Closing Bell - Closing Bell Overtime: Taking Stock Of Stocks In August; Klarna CEO On The Strength Of Its US Business; Nutanix CEO Talks Cloud Competition 8/31/23

Episode Date: August 31, 2023

Averages were down for August. Invesco’s Brian Levitt breaks down the month and how the fall is setting up for investors. Earnings from Nutanix, Lululemon, PagerDuty, MongoDB, VMWare, Broadcom and Dell. Susquehanna’s Chris Rolland breaks down the results from Broadcom. Nutanix stock shot up after reporting earnings; CEO Rajiv Ramaswami on the company’s growing partnerships. Klarna CEO Sebastian Siemiatkowski talks the path to profitability and the state of the consumer.

That's a scorecard on Wall Street. The Dow just couldn't hold on to that bump from Salesforce. Winners stay late. Welcome to Closing Bell Overtime. I'm John Fork with Morgan Brennan. And we are closing out August with a bang as a number of high-profile companies gear up to report earnings this hour, including Broadcom, Lululemon, Dell, VMware, Nutanix, and more. We'll bring you all of those results and expert analysis, plus an exclusive interview with the CEO of Nutanix before he talks to analysts. But as we await those earnings, let's get to our market panel. Joining us now is Invesco global market strategist Brian Levitt

and CNBC senior markets commentator Mike Santoli, who is just on TV all day, grinding the gears here. Brian, mixed end to the month of August here today with the S&P finishing down slightly lower, the Dow lower, but the Nasdaq eking out some gains. We're still lower on the month. The rally we've seen in recent days, can it continue from here? Yeah, I believe it can. I mean, this is a market that early in the month was very concerned about higher interest rates, growth being too strong and perhaps inflation not coming down fast enough. And so we've seen that unwind over the last few weeks, which has been healthier.

You've seen the economy continue to show signs of moderation and you have signs that inflation is is moving towards the Fed's comfort zone. And so as that's happened, interest rates have come down, which has provided support to equity valuations. And so I think it persists. Now, you might see a little bit of a shift in leadership. It's been the tech heavy growthy names here. But as the market starts to get more enthused about a soft landing, you would expect to see some broadening out of that. Yeah. Mike, I mean, a rate reprieve, that has been sort of the theme of these recent days of trading. And certainly that's given renewed life to some of those tech names, communication services, consumer discretionary as well, which have been some of the best performers over the past week. To that point, do you need to or can you see a re-broadening out of some of these other sectors

that did end the month in the red? Yeah, you certainly could. I do think that that was part of the story going into the July peak in the market was that it actually had been much broader, especially this month. Things like energy, also health care perking up as well. So you're seeing some signs that it's not just a very narrow slice of the market performing. Now, the reset in yields lower obviously has taken a lot of the pressure off of equities. And you also had oil prices run up to the kind of the top end of the range and come back. So it sort of

tested the market on all those fronts. And then sort of the market buckled a little bit. We had a shakeout. There's a way to tell the story that that's all it was. We had sentiment got a little too excited. Now it's been moderated a little bit for the moment. And maybe that's all we needed. So that's the completely best case benign scenario going ahead from here. But it is subject to the data still looking like a relatively soft landing and things

like yields, commodity prices, the dollar not really racing and breaking out. Brian, there are a number of companies reporting this afternoon that you really want to see growing if you believe in small and mid-cap innovators. MongoDB, for example, is the top percentage holding in the WCLD, which I think closed up better than a percent and a half today when the major averages weren't doing that hot. If you want to believe that this AI story continues to have momentum and legs beyond NVIDIA as well, you know, MongoDB had a story to tell there on their sort of database insurgency with Atlas versus Oracle. What are you particularly watching on that storyline?

What I'm watching in terms of small and mid-cap businesses is, you know, it was a market that was very concentrated and was concerned that some of the banks were challenged and that higher rates were forthcoming and going to slow this economy down meaningfully. It's a different feel now. It's a market where we've seen spreads come in. You've seen smaller cap names do well July and August. And so it's a market that's telling us that growth's actually going to be quite good between now and the end of the year. And so we've opened up this environment again, as we saw in middle of October last year. We've opened up an environment for risk assets to do well. It's a market that we believe will become increasingly enthused as the year progresses about the resiliency of the U.S. economy. And that type of resiliency, albeit, you know, weaker than it once was, but that type of resiliency does favor

more small and mid-cap businesses more than it did certainly in the early spring. Mike, and with the 10-year yield under 4.1%, not saying that there's a direct relationship here, but it does perhaps give a little breathing room for people to believe in those small and mid-caps. For sure. Small and mid-caps, I mean, I would say housing-related. So one thing that's been encouraging over the course of August as things got very choppy was that cyclical sectors did not really buckle relative to defensive ones. It really wasn't a rush for safety.

