Closing Bell - Closing Bell Overtime: Instant Reaction To Netflix Earnings; Chegg CEO On AI In Education; Grading The Big Banks 4/18/23

Episode Date: April 18, 2023

A mixed session for stocks: the S&P 500 closed higher but the major averages hovered around flat for most of the day. BD8 Capital Partners CIO Barbara Doran on the market action. Evercore analyst Mark Mahaney gives instant reaction to Netflix earnings while Annandale Capital’s George Seay gives perspective as a shareholder. Chegg CEO Dan Rosensweig weighs in on AI integration in education. Our Morgan Brennan is in Colorado, interviewing Rocket Lab CEO Peter Beck at the Space Symposium. Plus, a slew of earnings in overtime: Netflix, United Airlines, Western Alliance, Interactive Brokers, First Horizon and Intuitive Surgical.  

Well, flat to the close, but the streaming's about to begin of Earnings, that is. That's a scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I am Jon Fort. Morgan Brennan is covering the Space Symposium in Colorado. He's going to rejoin us in a bit with the CEO of Rocket Lab. And now we are moments away from the first Fang Report of Earnings season, Netflix. Set to release results any second now. We're going to break down the numbers

and the read-through for the rest of tech. Plus, we're going to get the latest look at regional banks when First Horizon and Western Alliance report results. And we'll hear about the demand for travel when United Airlines numbers come out. Again, any moment now. And we're also following breaking news this hour.

Fox has agreed to settle its lawsuit over 2020 election fraud claims. I'm going to bring you more details in a moment as we wait for that and those earnings. So let's get to today's market action. Joining us now is Barbara Duran from BD8 Capital Partners. Barbara, what's happening in the markets now? We ended up just about flat on all the major averages. We just rating for some news and some indications, perhaps this earnings season to move things around. Yeah, I think so, John. If you look at the last three

quarters of earnings season, people, investors went in with great trepidation, expecting all sorts of bad news in the earnings, and it didn't happen. And the market firmed up. Here, it's a little bit different. I think it's going to be more of the same. I don't expect any disasters. I mean, things are actually pretty stable right now. We'll see the effects of maybe some of the loan and credit tightness the next quarter or the quarter after that. But I think right now, because we've had such a good move in the markets, NASDAQ up 16 percent, S&P up 8 to 9 percent, we could see a bit of a pause here, but I expect earnings to be constructive. So I don't see a lot of downside here, but I don't see a lot of upside except in particular sectors or particular stocks.

Is there anything in particular to listen for in the guidance? Right. Because everybody's trying to predict what's going to happen a quarter to out with that potential credit tightness. But are we in the position where companies are really able to predict that or are they going to be conservative because of it? Yeah, it's a good question, John. I don't think so. We just had these mostly fantastic earnings, particularly from JP Morgan and the banks, and they're really not seeing it yet. They're seeing a slight. They're increasing the reserves just in case, talking about some recession possibly in 24, maybe year end. But they are not seeing it yet. They're still seeing, you know, excess savings in their consumer savings accounts from the pandemic.

People are employed. And so they're just not seeing it yet. But the worry, of course, is that because of the three bank failures we had in mid-March, there'll be a little bit more credit tightening. And tightening was happening and demand was lessening. You know, my view is that it's not going to be severe. It will add, but it's going to be the uncertainty, the lagged effect of that, plus the lagged impact of higher interest rates that I think the Fed, we might see 25 pips in May, but that might be it for a while. No cuts for a while, but they just might pause there and wait to see what happens. OK, I do want to mention Netflix and United results are both out. We're not quite ready to bring those to you.

Netflix heading down quite a bit after hours, though, so eager to know what the story is there. Barb, when you are preparing for, say, a company like Netflix, where subscriber numbers have been so important in the past, but we don't have clarity necessary. Hold on. We are ready to go to Julia Boorstin on Netflix. Barb, sit tight. Everybody listen up. Julia, what do we have? What we have on Netflix is some mixed results. Revenues missing estimates slightly 8.16 billion versus 8.18 billion estimated, which is just a tiny miss. Stock is plummeting, though, on the fact that the paid net ads actually came in far better than anticipated. So the fact that you have a beat in terms of subscribers and just looking at the subscriber numbers, they had been expected to, they actually added 1.75 million net new subscribers. They'd been expected to add 1.38 million, but they added more subscribers than expected.

But the revenue grew slower than expected, indicating that the average revenue per user declined much more than Wall Street analysts had been anticipating. Earnings, though, did beat estimates by two cents coming in at 288 versus the 286 that analysts had anticipated. And just two quick notes, John, on these initiatives that are so important for Netflix. One is the ad supported business. They say given current healthy performance and trajectory of our per member advertising economics, particularly in the U.S., they say we are upgrading our ads experience with more streams and improved video quality to attract a broader range of consumers. They also are announcing that they are launching their crackdown on their on password sharing, what they call their paid sharing initiative. They're launching a broad rollout, including in the U.S. in the second

quarter. So, John, we see the stock is now down about eight percent. I'm going to continue to dig into these numbers and we'll be back to you with more. Julia, thanks. Barb, quite a move here. What do you make of it? It's interesting because, as we know, and there was someone on a few minutes ago that talked about it. Everybody's looking at the subscriber growth, and they want to see these are relatively new initiatives, the ad-supported tier and the password sharing.

