Closing Bell - Closing Bell Overtime: Juniper CEO On AI-Native Networking; Klarna CEO On The Credit Health Of The Consumer; What The Options Market Is Saying About Big Tech Earnings 1/29/24

Episode Date: January 29, 2024

We get you set for a monster week of earnings from Big Tech companies. But before that, it was another record close for the S&P 500. Wells Fargo’s Scott Wren and Truist’s Keith Lerner break down positioning heading into this critical week. Earnings from F5 Networks, Super Micro, Cleveland-Cliffs, Nucor and Whirlpool. Juniper Networks CEO Rami Rahim on the company’s new AI-native networking platform. RBC’s Amy Wu Silverman on what the options market is predicting about big tech earnings. Klarna CEO Sebastian Siemiatkowski on the health of the consumer. Goldman’s Eric Sheridan previews big tech.

Well, a late-day rally sending the S&P 500 to another record close above 4,900 to kick off what will be the most eventful week of 2024 thus far. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan in Washington, D.C., along with John Ford at CNBC headquarters. You're in my hometown, yeah, and today, consumer discretionaryary, comm services and tech driving the benchmark index to a new high. The NASDAQ 100 also at record. Investors now awaiting earnings from F5 Network, Supermicrocomputer, Cleveland Cliffs, Nucor and Whirlpool. We will break down all of those results as soon as they are released. Plus, the CEO of Juniper Networks on the launch of its AI-native networking platform, no doubt a big part of Hewlett Packard Enterprise's $14 billion acquisition bid for his company. But first, let's get more on this record close.

Mike Santoli back with us from the New York Stock Exchange. Mike, and when I look at what's moving, sure, Microsoft and Amazon both up near a percent and a half today. But so far this year, Supermicro, NVIDIA, Juniper, AMD, all up more than 20 percent. Supermicro reporting after preannouncing today. It's tech and it's big companies. I thought we were off this. Well, I absolutely agree with you. The buzzier areas of tech where you really do have the leverage to the key big growth themes in a I yes they're working and I think that the market can take part in the fact that things like semis they maintain so far their leadership. Status at this point that's a good thing but I do

also want to point out the equal way to contribute discretionary is up twenty two percent in three months from the October lows equal weighted industrials up almost 20 percent. The average stock is up, let's say, 18. So even though it has not been outperforming the biggest stuff and the hottest tech themes, it's been there. It's been getting its share the rest of the market. So I do agree. You still have the greatest velocity in those tech areas. That's the way bull markets tend to operate. You know, we kind of discount the same good news over and over because it now seems like it's really going to happen. And that being said, I do think what's interesting has happened today is in response to the bond market move. We did get that maybe lighter than expected Treasury supply number that came out.

Ten-year Treasury goes below 410. And that starts to look like the uptrend in the last month in yields has been broken, at least tentatively. I think that's why the stock market decided to tack on a few points after it. It's like you read my mind, Mike, because that's exactly where I was going to, because it does seem like we had this late-day rally in part because of Treasury's quarterly borrowing estimates coming in lower than street expectations. The fact that we're even talking about that as a market-moving event, given the state of debts and deficits, is pretty notable in and of itself. It is.

And, in fact, I've thought for a while it was probably a little bit overplayed. People were paying a lot of attention to it because it really got status as the culprit for the yield move in the fall when you really just had this positioning shock and people pricing in, no recession and all the rest of it. And then all of a sudden it became, oh, but it's really about supply. So, I mean, maybe it was some about supply. Maybe it's going to continue to be. But this really acute focus on, you know,

the micro details of the Treasury financing itself and web maturities, we're going to hear about that tomorrow. It seems like maybe the fever broke a little bit. I don't want to say all is clear, but yields are in a comfortable zone right now for stocks to do their thing. Yeah, and of course we know this is just the start of a very, very busy week in terms of earnings,

in terms of Fed, jobs report, and other macro data. And to your point, more coming out of Treasury as well. Mike, stay close because we're going to come back to you in just a little bit. Let's bring in our Mike Market panel. Joining us now is Scott Ren of Wells Fargo Investment Institute and Keith Lerner of Truist Wealth. Keith, I'm going to start with you because we have the S&P closing above 4900, 4927 to be exact. It's a new record close for the broader market. What does history tell us when we see this type of momentum happening with records for the market? Yeah, well, great us when we see this type of momentum happening

