Closing Bell - Closing Bell Overtime: Netflix Earnings, JPMorgan’s Bullish Call 4/19/22

Episode Date: April 19, 2022

Netflix plunges in after-hours trading after reporting a loss of 200,000 subscribers in the first quarter. But, value investor Bill Nygren from Oakmark Funds is still betting on the stock. Plus, JPMorgan’s Chief Global Markets Strategist Marko Kolanovic says “a near-term rally is likely,” and recommends both growth and value names.

And welcome to Overtime. I'm Carl Quintanilla in for Scott Wapner. You just heard the bells, but we're just getting started. In a few moments, we're going to speak with J.P. Morgan's Marco Kalanovic, why he's calling for even more upside following today's rally. We're going to start, though, with the talk of the tape. And of course, tonight, it is all about earnings, results from Netflix and IBM crossing at any moment. Let's bring in our panel benchmark senior analyst Matthew Harrigan. He covers Netflix with a hold rating. Also joined by Hightower Stephanie Link and Odyssey Capital's Jason Snipe, both CNBC contributors. Great to see all of you. Thanks for being with us this afternoon. Jason, let me start with you in terms of what you're looking for on the Netflix print. I think

it's a name that you're underweight. Yeah, Carl's obviously for me, you know, there's not a whole lot of conviction or high expectations coming into this print today. You know, obviously, I'm looking at the subs. Two and a half million has been has been the number that we're all looking for. Also want to see the impact of pulling out of Russia, you know, and, you know, how that's impacted the stock. You know, and I think Julia just mentioned in the past segment, I'm really curious to see if they will ever explore an ad version of the app. I think that would be great for margins and great, critical to the growth going forward. I think that is a concern for me. So guidance was weak for the last quarter. Obviously, the stock is down 42% year to date so um not a not a lot of expectations for me here but but it's been a hold and we trimmed it last summer yeah you see the reaction right here

uh down 17 on the numbers that are just crossing q1 revenue uh 7.87 billion is going to be just shy of the street and the q2 um sees q2 eps at $3. Street is looking for 301. This is going to be a puzzle once again, Stephanie. By the way, hat tip to a B of A who says that Netflix has traded down 13 of the last 15 earnings prints. In part, Stephanie, because it's difficult to know which metric is going to drive the after hours trading. Yeah, and it's just, I mean, it's such a volatile stock, high beta stock on top of that. So I'm surprised by the reaction. We have to get more information, but I'm surprised just given that the stock is already down 42% year to date, headed into the print. And to be honest with you,

Carl, I don't own it. I never have. But it's trading actually at only 31 times earnings. I know that there's a lot of competition out there. I know it was a stay-at-home beneficiary for sure, and they have very tough comps ahead. But this stock has never traded at 31 times earnings. And the big thing for me on the call will be free cash flow. They have guided free cash flow to be positive for 2022. I think that actually will make the story even more interesting. So the more it comes down, the more interesting it looks to me. But we got to get more of the numbers and more of the details. Yeah. Speaking of which, Julia Boorstin, we do have this one line on the tape now about negative global sub ads. Yeah, let's really dig into the subscriber numbers here. And it is pretty clear that that's what

what is weighing on this stock. So if you look at global streaming net additions, a loss of 200,000, loss of 0.2 million. Now, that number is key because the company forecast that it would add two and a half million in the quarter. Now, they also had, it was a lot of speculation that they would lose a million subscribers in the quarter because of stopping operating in Russia. So that gets you down to about one and a half million. But still, analysts expected the number to be well above that. And instead, the company lost overall subscribers in the first quarter. This is unprecedented for Netflix. They have lost in the US and Canada, but they've never lost overall before. And even more dramatic, the second quarter

forecast is for the loss of two million global streaming paid net additions. I had to double check that number multiple times because they're forecasting that the overall subscriber base will continue to decline in Q2. And I'm sure there are a number of factors here. They also had a larger than expected, I'm sorry, the revenue fell short of expectations and revenue has been slowing. So that's another thing to keep in mind. Just to give you a little bit of detail on Russia, they say the suspension of our service in Russia and winding down of all of our Russian paid memberships reported in a point seven million impact on pay debt ads, including this impact paid net additions totaled half a million.

