with more detail on Texas Instruments quarter. Christina? Yeah, it's just the report doesn't have a lot of details, but

there's one line that stands out and it's having an effect. It says during the quarter for Texas Instrument, they did experience weakness in industrial, a market that we know has seen prolonged weakness. And then they did confirm that they saw a sequential decline in automotive. That was a big concern because Microchip and Mobileye both preannounced saying that there was weakness in auto, double ordering from customers, weakness coming from China. And so just those words alone are having a negative reaction on a lot of these names, like on semi, down almost 3 percent, NXPI, microchip. You can see all in the red in extended hours trading just because of this Texas Instrument commentary. All right, Christina, thanks. Mike Santoli, last word to you here. It seems, if I'm reading this right, light revenue guide from both Texan and from Netflix in a way,

but some earnings controls in there. And this is coming at a time when the content business, we're seeing the video games industry cutting back, massive layoffs. We're seeing layoffs in news, the L.A. Times and other places. It really seems like bottom line cost controls are a big part of the story here. Yeah, it's absolutely continuing in that way. You definitely saw a January flush of rationalization, cost reductions, layoffs, things like that. It does make sense. I also think you have to put Netflix's guidance through the prism of they sometimes like to, you know, set the bar

a little bit lower and be kind of conservative sounding as they talk about this. But yes, we're beyond that point where it's all about pricing power and supply constraint and unlimited demand across a lot of industries. All right, Mike, we'll see you again in just a bit. Adam Christofoli, thank you. Let's talk more about these Netflix numbers that just came out. Joining us now, Mark Mahaney from Evercore ISI. Mark, I know Netflix has been a favorite of yours. These subscriber numbers are interesting, but so are the cost controls and Netflix calling out. We're not getting into this consolidation game. That's not where we're spending our money. Investors like to hear that. Investors like

to hear that this was the strongest fourth quarter they've ever printed in terms of net ads 13 million the highest they ever had before was somewhere between 9 and 10 million so i know there's a lot of one-timers that are going in here or um one years or one year and a half or so if you will that's the paid sharing crackdown but i think what the market is sort of underappreciated it's just how much they've expanded their tan total adjustable market by bringing down that price point it was the number one issue that consumers had, subscribers had, ex-subscribers had with Netflix, based on our survey work, that price point. They brought it down by 30% a year and a half ago, or a year ago, and then they've been rolling out. Awareness has been building. They do a price increase at the high end. They now have a safety net at the bottom end with a lower price.

I just think it's worked out really well for them. It looks like they've been relatively conservative with guidance for a couple of quarters. That's my guess as to what they're doing with the March quarter. And then they're telling you they're doing $6 billion in free cash flow this year. You want somebody who's generating free cash flow from streaming? It's Netflix. And it's going to rise materially in $25, too. So all of a sudden, on a free cash flow story, this thing actually is starting to look pretty darn attractive. So we continue to like Netflix. These are good results. Yeah. And of course, that that perhaps speaks in parts why they're throwing cold water on the notion of acquiring linear assets in the current media M&A speculative landscape that we're talking about. I am curious, though, about what about how acquisitive this company could be or not be when it comes to something like, for example,

games, which everybody has expected and anticipated a big ramp up of and we haven't really seen? I think they view games, and we all should view games as kind of another content vertical for Netflix. That's how I think about it, Morgan. You want to spend $500 million on Raw or do you want to spend $500 million on developing games? It's all content. It's all about hours. It's all about engagement. And so, yeah, just treat it like, I don't know, whatever, anime or old westerns or raw or games. So I think you'll see them sprinkle a little bit more here or there.

And this company, the algorithms that they use to figure out how much content is worth, it's all about, well, what drives hours? If they find something that drives hours, my guess is that $10 billion was probably a good price for Netflix, given the very strong, broad interest in WWE. That's going to help them. So I think you'll see more gaming and more of those kind of deals. Well, let me see if I can get you out on a limb here a little bit. As I look at these numbers and what's happening in the rest of the content industry, is round one of the streaming wars over? And did Netflix essentially win, right?