And the password sharing, they're a little bit behind. People expected them to do more there. And the problem is, you know, here you saw the members go up. So something's working. But it sounds like the ad supporting, you know, was they were saying it was all new members. But this sounds like some canonization going on. You know, but also what we're seeing, the password sharing, initially when they rolled it out, for instance, in Canada, a lot of people rebelled, you know, ended their subscriptions. And then after four to five weeks, you saw it come back and stabilize. Churn was fine.

And you started to pick up, you know, more subscribers. So there's just some, all these, there's so many new things in the rollout. We just don't know what's going on. But I suspect it has something to do with the ad support interior. Maybe a gauge of how good the consumer is really feeling, at least about that. Barb, thank you. We mentioned it a moment ago. We're going to get back to that breaking news on Fox settling its closely watched lawsuit at the 11th hour. Eamon Javers, this thing was just getting ready to begin. John, that's right. We have a deal here at the courthouse, but we don't know

the terms of the deal just yet between Dominion and fox the judge eric davis just moments ago i was in the courtroom called the jury back in from what had turned into an extended lunch break they went away we're told the jury was going away for an hour they were gone about three hours john the judge brought them back in told them that the parties have resolved the case he thanked the jury for their service and said even though sometimes it feels like a waste of time, feels like you didn't spend very much time on this case at all, nothing happens without the jury showing up for work. He thanked them for their professionalism and those people have now been dismissed. He thanked the lawyers. He praised the quality of the lawyering on both sides and that's it. That's what we know as of right now.

I can tell you, John, that part of the reason that we may have seen this settlement, or at least part of the negotiating teams behind the scenes, we saw the two co-founders of State Street Capital. That's the private equity firm that owns Dominion alongside Dominion's management. They were here going in and out, so I was standing in the hallway upstairs, they were going in and out of the holding rooms where the attorneys were working

during that extended lunch period. The two private equity co-founders going in and out, huddling with their lawyers, obviously getting the latest on the developments, and I saw a very big smile on the face of one of the co-founders through a window in that holding room. So that gives you a sense of maybe where this is headed. But what we don't know right now are the terms of any deal here between the two parties. It would seem, however, that the settlement now resolves this case. We'll wait and see what the

parties have to say when they come out of the courthouse. This is obviously one of the most highly anticipated defamation suits in American history because of the First Amendment stakes here, because of the involvement of a presidential election, because of a high-profile network, because of the involvement of Rupert Murdoch, perhaps the biggest media mogul of our era. All of that now over, Rupert Murdoch of course spared the potential indignity of having to testify in person here in Wilmington, Delaware. John, back over to you. Quite interesting to see those terms, Eamon, as you mentioned, and who's allowed to say what

about it afterward. Eamon Javers, thank you for your professionalism. Who's allowed to say what, John, and maybe who's required to say what? Indeed. Perhaps even more important. We'll see. Eamon, thanks. Let's turn back to Netflix now. Falling sharply, as you mentioned, on results though well off the lows. Now down just a little more than 6%. Evercore's Mark Mahaney joins us. Mark, you surprised by this move? No. If you had told us that if you knew in advance that subs were going to come in around you know, kind of around that one to two million range.

I think once we saw that password sharing was not rolling out in the March quarter, I think street expectations were higher in terms of sub ads for the quarter. So this was kind of a submiss versus where the street was, where the where the market expectations really were. And now you still got this on the come development. You still got password sharing in Q2 and you got the continued rollout of of of the BWA or basic with ads, the ad supported service. So that's why people will come in and buy any major weakness in a stock. But, you know, at face value, I think the March quarter results are disappointing. OK, hold tight, Mark. Let's get back to Julia Borsten with some color and and information on the guidance here, Mark. Let's get back to Julia Boorstin with some color and information on the guidance here. Julia? Yeah, I just want to dig in here to another key reason why the stock is plummeting on the news, and it's really the guidance.

The company says that it sees second quarter earnings of around $2.84 versus analyst estimates of $3.05 and Q2 revenues of $8.24 billion versus the $8.48 billion anticipated. So we're really talking about a miss on guidance on both the top and bottom line. And then another key thing here is the fact that they're saying that even though they're not giving specific guidance when it comes to subscribers, that they do say that this translates into second quarter paid net ads that are roughly similar to the first quarter. Now, the first quarter is usually typically a very seasonally slow quarter. So the question is, why aren't they going to see an acceleration in the second quarter? They say that part of this has to do with the fact that with the rollout of

the crackdown on password sharing, we'll see more of the impact of that in the third quarter. But really, a lot of disappointment in terms of what to expect in Q2. And you see the stock is now down about six and a half percent. John. All right. Julia, thanks. Mark, churn concerns here about how well they're going to be able to hold on to paid subs as they tighten the rules here and the economy does what it's going to do? Well, I think the third-party data did show that spike in churn as they launched in those four markets in the March quarter. Canada was the one that most people tracked very carefully. You saw a spike in churn. And then you saw a spike in gross ads and a spike in ARPU, or at least an implied increase in ARPU. And our guess is that that's what you're going to see. But you are going