So they would have added half a million subscribers if it were not for the impact of Russia. That is dramatically less than the two and a half million that they expected they would add. I'm going to continue to dig through this report, but that is why the stock is down over 18 percent right now. Carl? Yep. Julia, don't go too far. Matthew, I want to get your take on the reiteration from the company that 2021, as they've said before, was a pretty major pull forward. They are still anticipating being free cash flow positive in fiscal 22, but a lot of discussion of sharing passwords. They estimate the service is being shared with over 100 million additional households, and they're going to work to monetize that sharing dynamic. I guess that's going to be

read as being a defensive move rather than offensive yeah these are very disappointing numbers I think you know we were around one and a half million positive you know clearly when you've got a 220 million vicinity base a slight variation in turn can have a significant effect but I mean the guidance for 2q which is also seasonally slow is lackluster but you know the problem now is you're not really either a growth or a value name because you could be you probably will be nominally positive on free cash flow this year but you're still looking around a one percent free cash flow yield so you know the issue is uh are you ever going to generate even real free cash flow as the growth dissipates and the the competition's accelerating.

I think the consumer now especially is more price sensitive. I think to the extent that you cut down on password sharing, you're foregoing a little bit of addition at fuller price, and you're trying to entice people to actually join. And clearly, we've seen some bad data points in a survey in the UK that I think you talked about earlier today, but also Deloitte in the U.S. a few weeks ago was out of the survey saying that 40% of consumers had cut an S-Bot service because of price. So clearly it's not going to be easy to latch on to those free riders right now. I think that's going to be very difficult. It's

no panacea at all for solving the issue. So very disappointed. Jason, Matthew mentions the piece in the FT over the weekend that looked at households in the U.K. canceling subs overall at a record pace as they worry more about the economy later this year. To what degree does Disney get hit tomorrow and some of the competing streaming services? Yeah, I think generally, I mean, one important point I think to note is just this shift in consumer behavior. I think consumers are looking to spend on experiences over content right now.

So I think that could be pervasive through the entire industry. And these numbers are obviously very disappointing. But I wouldn't be surprised if Disney disappoints as well as some other names in the space. So not terribly shocked by the numbers here. But I think that could be part of the narrative going forward in a lot of the streaming names. Julia, more color on some of the internals. Yeah, the company is breaking down the four reasons why the results fell short of expectations, and why, as they put it, they're not growing revenue as fast as they'd like. They say that they're relying on factors they don't control, including the uptake of connected TVs.

Also, they say this amazing number about people who are sharing their passwords. They say in addition to the 222 million paying households, they estimate Netflix is being shared with over 100 million additional households, including over 30 million in the US and Canada region. So they're breaking down in here a number of different ways they're trying to get those additional households.

Not additional people in one household, but additional households to pay. And then they talk about competition for viewing with linear TV, as well as YouTube, Amazon, and Hulu. And they also mention a number of the other newer streaming services. So interesting to see how they saw that competition, but also just overall declines in the number of subscribers. I'm going to just point out declines in paying subscribers in U.S. and Canada, as well as the EMEA region. And just looking at these and sort of widespread declines, the only region where they saw paid net additions increase was

the APAC region. So much more widespread declines in subscriber growth than expected. You know, Stephanie, I wonder to what degree management gets challenged again on the notion that we're in a period where we're witnessing real subscription fatigue and the trend toward ad-supported content is just growing. No, you're absolutely right, Carl. It's a question to ask, and it's a tough one to answer. I was trying to find something good in the quarter, but the only thing I could find that was good was operating margins were about 300 basis points better than expectations. And your free cash flow positive comment was also positive,

but everything else is negative. And yeah, and to the point that was made earlier, it's kind of the stock is now sort of in limbo, even though it trades at a more attractive valuation. We have to see where the numbers settle out. And we don't really know what the true growth rate is of this company, nor do we know the true growth rate of this industry, just given the competition. And just given that people are probably tapped out, a lot of people are tapped out in terms of what they want to own and what they want to buy in this space in particular. How many streaming services do you actually really need?

So there are a lot of questions to be answered. I can't wait to listen to the call or watch the video, but obviously a disappointing all around. Yeah, they generally bring a fair amount of candor to the call. We'll be paying attention. Meanwhile, IBM results are out as well. Let's get to Seema Modi with those details. Hey, Seema. Carl, a slightly rosier outlook from IBM. First to the numbers, $1.40 adjusted for the quarter versus the $1.38 estimate. Revenue came in higher than expected at $14.2 billion. Software and consulting posting revenue growth this quarter versus Q4. Software up about 12%, consulting up 13%. I did speak to IBM CFO Jim Kavanaugh. He was rather optimistic about the transformation underway at IBM, the portfolio shifts, progress on the cloud