They're profitable. They're still the biggest. Others are cutting back and looking for ways to bulk up, but doesn't look like necessarily from a position of strength. John, you and I have looked at the space for a long time. I think we're around 10. We've had so many competitive entrants come in and out, going back to blockbuster days and that's pre-streaming. I think you had peak streaming competitive intensity back in 2021, and then when that 2021-22, but when that Disney CEO got fired for streaming losses,

you know, that was the peak. And then ever since then, you've had people cut back their spend on content, cut back their spend on marketing and start licensing to Netflix. That's why Band of Brothers is on Netflix. That's why Suits is on Netflix and other shows are going to be on there.

I mean, Netflix is now moving away from the past and they're doing it with more and more free cashflow. This was, Netflix is now moving away from the past and they're doing it with more and more free cash flow. This was Reed Hastings game plan from the beginning. It's it's whoever gets to the top, whoever has the most subs generates the most revenue, gets the revenue with which to generate more content, more content begins, more subs. It's a flywheel. And they're there now and competition is fading and free cash flow is rising. This is what you want as an investor in Netflix. Okay.

I guess the others can smell what the reed is cooking. Mark Mahaney. Oh, wow. I was going to say smack talk from the new owner of streaming rights to Smackdown, but yours might be a little more clever. I don't know. They're both good. Texas Instruments shares under pressure following a revenue miss.

And up next, a top analyst is going to tell us what he wants to hear on the earnings call that kicks off in just a few minutes. And later, ARK Invest CEO and Tesla investor Kathy Wood on which expense from the EV maker when it reports earnings after the bell tomorrow. Overtime is back in two. Welcome back. It is time to bring back Mike Santoli with a look at what's working in markets around the world as well as the U.S. Mike. Yeah, that's right. In fact, what has been working around the world mostly has been the U.S. This run to a record high in the S&P 500. It sort of accentuated the outperformance of U.S. stocks relative to the rest of the world. That's what this chart shows. U.S. against everything else. VTI is the total U.S. stock market index. ACWX is all country world index, excluding the U.S. So you've seen,

obviously, what the trend is. This is from five years. And if you want to sort of draw a rough trend line, you'll say we're kind of extended a bit above that. And you've seen these other examples when we've gone pretty much vertical relative to the rest of the world. What I find interesting is they don't really correlate with a being a risk on or risk off type of a backdrop. The very high of the market in the beginning of 2022, U.S. was at a relative high. At the very low of the market, October 2020, 2022, U.S. was at a relative high. At the very low of the market, October 2022, U.S. was at a relative high. So essentially, it's the U.S. tech stocks that are the deciding factor in large part in terms of what does perform. But I think you could look at this and say maybe it's time,

at least tactically for a trade, perhaps think about rebalancing into non-U.S. if you believe in global diversification. Then within the US market, the quality trade, quality, very profitable companies, predictable earnings has really been the story of strength last year in 2023. A lot of the mega cap growth stocks are in there, but also this is a high beta stock, the ones that moved the most relative to the index. So you see over this span of time,

which goes back a couple of years, end of 2021, you have seen them kind of switch off leadership, but they're not mutually exclusive. I think you hear a lot of people say, go with quality. It doesn't mean boring, slow moving, defensive. It means more profitable. And they both happen to be in favor right now. Yeah. And of course, that always gets us back to the defensive nature of some of these mega cap tech names that we talk about day in and day out as well. I just want to go back to U.S. versus international for a moment, because it really sort of depends on the market we're talking about internationally. Like you hear the chatter at the beginning of a new year.

We're hearing it now, this idea that, OK, maybe this is the year for emerging markets. But then you have China. Yeah, markets are tired because you've got that government arguably propping up the market there right now. But in general, it's languished over the last couple of years. And even now with Netflix, I'm looking at the results here. They're talking about the massive devaluation in the Argentine pesos. They talked about that a week and a half ago as well. It really depends on the markets and the ETFs tend to be bigger buckets.