That indicated things like industrials hanging in there. That often correlates with smaller stocks maybe being able to hold up as well. So all that more or less came together. And consensus earnings estimates continue to nudge higher through this earnings reporting season. So you have that support underneath, even if things get a little bit dicey on the valuation side or if rates cause a little bit more of a, you know, of a gut check. All right. Well, we're starting to get some of these earning results. Lululemon, those earnings are out. Courtney Reagan has the numbers. Hey, Court.

Hi, Morgan. Yes. So Lululemon is reporting a are out. Courtney Reagan has the numbers. Hey, Court. Hi, Morgan. Yes, so Lululemon is reporting a stronger than expected bottom line here, coming in at $2.68 per share. The street was looking for $2.54. Revenue is also stronger than expected at $2.21 billion. The street was looking for $2.17 billion. Same-store sales up 11%. That is actually slightly lower than what the street had expected at up about 12.1 percent. Gross margin coming in 58.8 percent, also slightly

stronger than expected. The third quarter revenue guidance is a range that's above the street's consensus, as is the third quarter earnings. Interesting that inventories for Lululemon actually higher by 14 percent, but kind of makes sense with the sales rate that they're going, albeit much different from what we had seen from other retailers. Revenues in North America up 11 percent, up 52 percent internationally. Store comparable sales grew 7 percent. Direct-to-consumer grew 15 percent and a very strong operating margin of 20 basis points to 21.7 percent. Shares here are down a little after hours, but this has been a very strong performer. So this could be a little bit of a sell on the news and taking some profit opportunity.

Back over to you. All right. Courtney Reagan, thank you. Mike, I want to get your reaction to this because it does seem like overall it's a pretty strong report here. And gross margins we know have been particularly in focus when it comes to the retailers they they are better than expected there the outlook better than expected but we also know that there was a lot baked into this stock coming into this number and this expectation that they really did have to blow it out of the park for it to move higher yeah it would seem although i wouldn't be surprised if the stock actually finds its way maybe through

the call just because uh the revenue guide seems like it's pretty healthy, as well as the full year earnings outlook. So I don't know if there's anything in what we see right here that would be of great concern, unless there were whispers of something a little bit better. As I mentioned, the stock has been sort of trapped under this $400 level. So see if this changes that picture. All right. Dell earnings are out. Our Steve Kovach has those numbers. Steve? Yeah, there sure are. And it's a beat on the top and bottom lines here,

John, for Dell. EPS coming in at $1.74 per share. Street was looking for $1.14 per share. That's excluding certain items and adjusted. And revenue is also a pretty solid beat here, $22.93 billion. Street was looking for $20.85 billion. No guidance, though, but we're seeing shares here up better than 5.5%, John. Wow. Okay. Steve Kovach, thank you. Brian, what do you take away from those results? I mean, this is a company that once had VMware. Broadcom's about to get it. I mean, very much a part of the nuts and bolts of the IT ecosystem. Yeah, absolutely. And you take away that the sector is still healthy and you're still going to see the opportunity to grow in these types of environments and, you know, a more moderation and economic activity.

I was also very enthused by what we heard from Lululemon. I mean, Lululemon showed that the consumer is still relatively resilient. But, you know, this inventory concern that people had a year ago, worries about supply chain challenges, worries about whether businesses were going to be able to stock the shelves, you start to increasingly see that that has become passe. So, you know, all in all, whether it's, you know, businesses spending on tech upgrades, whether it's the consumer that's been generally resilient, the inventory concerns fading, all of that creates a better backdrop for risk assets than I think a lot of people expected at this point in the cycle. Very consistent with moderation and growth, which is what you would want here,

and an easing of inflationary pressures, which, quite frankly, allows the Fed to back off the tightening stance, which we know typically creates a nice environment for risk assets over the next couple of years. Yeah, Mike, I mean, Lululemon has just turned positive. It's now up 1%. Dell is just shooting higher. It's 9, 10% right now in after hours trade. It kind of speaks to Dell. I mean, the strong results and the strong stock reactions we've gotten from tech companies all week now. It has been a little bit of an emerging trend for sure. I mean, Dell, of course, is one of those older companies, trades very cheap, wasn't really priced as a big grower. And I noticed in their earnings press release,

all they're doing is lots of bullet points highlighting partnerships with NVIDIA and the fact that they are a significant participant in this new AI build-out. So you can see why people reach for it. Mike, I've got to mention Nutanix earnings are out. Smaller player, but very much in the hybrid and cloud ecosystem dealing in data. That stock is moving higher by about 9% after hours because it's a beat across the board. Revenues came in at