with records for the market? Yeah, well, great to be with you, Morgan and John. So history, which is just the starting point, is actually favorable when we make an all-time high after not doing so for more than a year. In fact, when we go back to 1950s, we've seen this happen about 14 times. And 13 out of 14 times, the market was higher a year later. Now, the one caveat, the outlier in that data was the recession in May of 07, following the May of 07 signal. So it's not a perfect indicator, but I will say that that's a positive. The other thing I will say, coming into this year, the market was stretched to overboard. We looked at that as a good overboard. The market turned sideways for a few weeks to start the year. You start to see sentiment come in as well,

but there's been no issues on the credit markets. And we're seeing earning estimates continue to rise as well. So valuations are certainly rich, but I do think you have to respect the underlying trend. And we think that trend is still higher as we progress through this year. Yeah. Scott, I want to get your thoughts on valuations. You've got an S&P trading at, what, 20 times earnings right now? But in some ways, maybe that's a little bit of a misnomer because, and we're going to see this this week, right, with five members of the Magnificent Seven reporting. But we know how top-heavy the indexes have been because of the rallies in this AI-related tech stocks. Well, you know, Morgan, I tell you, you know, AI, most companies, it's going to take a long time to monetize that. And, you know, Morgan, I tell you, you know, AI, most companies, it's going to take a long time to monetize that.

And, you know, stocks, stocks are not cheap. I mean, valuations are high. We have a 230 number out there for the S&P 500. You know, so you're talking, you know, 21 times earnings. Now, of course, we're at the lower end of the scale. We're below consensus. We think these estimates are too high out there for 11 or 12 percent growth. But, you know, let's face it. We have a few people, high out there for 11 or 12 percent growth. But, you know,

let's face it, we have a few people, reputable people out on the street. They're looking for 250, 252. So if you do the math there and they're right, you know, valuations don't look that stretched. And we think we're eventually by the end of this year and into 2025, we're moving into a modest growth, modest inflation environment. You know, that typically means valuations are going to be higher than the longer term average. So, you know, what we're trying to do, given the fact that we think the three sectors you mentioned that outperformed today, they've outperformed dramatically over the last 12 months. You know, that's where we want to trim and we want to look at sectors like energy industrials materials uh health care that have trailed so we're trying to to adjust portfolios you know we're not just sitting here watching the

market go higher uh we're not going to chase it in other words we're not just going to buy the s p here but i think there's some things inside of portfolios that people can do to take advantage of the the hot stocks ease up there, and then, you know, maybe buy a little bit of sectors exposure that's trailed. Interesting. Keith, we're getting some interesting numbers tonight. Cleveland Cliffs, Nucor, F5 among them. But tomorrow we get Google, we get Microsoft, UPS, et cetera. So I'm wondering, what are you particularly listening for, watching for in these numbers, listening for on these calls to figure out how much of this momentum continues and how strong the overall momentum is in the economy?

Well, that's it. We're looking for what are they saying, especially something like a UPS talking about the economy, going to the big cap stocks, those three sectors that you mentioned, what's consistent with those three sectors is they have the strongest earnings momentum, meaning the forward estimates are moving up at the greatest pace, led by technology as a whole. So you want to see validation of that. But also, even today, we saw some actually better activity out of our small caps, mid caps, the equal weighted index. We want to see things like the Cleveland Cliffs help to broaden out this market as a whole. You know, small caps were all the rave in the final two months of the year.

They went up 25 percent. Now they've pulled back and underperformed. I actually think this pullback is a good entry point. Now, that's an area of the market that's trading below average and at the lowest level to large caps in the last 20 years as a whole. Interesting. So, Scott, close us out on that, perhaps. You've mentioned some areas that you're rotating into, including some specific stocks in energy, which is underperformed. It was the worst performing sector today, I believe. How are you filtering? How are you choosing those? How aggressively are you moving into them as the overall market rises to these highs? Well, John, for instance, you know, oil, we just don't think oil is going to go much lower than the recent lows.