front, picking up momentum, total hybrid cloud revenue standing at nearly 21 billion, up 17% year over year. So the desire to continue to grow and diversify already three acquisitions in the first quarter. He says there is capacity to continue to acquire more. He did have commentary around inflationary impact that related to labor and talent acquisition, which did show up in gross margins a bit light there. But you can see shares are up here after hours. And the conference call does begin at 5 p.m. Eastern. Carl. Seema, thank you for that. Stephanie, I'm thinking of Katie Huberti's upgrade the other day over at Morgan Stanley. She called it a good place to hide. Yeah, it has been a good place to hide. It's only down about 4 percent year to date,

and the XLK is down about 14 percent. I was a little nervous, Carl, to be honest with you, on the currency front and seasonally this being the weakest quarter of the year for the company. But I'm very encouraged about the software growth up 12%, I believe Seema said. That is very critical to the story. Software is 43% of total revenues, but more importantly, it carries much higher margins. And so you can get a real operating leverage story out of IBM going forward if they can continue to grow double digits in the software piece. Consulting also. Not a surprise, though, to me that it was up also double digits because Accenture had a great number as well. So I was kind of bracing for a pretty good number there.

Infrastructure probably is a flat, but that's going to pick up because you get a mainframe upgrade cycle starting in the second quarter. So second half of the year year infrastructure should also do well so hopefully things will start to really develop nicely for the company all they really need to do is consistently execute because they have consistently not so this is a very good first step for the company yes for a long time we were looking at slowing revenue growth uh but uh i didn't realize either the negative correlation to PMIs, which is something Morgan Stanley pointed out in their note the other day. Matthew, as we continue to watch the reaction on Netflix, I do wonder, you've been no Netflix bull by any means since the height of COVID.

And we've talked about how washed out sentiment was. Does this particular leg down, does it put it more in the value camp or make it any more attractive from a valuation standpoint? You know, looking at this quickly, I suspect there's more downside. I think the stock was still priced for getting to say, you know, 275 million members in 2027 or so, maybe 27.5% margin, 7%, 8% improvement. So they really have to prove that they can execute. And frankly, there's some read-through to the other S-Pod names, but I think their creative execution for spending high teen billions cash

on programming is not exactly awesome. I mean, I think there's going to be some pressure in the other streaming days, but the world is still moving from linear to streaming. There are going to be winners, there are going to be losers. And Netflix, it's not a foregone conclusion that they're going to be the top player five or 10 years from now, in my view. Do you think the pressure on sub growth now, Matthew, makes it more likely that streaming budgets go inflated because they need more hits, especially in a weak quarter like Q2? Or are they going to go are they going to start to enter cost discipline mode? It's going to be very difficult because you

can peel back in the U.S. to some extent. But the markets where they really have growth ambitions on the members, you know, Japan, India, let's say they only have growth ambitions on the members you know japan india let's say uh they only have about a mid-teens penetration in uh in japan and very nominal in india at this point you know huge market uh you have to spend a lot on programming to get where you want to be there relative to the local players so this this is really very, very disappointing in every regard. And, you know, again, I mean, this is not a growth stock. It's not a value stock. It really needs to be sorted out. They have a lot of explaining to do.

And, again, I think a lot of the issue is creative execution. We've certainly seen that at traditional Hollywood studios in the past. I mean, people didn't think that was going to bedevil Netflix, but it certainly seems to be the instance right now. Yeah. Finally, Jason, it kind of puts into sharp relief what we call a COVID winner. Over the last couple of years, Netflix has underperformed the triple Qs since COVID began. Names that we thought were really raking it in, were literally in the money, are given all of that back and then some. Absolutely, Carl. I think that's a great point to make note of. I mean,

Netflix was clearly a pandemic winner, like a lot of the other streaming companies that have done well in this environment. But, you know, obviously it's been a shift going forward. The reopening 2.0, 3.0, whatever you want to call it, is a shift in consumer behavior. And I think, as the other gentleman shared, I think, you know, just the decision between all the different, it's a fragmented space. There's so many different choices. And I think, honestly, the attention is not there now. And I think the consumer behavior has shifted and there's focus elsewhere. Matthew, Steph, Jason, appreciate it very much as we see Netflix now down more than 22 percent. Let's get to our Twitter question of the day.