It's very uneven. Obviously, Japan has had a huge, huge run. And to the exclusion of most other Asian markets. I do think there's a net benefit, though. If you're buying the rest of the world right now, proportionally, China is a very small problem you have right now because it has underperformed so much that it's not much of a swing factor. Also, EMXC is emerging markets ex-China. There's an ETF for every permutation of one of these regional trades. All right. Mike, we'll see you again in just a bit. Meanwhile, shares of Texas Instruments down about 4% so far in overtime after the company released Q4 earnings earlier in the hour.

As we wait for the call to begin in just a few moments, let's bring in Susquehanna senior equity analyst Chris Rowland to discuss. Christopher, it looks like, you know, Texan revenue light, a lot of this having to do with embedded processing, which came in at $752 million in the quarter versus $828 expected industrial and automotive getting some of the blame here. And the Q1 revenue guide is $3.6 billion at the midpoint versus $4 billion expected. What went wrong? Yeah, auto and industrial. And I think we already knew about the weakness in industrial. They had hinted that there could be some weakness to come in auto.

They hadn't seen it yet as of last quarter. Auto for this semiconductor down cycle was the last shoe to drop. And TI is confessing to auto finally correcting. Demand weakness is a story or weaker than expectations is a story that I'm seeing play out, even though we're just 20 minutes just about into the hour so far, whether we're talking about Netflix being conservative in its guide, we're talking about Texan being sort of light on revenues and on guidance. What's the next step here?

Are investors going to want to hear about cost controls and what sorts of actions should we expect to hear management talking about on the call? Speaking to semis, the area I know, it's all about the back half of the year and whether that recovery is still in place or not. I think some of the data we're getting now is going to push out that recovery, perhaps months or even quarters. And again, auto was the one, the last one that has not corrected. We're finally starting to see that now, but there are some worrisome things like PC. We're worried about even a small double dip there. So all of these moving parts are indeed hard to follow right now. Okay. So in terms of the read-through of Texas Instruments to the rest of the semi-sector,

how much weight do you give the commentary we get on the call today and what would you be buying here, especially if you do see other names trading lower in sympathy? Yeah, so I would wait for the reports of the other particularly auto intensive companies to come out. I would maybe look at IoT or certainly AI stocks, EDO stocks that are not necessarily moving with the semiconductor down cycle. I would play there. But yeah, overall, we got to wash this thing out. This was a huge up cycle. And I think this down cycle is going to be fairly deep and it's going to take some time to play out. OK, Chris Roland, thanks for joining us. Breaking down Texas Instruments results with those shares under pressure down more than 4 percent right now. Well, shares of Coinbase under pressure as well after JP Morgan downgraded the crypto exchange to sell from neutral over concerns that spot Bitcoin ETF enthusiasm will fade.

Coinbase is the top holding in Cathie Wood's ARK Innovation Fund. Up next, we will get to hear her reaction to that call and whether she sees this as a buying opportunity. And so much more. Stay with us. Welcome back to Overtime. Stocks closing at records again today as both the S&P 500 and the Nasdaq 100 finished at new all-time highs. Joining us now, ARK CEO, CIO, and founder, Kathy Wood. Kathy, it's great to have you back on the show. Thank you, Morgan. I'm really happy to be here.

So much to talk about. But first, I do want to start with a broader market question. At a time where even some market bulls have been suggesting that this rally is getting a little long in the tooth and questions should be raised about the valuations we're seeing. How do you think about the market here? Are you considering different positions across your funds as we do see some of these biggest names, particularly in tech, reaching new highs? Yes. So right now, we've had a bit of a setback thus far this year, a little fear, higher for longer again in interest rates. But just think about the numbers that we're beginning to get out of the big macro-oriented companies, 3M's revenue down

