Closing Bell - Closing Bell Overtime: Digging Into Earnings From Netflix & Tesla; Unity Software CEO On Making Games For Apple’s Vision Pro 7/19/23

Episode Date: July 19, 2023

Stocks closed higher as the earnings season kicked off in earnest. Reports from Tesla, United, Netflix, Las Vegas Sands and IBM. Vital Knowledge’s Adam Crisafulli and G Squared’s Victoria Greene break down all the action. Third Bridge’s Scott Kessler digs into the IBM report. It’s a bull versus bear debate on one of the most polarizing stocks: Tesla. RBC’s Tom Narayan gives the upside case while Guggenheim’s Ron Jewsikow makes the downside pitch. Unity Software CEO John Riccitiello talks his company’s deal to work on games for Apple’s Vision Pro. 

We got your scorecard on Wall Street, but winners stay late for the numbers. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. And the Bulls running wild on Wall Street again as the Dow extends its winning streak into an eighth day. And now investors are set for a massive hour of earnings. We'll break down results from Netflix, Tesla, United Airlines, IBM, Las Vegas stands as soon as they hit the wires. Plus, Unity Software now allowing its developers to create game and app environments for Apple's Vision Pro headset. Coming up, the company's CEO tells us what that partnership means for gaming and for his bottom line.

Let's get you ready for this busy afternoon of earnings. Joining us now is Adam Christofouli, Vital Knowledge founder, and Victoria Green, G-Squared private wealth CIO and a CNBC contributor. Guys, welcome. Victoria. So the KBE has done well. The KRE, I think, is up nine. But hold on. We've got United numbers out already.

Let's see. Phil LeBeau has the numbers. Phil. Hey, John, this is a beat on the top of the bottom line. And on the bottom line, it's the beat that people at United are going to be loving for a while. 503, that's what they earned for the second quarter versus an estimate of 404, almost a dollar better than expected, with revenue coming in better expected at $14.17 billion. And as you look at the quarter, the numbers within the numbers,

strong across the board. Revenue up 17% versus the second quarter of last year. Pre-tax margin of 15.3% on the high end of their guidance for the quarter. Passenger revenue per seat mile up 2.2%. Cost per seat mile was also up 2% for the quarter. The guidance is what's going to get a lot of attention here. They are issuing third quarter guidance for the first time, 385 to 435, well above where the street is right now. And for the revenue, they're expecting an increase of 10 to 13% compared to the third quarter of last year with capacity up 16%. And then the full year guidance, the company is now raising it. It was in a range

of 10 to 12 dollars a share. Now, United says it expects to earn between 11 and 12 dollars a share. Lots to discuss with United CEO Scott Kirby, a Squawk Box exclusive you do not want to miss. We'll have him tomorrow morning, 8.30 Eastern time. We'll talk to him about, again, United beating the street on the top and the bottom line and by a wide margin on the bottom line. Guys, back to you. That's right. And to your point, the raise for Q3 as well. Phil LeBeau, thank you. We'll see you shortly for Tesla. In the meantime, Netflix earnings are out. Julia Borson has those numbers. Hi, Julia.

Well, Morgan, we have a beat on the top, on the bottom line, a miss on the top line. Earnings coming in at $3.29 per share versus the $2.86 estimated. Revenues coming in a bit light at $8.19 billion versus the $8.3 billion that analysts had estimated. But we are seeing a big beat in terms of subscriber additions. The company saying it's seen net ads of 5.89 million. Analysts have been projecting about 2 million new subscribers. So big beat there. We're going to be digging into all the commentary here about the launch of paid sharing.

That's the crackdown on password sharing and the impact it's had both on subscriber growth but also revenue per user. We'll be back with more on that. The stock is down about 1.5%. The stock's moving around quite a bit, Julia. Thanks. You mentioned Netflix is down just over one percent. United higher by more than three and a half percent just at the moment. That's the initial reaction. Victoria, to you first reaction on this. We saw the banks mixed, but overall the

KBE and KRE up strongly this week. Now we've got these two heading in different directions. What's it tell you? It's an interesting, I think this is not a rising tide lifts all boats. We're concerned about costs, but the quality of assets, how much they're paying on deposit. So it's not just about the earnings, but what's underneath there. And I think everybody's a little concerned. Are we at peak net interest income and net interest margins? Well, some of these companies aren't going to be able to show the growth going

forward. They're the ones that the investors are getting a little bit worried about. Are we at this kind of peak margin and everything else is downhill from there? But for now, there's no boogeyman in the closet. Everybody was a little worried after State Street last week. But, you know, Bank of New York and Northern Trust knocked it out of the park a little bit, kind of assuaged some fears. So I think for now Goldman missed. But I think everybody said we know all the warts on Goldman now. We feel like we understand what they're doing. They kind of cleaned up Marcus, cleaned up the Green Hill.