to see that spike in churn as they roll it out globally. The market is going to treat it, consumers are going to treat it kind of as an indirect price increase. And so you're going to get more people to sign up, but they'll do it a little bit begrudgingly. But over time, they will sign up. That makes us bullish on Netflix. And we really, you know, our north star on the stock here is this advertising opportunity that they face because they solve the major problem that Netflix has faced for years. They charge a premium price. This gets them out of that premium price box and they can do it while raising ARPU. You rarely see that in business history. That's why we're bullish. And by the way, I think that's why you'll see,

you won't see a dramatic correction on these numbers. And I actually think the sub guidance that they just gave that Julia talked about for the for the June quarter is actually relatively constructive. It's the June quarter that's always the weakest sub ads for the quarter for for Netflix. So they can kind of maintain similar sub ads as they did in the March quarter, despite churn related to password sharing. I think that's actually modestly bullish. So to kind of put a bow on this, are we in an era now with Netflix where it's not about sub growth so much as it's about stability, despite kind of tightening the screws on password sharing and the ability to get more users involved with this ad business and show that that's working?

I don't think so. I know that Netflix management talks about getting people to focus on things beyond subs, but I'm sorry. I think this is still going to be a subs. People are going to infer what the subs are. If you don't get it, they're going to infer it. They're going to see how you report it. It's the basic unimetric to the business. And then the subs, they are the output of BWA, business basic with ads. They're the output of the password sharing crackdown. So at the end

of the day, we're still going to focus on subs. But what you want to see is a bull on Netflix, which I am. So I think you're going to see accelerating sub ads this year with ARPU kind of holding or even rising, which means you're going to get accelerating revenue growth. And that's kind of the bull pitch on Netflix for the back half of the year. We're just going through much more lumpiness than, frankly, a lot of people wanted, including me in the first half of the year. Well, the stock has recovered for now from its deepest after hours losses from right after the numbers came out. It was down more than 10 percent now, just three and a half. Mark Mahaney, thank you.

Thanks, John. Let's turn now to CNBC senior markets commentator Mike Santoli. He joins us from the New York Stock Exchange. Good to see you, Mike. Welcome back. You as well, John. And let's take a longer-term view of Netflix. Yeah, a bit of a jarring reflex drop in the stock.

Recovered a little bit, but that's really not too much of the doubling of the shares that have happened off the lows from last year. On a five-year look back, I'd like to compare it to some closely related companies, consumer media and tech, Disney and Meta platforms. You see they all more or less on a five year basis have kind of waxed and waned along similar paths, although Meta has really rocketed higher. I think a lot of what the street's been reckoning with is, yes, Netflix, a big pandemic beneficiary, but also it's entering this mature phase where they really want to see the profitability in addition to just pure subgroups,

which, of course, has decelerated. Now, look at evaluation on a relative basis of Netflix and those other companies. It used to be just in a completely different solar system, essentially, right over here, right? That was the pure growth days when they owned streaming and it seemed as if they were Internet TV. And now it's kind of tacked lower. It's still at a decent premium to both Meta and Walt Disney. But really, it's more about the kind of premium for being the incumbent and having the larger install base of streaming subs. It's in the mid-20s. Still could be a challenge. Some are going to argue that the earnings quality of a Netflix is maybe not quite top-notch because it doesn't have the kind of cash generation that you'd like to see

relative to some other similarly profitable companies. But at this point, it seems like it's becoming kind of just a mature core media company as opposed to, you know, this kind of moonshot that was going to be a winner take most situation in streaming, John. We'll say a media company of a certain age, Mike. Yes, there you go. Mike Santoli, there you go. Mike Santoli, thank you. Meanwhile, United's earnings are out. Phil LeBeau has those numbers. Phil? John, take a look at shares of United moving a little bit higher after the company reported a smaller than expected loss for the first quarter, losing 63 cents a share, 10 cents better

than what the street was expecting, with revenue coming in in line with expectations, roughly speaking, at $11.43 billion. Revenue per seat mile, that was right in line with what the street was expecting, between 22% and 23% at 22.5% increase versus the first quarter of 2022. Cost per seat mile, down fractionally. Let's call it basically in line with expectations, which was going to be, what, flat to down 1%. United says near-term demand is as strong as expected. But here's another reason why shares have been moving higher. The guidance for the second quarter, EPS of $3.50 to $4 a share of the streets at $3.05, with revenue expected to grow 14% to 16%.

That's in line with street expectations. Cost per seat mile flat to up 2 percent. And international demand, this is the interesting stat here in the earnings and the guidance, growing twice as fast as domestic demand. And the full year guidance, they are not changing it. They remain expecting to earn 10 to 12 dollars a share. That is significant. They are reaffirming that guidance because the street's at 862. So there clearly is much more optimism at United Airlines about the rest of this year in terms of business. We've got a lot to talk about with Scott Kirby, CEO of United Airlines. Don't miss our exclusive tomorrow morning on Squawk Box,

730. John, once again, United shares moving a little bit higher on better-than-expected guidance, as well as a Q1 loss that is smaller than expected. John, back to you. Looking forward to that, Phil. Question for you. I see this headline here that says United's flight and seat cancellation rates were the lowest of any U.S. airline despite the weather. Is that something investors should pay attention to, showing that they're doing a good job running this? Or what should we be listening

for on this call? Absolutely. Well, on the call, I think the main thing that people are going to be focused on is the guidance for the second quarter as well as the rest of this year. In terms of execution, yeah, that's an important statistic that you just pointed out there, John. But we've known that under Kirby, United has become a much better airline in terms of execution. And that's what that statistic gets to. But again, on the call, the focus is going to be Q2 and the rest of this year and the fact that they're much more optimistic than where the street is right now. It's interesting. I thought there was another headline about Southwest I saw a day or two ago that suggested something different still about the challenges that they are having running things.