We are asking, do you plan to cancel a streaming service within the next six months? Go to at CNBC overtime to weigh in and we'll get you the results at the end of the show. We are just getting started here on overtime. Up next, one of the street's biggest bulls says get ready to rally. J.P. Morgan's Marko Kalanovic just put out a new note to clients today calling for a bounce, how he is positioned for even more upside. Plus, more on this massive move for Netflix shares. Down almost 23%. Oakmark's Bill Nygren is in the stock,

and he'll join us with some reaction coming up. Welcome back to Overtime. Get one more check here of Netflix. The stock hitting some after-hours lows, now down 23%. Let's bring in Eric Jackson, founder and portfolio manager of EMJ Capital, who I don't think owns Netflix, EJ, in part because you did anticipate sub-growth being a problem. Hi, Tom. I haven't owned it since pre-pandemic. It was the first time they hit $400.

At that point, I really felt like sub growth was going to be the biggest issue moving forward. Yes, they have the option of doing price hikes until the end of time. We're launching new services like games, which I think is still probably years away from being a reality. So, you know, now we're in a situation where getting to, you know, two million negative subs next quarter is really tough. I mean, it would not surprise me at all

if Carl came in, or Jim Banner came in tomorrow, Carl, and said it's time to officially retire Netflix from bank. Wow. Do you think this is an issue that they can price their way out of? I don't think so. I mean, they have to raise prices to really continue to work as a story for investors. So you're not going to price cut your way out of this problem.

Therefore, you're going to have to continue to invest in content. That's going to present all the international challenges that some of your previous guests mentioned. So I think they just, I mean, they do streaming better than anyone else. They have that going for them. They're going to be a must-have for most people as part of their streaming options. But it's just a question of where are the incremental subs going to come?

It's going to have to be from international, and they're going to have to probably hang their hat on that. All right. As for Disney and Warner Brothers Discovery, of course, and our parent Comcast, is this a warning or an opportunity, do you think? It's probably more of a warning to most of those players, with some exceptions, and Comcast might to most of those players, with some exceptions, Comcast might be one of those exceptions, that this is just a really tough, long road that they've signed

up for. And I think with some of the smaller players, like Paramount, you know, it's probably the runnings on the wall, I think, with a group like this, that you probably are going to have to team up with, you know, Discovery, you know, HBO or something like that to have a hope of making it through this. Eric, as for the broader market, you do have a lot of ideas about nuclear, about batteries and EVs. You think the notion of a famine in the fall is underappreciated. What's the most constructive theme you're putting together right now? Well, it's really going to be a hit and miss market, as we saw on Netflix today. I mean, I think there are some tech stocks that have been decimated that are going to surprise to

the upside with really positive reports in this quarter and quarters to come this year. So I'm personally along the open door part of the fund. I think they've been decimated down 67% in five months. People are bearish on housing. They're bearish that housing stocks will ever work. We had a rally today, by the way. But here's a stock at open-door that's got services that's needed. They are making money and incrementally more money every quarter. And they're trading at 0.3 times sales, down from, like, 1.7 times sales, you know, in time to a better.

So if they can surprise to the upside and go back to, like, a one-time sale, you know, talk about a stock that goes from $8 to $35. Some of the other names, though, you know, I guess the commonality is that Russia and the war in Ukraine have really changed the world for the long term. And I think you really want to focus on agri-tech that's going to help grow food faster. You're going to focus on energy independence. I think nuclear is a really compelling story in the long term that people like Elon Musk and Mark Edgerton are pounding the table for. And there are a few names out there that are really non-institutional at home.

And these stocks tend to have, you know, three-year run-ups, not just sort of six weeks and then they're done. So I think there's still opportunity with a lot of them. Always good to get your take. Appreciate you being there to bounce Netflix off of as well, Eric. See you next time. Eric Jackson. Coming up next, buy growth and value.

That's the new message from one of Wall Street's most closely watched bulls, how J.P. Morgan's Marko Kalanovic is positioned for a near-term rally. He's going to join us exclusively next. Welcome back to Overtime. Get you up to speed on some movers in the OT. Shares of Netflix sinking big time. The company lost 200,000 subs this quarter. IBM moving off its after hours high after reporting a beat across the board. And that call kicks off at the top of the hour. And interactive brokers earnings coming in in line. Estimates, but it did miss the mark on revenues. And we'll wait to see if that we get more reaction off of IBKR. Let's get a news update with Tyler Matheson in the meantime. Hey, team. Hey, Carl. Thank you. Good to see you, my friend. Russia's military calling on Ukrainian troops in a Mariupol steel plant to lay down their arms tomorrow with a promise there will be a ceasefire in the area. Ukrainians in the plant, which is their last

stronghold in the city, ignored an ultimatum deadline today, vowing to keep fighting to the bitter end. The Biden administration planning to announce another big package of military aid for Ukraine. Several U.S. officials tell NBC News it will probably be about $800 million, similar to last week's package. And the Hollywood star Johnny Depp took the stand today in his 50 million dollar defamation suit against his former wife Amber Heard without naming depth specifically she wrote in 2018 that she had become a public figure representing domestic abuse Depp conceded there were arguments between them, but... Never did I myself reach the point of striking Ms. Hurd in any way, nor have I ever struck any woman in my life.