And generally Goldman was seen as a positive that maybe they'll get momentum back. They're done getting distracted. And we all know investment banking will kick back up at some point. All right. And we're seeing Netflix bounce between negative and positive right now in the after hours. Julia Borson has more color in terms of the guidance for Netflix. What is it, Julia? Yes. So the guidance is also mixed. We had mixed results in terms of top and bottom line, but also in terms of guidance. The company is saying it sees third quarter earnings per share above expectations, $3.52 versus estimates of $3.24. But revenues they see coming in lighter than projections at $8.52 billion versus the $8.68 billion estimated. But the company in its commentary here is saying that the launch of paid sharing is working and also that they are going to be rolling out page sharing to almost all of their remaining countries starting today.

So it's working well enough that that they're going to continue with it. And they're also saying they see continued steady growth in their ad supported plan. So those are two of the key issues. Page sharing ad supported. I'm sure we'll get more detail on the call, but they're saying that these two initiatives seem to be playing out and paying off for them. Yeah. And of course, one kind of feeds the other. You push more people to take on more accounts. Maybe they start thinking about it from a more budget conscious standpoint. Julia, thank you. Adam, I want to get your reactions to that, especially when you did see net new ads almost three times greater than the street had anticipated for netflix yeah very impressive um net ad numbers obviously we'll have to dig through some of the details as to why the top line fell a little bit short but that's that kind of an enormous run into this

into this release and the fact that it's whacked it down small is a huge victory um you know so i think the core numbers are very healthy business looks looks very much on track. You know, they talk about their two big initiatives, which is the end of password sharing and then the new advertising tier, both of which seem to be moving in the right direction. So I think, you know, all everything's working, everything's firing on all cylinders at that company. And the fact that, again, it's holding on to the bulk of its gains is impressive. OK, Tesla earnings are out as well. Phil LeBeau with the numbers. Phil. John, we've got a beat on the top and the bottom line. Tesla earning 91 cents a share. That is nine cents better than expected for the quarter. The estimate was for 82 cents a share. Revenue also coming in better than expected at 24.93 billion. The street was expecting $24.4 billion.

Operating margin of 9.6%. But remember, what we're looking for are the gross auto margins, excluding zero emission vehicle credits. We have not come across that yet. One interesting note, though, Tesla is not changing its guidance for full year delivery, still keeping it at $1.8 million. There had been some speculation that the strength of the first and the second quarter, along with the expectation of increased production in the second half of this year,

might lead the company to increase its guidance. But at this point, they're sticking with deliveries of 1.8 million vehicles. Guys, back to you. Phil, how usual or unusual is it to see Tesla change delivery guidance? I did not expect it. I talked about it this morning on Squawk Box. If they're going to do it at any time, Morgan, likely they would do it after the third quarter. I just think this time of year, I wouldn't expect them to do it.

Okay. All right. Phil, thank you. Tesla right now higher by about a percent, but it's been bouncing around, as have many of these. Mike Santoli back with us. Netflix a little bit lower. Tesla a little bit higher. That's not what the options watchers were expecting.

No. I mean, the results are good, but pretty much within the zone of expectations. And it seems that both companies being relatively measured on guidance, Netflix raising, you know, raising guidance a bit, but not really promising that much in the way of future revenue and price increases. Now, free cash flow is going to be better for Netflix because they're not spending as much on content. It's going to be an interesting test as to whether the market likes that idea of a lower run rate of new content or not. So it seems steady as she goes for both of those in terms of the reaction. And by the way, also on UAL, given the magnitude of the beat that was just reported in EPS,

the guidance for the full year raise is, again, relatively restrained because you have to filter that into the year-end numbers as well. Absolutely. Taking that into account, Mike. Thanks. And now we're not done. IBM earnings also out. Christina Partsenevelis has those numbers. Christina. Well, we got a mixed report for IBM. Earnings per share came in at $2.18, which was a strong beat, 17 cents higher than the street. That was driven by higher gross margins. But revenue came in a touch light for the second quarter in a row at $15.48 billion. I just got off the phone with IBM CFO Jim Cavanaugh who tells me the miss is entirely due to currency that's an 80 basis point hit there was some growth impact impacted by its slowing infrastructure business they launched

their first mainframe or their mainframe product last year it's a highly cyclical category fewer orders now the company though did reaffirm its full year revenue guidance and free cash flow of 10.55 billion. I asked Kavanaugh about the product mix right now in the second half of the year, given software is the clear winner. He agreed software would play an outsized role, but he did highlight growth specifically in their Red Hat subsidiary, which also includes hybrid cloud products. He also said IBM sees the same kind of software growth with their generative AI business, think WatsonX, in the coming year, which should also help drive its consulting business. So right now you're

seeing the reaction. EPS, strong beat. Revenue, slight miss. Reaffirmed full year. Christina, thank you. Morgan, I was talking to IBM a little bit as well about the quarter and this infrastructure cycle with mainframe, This is what you tend to see. It's when it slows down. It slowed down a little bit more than the consensus on the street was expecting. But then also you got to look at security. The line for security here was a little bit weaker on the top line than people were expecting. Look at the mix when we get into the call between services and software revenue insecurity. It seems like the consulting business and services was a little light.