We think it'll be $90 as our midpoint for the end of this year. So we think oil has some upside and energy stocks were oversold there. We backed off of financials because they had such a great run to the upside. So we kind of took money out of financials because they had such a great run to the upside. So we kind of took money out of financials and put it into energy. You know, if you look at the small cap versus large cap, you know, that's been a good trade for us for, you know, a year or more. We've been meaningfully underweight small caps and overweight large caps. So that's worked out. But certainly when you're looking at about, you know, maybe midway through the slowdown,

because certainly these first two or three quarters this year, the economic growth is going to be very slow. Or if we happen to slip into a recession about halfway through that, you know, you want to be looking at small caps. You want to be looking at high yield bonds because they outperform early in a cycle. But in our opinion, you know, we're not early cycle. And if you buy some small caps here, you know, maybe the performance differential doesn't get a lot bigger than it has been. But what we've been telling our clients is we don't think you're buying at the bottom because we do think there's a good possibility here that we see a reasonable pullback in the S&P 500. That'd be, you know, maybe upwards of 10 percent

where you could get interested. And we want to take advantage of that. But we're not playing the early cycle sectors or asset classes right now. OK, great perspective. Scott, Keith, thanks to both of you. Now, I just mentioned it. The earnings are out. The stock is spiking in overtime. Julia Borsten has the numbers. Julia. That's right, John. F5 shares spiking on better than expected earnings and revenue and better than expected revenue guidance. Just to go through the numbers here, earnings coming in at $3.43 for share versus estimates of $3.04, revenues of $393 million ahead of the estimate of, I'm sorry, revenues of $693 million ahead of the estimate of $685 million. And the Q2 revenue guidance for a range of between $675 and $695 million is above the median estimate of $675 million.

Earnings per share guidance, though, lighter than expected of a range of $279 to $291 versus an estimate of $295. You see shares are up about 9%. They were up as much as 14% just a couple of minutes ago. Back over to you. All right, Julia Borson, thank you. Cleveland Cliffs earnings are out as well. Pippa Stevens has the numbers on the steelmaker. Hey, Morgan, the company reporting a larger than expected loss of 31 cents per share while the street was looking for a 4 cent loss. Re revenue coming in at 5.11 billion now the company did say that in 2023 it shipped 16.4 million tons of steel which was a record for the company adding that even with the uaw labor strike in q3 and q4 that automotive

steel demand remained consistently strong and of course that is their largest division that stocked down about two percent morgan all right uh. Pippa Stevens, thank you. Let's bring back Mike Santoli with his first dashboard. Mike. Yeah, Morgan, broad market, as we've been saying, making new records. We also saw a breakout to a new high in mega cap value. It's not really been where the action is. Of course, it's only got about 10 percent in technology. The Vanguard mega cap value ETF, though, has managed on this three year chart to finally break above the prior high watermark. So not a terrible looking chart, but like sideways for a good part of the last couple of years. What's instructive is to compare this with mega cap growth. Same essentially same methodology, just going toward the growth stocks.

And you'll see that growth has pulled ahead of value here, but it's really not by as much as you think over the three year span. And you kind of choose what kind of ride you want to go on here, because, yeah, growth point to point has gained more. But look at how deep the decline was in 2022. Value is obviously trending a little bit less volatilely and kind of holds its value in downturns. Also more evenly distributed. The biggest holding in that mega cap value ETF is Berkshire Hathaway, but it's less than 4 percent. So it's essentially a more broad scope on somewhat cheaper or maybe less fast moving stocks out there. So, you know,

you can you can choose the speed that you'd like to travel at, Morgan. It is really interesting just to see sort of that convergence on that chart. I'm going to I'm going to veer off course a little bit here. And I'm going to ask you a question about the fact that we saw energy stocks. It was the it was the one negative sector in the S&P. And that's despite seeing three U.S. service members killed in Jordan on Sunday. I mean, I'm in D.C. It's a huge story. It represents an escalation in terms of the tensions and the conflict we're seeing in the Middle East and the fact that we saw crude oil move higher and then come off and see those stocks end lower today. It just raises the question, what is baked into this market around geopolitical risk, which we know a lot of executives,

including the likes of Jamie Dimon and David Solomon, have talked about. What's baked into this market? And do you think that's also affecting some of what we're seeing in a chart like the one you just showed? I mean, it's pretty clear that the market is not going to anticipate supply problems when today we have ample supply of crude. Yes, if you see some genuine disruptions, if we really feel as if there's going to be new sanctions or really we're going to be talking about just less stuff on the market and the commodity prices react to it, I think that's when the stocks do. Otherwise, it's a matter of we're not really sure what we're pricing in, even though there's some unnerving events going on and we sort

of don't know what comes next. All right. Mike Santoli, thank you. Meanwhile, mentioned it earlier, Supermicro computer earnings are out, the stock moving even higher, even though they pre-announced up 5%. Julia Borsten, how do the numbers look? Yeah, that's right. Despite the pre-announcement, there is still an upside surprise here. We see earnings and revenues both beating expectations. The company reporting earnings of $5.59 per share that's adjusted versus the estimate of $4.93. We need to note here that this EPS number is above the guidance from just two weeks ago. Revenues also higher than expected, $3.66 billion versus the $3.06 billion estimated. They're citing strong AI demand. No surprise, AI is a big theme here. And we see shares up about five and a half percent.