4.5%. That's negative, both units and prices. And I just heard you on Texas Instruments. I think their sales this next quarter are going to be down at the midpoint something like 18 percent. That's year over year. These are revenue declines. We've been saying for quite some time that there are more deflationary forces out there that many people recognize. A lot of them are coming from China, now more so as well from Europe. And I think that here in the United States, we won't escape that. So we actually think interest rates are going to fall sooner and faster, I think, than most expect. And so in terms of valuations, that should be very supportive to valuations. It should be supportive to valuations. I wonder if you believe that we're in store for a soft landing then, or if the Fed's behind the ball

and cuts are going to be even more steeper than perhaps the market is anticipating? Yeah, we've been saying that we've been in a rolling recession, we believe, for two years and that the Fed is going to find out that five and a quarter to five and a half was just too high for given the deflationary forces that are building out there. We think there's going to be outright deflation this year, price deflationary forces that are building out there. We think there's going to be outright deflation this year, price deflation, some of it good associated with technology and learning curves and so forth, but some of it bad, which is more of the hard landing scenario. It won't be like 08, 09 at all. We've been in a rolling recession for a long time now, but we do think we're at the end of it and that the Fed will lower interest rates. Speaking of deflation, Kathy, Tesla has

been cutting prices on cars. Investors have been cutting Tesla's stock price. You bought Tesla last year when it was cheaper than this. I think you bought some more, a good chunk, a little bit more than a week ago. Do you keep buying it as it goes down, if it continues to go down this year? Well, if you watched our trading, and we do publish our trades at the end of every day, you'll see that we've been trading Tesla at the margin. So when it is soaring and everybody is excited about the good news, as we move towards electric vehicles, we will take profits.

And likewise, as investors and traders begin to fear that we're going to be in an air pocket, you know, we've got a five-year investment time horizon. And we think that in five years, most car sales will be electric. And that is a trend that lower prices actually are going to encourage. So that's the good deflation as we've got electric drive train prices coming down in price. Tesla can price down. It can price down if we're in a weak spot globally. And it does appear that we are certainly China and Europe and even here in the United States. Let me challenge you there with what Hertz just did, backing away from EVs, saying, yeah, I mean, people really love Teslas.

That's not translating into how much Tesla's cost to repair and maintain and the viability of them maintaining a fleet. So I understand that you're trading around it now. But for the people at home who don't necessarily do that day by day, where's your your even mark where if it goes below here, that's when you're really pushing into it, leaning into it. Well, we cannot talk about what we are going to do prospectively. But just to address Hertz, there is a learning curve with EVs. And I think a lot of people go to Hertz and say, I'm going to try my first EV. And they learn, OK, if you're going to drive, you know, 50 miles or 100 miles, you've got to start thinking about charging. So a bit of a learning curve. It is true that the repairs cost more, but maintenance also costs 60% less. So there's a bit of a trade-off. If you listen to Uber, on the other hand,

Dara will tell you that they're encouraging more of their drivers to rent from Hertz and others because the drivers get more. Uber's take rate is not more. So it is really beneficial for drivers and consumers love them. They're willing to pay up. So, you know, when innovation is evolving and the infrastructure is moving into place, but not quite there, especially in terms of repairs, you're going to go through fits and starts like this. But the trend is undeniable. Last year, last year, electric vehicle sales globally were up 28 percent, while gas powered vehicle sales were up 9 percent. So share gain still. Also, I want to ask you about the commentary we did hear from Musk on X not that long ago, where he basically suggested he wanted 25 percent voting control at Tesla before fulfilling this AI goal at the company as a key shareholder. How do you feel about that? You know, Elon Musk is a visionary

leader. He's our renaissance man. He's the inventor of our age. And in this market dynamic where investors are very short term oriented. They want their profits now, their dividends now, their share repurchases now. We are looking for visionary leaders to stand up to short-term oriented shareholders because they need to invest aggressively now to capitalize on some of the biggest opportunities in our lifetime. So we're all for it. I want to shift gears here a little bit. Bitcoin, your Bitcoin ETF debuted about a week ago now. We've seen the price of Bitcoin come off

since those approvals were greenlit. And we've seen shares of ETFs, including ARK21 shares, Bitcoin ETF come off as well. Is this a sell the news dynamic? Is something else at play here? How do you think about that now that we actually have these instruments in the market to track Bitcoin in a more material way? Yes. Well, we're very excited that Bitcoin now is in the ETF wrapper and therefore very accessible at very low prices. What we do have, and there was speculation beforehand, will this be a sell on the news?