When you look, certainly consulting came in at about five-ish, a little bit lighter than the street was looking for. Also, automation, that line within software, a little bit light. That's around 15 to 20 percent of IBM's software portfolio. They just did an acquisition in that area. So it'd be interesting to see what they have to say about that. But again, that full year free cash flow guidance that Christina mentioned, maintaining at 10.5 billion. A lot of people are wondering about that. They're maintaining, so that's good. Yeah, when I see Red Hat up 11%, I mean, is that basically in line, or does that represent further deceleration of growth there?

Oh, no, I mean, Red Hat is outperforming within software. Got it. And that is, I mean, Arvind's known for being, you know, kind of the chief shepherd of that deal. So the fact that software is what's stronger here is a feather in IBM's cap. You just want to see that expanding, perhaps. We'll see what they have to say on the call. All right. Of course, shares of IBM trading just above the flat line right now. We've got another earnings mover out right now. Las Vegas Sands. Contessa Brewer has the numbers. Hi, Contessa. Hi there, Morgan. And I can hear Sheldon Adelson right now. Yay,

dividends. Las Vegas Sands is reinstituting quarterly dividends for the first time since the pandemic. 20 cents a share. Meanwhile, a beat on top and bottom lines. Earnings of 46 cents a share adjusted. 43 cents was what was expected here. Revenues come in at 2.54 billion against consensus of 2.39 billion. What a difference a year makes. Last year, this quarter, they'd lost a billion dollars. And in the all-important earnings gauge in the casino world adjusted property EBITDA, both locations in Macau and Singapore bested expectations for a total of $973 million. That's 82% of 2019 levels. They're getting there. The call starts

shortly where we expect to hear more details about what Sands plans to do with all its cash. You can see, though, that the shares are down 2.5%. We saw a bit of a plummet there. I don't know whether they were hoping for sort of a blowout earnings report a la what we've seen in Las Vegas, or maybe that dividend is great, but not great enough. We'll hear more on the call to come. Okay. And we know you're going to be monitoring that for us with those shares down two and a half percent right now. Contessa Brewer, thank you. All right. We got to go back to our panel and we have an all-star panel. We've got Adam Crisafulli, Victoria Green, and Mike Santoli all still on tap. Victoria, I'll go to you. It's almost like cafeteria style. We just heard from so many companies across so many industries. What jumped out at you the most? Some of it, I would say Tesla

and Netflix are obviously the two everybody was most interested in today. And I think for Tesla, we really want to hear what they're going to do if we're going to get that robo taxi, if we're going to get that autonomous driving, because the stock is only worth $918 billion if it's a technology component that comes in. Investors are expecting them to come through with that. So I think we need to hear what they have to say about the Cybertruck, what happened with inventories. You know, obviously it was great that they beat on revenues even with the discounting. So that was a relief. But I think we really need to get some updates. You know, when are we getting Cybertrucks and when are we

getting autonomous fully self-driving? Because the full self-drive, it's expected Tesla is going to get there first and get there soon. And I think investors are betting on that. And that's why the stock is worth so much right now. So I think a lot of that's going to be in the guidance. Netflix, I just like this stock. I know they missed a little bit on earnings, but I think what they're doing is so smart. They're driving people to the ad-based fear, which is priced 15% below the paid sharing. So they're driving new, brand new subscribers that maybe have been leeching on to actually having their own profile.

And eventually they may move through. I want to see what their average revenue per user ended up being. And I do think they're well positioned with their content pipeline to really benefit, even if the Hollywood writers and actors drags on, they're probably best positioned in the media stocks to weather that. And they should get a lift from the dollar because about 50 percent of their revenues are international, providing them these growth markets. So both of those, again, we're going to have to hear some commentary. All right, Adam, I bet you weren't expecting me to ask you about United, but I'm going to because it's up more than two and a half percent. And that actually qualifies it as one of the bigger movers, which, again, is not what the options market was expecting. Does that tell us anything about airlines and

room still to run or is this just a one off? No, I think there's been a lot of concern that travel, the one part of the consumer economy that's been on fire was at risk of kind of rolling over. But we saw with Delta last week with their report, extremely strong conditions on the ground. And management almost described it as this secular boom that's still in, you know, at most the mid-innings. There's still several more, you know, there's still a lot more of the recovery to go as the industry rebounds from where it was before the pandemic. And Delta outlined a lot of really interesting charts just showing how much further capacity traffic has to go before it gets back to where it was before the pandemic. So travel leisure portion of the economy looks like it remains very robust based on what United said.