How much is that execution, whether it's in flight systems, technology affecting the outlook for these airlines right now and what analysts and investors should be listening for? Well, I think that's certainly part of it. I mean, all of the airlines are feeling greater right now and what analysts and investors should be listening for? Well, I think that's certainly part of it. I mean, all of the airlines are feeling greater pressure to do a better job in terms of execution. They did not have a good summer last year, John. I mean, I'm not telling you anything everybody doesn't already know. We saw what happened in terms of their inability to ramp up and meet the demand that was out there and to do so in a smooth fashion. They expect it to be better this summer. Look, if they have a relatively smooth summer, that'll go a long ways towards

reassuring people that the airlines have come through the pandemic, have come through all of the problems that they had in terms of staffing up and that they, you know, the trajectory should be moving higher from here. All right, Philip Boe, thank you again. That stock right now higher about 1% after hours. That's United Airlines. And now we've got a press conference on that Fox Dominion settlement that we told you about earlier. Let's listen in. To solve all problems, all of us remain ever vigilant to find common factual ground.

Today represents a ringing endorsement for truth and for democracy. And with that, I'd like to introduce the CEO of Dominion Voting Systems, John Polos. Thank you. Fox and Dominion have reached an historic settlement. Fox has admitted to telling lies about Dominion that caused enormous damage to my company, our employees, and the customers that we serve. Nothing can ever make up for that.

Throughout this process, we have sought accountability and believe the evidence brought to light through this case underscores the consequences of spreading lies. Truthful reporting in the media is essential to our democracy. Dominion, our employees, our people, our partners are grateful to the court for allowing us the process for the truth to come out. I cannot thank the election officials that we serve enough. Without them there is no democracy and the work they tirelessly do to that end and they deserve much better. We are grateful for all the support we have

received, grateful to our legal team and want to acknowledge Staple Street Capital who have been unconditional in their support of Dominion and our customers. I want to introduce Houtan Yaghouzadeh, Principal and Founder of Staple Street Capital. Sir can we just ask, should Rupert Murdoch apologize to you personally? Hi. I'm a co-founder of Staple Street Capital, which is an investment firm that owns Dominion Voting Systems in partnership with John Polis and the rest of the management team. It's not every day that an investment fund finds itself at the center of this type of dispute. For us, this case has always been about exposing the truth and holding those who knowingly spread lies accountable.

We are proud to have played whatever part we could in helping Dominion achieve these important goals. I would also like to thank all the Dominion employees who have been through so much and stuck with the company through all this. We're all very proud of them. I also want to thank our attorneys at both Sussman Godfrey and Clare Locke for all their hard work. Without their efforts and resolve, the truth that has been exposed over the course of the last several months may have never seen the light of day. Thank you. With that, I'd like to hand it over to Stephen Shackelford. Hi, Stephen Shackelford with Sussman Godfrey.

I am so proud to be here today representing Dominion. It's a great day for the company, although a bittersweet day for the company. As I was preparing today to give the opening that we never got to, I never got to give, I was reminded of the hell that the Dominion employees went through and continue to go through to this day. Money is accountability and we got that today from Fox, but we're not done yet. We've got some other people who have some accountability coming towards them. And I'm very proud of the team

from Sussman Godfrey that has worked tirelessly for this case. And we'll move right on to the next one. Thank you. Is there Anything else in this settlement besides money? Davida Brooke, Sussman Godfrey, one last thank you, which is really to all of you for being with us on this journey. We appreciate what you've done to help us and to help expose what we were able to discover over the course of this process. And so thank you, and we'll see you at the next one.

Does Dominion need to get any apology? Fox needs an apology. Any retraction? That's all for now. Thank you. You have been watching a press conference after Fox's historic settlement with Dominion Voting, where they are paying $787.5 million. As Dominion Voting CEO John Paulus put it, Fox has admitted telling lies about Dominion. And Stephen Shackelford there from the legal team saying money is accountability. And we got that today from Fox.

We'll continue to follow that story, of course, which our Eamon Jabbers is covering on the ground. Meanwhile, let's get another check on Netflix reporting results moments ago. It is well off of its after hours lows, down just over 3 percent. Joining us now is George C., Annandale Capital founder and chairman. He's a Netflix shareholder, also owns a number of other mega cap tech stocks. George, thus far from these numbers, what do we see? What can we infer about this shift toward efficiency and an ad model that we're looking for from Netflix and perhaps some others. Yeah, they've obviously got a long way to go. They've got a lot of work to do and a lot of heavy lifting,

and they've got to get their shovels and start digging pretty hard, if you ask me, looking at this. It's a big lift. It's a big company, and they're going to miss numbers quite a bit, and they've got to take their avalanche of free cash flow and figure out good ways to use it. And one of those, I would think, would be not just content, but buying that stock. I think if they're going to show the earnings growth and the other growth that the street wants to keep this stock up, they're going to have to use the buybacks as a methodology of doing that. But, you know, the stock's doubled in the last 12 months. I mean, it's had a huge run. It was due to pause and it's having a healthy pause today. I think you said you're not planning on buying