Jim, John, over to you. Yeah, I'm not surprised you said Jim, because Julia, Jim Cramer's going to speak exclusively with the CEO and founder of Supermicro, Charles Liang. That is tonight, 6 p.m. Eastern on Mad Money. And Morgan, that stock is up. If this after hours overtime move holds more than 75 percent so far this year, just in January. Yeah, which is pretty incredible because it had such a rip roaring move last year, too, which you covered so closely in your interviews with Supermicro's founder and CEO as well. Well, coming up, we will get insight into which stocks, which stock options investors are betting on and betting against ahead of earnings from tech giants like Microsoft alphabet Meta and Apple but first the CEO of Juniper Networks is gonna join us exclusively on his company's

Pending deal to be acquired by Hewlett Packard Enterprise probably can't talk too much about that But you can talk about the reason why he's got a brand new networking platform based in AI. Overtime's back in two. Shares of Whirlpool are all falling after the company gave week 2024 guidance. But starting here with the Q4 results, the company did beat top and bottom line estimates, earning 385 adjusted. That was ahead of the 356 that Wall Street was looking for. Revenue coming in at 5.09 billion, also ahead of estimates. But the company's full year guidance, once again, is what's sending those shares lower. They expect their revenue to be

16.9 billion for full year 2024, while Wall Street was looking for $17.7 billion. The company also said that they expect to further reset their cost structure. Those shares down 4%. John? All right. Strong revenues, weaker guidance. I guess it's a bit of a wash. Pippa, thank you. And now, fresh off the news of Hewlett-Packard Enterprises' plans to acquire Juniper, the networking company unveiling a new platform with AI at the heart of network management. So is this a game changer? Joining us now is Rami Rahim, the CEO of Juniper Networks. Rami, good to see you. It's been a little while. So this is an important conversation we're having here because I've seen some skepticism on the street about how this acquisition will pay off. Some analysts had expected HPE would

return cash to shareholders, but here they are going for growth, buying Juniper. So tell me, in AI, how does this shift, particularly the cost equation, because costs are important in this economy? Are you replacing network managers with this AI? Are you able to run a network more efficiently? Yeah, first of all, thanks for having me on, John. You know, we're basically taking a page out of the success that we've already seen at Juniper in the campus and branch with our AI native platform and expanding it to include all the different layers of the network, including campus and branch, data center, and wide area networking. In so doing, we're adding tremendous value for our customers by essentially enabling them to focus on what's important,

which is digital transformation and innovation versus keeping the lights on, keeping the network up. We're essentially enabling this through the use of AI, and we're doing it better than anybody else in the world right now. So, Rami, what kind of go-to-market is necessary here? It just seems to me like this works best at scale because AI requires a certain amount of data center resources. It runs hot, generally speaking. And if you're going to run this, better if you're running it across a huge amount of resources. Some of the customers, I imagine, who would benefit from this are smaller. So how do you get it to them in a way that leads to ROI? So the success that we've already been

enjoying in our AI-driven business, and I should mention that our last two reported quarters, we saw our AI-driven networking capabilities grow revenue at roughly 100% year-over-year. The only thing that's holding us back is go-to-market scale, the ability to get this into more of our customers' hands worldwide. We've been investing in go-to-market and seeing the returns of that investment. You mentioned the pending HPE acquisition. One of the benefits of this acquisition is, in fact, we will have more of a single company to fulfill all aspects of building AI cluster networking data centers, which is a huge, huge opportunity that's around us today. Are there challenges to international expansion? I mean, granted, of course, under the scenario, should the HPE acquisition go through, they got to figure out how to sell

what you've got that you've been doing so well with. So that's a process. But outside of that, when you're talking AI in markets outside of the core, what are the challenges? Well, I honestly see more opportunities than challenges right now. We've already proven that AI has a high degree of demand worldwide. This is not a technology or an architecture that customers only in the US want. We have seen success in parts of Asia Pacific, in Europe, and the only thing that we need to do at this point is to get it into the hands of more and more of our customers. The demand is absolutely there. We are doing this through organic growth. And of course, I think we have the ability to accelerate this with a proposed