It's interesting that they're still performing very well, even with a big jump in capacity guidance, suggesting that pricing is coming up a little bit, which you saw in the last CPI. So airfares look like they will come down, but it isn't denting their overall revenue and earnings growth. OK, because demand is still so healthy. All right. Back to Tesla. Phil LeBeau's got more. Phil. John, we said the magic number to focus on was 16.9 percent. That was the estimate on the street for automotive gross margins, excluding zero emission vehicle credits, the estimate from Wall Street. Tesla reported automotive gross margins for the second

quarter coming in at 18.2 percent. So better than expected. Now, still down compared to where it was in the first quarter, which I think came in at 19.3 percent. So you're still seeing the impact of the price cuts and the margin compression there. But remember, the expectation is that this is the trough here and maybe into a little bit of the third quarter are the trough in margins. And then as it is expected to accelerate, especially as they get the economies of scale and they're bringing down some of the costs on the battery manufacturing. So that's the expectation on Wall Street. Again, automotive gross margins excluding zero emission vehicle credits coming in at 18.2 percent for the second quarter for Tesla. Better than expected. Guys, back to you. And as you're talking, the

stock is moving higher. Phil LeBeau, thank you. Shares of Tesla turning positive right now up close to one percent. Mike Santoli, I want to bring you back in this conversation because Tesla is really the first mega cap tech stock, if you will, to report this earnings cycle. I mean, margins better than the street had expected here. Stocks up 140% year to date. I mean, does this set us up for strength in the other big growth names that have already seen sort of big moves in the stocks already? Or is it sort of its own dark horse? Well, it's always kind of operating based on its own forces. But I do think that the idea that the market has rushed to a place of building in some pretty good results in the stock prices and therefore, you know, the bar is relatively high to really impress the market.

That's probably the same for a lot of these stocks. I do find it interesting with Tesla. First of all, John's talking about the options implied moves. Don't foreclose on the idea that through the conference calls, there's going to be some reason that these stocks like Netflix and Tesla do get a charge in one direction. It's going to be a ton of talk about AI, trust on the Tesla call, see if the street is receptive to that. But what I did find interesting is as they, in their shareholder letter, talk about operations, Tesla calls, see if the street is receptive to that. But what I did find interesting is as they in their shareholder letter talk about operations, Tesla says we are focusing on cost reduction, new product development that will enable future growth investments in R&D, et cetera. Cost

reduction listed first. So clearly they're trying to pay attention and be responsive to the idea that they that they are being watched for the margin performance. All right. Adam, Victoria, Mike, thank you for kicking off the hour with us. Thanks, guys. Evercore ISI's Mark Mahaney reacts to Netflix results and later a bull bear debate on Tesla's earnings and the stock's massive rally We have such a big show still ahead. Stay with us. Netflix shares down about 4% under pressure after missing revenue estimates, lower than expected Q3 sales guidance. Let's get back to our Julia Borsten with more. Julia. That's right. Netflix shares continue to sink, now down about 3.5% on mixed results, with earnings guidance that beat expectations while revenue guidance missed. The company also gives some subscriber guidance that far exceeds

expectations after delivering about 6 million new subscribers in this past quarter, which was three times the number expected. Netflix saying it expects third quarter paid net additions to be similar to second quarter net additions, which was nearly 6 million. Now, that's higher than the 5.3 million that analysts had projected. This is interesting because it also indicates that first quarter growth was not a pull forward. Remember, we saw that pull forward phenomenon during the pandemic. The company also providing some insight into its pricing plans and its recent phasing out of its lowest cost product here in the U.S., saying increased sophistication on pricing plans strategy is important to improved monetization. Now,

just digging into the impact here in terms of average revenue per user, I want to note that average revenue per user in the U.S. and Canada, which is where users are most valuable, dipped just slightly to $16 in the second quarter from $16.18 in the first quarter. So interesting to see that there hasn't been a big decline as more people sign up for both ad-supported and the lower-cost version as they convert people from borrowing passwords to paying for their own. John, Morgan? That is interesting. All right, Julia, thank you for that additional color. Joining us now for Reaction is Mark Mahaney from Evercore ISI. Mark, I mean, there's a lot in this report,