any more of this stock. Is that right? Why is that? Because it's had such a huge run. It's gone from basically low teens multiples to mid to high 20s multiples of earnings. And that's a huge run. And, you know, the old cliche down here, pigs get fat and hogs get slaughtered. You don't want to insist on too much of a move out of a stock that probably won't have it. That's the way you lose a lot of your gains. So we're definitely not adding, but we're not getting rid of it either. Our team really likes the company and thinks it's a really franchised business and it'll be a good one to hold for a long time to come. George, I keep hearing what sound like some pretty

lofty expectations of what Netflix can do in this ad-supported business. Do you have high expectations of what they're going to be able to do and how soon do they have to deliver based on the stock that you're holding on to? I really don't have huge expectations. It's a massive pivot for them to go from their former model to offering this as well. And I think time is going to tell how successful they're going to be. And I think we're going to find out in the board of directors is going to find out how good management is. This is a test worthy of management steel and how many new people in this new program they add over the next two or three years will tell a lot of the tale in terms of where this

stock's going. But I think it's a cool position. I really do. I just think that you're going to have some ups and downs because the street is so focused on the quarterly numbers and they do disappoint at times. And we'll see if this is a disappointment or not down about three and a half percent so far after hours after being down about 10. George, thank you. Thank you. Great to be with you. While the earnings parade continues, First Horizon earnings are out. Dom Chiu has that regional bank's numbers. All right. So, John, it's not a bank that we would normally focus on a lot, but given all the recent bank turmoil, it is one where we want to focus a little bit more on the results. I will tell you that the shares are down just fractionally.

There's not a lot of trading activity going on besides the 600-some thousand shares that traded right before the announcement came out. What we can tell you is that First Horizon reported 45 cents per share in terms of adjusted or non-gap earnings per share, $859 million worth of revenues. It's going to be tough, and we're not going to make an effort to compare them to analyst estimates because this is perhaps giving some semblance of optimism to some regional bank investors, deposits at First Horizon sequentially from the end of the fourth quarter of last year until the end of this past quarter were down 3.2% to $61.44 odd billion dollars. Again, a 3.2 percent decline in deposits between the end of Q4 last year and the end of this first quarter, this year, just about a month or so ago. So that's in line, by the way, with the kind of deposit movement that we've seen in some of the other regional

banks much larger than First Horizon up until now. But we'll continue to kind of follow through, kind of go through some of these numbers. But again, First Horizon, not a bank that we would normally focus on, but the shares are just down fractionally right now. I will tell you that the deposits seem to have moved lower, albeit just marginally so. Not sure what kind of factors will go into that, but that's maybe the reason why you're seeing at least some stability, John, so to speak, in First Horizon shares. And again, First Horizon stock now up about 1%, again, on about 657,000 shares, John, of after-hours volume. I'll send things back over to you. Don, thanks. I'm sure some investors are going to be happy to hear that,

given that this is a stock that was at around 25 at the very beginning of March and now down at the 18 level. Meanwhile, we'll move on. Education tech company Chegg is the latest firm to partner with ChatGPT to enhance its software products. We're going to talk to the CEO, Dan Rosenzweig, about why he is embracing a technology that some educators are fearing could be used for cheating. We'll be right back. Welcome back to Overtime. Artificial intelligence is sweeping through the software industry, threatening to upend business models, some for better, some for worse. Here are three major ways AI is doing that. One, creating opportunities to disrupt powerful incumbents like Microsoft's effort to challenge Google in search.

Two, the emergence of new AI platforms where cloud providers and chip makers are promoting themselves as the pickaxe suppliers in the AI gold rush. And then three, we've got the emergence of brand new apps powered by AI promising new revenue or better margins or both. Now, one of those announced this week, educational software maker Chegg with an AI tutor trained on Chegg's expert notes, ready to chat. Joining us now is Chegg's CEO, Dan Rosenzweig. Dan, how long have you been working on this? Well, we've been using AI for a number of years on the back end to reduce content costs, increase our margins, create a greater efficiency of matching. But the front end, honestly, I think we, like everybody else, got the wake-up call with ChatGPT3. I met with Sam about two and a half months ago,

started the conversations, and it's really accelerated since then because the pace of change is much more dramatic than we've seen in a long time. And so we've been working on it since, you know, right after they announced ChatGPT3, and it's super exciting. Education seems to be a leading area where this innovation is happening. I was talking to Duolingo about a month or two ago about how they're creating a premium tier using chat for language learning. Just last week was talking to Coursera's CEO about how they're trying to integrate this. And take a listen to what he had to say. Okay. What we have on Coursera are about 250,000 individual video clips from the leading professors and industry experts in the world.

But when someone asks a question, what we basically do is we take the question and then we search for any clip that is related to the question. Once the search results come up, instead of just saying, oh, watch these videos, we kind of have ChatGPT read all those videos and then summarize the answer. Dan, how much of this is leveraging the data, the unique data you already have to create more product and output and value for your customer? Yeah, great question, John. And what we're offering is going to be significantly different than what you just heard, which is Chegg's got billions of pieces of educational content that we've carefully curated, have used human experts, of which we have over 150,000 of them, to check for accuracy, to check for the learning taxonomy. And so the ability to take the conversational nature of chat GPT, the ability to

reach you at whatever level that you're at, run against our data models that we built over the last 13 years of billions of pieces of content will be transformational in that we'll be able to help a student understand whatever level they're at, do they understand, and which part do they not understand, and then bring them specific curriculum or tests or assessments that are based on their strengths or their weaknesses, whatever they want, and they'll be able to ask for it in just plain English language or whatever language that they're in. So it's the combination of the two that makes us unique.