combination with the HPE. What's the labor situation look like in network management, particularly here in the U.S.? But how much does that factor into perhaps demand for this product? It factors in hugely because any CIO, CTO, or any technologist that I talk to out there is essentially looking to fulfill the business requirements, the strategic requirements of their companies, but are held back by the fact that 70 to 80 percent of the resources that they currently have are essentially limited by the fact that they just have to keep the lights on, keep networks up, keep trouble tickets down. Well, if you can have the robots take care of that, as we are doing with our AI-native technology platform, then all of a sudden

the demands on skilled labor essentially becomes much more manageable. That's an opportunity that we've been tapping into for years now, and we expect to continue to tap into it in the coming years. All right, Rami. Of course, Juniper's earnings are coming up, but the opportunity for investors is in, you know, perhaps this AI product and whether it reaches a larger market, just exactly as we were talking about. Rami Rahim, the CEO of Juniper. Good to see you. Thank you. Up next, RBC Capital Markets, head of derivative strategy on whether the options market is giving investors clues to buy mega cap tech stocks ahead of their earnings next week. This week, I mean. Yeah, we are going to get a read on the state of the consumer when we're joined exclusively by the CEO

of buy now, pay later giant Klarna.. Over time, we'll be right back. It's a magnificent week of earnings. Alphabet, Microsoft, Amazon, Meta, and Apple all reporting this week. So what's the sentiment looking like in the options market ahead of these key reports? Well, joining us now is Amy Wu Silverman from RBC Capital Markets. Amy Wu, it's great to have you on. I do want to start right there. I mean, we know options trading has been having its moment again over the past year or so. What is being indicated ahead of these reports and specifically when it comes to the potential size of moves we could see in either direction around these mega cap tech names? Yeah, it's a great question. It's

such a crucial week that we have ahead. And I think by far the most interesting thing that options are saying is that there's going to be a whole lot of nothing in terms of moves, the implied moves. So what the options are pricing in for these mega cap tech earnings is pretty low compared to what we historically know these options move. And what I think is really interesting about that, Morgan, is if you actually went and looked at Tesla and Netflix last week, they said pretty much the same thing. And we got pretty substantial moves for both those stocks last week. And we think we may see that again. We think those option prices are probably too low heading into this crucial week.

That's really interesting. I mean, why do you think we're seeing that? Is that just the fact that it's basically become these stocks and nothing else in the market, to put it very dramatically? And so people are maybe perhaps a little lackadaisical going into these reports, or is it something else? No, I think lackadaisical is a good way to describe it or perhaps maybe even complacent. You know, I think the sentiment when you dig in even deeper and you look at that call wing and that put wing, so the downside and that upside, we're far less exuberant now than we were last year when the AI frenzy began. But to some degree, that's because everyone's already jumped into the pool. So there is a big difference in terms of positioning.

With that being said, historically, this tends to be the time in earnings season where we get the biggest move in earnings. The first few weeks are the time to own volatility, yet they continue to be very cheap, in particular with how positioned people are to be long-weight stocks. Amy, here's what I can't figure out looking at this and the really interesting analysis that you're bringing. The market's at all-time highs. We've got stretched valuations. We're going from Q4 to Q1, where I would think there are questions about whether there was demand pulled forward or what happened. Is it common for there to be an expectation of such calm in this sort of a situation? So I would say that this is definitely, compared to other earnings seasons heading in, more complacent. The implied move ratios that we look at are cheaper than they are historically

heading into other earning seasons. And I think that could be a mistake on the part of investors. In particular, I think it's become just simply this flight to safety trade. You know, we had the brief fling with small caps and values starting in November. The market seemed to go back to its type of mega cap tech and mag seven. But the question is, again, with the positioning where it is and that downside relatively inexpensive, does it make sense this week to do some sort of hedging given how well these stocks have done? OK, so based on the relationships that you've seen up to this point, should you be correct and should volatility be higher than the options market is expecting? What sort of ripple effects would you expect to see either on smaller stocks on sectors as a whole. Yeah you know it in some ways it's

really straightforward just in the sense that these are just the biggest weights so you know when you have four of the biggest weights and all of the cues all of the S. and P.'s you know perhaps don't do as well as expectations and you just

automatically get that ripple effect into the E. T. S. now it's interesting though because it seems like there has been this tradeoff between small value versus the large caps. And so to some degree, it could actually be a benefit to the others. But we'll see. I think it still is the case that if tech goes, the market goes. So if there's an opportunity to hedge coming into these reports