$494 million versus $475 million expected. Nine gap earnings per share at $0.24 versus $0.16 expected. And the guide also stronger than expected. The street was looking in their fiscal Q1 for $484.2 million. They report $500 million to expect at the midpoint range of $495 to $505. Also, the fiscal year, full fiscal year revenue guide, the midpoint, $2.1 billion. That's above expectations, a range 2.085 to 2.115. And the EPS guide also pretty strongly also announced a share repurchase authorization up to $350 million worth of stock. Again, that added higher now better than 10 percent in the after hours. And we're going to have the CEO before the call in just a few minutes here on overtime rajiv ramaswamy the ceo of nutanix yeah uh mike i'm going to go back to you here because again it's another big move and another tech name uh and again it speaks to

everything we've been talking about here uh for the last 12 minutes including uh software cloud ai and and this secular growth story and who potentially is benefiting from all of it. Yeah. And I think it's, you know, it doesn't take much to kind of re-stimulate those muscles. People love to grab for these stories. We have the VIX down to 14. The NASDAQ is, again, started to lead this bounce. So I don't want to extrapolate necessarily this into the macro or into whether, in fact, we're in another one of these boom phases for tech. But clearly we were ready for something like this. And the shakeout in August probably helped set the stage for it.

OK, we're going to hit three more movers right now. MongoDB, VMware, PagerDuty. All of those earnings are out. Steve Kovac has all of the numbers. I'm back. Let's do a triple whammy here. Let's start with MongoDB, VMware, PagerDuty, all of those earnings are out. Steve Kovach has all of the numbers. I'm back. Let's do a triple whammy here. Let's start with MongoDB. Just a huge beat here.

EPS crushing expectations, almost double, more than double expectations. 93 cents a share versus the 46 cents adjusted the street was looking for. Revenue also a solid beat there. $424 million versus the $393.4 million Street was looking for. Guidance also incredibly strong as we see shares go up about 9% here, Morgan. 47 to 50 cents for the current quarter on EPS. Street was looking for just 27 cents there. And revenues also beating expectations for the third quarter outlook, $400 to $404 million. Street was looking for $389 million.

Let's move over to VMware. There's a beat here on the bottom line. EPS was $1.83 versus the $1.71 adjusted Street was looking for. Revenue, $3.41 billion. Just a small miss here, rather. $3.46 billion was what the Street was looking for there. And then finally, rather. $3.46 billion was what the street was looking for there. And then finally, pager duty beat here on EPS,

$0.20 versus $0.10 adjusted. That was expected. And revenue, a slight beat, $108 million versus the $104.2 million. And Q3 outlook a little bit better than expected here. Pager duty, though, we're seeing shares fall almost 7%, Morgan. All right. Interesting. I also want to note VMware, a big competitor of Nutanix. So it's going to be interesting to measure those against each other. HashiCorp earnings out also. The company beating on both lines, reporting a loss of 10 cents per share. X items versus estimates of a 15 cent loss.

Revenue coming in at $143 million, which was $5 million above expectations. HashiCorp also giving a strong full year revenue outlook. Above the $567.6 million expected, got into a range of $571 to $575. And we will be speaking exclusively with HashiCorp CEO Dave McJanet. We'll bring you those comments tomorrow here on Overtime. This is a big day for what we call DevOps, software tools for developers to work in the cloud. They need those for AI. And a lot of these names, again, I'll mention MongoDB, David Aceria Shop over there, strong results, up better than 8.5% after hours at least initially. That's important for this AI story to show that there's more than just Nutanix here. Do we still have Mike Santoli with us sitting around to talk about this? Yeah, Mike, your take.

I mean, DevOps has been trying to introduce people to this concept for a while now. And there's been some, you know, it's hard to know what kind of valuation to put on growth names like this with the economy as it is. But these are some notable results. I think it's hard to know what kind of valuation to put on those types of growth names, regardless of what's going on in the economy, because it is seem as if, you know, the races, you know, there's a lot of lead changes along the way. So I'll defer to you in terms of the guts of exactly what the competitive positions are. But I do think that a healthy thing is diversity of reactions to individual companies based on what they're reporting and what their outlooks are, as opposed to big macro moves,

everybody watching the 10-year yield for every tick. All right, Broadcom earnings are out in the meantime. Christina Partsenevelis has those numbers. Christina. We are seeing some strength, top and bottom line. EPS adjusted $10.54, so $10.54. That's stronger than what the street was anticipating on revenues of $8.8 billion. Pretty much beat across the board.