it seems like, at least from first glance, to like. Why is the stock down 3%? Because this was probably the single highest expectation stock in the internet sector going into the quarter. I think Meta's bar is going to be high, too. But Netflix had the highest bar. They needed to do something like four to five million sub ads this quarter. They beat that. But I think the market was kind of even looking for seven million next quarter. So it's really what I call an expectations correction. You step back and think about this fundamentally. You know, these initiatives, the two biggest ones out there, page sharing and the basic with ads, they're starting to pay off, particularly the page sharing. I think this basic with ads they're starting to pay off particularly the page sharing i think this basic with ads will be the ads program will also really pay off and it's

going to take them a while but fundamentally things are better and the one only other key thing to point out is the free cash flow outlook they upped that from three and a half billion to closer to five billion and the bulls on the stock will look at how much free cash that they can generate i think we're going to be positively surprised by this so yes you have an expectations correction but i think all in the fundamental story is getting stronger, not weaker. Interesting. I mean, the fact that you saw net ads that were three times stronger than the street expected, it looks like you're there forecasting for similar additions in the current quarter as well. And yet, at least in Canada and U.S., as Julia just pointed out,

average revenue per user is almost essentially flat. I mean, what does that tell you about who's signing on to or who's not signing on to the ad-supported tier? Well, the overall, I think that the revenue per user, the monetization probably came in a little lighter than most people expected. There are these ARPU drivers, average revenue per users, that are going to work and work very positively for the company as they get people to either go with the ad-supported plan where r2 is higher than the basic plan where they get them to shift up to the standard plan so the r2 engine is there it's just going to take it a while a little while to get down to track hope i didn't ruin that analogy but i think that's what's

going to happen in the meantime you have a little bit of an air pocket on pricing because this is the company that consistently and probably too much raised fees over time. So now they're comping against a period where they no longer have those price increases as a tailwind. But that R2 tailwind is coming. It's just going to take a while for advertising to ramp up. So that's what the bull should focus on. Okay, well, Mark, this stock has got you in kind of a funky spot because you had a $400 price target on it, right? You removed it from your top picks list last month, but you still kind of like it, but the expectations are high and it's down after hours. So what do you do? Yeah, so you spend some time listening to them on the call. This is what you want to hear them

talk about. How fast do you think you're going to be able to ramp up this ad-supported offering? Password sharing, break it apart by country for us or by region. Tell us where you think you're having the most success, where you're getting the most pushback. What's your view, Netflix, on how many of those 100 million password borrowers, including my kids, are going to sign up for their own accounts or have their parents pay for it? I hope it's the kids paying. And then so those are kind of the questions. And then talk about profitability. So they're showing you really nice margin leverage in the back half of this year, but yet they're kind of keeping the full year margin the same. I'm a little surprised by that.

And then you started ramping up share buybacks. How consistently are you going to do that going forwards? If the answers to those are relatively positive, you can stay bullish on this name. That's what you want to dive into in this callback. Mark, I thought inflation was getting kind of under control, and yet we've got these Netflix hikes, right? Microsoft is looking to charge 30 bucks a month for AI in office. And Disney is also looking to charge more for subscription. Is the consumer at this point going to be able to handle all that or might we see some of these names kind of get rejected?

Well, that question is way above my pay grade, but I will make this point. Netflix is in a really sweet spot in this. Every other streaming company is raising prices. Peacock yesterday, the news was they're raising prices. Netflix is giving you the biggest price cut in the industry. So you can come in at Netflix now for $6.99. I think that's where a lot of those password borrowers are going to come in on the plan. That's the price of a cup of latte, you know, in some major cities.

It's really cheap for the highest quality entertainment package out there on the Internet today. That's Netflix at $6.99. So, yes, you're right. There's inflation with one exception, and that's Netflix. And the beauty of the Netflix business right now is that they're able to lower those prices by 30 percent, $9.99 with $6.99, yet they're able to generate more revenue per user. Like, you never see that in business history. That's why it's interesting being long. You should stay long, Netflix. But there are these questions they need to address on The Hermes Ball this afternoon. All right. Mark Mahaney, thank you.

It's going to be interesting to hear what they have to say about this writer strike and the actor strike and also what they have to say about the demand from advertisers when there's been so much of it, or at least the expectation that there's so much of it, and whether that becomes a zero-sum game with some of the other big tech names that we talk about so much. Yeah, given Netflix's international exposure, maybe that helps them on the strike front. And now IBM reporting mixed quarterly results. Up next, the top analyst on what he wants to hear from the company

during its earnings call in just a few minutes. Plus, the CEO of Unity Software discusses creating games and apps for Apple's Vision Pro mixed reality headset. This is his first interview since that partnership was announced. Stay with us. Welcome back to Overtime. Discover Financial under pressure right now. That's after missing estimates on both earnings and revenue, but investors likely keying in on increased credit loss provisions

and reporting charge-offs that are higher than expected. In addition, the company disclosed the FDIC is looking into a merchant misclassification issue that began around mid-2007. Discover has paused share buybacks while it undergoes an internal review of that issue. And as you can see, shares are down 11% right now in after hours. A big move. Yeah. Yes, indeed. And in overtime, Las Vegas Sands earnings call is kicking off.