and it's inexpensive versus what we've seen in the past, how would you do it? So that's something we've been talking about with clients quite actively this week, in particular clients who felt the FOMO last year and now are pretty heavily long in these stocks. We think that just the weekly puts or put spreads are quite attractive from a payout perspective in an Apple or an Amazon or a Meta, where, again, if you actually look at every single stock that's reporting this week, Meta, for example, is actually the cheapest implied move among all of them, which is just really staggering. Yeah. Interesting. Interesting. Amy Wolf Silverman, thank you. Thank you. Now let's get a CNBC News update with Contessa Brewer. Contessa. John, new numbers today on just how much cargo is being delayed for

carriers that avoid the Red Sea and instead go around the Horn of Africa. According to Sea Intelligence, the average delay is listed at more than five days, and it used to be a few hours. That's only for getting into port. It doesn't include the time needed to unload and then load onto trucks or rail cars. Toyota has issued a do not drive advisory for 50,000 cars with Takata airbags today because of an inflator that could explode and potentially kill motorists. The recall affects Corollas and RAV4 models from 2003 to 2005, and owners are urged to get the recall repairs immediately. And hit podcast Smartless will have a new home at Sirius XM in a three-year deal worth more than $100 million. That's according to Bloomberg. Sirius will have exclusive rights

to distribute and sell ads for the show, as well as have access to previously aired episodes of the hit podcast that's hosted, of course, by actors Will Arnett, Jason Bateman, and Sean Hayes. The deal will take effect later this year. Good for them. Guys, I'll send it back to you. Somebody's making money in media. Yeah, for sure, John. Thanks.

Well, still ahead, the CEO of buy now, pay later giant Klarna is going to join us exclusively with his take on the state of the consumer and where he sees spending headed from here. And don't forget, speaking of podcasts, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We will be right back. Nucor earnings are out. The stock's slightly higher.

Pippa Stevens has the numbers. Pippa. Hey, John. Nucor beating top and bottom line estimates for the fourth quarter, earning $3.16 per share. That was $0.29 ahead of estimates. Revenue coming in at $7.7 billion. And they echoed what we just heard from Cleveland Cliffs a moment ago with Nucor saying they see a resilient U.S. economy and steel-intensive megatrends driving increased demand for their products. They said in the first quarter they expect their steel mill segment's earnings to be higher thanks to a higher average selling price, as well as volumes. That

stock off about 1.3 percent. Morgan? Interesting. Sort of speaks to this broad-based industrial policy we're seeing become reality, whether it's infrastructure, IRA, or CHIPS Act, etc., this year. We're going to have to continue to watch that. Pippa Stevens, thank you. Well, buy now, pay later firm Klarna recently launching a new subscription offering for its customers called Klarna Plus. For eight bucks a month, the plan features no added service fees, rewards points, and exclusive discounts. Joining us now, Klarna CEO Sebastian Semyonovsky. Sebastian, it's great to have you back on the show. I'm going to start right here with the subscription plan. What does this enable from a buy now, pay later

standpoint? And how does it put you, I guess, in even deeper competition with, for example, the credit card companies? Right. I think it's important to remember that, like, I mean, we have a belief that the installment, interest-free installment product that we offer should be available to everyone. And so this service is not like for that, it's like in addition to having the availability of that paying for install free interest, free installments, you can in addition to add this, and this gives you additional access to,

as you mentioned, double points and other premium services. Yeah, so what are you seeing in terms of the consumer? I mean, we just finished out 2023 and whether it was the US, whether it was internationally in Europe, for example, Yeah. So what are you seeing in terms of the consumer? I mean, we just finished out 2023, and whether it was the U.S., whether it was internationally in Europe, for example, I mean, things have been more resilient, seem to be more resilient than everybody anticipated. And we've heard it even from some of the CEOs of some of the companies that reported earnings just in the past week or so that consumer spending remains resilient. Is that what you're seeing across Klarna's platform as well? Yes. I think we were a little bit nervous looking at Black Friday back in Christmas and so forth, but it felt like some of the additional volume that we've seen in

growth was driven by more discount. But since then, I would agree that the spending has been more resilient. I am still, however, one of the people who are a little bit fearful of the potential effect of AI and how it could impact unemployment numbers this year. And we're still seeing a lot of layoffs in a lot of industries, especially in tech. So this obviously could still have an impact on credit ratings and people's ability to spend money as well. Interesting. Sebastian, I want to go back to this new offering of yours to understand it better. Because traditionally, right, there are retailers who are working directly with you