We said yes. And then we were hearing that so much that we thought, well, maybe not. Well, it turns out that FTX is, I guess it's nearly a billion dollars in GBTC, has been sold as this Bitcoin, as the Bitcoin ETF has come out. And I think that's been part of the pressure. I do think there's sell on the news because I thought, I think some people expected it to hold a little more than it has. But this has not disturbed our point of view at all. We think this is one of the most important investments of our lifetimes. This is a global rules-based monetary system. And it's a very big idea.

And we think it's the biggest of all the crypto ideas out there. So we're very happy to be a part of this movement, providing more access to Bitcoin. This is the financial superhighway, a public good, and therefore we have priced it accordingly. But we're very excited about the prospects. Our price target, as you know, is quite high if you give us a time horizon to 2030. Yeah, I think $1.5 million to your point. I am curious about the other aspects of cryptocurrencies, though, specifically Coinbase. It's the dominant U.S. exchange.

It's also your top holding in the ARK Innovation ETF. And we did have this downgrade from JP Morgan today to Underweight. One of the things they say here is that they think the catalyst in Bitcoin ETFs that has pushed the ecosystem out of its winter will disappoint market participants. Your reaction? Yes, I think, OK, there's the short term and the long term. I think what what he is missing is that institutions are gearing up to buy Bitcoin. It is a new asset class. They have a fiduciary responsibility to look at it because with a new asset class, diversification can increase returns per unit of risk. And so sophisticated asset managers know they need to provide some access to their clients. So I think institutions are gearing up. I don't know when they're going

to move in, but we know they're doing their due diligence because they're talking to us and others, of course. So we're pretty excited about the kinds of questions we're getting. They're very sophisticated. It tells us they've done a lot of their homework. They're very focused on infrastructure and operations, for example. And I know there is a firm out there who says it's crypto first. Well, we've partnered with the largest pure play crypto ETP provider in the world. And I think that our execution, if you look at spreads and so forth, as traders, market makers do, we are looking really good. So we think that the JP Morgan downgrade is a very short-term call. It follows prices. Not surprising. We think

that it does not consider the institutional wall of money that we think ultimately will enter this space. And we're pretty excited. Kathy Wood, always great to get your thoughts on a wide variety of topics. Thank you, Morgan. Thank you very much. Time now for a CNBC News update with Kate Rooney. Kate. Hi there, John. Sweden cleared a major hurdle and it's a major hurdle toward its membership, rather, in NATO today as the Turkish parliament approved its extension into the alliance. Turkish President Erdogan is expected to sign it into law within days, which leaves Hungary as the last NATO member to approve Sweden's membership. The LA Times, meanwhile, will lay off almost a quarter of its newsroom today after the

paper's union walked off the job last Friday protesting the move. This is the latest in a round of layoffs. For the paper, which cut 13 percent of its newsroom in June, the walkout on Friday was the first union stoppage in the newspaper's 143-year history. And the CIA released a video on its social media channels trying to persuade Russian intelligence employees to work as double agents for Washington. The Russian language video tells watchers they are not powerless and gives them ways to contact the CIA. It comes after the CIA director said this summer

there was an opportunity to recruit spies amid Russian dissatisfaction with the war in Ukraine. Back over to you guys. All right. Kate, thank you. Up next, Mike Santoli is going to look at whether earnings growth can keep rolling on even if the economy begins to slow. Plus, we are just moments away from Netflix earnings call following much stronger than expected subscriber additions. We've got much more analyst reaction coming up on the other side of this break. Stay with us.