So this is going to be available exclusively inside of Chegg. You will not be able to get this experience inside of ChatGPT because we're protecting our data and that experience. And so it's going to be pretty remarkable. Think of it as having a tutor that understands who you are, knows who you are, knows your class, know what you're studying, know what your strengths are, your weaknesses are, remembers all of that about you, and then actually pushes content and learning experiences to you that will help you learn better and faster and more effectively. Okay, Dan. I think it's pretty amazing.

Let's spell this out for investors then. It seems to me like this should either lead to higher revenue because you're creating new tiers of service with AI, maybe lower churn if you're able to create more valuable content, or just higher margins because you don't have to hire as many people to provide that level of service. Which of those should investors expect to see first from you? Well, they should expect to see over time, not day one, all of those. So what do we mean? So when we talk about the efficiency of content, the ability to generate and write content more quickly and more cost effective will help us dramatically with content and expand

the number of areas that we cover in content. The second one is, and that will help in terms of the margins. The second one in terms of pricing tiers, now this is initial research, but our research already shows that of Chegg users and non-Chegg users, approximately 40% of each acknowledge and recognize they'll be willing to pay more if they're able to understand and utilize it better and more effectively. And so we think there'll be obviously pricing tiers over time. And then I think just the quality and the effectiveness of engagement in terms of being able to build new products and services on top of what we already have. And so, you know, John, you and I have been around a long time. So I've seen I've been in 83 since I've been in this industry, being the publisher of the largest computer magazines over time. There's not been a lot of really truly platform changes. So the internet, mobile, and now AI. And so this is going to generate everything you said.

It's going to make things more cost efficient. It's going to make it more relevant. It's going to make it more personalized. And if you run it against accurate large databases, you're going to actually make the learning experience unique to each user. Quickly, Dan, to button it up then, you said over time, is that quarters or years? Oh, no. I think this is going to be over years, not quarters. Because, look, this just rolled out a few months ago. I mean, ChatGPT4 just came out. We're integrating with that. We have to scale it. We have to make sure that it's accurate. We have to make the user experience right. But over time, you'll see all parts of the business start to improve as a result of this. And it will be uniquely available only on Chegg. And only Chegg

and ChatGPT can do this together because of our brand Neuroscale. So it's exciting. Well, you're an early mover in this important generative AI space. So we're going to continue to follow up with you, Dan Rosenzweig from Chegg. Thank you. Thanks, John. Now let's get back over to Mike Santoli with a look at why quality stocks have been outperforming lately. Mike. Yeah, John. And, you know, this is quality as defined by financial metrics. Companies with, you know, kind of high profit margins, defensible profit margins themselves, and also high returns on equity, good balance sheets, that whole deal. Six months, you've really seen that work. They're really near the highs, the MSCI quality index.

And what I think is crucial about this is this ETF and this index are sector neutral. So it's not a matter of big sector bets saying, oh, we define quality as tech. It's within each sector in a time of earnings growth scarcity, people going back to this area of the market. What has suffered is momentum. A little bit of the flip side. And one of the problems with the momentum ETF here is by definition, it buys what's already been working for a while and reshuffles the deck every now and then. Well, it came into this year heavily overloaded with energy stocks and other things that have worked last year. We saw a real big turnabout this year in what has worked.

So even though the general consensus being cautious on stocks has not actually been correct, there has been a sub consensus, I would say, that you should migrate toward quality. That actually has been ratified by the market action the last several months. Mike, how much of this is a return to normal versus what we had seen investors doing over the past couple of years? Yeah, I would say, John, it's a return to normal for this kind of cyclical moment, for this time when we're worried about economic slowdown.

You're worried about a less generous credit market, even though it's okay. It's not as if every company, every idea gets funded. So it is a reflection, I do think, of a more normal type of economic cadence out there and also essentially investors feeling as if they want to stay invested but don't really feel confident enough to go out on the risk curve very far. All right. Mike Santoli, thank you. Up next, we're going to head live to the Space Symposium

in Colorado Springs, where Morgan Brennan is set for an astronomical interview. Morgan? Astronomical is a good word for it, John. That's right. I'm here in Colorado Springs, the Space Symposium. It's one of the biggest industry conferences of the year. And coming up after this break, I'm going to be joined by one of the biggest CEOs,

Peter Beck of Rocket Lab. Stay with us. Welcome back to Overtime. Let's get another check on Netflix. Moving well off its post-market lows, earnings and paid net ads topped estimates. Revenue missed, now down just fractionally. You could almost say flat. Meanwhile, Western Alliance earnings are out. That

stock is popping after hours. Dom Chiu has the numbers, Dom. All right. So what we have right now, I'm going to give you some color, first of all. What we have for Western Alliance is what appears to be a revenue miss. What we can tell you is the revenues appear to come in at $552 million. Analysts were looking for on average $666 million, so it looks like a steeper miss. The earnings number is a little bit tougher. I'm going to give you the number they've reported. Gap earnings coming in at $1.28. Non-gap or adjusted earnings per share coming in at $2.30.