to offer Klarna payment. But for retailers that aren't, now you've got this one-time card where people can use Klarna to pay. And there is a service fee associated with that. Now, it's almost like you got an Amazon Prime style, $100 a year almost subscription, where now they don't have to pay that fee. Tell me about the strategy here and how you're going to continue building out this

membership program where more of the consumer is subsidizing it because of convenience versus the retailer. I feel you did the job for me already there, but no, that's entirely right. I mean, one of the key elements for us has been that we realized quickly that if Klana was going to grow and become a true contender in this trillion dollar market opportunity that credit card industry and this kind of consumer credit income passes. We obviously have been extremely grateful and helpful in being able to distribute us with a half a million merchants and growing that merchant network very fast. But at the same point of time, we also wanted to offer a product that allowed consumers to use us everywhere, even on merchants like Amazon, you mentioned, who currently does not offer Klona today,

but now we can use Klona on Amazon. You can use it on any website and in-store as well with these services. And so this is something that's in great demand by our consumers, and they see a huge advantage of it. And this allows us to further accelerate the growth of that part of the business. And Sebastian, how much of this is a desire to move into prime credit more aggressively in an environment where delinquencies might be rising? Well, the surprise is that like there's been this misconception sometimes that our product

attracts more of a subprime audience. And that's actually entirely not true. It's the opposite. And it's funny because already in 15, McKinsey put a report together where they analyzed the U.S. credit card market and realized that there was this huge group which they referred to as people that were basically tired of credit cards and the bad practices of the banks. And they were looking for alternatives and they wanted fixed installments. They wanted zero interest. They wanted clear terms. And they are very conscious. They want their self-aware avoiders was the actual term being used. And what was constituted

is that they actually represent 20% of the credit card market in the US among consumers. And our product basically fits exactly into that category. And they, in general, we've seen, I mean, our credit card, our losses are basically 20, 30% below credit card industry standards. So it is very clear that the audience using these products are more self-aware, conscious, because, you know, they want an interest-free credit. That sounds better than having a credit card you max out on. And remember, our average outstanding debt is $100 compared to $5,000 on the card, right? Yeah. Very quickly, Sebastian, is 2024 the year you go public? We will see. Time will tell. But it's definitely not unbeatable. OK. Sebastian Timitowski, CEO of Klarna. Thanks for joining us.

Thank you for having me. Up next, Mike Santoli heads back to the market dashboard with a look at a couple of names that he says have some serious similarities. He's going to tell us what they might mean for the market. That's coming up after this break. Welcome back to Overtime. Some headlines in fintech today. SoFi surging 20% on the back of an earnings beat. First ever quarterly profit and fan duel parent company Flutter making its debut on the New York Stock Exchange. Mike Santoli is finding some similarities in the two. Mike.

Yeah, John, you know, in a couple of weeks, we're going to have to get ready for an anniversary. It's going to be three years since the very peak of what I would call the Tantastic market, where total addressable market stocks, these apps that were going to disrupt a big industry, that were given huge valuations. And that would include things like SoFi. Coinbase came public just a little bit after that. And also DraftKings. And obviously, DraftKings and FanDuel and Flutter, they're not purely fintech, but they're the same kind of thing. It's transaction based apps. They're kind of dancing through some regulatory openings and they're they're feasting off of this idea that there's a massive amount of untapped activity that they are going to allow their customers to partake in. So this is the course of the last almost three years in these stocks. By the way, Affirm, you were talking to Klarna, also matches this pattern. So down huge from that February 2021 peak, a long period of sideways,

and now just trying to pull out of it as the business models come around. SoFi had gap positive earnings in this latest report. So who knows if we have to worry about making an assault on those old highs. But it seems as if the survivors of this world are trying to make the case that they're here to stay. That's a great chart. Mike Santoli, thank you. Investors getting set for a monster week of tech earnings. Still ahead, Goldman Sachs Internet analysts on how investors should trade Alphabet, Amazon, and Meta ahead of their results. Welcome back to Overtime. Let's get back to Pippa Stevens for more on Cleveland Cliffs.

Pippa. Hey, Morgan. So some more context on the report from Cleveland Cliffs. It was unclear how analysts are treating a variety of items in Cleveland Cliffs' report. Among them is a large $125 million goodwill impairment charge that is included in the $0.31 loss. Again, that stock down 2%. John? Pippa, thank you.