Welcome back to Overtime. Worries are brewing over an economic slowdown, but will that impact earnings growth necessarily? Let's ask Mike Santoli. Mike? Yeah, John, there's evidence that the link is not as direct as you might believe. Now, yes, economists are kind of rolling forward their forecast that the economy will slow down quite a bit. We haven't seen it too much yet, but it's plausible. What's interesting here, this is from Citi, it shows you the correlation over time between S&P 500 earnings growth and real U.S. GDP growth. Clearly, the trend is much lower. This goes back over 50 years. Most of that, of course, happened in the 90s as the economy and also the S&P 500 index became less cyclical. It was less skewed toward old industrial companies. The economy

itself became a little bit less boom bust. And you had these more higher quality, predictable growth profit streams that were mostly at the center of the S&P 500. What does really correlate with top line growth for companies is nominal GDP. So that's inflation plus real GDP. We came into this year with nominal GDP in the U.S. still running maybe 5 percent thereabouts. So sales growth is still there. Most companies have some earnings leverage. So it means that it's just not that implausible to get mid to high single digit earnings growth, given the composition of the companies and then what's going on on the top line of the economy. Mike, there's another part that we might be in danger of missing here, that if we're talking about EPS, that's the bottom line.

So companies can always cut costs, cut jobs, just like we saw Wayfair cutting, L.A. Times. You know, Kate Rooney was just telling us is cutting Brex, the startup in payments, cutting 20 percent of the workforce today. Right. So there are ways certainly to defend margins in that way. And also, I think just the scale of the large companies in the S&P 500 means you tend to get earnings leverage, which means you get better benefit on the bottom line for every percentage point of growth on the top line. That's the way it works. Ideally, obviously, in a real economic downturn, there's really no escaping it fully, but you can mute the effects. All right. Mike Santoli, thank you. Netflix earnings call is just kicking off. A top analyst tells us what he wants to hear from executives when overtime returns and the stock continues to soar. It's up 7.5% now. Yes, and never forget, you can catch us on the go by following the Closing Belt Overtime Podcast on your favorite podcast app. We'll be right back.

Netflix sharply higher in overtime right now. That Q4 earnings call just getting underway. We are monitoring for any headlines. We're going to bring them to you. Joining us now is Jamie Lumley, though, a senior analyst from Third Bridge. Jamie, it's great to have you on. Obviously, we saw this huge subscriber beat. We also saw for a Q4 operating income and operating margin, both significantly ahead of estimates and free cash flow numbers for the current year, certainly looking pretty

robust as well. Give me your takeaway from this report. How do you think about it where Netflix is concerned as the stock does move up 7 percent right now? So looking through those two pieces you mentioned, let's first think about subscriber growth, which is where I think most people look when Netflix is reporting earnings. That $13 million is certainly remarkable. It's a step above where it was last quarter in what was a very strong Q3. And it's also noticeably in front of where it was in Q4 2022, which was a very strong quarter for Netflix as well. What this indicates is really the ongoing strength and the scaling of the ad tier business, particularly scaling up at the end of the last

year, and also the momentum the company's building and its crackdown on password sharing. Implementing paid sharing has coincided with reigniting growth in the U.S. and Canada, as well as also seeing really strong growth numbers in other main regions for Netflix, which all saw remarkable year-on-year improvements in Europe, Asia Pacific, and Latin America. To that income piece, we're definitely looking at an interesting year. As Netflix is coming out of the Hollywood strikes, definitely seeing some impact to delayed spending on content costs. But definitely from a Netflix standpoint, they're appreciating the short-term windfall. The big question, of course, is what sort of effects will that have in 2024 as content spend resumes normal levels? Do you think Netflix is going to have to spend as much on content,

especially in a world where it is generating free cash flow, it is profitable, and you have all of these legacy media players who are now trying to play catch up and potentially looking to merge to do so. So at Third Bridge, we've been hearing a few things in terms of overall content spends. Our experts expect that Netflix will probably maintain its current levels around 17 billion or so on content spend per year. And then in a few years might start to inch that up in a single digit percentage range. What's more interesting, of course, is looking at where that spend is going. Just this morning, Netflix announced their deal with the WWE with 10 years of programming for WWE Raw. They're definitely changing the way they engage consumers, which is important for the company because while they have industry-leading subscriber base today, ongoing engagement is the

name of the game, and people will only stick around with the streaming service if there's new content, new ways for them to engage and stay happy with that service. How do you expect, Jamie, for Live to impact the margin outlook for Netflix as they do more of these deals, whether they're in sports or entertainment or sports entertainment like we saw from WWE. Is that potentially cheaper for them or given all the competition for some sorts of live programming, does that end up being more expensive? It's a great question. And in short, it depends. If we think about what the WWE deal brings, one thing which is remarkable is the fact that this is hours of entertainment,