It is not clear whether that's comparable to the consensus estimates of $2.04. We will tell you that deposits here may not mean as much for Western Alliance because Western Alliance has been, as some investors know, been updating us kind of periodically since the Silicon Valley bank crisis. They told us two weeks ago that ending Q1 deposits for this year were going to be down about 11% from the end of Q4. That has been confirmed by this, so this is nothing new there. I will tell you that we have a couple of new numbers to look at. One of them is the net interest margins number at Western Alliance, which went to 3.79%. It was 3.98% at the end of Q4, so a decrease in net interest margins. I will also tell you that the provisions for credit losses, future credit losses, increased to $19.4 million versus $3.1 million at the end of the first quarter. On balance, what you have right now are Western Aligned shares that are surging up roughly 16% to 17%, as you can see on your screen.

Just about 451,000 shares of volume. So we'll again continue to dig through this. But the big thing here is revenues appear to be a miss. Issue whether or not the earnings are comparable. Deposits, we've already been updated two weeks ago on this number. Net interest margins contract slightly. And then the provision for credit losses do increase. But on balance, a 16% gain, John, in those Western Alliance shares. We'll continue to monitor this. We'll bring you more as we know more here, John. Back over to you. Dom Chu, thanks. This one, Western Alliance had fallen more than some other regionals since the start of March, so maybe some people were expecting worse.

Meanwhile, big moves in the space race this week. The SpaceX Starship, the most powerful rocket ever built, scrubbed its test launch yesterday, but planning another attempt this week. Meanwhile, Rocket Lab adding hypersonic suborbital launches to its services. Morgan Brennan is in Colorado Springs for the Space Symposium, where she is joined by Rocket Lab CEO. Morgan. John, thank you. That's right. I'm joined by Peter Beck, founder and CEO of Rocket Lab here at one of the biggest space conferences of the year, which really spans the gamut,

everything from military space to civil space to commercial space, a lot of commercial space. Yeah. And a lot of investors actually here on site this year. Let's start with your news of the week, and that is the fact that you are introducing this new service to test hypersonic capabilities sub-orbitally. Yep. Why are you doing this now and how big is this market? It's quite an exciting time because it's an entirely new TAM for us.

And the US is kind of lacking behind in hypersonic technologies. And this is a great opportunity to have high cadence, test flight environment for these payloads to really move forward the US's hypersonic research. So in terms of suborbital tests, I mean it's not so much a new capability for you as a repurposed one with your electron rocket? Totally. So we take a standard electron orbital class launch vehicle and we fly it in some really unique trajectories to provide these hypersonic trajectories. So yeah, it's taking an electron and making a couple of wee tweaks to it and all of a

sudden we have this great high frequency hypersonic testing platform that hasn't existed. Yeah, meantime, your Electron rocket, you've done two launches from your new site in Virginia. You've got more launches coming specifically out of New Zealand in the coming weeks as well. Launch cadence for the year and how is the reusability efforts, how are those going? Yeah good, so our launch cadence this year we're on target with sort of 15 flights. You know our fastest turnaround so far this year was seven days between flights. So where you know the machine is cranking and the vehicles are flying successfully and our last flight was a reusable vehicle and we splashed that down successfully and now we're kind of at the point where we're recycling and harvesting engines and components

off those launch vehicles and getting ready to actually put them back into service and refly them. When does that happen? It happens pretty shortly, yep, yep. So I'm not sure if I'm allowed to say exactly, but it happens pretty quickly. So it's not just one engine as well. It's a whole multiple gambit of reused components that are all now kind of reentering the production line and going back into service. The conversation I keep having, and I've had it multiple times just here today alone,

is the fact that you have this emerging mismatch between supply and demand when it comes to the satellite launch market. The fact that there are so many satellite constellations that are poised to go to orbit in the coming years and not enough capacity in terms of getting them there. So what does reusability of Electron enable and also the development of your new heavy lift Neutron rocket? Yeah, so Electron is really serving that market very, very well. uh you know there's there's lots of flight opportunities and that's just sort of you know doing its thing neutron is the new flight opportunities for us where um exactly as you say in that sort of 2026 to 20 20 30 time frame there is a massive deficit in launch and there's lots of constellations that are all you know really vying for an ability to get on orbit.

So we saw that coming and we started work on the vehicle so hopefully we can bring it into service in 2024 and really solve some of those problems and take advantage of that market opportunity. Yeah, something else you and I have talked about multiple times in the past is the fact that there was a need for a shakeout or for consolidation within the launch industry, that there were just too many competitors, too much capital splashing around. Are we starting to see that correction? Yeah, I think so.

I mean, there was a time there where capital was just flowing everywhere. And, you know, I came from the time where raising $5 million to build a rocket was a very difficult thing to do, let alone hundreds of millions of dollars dollars so we saw lots of capital go into the market against lots of different ideas and you know launch is a very tough business and at the end of the day you have to execute and i think what we're seeing in the industry right now is the people that have been able to execute and the people who have not have kind of been identified. And without that just lush flow of capital, you actually have to be a real business. So that kind of shakes it out a bit.