And tonight I'll be sitting in for Shep Smithith on the news and we'll look at how los angeles police are responding as gangs target some of the city's wealthiest people in a new way that's right after jim kramer 7 eastern on cnbc carl back to you all right tyler thanks so much stock surging today closing near session highs tech seeing the biggest gains with the nasdaq gaining more than 2%. J.P. Morgan's chief global market strategist, Marko Kolanovic, remains bullish. Out with a new note today saying that a near-term rally is likely. Marko joins us exclusively on the phone this afternoon.

It is great to talk to you again, Marko. Thanks for the time. Thank you, Carl. Part of your argument involves just tactically the way tax payments and seasonality goes in the latter half of April. Can you just mention that? Yeah, of course. So the first two weeks in April are historically weak for the equity performance. Some of it can be attributed to the basically investors need to raise some cash to pay the taxes. And last year there were strong gains, so we think that was the case this year. And then if you look at the last two weeks in April, it ends to be the

best-performing two weeks, actually second best-performing. But there is a pretty clear reversal, first two weeks and then the last two weeks of April. So that could play a role, we think. But there are also other factors which we think could push the market higher, at least short term here. And you seem relatively agnostic about whether you buy growth or value in the near term. Why is that? So we have actually pointed that number of value stocks are now becoming growth. So specifically, if you look at the energy and materials, they're still valued. Their valuations are cheap in historical terms. They're cheap relative to the average of an index.

However, the earnings are growing. So these are also now growth stocks. Balance sheet quality is improving. So they're also quality stocks. And also, there is a positive price momentum. So we basically highlight what historically were just value stocks. Now they're actually value and growth. That's on the sort of cyclical side. And then we also highlight similar group of stocks on

the growth side. Some of the growth stocks sold off pretty dramatically in the last three months. You know, we highlight, for instance, China ADRs that are now trading at multiples, which are basically value multiples. So one doesn't have to pick value or growth. Actually, there are plenty of stocks which are at the same time value and growth now. Marco, you were relative. You were very early, actually, in warning the market about the trajectory of rates. And we've moved a lot. You say too much is priced in now and that we may level off given underappreciated base effects and perhaps some demand slowdown. Is that sort of what you think Evans and Bostic are talking about today, maybe backing off from the Bullard 75 basis point kind of thing?

You know, so there is a lot of talk from the Fed, you know, and the last few months there was a lot of sort of scaring, Fed scaring the market, you know, so a lot has been priced in on the rates. You know, if you look at the 10-year at 295, basically, it's basically slightly above our year-end price target. You know, if you look at the 10-year at 295, basically, it's basically slightly above our year-end price target. You know, so we think probably that's done. Same if you look at a two-year. Even today, two-year moved like 15 bips. That 15 bips, that's almost a hike. So I think it's a little bit overdone at this point. I think we might be surprised to see yields

leveling off here and maybe even drifting slightly lower as we go later in the year towards the election in the late summer. Do you think that gets reflected in hard data? Can we count on another CPI print that maybe comes in cool month on month? So, look, nobody knows for sure. But last year we said, look, inflation is going to be, you know, more than just transitory. It's going to be pushed higher. Now, it seems that that's overall consensus. And Fed is, you know, seem now really focused on inflation. And a little bit in a contrarian fashion, I think inflation data could come weaker.

Why? You know, one thing is just the year-over-year comparison, so-called basis effect. You know, like probably March to March was the peak sort of year over year increase. You know, as we go later in the year, comparison is going to get easier. So that's the one thing, you know. It's a little bit, I think, it sounds like very naive, but it's underappreciated, I think. Obviously, there are others, you know. One is a softening of demand. I mean, we are seeing some softening of demand and then clearing some of the sort of bottlenecks related to COVID later in the year. So a few different reasons why we think that

inflation might start easing, which will then give Fed more space to take it a little bit easier, especially again later in the summer and going into midterm election. That said, you do point out that the war in Eastern Europe could go on for much longer than these base effects would begin to help the year-on-year print. How are you processing that into your playbook? And if, in fact, the Europeans move to ban Russian oil, does that take crude to 185? And can the economy still handle that? Yeah, so that is sort of our forecast, our commodity strategies forecast, that oil could actually go to 185 if you do have a full ban of Russian oil and gas.