We will monitor it for any news. We're also counting down to the calls from IBM at 5, Tesla at 5.30, Netflix at 6. Third Bridge analyst Scott Kessler joining us now for what he wants to hear during IBM's call at the top of the hour. Scott, this quarter for IBM turned out exactly like you thought, pretty much, and it's flat after hours within that range of 125 to 135, exactly like you thought. Software strength matter here more, mainframe cycle slowing down more than consensus, what? So a couple of things, John, that I would point out. Look, software seem pretty solid. I think people want to hear more about the hybrid cloud and AI strategies, if you will.

You mentioned Mainframe. Obviously, they released their latest products, if you will, last year. So the comparison is obviously very challenging there. And so there's not going to be as much of a focus on that. But I think people really want to hear about what everyone's talking about right now and see if IBM is, in fact, kind of a sleepy way to invest in the future that some people see as hybrid cloud. Yeah, I mean, sleepy is a good word for it. Stocks down almost 4% before the earnings report today, year to date. It hasn't really seen the same sort of rally or momentum or AI-tied enthusiasm in the market as some of those other companies. What is it going to take,

you think, to really break it out of its range? I think it's a good question, Morgan. And I think they have to start by addressing the revenue expectations, right? This is a company that, notwithstanding, I think how they're trying to position themselves around key kind of mega trends that, you know, we touched upon here and, you know, you and I both spent a lot of time thinking and talking about, but having revenue growth projected for this year and next year at three to 4%. I think they talked about 3% to 5% revenue growth. Something's going to have to change there for people to get super excited about IBM again. Okay. Scott Kessler, thank you. We're going to be monitoring that call. Stocks down slightly in the after hours trade. Up next,

a bull bear debate on how to trade shares of Tesla following that earnings report. And check out Audity Tech. I know this sounds crazy. Shares jumping today in its first day of trading for the Israeli beauty and wellness company. Not like tech tech, but beauty and wellness. All right. Could it be another AI play for investors while the company uses artificial intelligence to develop its cosmetics? Maybe. Maybe. They should do like a test. Like we should do like a test and they should like test it out on you or maybe you and me. I would I would. No.

OK. We want people to buy this stuff. All right. We'll be right back. Welcome back to overtime. Tesla shares up about half a percent right now and after hours beating on the top and bottom lines, booking nearly $25 billion in revenue, with margins declining after price cuts. Joining us now is Ron Yovsikov of Guggenheim, who has a sell rating. Ron, I want to get your thoughts on the results we got, particularly this gross auto margin,

ex-tax incentives, that was 18.2 percent, better than the street had expected. We knew price cuts were going to pressure margins. What do you think about this? And is this a trough? Absolutely. Yeah, that's that's probably the number one question we've had with respect to the stock coming into the print. We were at 17.9. So a little better than better than feared is, I think, a fair characterization for the gross margins X credits line. But still, ultimately, more than 1,300 basis points below where Tesla was in the first quarter of last year with respect to gross margins. So they're definitely feeling the impact of price

cuts. But better than feared is fair. I would also highlight EPS better. There was some below the line benefits there and free cash flow was about a billion dollars light of consensus estimates. Okay. We're also going to bring in Tom Narayan of RBC who currently has an outperform rating for the viewers watching at home. This is a bull bear debate right here. It is now. It is now. You know, Ron said better than fear. He meant better than hoped from the bear side. All right, Tom, I want to get your reaction to the results we've gotten from Tesla here, especially since gross margins at 18.2%. I mean, if you're talking about the traditional automakers, nobody comes close to that. Yeah, definitely.

I mean, last quarter they did 19%, and everyone was worried about price cutting. They definitely did a lot of price cutting. Revenue per unit was only down about 2% from 1Q to 2Q. So I actually think this is a pretty good post 18.2. And then look at the EBIT margin. It's at 10%. Name another automaker that's doing 10% EBIT margins. Oh, and they sell all EVs, you know, which all other automakers are woefully delusive on that. So I look at this. We saw what happened with the stock last quarter when it sold off on that print. Now it's in line with expectations. I would expect people to look favorably on it. Ron, it's a rough print for you in a way based on your price target of just over 100 bucks, 112. But I mean, does this really justify a nearly trillion