Yeah. One more quick question for you, and that's the fact that we did see this SBB collapse. You did have something like 8% of your cash tied up with a bank. Lessons learned. Has it changed how you're thinking about banking at the company yeah i mean as you point out we we had like eight percent of of of our cash reserves there and the rest everywhere else and we were used really using the svb as just a float into into various um you know creditors so uh but yeah i think i think svb's collapse took everybody

by surprise um and you know we were we were able to recover all of that and all is well that ends well. But certainly I think in the venture capital community it was a very serious thing. If you look at most of the startups they had tremendous, if not all of their capital in there and for such an institution to go through such an incredible shake, yeah, it's kind of hard to believe. Peter, it's always great to speak with you. I appreciate the time today.

Peter Beck, CEO and founder of Rocket Lab. And John, I will be headed back your way, reuniting with you tomorrow. And I'd also just note that tomorrow we are going to have Dan Hart, the CEO of Virgin Orbit, joining us exclusively on the show as well. Looking forward to that, Morgan. See you soon. Up next, we'll run through the after the bells earnings movers that need to be on your radar. And we'll get you smart on these bank moves and how to prepare Western Alliance up more than 16 percent after hours.

Be right back. Welcome back to overtime. Here's a check on today's big overtime movers. Netflix actually turning higher after initially falling, I think it was much as 10 percent after earnings. That call doesn't start, though, for another hour. United is in the green, a smaller than expected loss per share, revenue just barely topping estimates, and Interactive Brokers is lower after missing analyst earnings expectations, while Intuitive Surgical is higher after a beat on both the top and bottom lines. And shares of Fox are flat following the breaking news this hour that the company has settled with Dominion for $787.5 million. Now, we also heard from a couple of regional banks this hour. First Horizon, slightly higher, posting 45 cents adjusted EPS,

$859 million in revenue. Western Alliance, though, sharply higher. That's despite an increase in credit loss provisions and a decrease of 11 percent in deposits to 47.6 billion dollars. We also heard from Bank of America Goldman Sachs this morning. Let's bring in CNBC dot com banking reporter Hugh Son. Hugh, you've agreed to sort of be with us here and walk us through the vagaries. There's three buckets, right? You've got the big banks. You've got Goldman and Morgan Stanley and then you've got the big banks, you've got Goldman and Morgan

Stanley, and then you've got the regionals. First of all, how have the big banks done on earnings? Yeah, so the bigs have done great. And it's just a variation of how great they've done. If you want to look at the biggest of the big, JP Morgan, let's focus on something called net interest income. So that's basically, you know, the difference between what they charge people, depositors, you know, for their balances and what they, you know, what they're taking in for loans and their securities. And so JP Morgan crushed it, up 49 percent, $21 billion in net interest income, which is something like $7 or $8 billion more than everybody else. Sounds like an A-plus grade. They're both the biggest and they've grown the most.

So that's remarkable on its face. They've increased their guidance for this year by seven billion on top of that. Remarkable still. So best of the best. We give them an A-plus rating. If you look at the others, they've all grown 20, 25 percent, more or less. Now, Wells Fargo, arguably the second best deposit franchise. They're up 45%

net interest income, very good as well. So the bigs are doing well. It's just a matter of how well. Now, you talk about the regionals. You know what? You're going to see sharp, sharp variants in the stock reactions, clearly with Western Alliance rocketing higher. You're going to see, basically, folks like Western Alliance, who've sold off by two thirds in March basically get, you know, the green light and showing that results aren't as bad. Perhaps their deposit mix is better. Perhaps they're not as intensely focused on the tech sector. Probably a lot of people betting against some individual regionals at this point, trying to pick the next SVB and make money on the short side. Right. And so some of these names will be, you know, we'll experience short squeezes. Some of them will, you know, rocket higher. And so regionals, obviously, an area of intense focus.

Now, you want to talk about the two investment banks, Goldman Sachs and Morgan Stanley. Goldman Sachs reporting earlier today, a bit of a disappointment. Morgan Stanley is going to report tomorrow, probably won't be a disappointment. What's the difference? So Goldman Sachs, you know, the thing about them is they are so tethered to the ups and downs of Wall Street. And so when Wall Street's not doing well, they're not going to do well. And so, you know, we've talked a ton about how they're trying to get into, they tried to get into consumer as a way to offset that focus.

Well, that failed. And now they're going to say, look, now the new shiny thing for Goldman Sachs is wealth management and asset management. OK. And so that's still a story in process. But Morgan Stanley is the leader in this business. They get more and more where Goldman is trying to go. Exactly. They get Morgan Stanley gets more than half of their revenue from in a very annuity like fashion from wealth management and asset management. And so, you know, what do we know about the first quarter? Market's still relatively buoyant. Even if they weren't, they still managed to do pretty well because they get something like they have a two percent fee on their, you know, AUM. They

get paid regardless of the weather, generally speaking. So Morgan Stanley likely to do really well. And that's why Morgan Stanley is valued so much more than Goldman Sachs is. Makes a lot of sense, Q. Thank you. Really appreciate you helping us make sense of this, especially because we're not used to paying attention to the regional banks and how they're different. Really appreciate that. Thank you. And for more on regional banks, do not miss the CEO of PNC tomorrow,

11 a.m. on Squawk on the Street. And that's going to do it for overtime. Fast Money begins right now.