So that's a risk. We do think, actually, that commodities will stay elevated and move higher. So in a way, situation will get worse before it get better on the commodity side. So that part of inflation, we actually forecast to move higher. On the other side, some of the sort of the truly transitory components, such as labor shortages, shipping, various supply chain problems, that will get better over time. So it's a little bit of what we call a rotation within the inflation. So commodity part moving higher, but everything else moving lower, including housing. I mean, you do have over time. So it's a little bit of what we call a rotation within the inflation. So commodity part moving higher, but everything else moving lower, including housing. I mean, you do have some

slowdown in housing already, which we think is going to continue. So it's a bit of a, so not really collapse of inflation, but just maybe on a margin, things getting better over time, which plus the economy slowing down, of course, which will then give some room for Fed to pause, we think, sometimes during the summer. Interesting. Does that mean you stay domestic? Or can you take a little more risk on the European economy or emerging markets? So we actually prefer emerging markets for two reasons. You know, one is commodity story.

A big chunk of emerging markets is effectively being long commodities. You know, one is commodity story. A big chunk of emerging markets is effectively being long commodities. And the other one is China. You know, keep in mind, China is easing monetary policy. There are also some signs that will be some fiscal and regulatory easing. So very different story from what you had the last two years in China and also different from the U.S. You know, U.S. is tightening monetarily. You know, fiscal is not going to be as supportive as it was before, while China is the opposite. So we like China on one side, and we like emerging markets, like commodity-driven emerging markets on the other side. So that's sort of our topic, really. It's outside of the U.S. And for Europe,

given the view that situation probably will persist, the geopolitical crisis will persist, it's very hard to be positive on Europe at this point. So Europe, last year we were positive. This year we are dropping that. We are sort of really focused very much on China and commodity-driven emerging market. And in the U.S. selectively, you know, we like energy materials. There are a lot of cheap other market segments even on the growth side in the U.S. selectively, you know, we like energy materials. There are a lot of cheap other market segments, even on the growth side in the U.S. If you look at some of the indices or stocks in the biotech segment, you know, some of the stocks in innovation, not all, but some you can actually buy now at a cheap end.

Marco, as usual, your note was heard all around the street today. Definitely helped feed the rally that we got. Appreciate it very much. Good to see you. Thank you so much. Marco Kalanovic. Coming up next, a lot more on the monster move lower for Netflix after the bell. Stock losing nearly a quarter of its value.

Value investor Bill Nygren is with us. He owns the stock and we'll get his instant reaction to the quarter in a moment. Later on, riding the rate rally, that 10-year yield is hitting its highest level in more than three years. PIMCO's Erin Brown on how she's playing the pop when overtime is back in two. Welcome back to Overtime. Netflix out with earnings this afternoon. That stock plunging after reporting a loss of 200,000 subs in Q1. Let's bring in Oakmark's Bill Nygren. Netflix is among his top holdings in his Oakmark select fund. Bill, always good to see you. Good afternoon.

Good to see you. Thanks for having me, Carl. You pointed out the stock itself was a problem in Q1. I wonder how you're processing tonight's print. Well, clearly it's a disappointing number from Netflix, and some decline in the stock is to be expected following that kind of quarterly release. But I think you have to maintain long-term perspective. That's what we're good at doing at Oakmark. And our thesis remains that five years from now, this will be a bigger company

serving more subscribers, earning a higher profit margin than it does today, and it will make today's price look low. Now what gives us confidence in that? If you look where Netflix is trading right now it's about $500 per subscriber and we compare that to the valuation put on HBO when AT&T acquired Time Warner of about $1,000 a subscriber and we have a hard time understanding why a Netflix sub would be worth half of what an HBO sub was worth. And frankly, if Netflix stock stays at this level, I think it would be logical to expect acquirers to start sniffing around.

Interesting. Do you think there needs to be a pivot in the pricing model overall? I mean, people have been calling for an ad-supported tier for years. I don't know about ad-supported, but the surveys that we've done of people's monthly subscription services, Netflix always comes out as about the cheapest and about the most highly valued. So I think there is definitely a pricing lever to be pulled when they decide that's the right economic move. We've been fully supportive of them sacrificing current earnings to grow the company at a more rapid rate, but if that more rapid rate isn't achievable then I think it would be the next step would probably to be raising prices more in line with other subscription services.