dollar market cap for Tesla, especially given we've had meme stocks also rallying? Could one argue that this is a sign of market froth? Yeah, no, I think that's a fair characterization. We have nearly a $400 billion valuation for Tesla. I think in a vacuum for a business that's doing $20 billion of EBITDA next year, maybe $25 billion of EBITDA in 2025, that is pretty rich, unless you believe in robo-taxis, FSD, where attach rates still are extremely low, or things like AI licensing opportunities. And just not sure where bulls get confidence in those line items specifically. I mean, there are real robo-taxis on the road today that have went through a rigorous regulatory process. FSD is currently a level two system. They've told regulators it will always be

a level two system. So Tesla doesn't have a robo taxi today. And we don't know what that business ultimately looks like. I think the confidence in that initiative, it's a bit of a running joke at this time that Elon says it's always coming next year. All right, Tom, you're going to let him say that about FSD? I mean, I personally don't get how full self-driving ends up being good for selling cars. It seems like a drive utilization up and they'd sell fewer. But all that given, Elon Musk, people have a lot of faith in him for understandable reasons. So does that keep this stock buoyed? I think so. And I think you have to distinguish between FSD and robo taxis are two completely different things, right? So FSD is going to be for private cars, level two plus where they really are the leaders on the road. And I think the attach rate is low because they're charging

200 bucks a month for this. What happens if they chop that to 50 bucks a month which by the way i think is what they're going to do you still get 50 bucks per month per car and a huge software margin on top of that and the attach rate will go from five percent to like 80 percent especially when the government mandates it so the math on fsd is tremendous and i haven't even talked about robo taxi yet when you run the math on robo taxi you have margins going to 50 60 percent utilization going through the roof now I know a lot of this is far away I totally get it but the thing to think about with Tesla is how many companies out there have this sort of market capitalization money they can throw behind it over the long haul

to survive and be the king of the hill on Robotex. It's just them and maybe Google. There's a couple other Robotex companies out there right now, but really these guys are the ones that are betting everything on it. And if they do win it, the math is there. You can justify huge market caps and price targets for the stock. Okay. And in the more near term, Ron, I just want to pick up very quickly on something you talked about earlier, and that's licensing. Why don't you think that could be a meaningful revenue driver for Tesla when there are striking deals with the other automakers for things like charging right now?

Yeah. I think it's important to distinguish between charging and where I think you really get the big revenue opportunities, which is licensing FSD, licensing powertrain or battery technologies. Co-opetition in auto is tough. And ultimately, you have to believe that Tesla is the version 4.0 or whatever you want to say of FSD when there are viable public alternatives in the form of ADAS level two plus systems out there today. It's a challenge. And just on the robo taxi point, just to be fair, Tesla doesn't have a robo taxi today. So I think you have to be intellectually honest there that you're believing in the company. But there are robo taxis on the road that aren't Tesla's. And they went through

a pretty rigorous regulatory process to get there. All right. Ron, Tom, thank you. Cyber truck. Details on that. Going to be something to watch tonight, too. Yeah. We'll see if they have any lightning impact. Take a look at some of the other earnings movers as we go to break. Netflix selling off after hours down 5% at the moment after a revenue miss. Disappointing guidance. United shares up about 2.5% after earnings and revenue beat. Las Vegas Sands shares also moving lower by about 4%. That conference call underway will bring you any news from there.

Coming up, Unity Software giving the go-ahead for content creators to design games and apps for Apple's Vision Pro Mixed Reality Headset. Up next, we'll hear from Unity CEO John Riccitello, his first interview since that partnership with Apple was announced. We'll be right back. Unity shares leveling up. The game developer announcing today it's launching a beta program for Apple's Vision OS, allowing creators to design games and apps for Vision Pro. Shares up more than 50% since Apple announced it'd be partnering with Unity back in June. Joining us now exclusively, the CEO, John Riccitello.

John, welcome. So give me the buzz here. How does this compare with other new sort of platform launches and the interest from the visual arts and design communities? Well, look, I mean, anything from Apple is always huge. I think developers around the world have taken notice of just how successful Apple's been with literally everything they've put out. And for those that have tried the Vision Pro, it's a staggeringly cool experience. And so I think we're going to see a huge amount of interest. We're already seeing a lot of interest at Unity from the huge number of developers that build on Unity wanting to take our polyspatial technology to be able to build native applications for the Vision Pro. So I think one of the early endings of something big and something new and something that's likely to take off.