weekly shows being brought to Netflix. They're definitely getting a lot of programming in this deal, although, of course, it is at a fairly high cost. When we think about how Netflix has been approaching live programming, they haven't dove into traditional live sports, which are incredibly expensive. And for that, while they might get high levels of engagement, we just think about the value of streaming rights, what Amazon did with Thursday Night Football, for example, or what Apple's doing with MLB and MLS. These are huge deals, and they can definitely make the ROI on that sort of content investment a little bit more challenging. So from Netflix's standpoint, investing in some of this can be cheaper depending on the type of live programming they get. That can definitely have some savings versus premium prestige scripted dramas. But of course, it depends on where they necessarily want to invest. OK, stocks now at session highs in post-market trading as that

conference call kicks off. Jamie Lumley, thanks for sharing your insights. Thank you. Up next, what earnings from some of the biggest names in the industrial sector could tell us about the upcoming results from Boeing and Honeywell and others over the next week, week and a half. Stay with us. Welcome back to Overtime. Industrial heavyweights reporting today. The biggest loser in both the S&P and the Dow, 3M. The culprit, a disappointing 2024 profit forecast as China and consumer retail end markets continue to be soft. Those shares finished down 11 percent. It was a down day for top weapons maker Lockheed Martin as well. Q4 beat, but 2024 EPS guidance was a miss.

Global conflicts spurring demand, record backlog now, with CFO Jay Malavi telling me the quote sales flywheel started earlier than originally anticipated. That will continue, but profit and margins will stay pressured this year due to losses in a classified program. Those shares finished down 4%. Guidance was also the issue for General Electric, too. There's a theme here. As it prepares to split into two companies, aerospace and power business, Vernova, the muted outlook overshadowing the quarterly beat. There will clearly be commercial-led growth, both in terms of engines and services this year, quote-unquote. That's according to CEO Larry Culp,

as aerospace continues to work through supply chain issues. I spoke to him earlier today on Boeing, Culp telling me he's not seeing any material impact from max groundings, that, quote, it is too early to know how that's going to play out. Finally, the one in the green, RTX. It was one of the S&P's biggest winners today after earnings and guidance both beat thanks to demand for commercial air travel as well as defense. All of this offering tea leaves for what's still to come. You've got Northrop Grumman, General Dynamics, and L3 Harris reporting in the coming days. And Honeywell and Boeing on tap for next week.

Yeah, a lot to follow. You know we'll be on top of it. Well, if you thought today's earnings calendar was big, wait until you get a load of tomorrow after the bell. What to expect from Tesla, ServiceNow, IBM, and much more when Overtime returns. Welcome back. Shares of Intuitive Surgical all of a sudden popping more than 6.5% in overtime, a bit of a surprise since the company pre-announced on the 9th. The robotic surgery company beating on fourth quarter earnings and revenue as expected, but the company also noting in its prepared remarks

for the conference call, which crossed right about at 4.30 Eastern, that it has submitted its application to the FDA for its awaited DaVinci 5 product. As I mentioned, shares now up better than 6%, Morgan. Yeah, we're going to get more earnings on tap tomorrow as well. A flurry in the morning. And then, of course, in overtime tomorrow,

we've got Tesla and ServiceNow are the big numbers we'll be watching for. But investors will also be awaiting results from IBM, CSX, and Las Vegas Sands. We also get those U.S. Flash PMIs. Tesla, we've been talking about AI,

a question in different ways. For ServiceNow, it's got its Vancouver release. We want to see if that's been gaining traction. Also for IBM, questions. We want to see if that's been gaining traction. Also for IBM questions, you know, we've had Mellius Research on talking about this. Can the consulting business pull through that AI demand

in a way that keeps IBM over 170 a share? Yeah. In the meantime, we do see Texas Instruments under pressure as well, and a number of semi-stocks down in sympathy and after hours right now. So continue to monitor that trade. That's going to do it for us here at Overtime. Fast money starts now.