The fund obviously has relied for a long time on mega cap tech. I know you're a fan of Facebook, Meta, Alphabet, along with financials. How are you ranking them right now in terms of level of importance to the overall fund? Our largest commitment by far is financials, and it's because we think that's the cheapest industry in the market today. An example like our largest holding in that space, Ally Financial, the new and used car lender. The stock sells in the low 40s. It's expected to earn about $8 this year, so about five times earnings.

It sells at a small premium to book value. And this is not an old dinosaur bricks and mortar bank. It's the largest, most successful online deposit gatherer. So we think this is a great company. We think it deserves to sell at a multiple much above five times earnings. And while the market gives them the opportunity to repurchase shares at this price, allies generating enough excess capital that they could be repurchasing about 15 percent of their equity base this year. So that even if there's no growth in income, next year's earnings would be about 20 percent higher on the smaller share base. What you're thinking right now on Meta itself? We've been

watching it at dip below 200, came right back. There's been some sell-side commentary about small, medium-sized businesses, perhaps looking to other channels. There's the Apple privacy element. Does any of that concern you long-term? We've always looked at Meta on a piece-by-piece basis of looking at the cash on the balance sheet, which is something like $20 a share right now, currently earning almost nothing. WhatsApp that they have not monetized yet, but it's grown substantially. It's user-based from the time it was acquired. The Oculus and artificial intelligence, artificial reality business that's currently costing them money. If you adjust for those things, the core Facebook and Instagram business is selling at

less than 15 times earnings. And we think you could make an argument that you're almost paying a fair price for Instagram and getting the rest of the businesses for free. So again, I think a long-term investor has to be very interested in Meta at today's price level. It'll be one of the more important earnings reports of the quarter, that's for sure, Bill. Thanks so much. Appreciate the time. Bill Nygren joining us this afternoon. Thank you. When we come back, PIMCO's Erin Brown betting on three key parts of the market. She'll tell us where coming up. And don't forget to vote on today's Twitter question on the back of Netflix. We're asking, do you plan to cancel a streaming

subscription within the next six months? Go to at CNBC Overtime to weigh in and we'll get the results coming up. Stick with us. Welcome back to Overtime. Big rally on the street today, even as the 10 year yield hits its highest level in more than three years. Joining us this afternoon, Aaron Brown, portfolio manager at PIMCO, talk some rates as well as financials there. And it's great to see you. I know we got most of the bank earnings out of the way. Kramer is going to talk to Moynihan, I think, tonight. But there doesn't seem to be a lot within the industry in terms of trends that gets you very excited. I think that as we move later cycle and given how flat the yield curve right now, it is a difficult operating environment for the financials, particularly for the brokers who had a real wave of benefit over the last 12 to 18 months because of increased M&A opportunities and increased issuance in part from

the SPAC wave. And I think as we start to see that die down, it is going to be a more challenging environment ahead. And for the broader banking sector, you know, I also think that as we move later cycle and as we see, you know, lower loan trends going forward, that also creates some headwinds to the industry overall. So while, you know, there are certain segments of the cyclical market I like, it's not financials. Instead, it is something like what? Well, I think that commodity-oriented sectors, particularly the mining sector, is really poised to do well. We continue to see both cyclical as well as secular tailwinds,

which I think will continue to boost increased commodity usage, particularly for those industries that are more geared towards ESG like copper. I also think that the industrials have underperformed year to date and certain segments of the industrial market like machinery should also start to perform well, particularly as we start to see infrastructure spending ramp up. And so I think that that's certainly a better place to be. Also, I think that within more of the cyclical oriented parts of the economy, the reopening sectors like leisure and hospitality, I think are going to do really well. The mask mandate being sort of overruled in court, I think really sets up well for increased summer travel. And so those, you know, laggards which have underperformed, like some of the hotel names, some of the leisure names, I think will do really well as people start spending their money more on services, more on activities and experiences rather than on durable goods,

which we saw as people were sort of locked down during the pandemic. Right. And that's really why you've got your overweight in travel, hospitality, and yet the underweight in consumer discretionary, because you're really banking on that wallet shift, it sounds like. Yeah. And you've actually started to see from early earnings reports, some of that shift occur. You're seeing it even in early indicators from the trucking sector, which is underperformed year to date, largely because the rates and the contract rates and the volumes and the shipping and freight rates have gone down