Should investors expect the ramp of this to be more like a gaming console or more like mobile gaming was? We saw that it was it was smaller developers with mobile gaming who really got in and got creative and started figuring out mechanics and how those are different. But this thing is so expensive, doesn't look like it's going to be subsidized, at least not off the bat. Well, look, I think there's a lot of analogies you can draw. Is this like the next big thing like mobile? Is it the next big thing like the internet? There's a lot of different analogies you can draw. What I would say is this. The experience is spectacular. And I've tried it. I love it. I can see it being used the way Apple talks about it as spatial computing, not really a device just for gaming or just for predicting for everything that you might want to do. So in that sense of sort of a computer, a new type of computer interface where you can be highly

productive, do a lot of different things and also game um i think the vision pro is going to find success and over time you know apple you know often will have you know one more than one product entry inside a category but i can't really speculate on that they're starting with a high-end device that i think provides a great experience john we know adobe cisco microsoft are among the companies that are creating vision pro apps right now um given this partnership have you just seen a flurry of companies and developers come to your platform i guess i guess what does the demand look like from that side of it well look all of this starts with somebody creating something so the hardware has great use when it hits the market so when the the Vision Pro device hits, Apple wants to see a rich

portfolio of content out there. They're making a lot of it themselves, but there's going to be a huge amount built on Unity. And with release of our beta of our polyspatial technology that we've been working on for a long time with close collaboration with Apple, that's going to put, if you will, sort of speed and acceleration behind all this work from these creators. They can make things with tools that are familiar with and have them work perfectly and instantly as native applications for Vision Pro. So we have a huge amount of interest in using Unity for that. We're supporting it. It's going to happen.

Looking to see how this comes together. And you're the guy to talk to. So want to talk to you more about that in the future. John Riccitello, Unityo thank you thank you up next we will run through some of the other earnings movers that should be on your radar right now there's a lot stay with us welcome back to overtime a couple of metal producers reporting numbers in overtime alcoa moving higher after posting a smaller than expected loss while revenue was in line. Those shares are up more than 1% right now. Still dynamics, though, in the red. The company missing estimates on revenue in the bank space. Zion's

Bank Corp moving higher after hours as well. Earnings were in line, and the CEO saying they are seeing a solid rebound in customer deposits over the past three months. Those shares are up heftily, about 7.5% right now. Regionals, once again. I knew you were going to say that. Much more on earnings from Netflix and Tesla. Mike Santoli is looking at the market, shifting views of competition for those two. We'll be right back. Senior markets commentator Mike Santoli is back with another look at Netflix and Tesla on the back of earnings. Mike? Yeah, John.

First, a long-term view or somewhat long-term. Ten years, the astonishing appreciation in both Tesla and Netflix. We know about that. The market aggressively capitalized these companies as the creators of their own product category. So 3,500% appreciation in Tesla, like twelve hundred percent for Netflix and you see the S. and P. a hundred and fifty percent this is a log scale that doesn't look like but that's what the numbers say. Now take a look though in more recent history Tesla against Ford because there was a period here in the last couple of years where it was said maybe there's room enough for everybody in here. The legacy companies were starting to compete on the same ground, EVs in this case. And then Ford goes down with Tesla. But now Tesla trying to separate again. The point is money's migrating back to the now incumbent first movers because it seems like it might be a little bit too hard for the rest. Similar story, Netflix versus Disney in this case, where the streaming market seemed like it was going to be big for everybody.

It was a free for all. Disney, as we know, during the pandemic really did have a good run as people just wanted to give it a Netflix capitalization on Disney plus subs. You see that also has faded. And so what's going on here is the market is rebuilding those premiums in those companies where it seems like at least you don't have to worry about their competitive position so much anymore. Now, it still leaves open the question as to whether the market's paying too much, even for them. $900 billion plus market cap for Tesla, $200 billion for Netflix and Netflix above 35 or so, 30 times earnings. Yeah, I think this is really fascinating. It sort of speaks to the fact that both of these companies were disruptors in their markets and continue to sort of lead the market trends in both cases. More recently, this idea of cost cutting, this idea of price wars or

sort of beefing up against competition, whatever they do, it seems like the rest of the market kind of follows. And maybe that's also getting priced in here. Yeah, it seems to be, Morgan. The other, I guess the bigger question would be if they find themselves, both companies, in a state of sort of profitless prosperity, so to speak, where essentially the margins never get recaptured. It ends up being a little more of a grind. Yes, you have economies of scale, but they're no longer magic, at least in the context of how expensive the valuations have

become. All right. Mike Santoli, thank you. More tomorrow, for sure. Morgan, more tomorrow. We're still in the midst of these bank earnings. And you see me keep slipping in the regional bank mentions because, I mean, it's a big deal. The KRE has not been at these levels since much earlier in March, and we've been watching it. Yeah. Fifth, third on tap tomorrow. Capital one as well. And then in terms of financials more broadly, Travelers, which is a blue chip and also Blackstone, huge non-bank lender with many, many different aspects to it. So there's a lot to watch. I'd also just note Las Vegas Sands and the other casino makers down big right now. That's going to do it for us here at Overtime. Fast money starts right now.