Meantime, Alphabet kicking off a parade of big tech earnings tomorrow right here on Overtime. And joining us now is Goldman Sachs Managing Director and Internet Sector Specialist, Eric Sheridan. Eric, welcome. Seems to me that this Google report is maybe the most important one in a while, not just for the company, but for the read on the market, because we're going to get some info on cloud demand here, brand advertising through YouTube, performance ads through search and the rest. Am I wrong? Yeah, all of that you're going to hear from Alphabet tomorrow night. You're also going to hear about elements of restructuring costs and optimizing margins for the longer term. Remember that CFO Ruth Peratt talked about bending

the cost curve just a year ago with an eye towards 2024. So we're going to hear an update on that. We also haven't heard anything from the company yet about CFO succession, which could be another theme that comes up tomorrow night. It's been very quiet on that front, but this was the timetable that the company had laid out almost six months ago. Now, Google is the smaller of the three hyperscalers in cloud particularly. How much are you going to be reading through to, you know, not just Microsoft, which also reports tomorrow, but Amazon, Meta, et cetera? Yeah, I think collectively what Alphabet's Google Cloud division does,

as well as what Microsoft, which I don't cover, says, will likely set the tone for the cloud computing narratives, at least until we hear from AWS on Thursday night. In addition, away from just the earnings reports, we'll also get some additional detail in the 10K likely the next morning from Alphabet. So it's going to be a week where we get the earnings, some disclosures the next morning, and that many of these narratives continue forward. And I think some of the key themes people are going to be waiting for are, one, AI workloads. Do they start to contribute to a potential for revenue to reaccelerate? And number two, we've been going through this cost optimization theme in cloud for now the last four to five quarters. And as we get into easier compares, revenue should start to reaccelerate on that as well.

So there's a duality of the tailwind of AI workloads and the easier comes from when revenue on cloud started to decel a year ago. I think across all three reports, investors are pretty focused on that. Yeah, I mean, speaking of all three reports, the read through on online advertising, how much can we glean from the numbers we get from Alphabet tomorrow to read through to Meta later in the week? And also Amazon, which we know has a different advertising model, but one that is large and growing fast and taking market share? Well, I think the number one thing is what does Alphabet say of anything about vertical exposure, the strength of the commerce market? You know, the global consumer was stronger than people had anticipated. If we go back to October and November.

So what does that commerce behavior and marketing intensity around commerce translate into in terms of digital advertising growth? Are there some verticals like autos or real estate or financial services that have lagged that are showing some signs of life? That'll be something people will want to hear. YouTube will likely be very idiosyncratic to video consumption habits, connected TV, the brand advertising environment. There'll be less to read through from YouTube, but more to read through from search. Cost cutting. It was a big part of the story for the big cap tech names last year, particularly Meta, where we had Zuckerberg's year of efficiency. Is that something that's going to carry through into 2024? Or is it really going to be about propelling growth on the top line and what that looks like in this

macroeconomic environment? Well, I think you raise an interesting point. I think it's going to be a balance between the two. I think you're dead right in bringing up both points there. I think, number one, there's still work to be done on the efficiency side. How that translates into scope and what it means for margins is going to be a pretty important dynamic across all of the tech reporting over the next three to four weeks. But an interesting nuance to it that you raised is how much of that drops to the bottom line versus how much of it gets reinvested with an eye towards AI or growth initiatives or where company managements think they want to go over not only 2024, but on a multi-year time frame. Six, nine months ago,

these companies were cutting costs and optimizing out of necessity and because the market had sent them a message. Now we believe 2024 is going to matter. Who gets the balance right between optimizing for margin, but then some elements of credibility about reinvesting back into growth. Okay. Eric Sheridan, we'll be watching. Thanks for previewing it for us in the meantime. Also coming up tomorrow, I have an exclusive interview with Andreessen Horowitz, co-founder of Ben Horowitz. We'll be talking all things VC, plus the new American dynamism team investing in companies that support the national interest. That's areas like aerospace and defense, supply chain, health care. There's going to be a lot. It's the reason I'm down here in Washington,

John. So expect some headlines there. Tech optimism really important coming from him and his partner over there at Andreessen Horowitz. I'm going to be watching for how much stocks are moving this week on top line guides versus cost cuts, as you were just talking about, Morgan. Yeah, we've also got UPS, General Motors, Pfizer, and Starbucks to watch, too, in what's going to be a very busy week with a lot of potential catalysts. Yeah, as we mentioned, Alphabet and Microsoft among those tomorrow. That's going to do it for overtime. Fast Money starts now.