significantly because people are spending less on furniture, on durable goods, on appliances. And I think that as you start to move through the summer months, people are going to be spending any discretionary dollars that they have, the tax rebates base that are coming through on summer experiences on travel. And so that's where I think that that consumer dollar is shifting towards. And I really want to be really poised to take advantage of that in my portfolio. We definitely saw evidence of that today. We bought everything, apparently, and it's time to start moving around. Aaron, thank you. Aaron Brown joining us from PIMCO. Tech is off to a tough start this year, but one money manager is betting on a big turnaround for a big FANG name. The details in our two-minute drill. And then coming up on Fast, Engine Media's Tom Rogers joins the Fast team

to dig into Netflix's quarter. Overtime is back in a couple. Get another check on Netflix shares now down more than 25% as sub growth goes negative for the first time in a decade. And they expect to lose 2 million more subs in the coming months, which does lead us to our question of the day. Do you plan to cancel a streaming service within the next six months? Go to at CNBC overtime to weigh in and we'll get you the results at the end of the program. By the way, shares of B of A rallying again today. The stock seeing some strong follow through to yesterday's better than expected results. Kramer just sat down with B of A CEO Brian Moynihan and asked him about the Fed. When we saw the repricing of the Fed last time, all the way from the floor zero

up to two percent, you could see our pricing go through. And even while that went on, we grew our deposit base five percent in the preceding 12 months. So we can grow as a Fed's rate rise because the team does a very good job of getting more customers and doing a great job for them in the digital capabilities, the branch capabilities, the wealth management, financial advisors and private bankers across the board. They do a great job. You can catch Jim's full interview with the Bank of America CEO tonight, 6 p.m. Eastern time on Mad Money. Coming up next, time to cash in on the struggling semis. One money manager is betting on a beaten down chip name. We're going to reveal that stock and some other top picks for your portfolio ahead. Overtime will be right back. Welcome back to Overtime. Let's get the results of our Twitter question. We asked, do you plan to cancel a streaming service within the next six months?

61% said yes. We're going to see how much that affects the streamers in the days to come. In the meantime, time for the two-minute drill. Let's bring in CIC Wells' Malcolm Efridge to talk about. We teased some picks on semis, and I think maybe we're thinking AMD. Is that right, Malcolm? That's a good guess. AMD already supplies chips to basically every single one of the big tech companies that powers the internet. And they just recently announced their biggest acquisition to date, which was Pensando Systems, the maker of chips and software designed to speed up data flow for big server farms. And oh, by the way, that's a growing business because as more and more companies concede the fact that we're going to be working remotely for a very long time, the demand for cloud storage just continues to increase. So we'll be listening to guidance come the end of the month, I guess early

May for AMD's earnings call to hear if they spell out any more for that particular business unit. Yeah, a data center, one of those areas where they are definitely gaining share over the years. And you don't seem too troubled by the overall semiconductor price action breaking some pretty significant support relative to the S&P, at least? No, it actually seems like a pretty interesting entry point to get into the chip space. And AMD is probably the strongest place to get in as far as them taking away market share from incumbents like Intel, other than maybe Taiwan Semi. And it's a bit too expensive to be building a position in Taiwan Semi at this point.

Right. I know you're watching commercial real estate overweight on the notion that we're in a period where it's still the landlord's call, where they want to take rent. Yeah. So we like Prologis in that space, PLD, and we like them because for warehouse owners, all of the headaches that retailers have been facing as far as air, sea and ground freight becoming more expensive and less reliable during the pandemic. That's been a huge tailwind for them. Right. They reported today and blew it out of the water as far as earnings are concerned. I believe it was 154 on reported on an expected 58 cents or so, which was a nice little bump today, about 4 percent or so. PLD is up. Yeah, I think Kramer might have them tonight as well. Finally, Amazon, despite all the talk about tough e-commerce comps,

you say there are too many positives to list. Yeah, I mean, there are too many positives to list. And since we're in the two minute drill, I won't even begin to try. But the one I'll focus on here is just the $30 billion or so in ad sales that they reported in 2021. Those are better ad sales numbers than YouTube generates. And so Amazon doesn't face the same privacy-related scrutiny from Congress as Google, at least not yet. And so again, we'll be listening to that earnings call at the end of this month just to see if there are any breadcrumbs that they drop for where they expect that to go. Appreciate it. That does it for Overtime.