Same thing for Q4 revenue guidance. That was, I would call that in line at $9.27 billion, which is what the street was anticipating. And a lot of that has to do with hyperscaler customers and AI clusters within their data centers. So right now, I'll continue to go through the report to figure out why the stock, though, is down over 2.5%. John? I'll take it. Christina Parts and Avalos, thanks. Mike, I'm going to go back to you for reaction on this. I know you're talking about it in the last hour, but we saw that blowout report from NVIDIA last week. Stock couldn't hang on to the gains. There was a lot of expectation coming

into this report as well, but also a lot of speculation on whether it would be enough in this current broader market environment for the stock to actually move higher. Yes, and I do think it's important to point out that basically it's essentially giving back less than it gained during the regular session today. Yeah. So, you know, you had a setup where you've had people, you know, posture for something pretty good here. We'll see how it plays out. I don't think there's anything in the results that was a specific thing people were reacting negatively to. But we'll see how it goes. I do think it's been a pretty rapid revaluation of this company over the last, you

know, eight to 10 months. Call it. You see there it now trades at a premium to the S&P. That's when a lot of the, you know, a lot of the AI excitement started. It used to be at a chronic discount. And so maybe some digestion here, but wouldn't be surprised if it firms up even through the call. All right. Mike Santoli, Brian, thank you both. And we've got a lot more after hours action coming your way. Up next, we're going to break down results from three hundred eighty billion dollar chip giant Broadcom, which is already up more than 60 percent this year. And later, we will speak with the CEO of buy now, pay later firm Klarna about whether he's seeing any signs of a shift in consumer spending.

Overtime is back in two. Welcome back to Overtime. Broadcom shares falling right now despite beating estimates on revenue and earnings for the third quarter. Joining us now, Susquehanna senior analyst Chris Rolland. Chris, the semiconductor solution segment came in at $6.94 billion versus expectations of slightly higher than that. Does that sort of account for this? Do we need to hear more about whether networking is growing for them as expected? Yeah, that was right on the nose. And we have yet to see the breakout of semiconductor segments. There was a comment about hyperscale customers scaling out and networking their AI clusters within data centers.

So I think the AI opportunity is progressing, progressing nicely here. But we struggled in our preview about the other parts of Broadcom's businesses, the core parts of their business that are in the same semiconductor down cycle that we're seeing for the rest. So I think that's what we're going to hear more about over the next hour or so. So then what's more likely to move the stock,

particularly in the near term? Is it going to be the core business and the commentary and the color around that, or is it going to be the promise of AI? I think it's the promise of AI. And there are really two parts to this story. So first of all, there's the NVIDIA part where everything comes out of the NVIDIA server into the data center. And the second part is Google TPU or custom silicon that they're doing for hyperscalers and NVIDIA alternatives. And Broadcom really owns both of those markets. All right. Trying to help investors understand the difference between a company that has an AI play and a company that is an AI play. We're going to keep watching this one. Chris, thank you. You got it. Up next. That was very clever the way you put that. I appreciate that. The CEO of cloud computing company Nutanix, which is up considerably in overtime,

is going to join us to break down his quarter before he talks with analysts on the earnings call. And take a look at some of the names that hit 52-week highs on this final day of August. Alphabet, Adobe, Cisco, Western Digital, and Intuit, all trading at levels not seen in at least a year. Speaks to the rebound we've seen in tech. We'll be right back. Welcome back. Hybrid and multi-cloud software player Nutanix reporting Q4 numbers just moments ago. You can see the reaction in the stock there, a better than 12%. Joining us now, Rajiv Ramaswamy, Nutanix president and CEO. Rajiv, thanks for joining us before the call. Got to ask you, so Salesforce saw strength from MuleSoft, cloud migration, getting data positioned for AI use when it reported last night. What accounts for your beats across the board here

and strong guide? How much of it has to do with that data migration? Yeah, we've always been a company that manages app and data everywhere. What we're seeing now, of course, is companies are having this everywhere. Apps run in multiple clouds. They run in the data centers. And we're squarely positioned to help them manage those apps, run

their data everywhere. That's really what's helping us overall. And we're happy about ourselves. You know, 27% annual ACB Billings growth generated 10 times as much free cash flow this year compared to last year. And lots of other exciting news also from us. New partnership with Cisco, some new AI announcements with our GPT in a box. And we also announced a $350 million stock buyback. Yeah, I mentioned that earlier. I want to ask you about the sales cycles. You said they were elongating a quarter ago. Are those

stabilizing and is the move among the hyperscalers and others to paying for accelerators instead of traditional computing so much? Is that helping you or hurting you? Yeah, I think the, first of all, I think the hyperscaler piece, I think, is actually we're at a good place. We partner with these hyperscalers, and we also are able to, you know, we're on their marketplaces, and we're helping customers migrate to the cloud quickly and make use of the public cloud in a much easier way. And that's why we have partnerships going on with AWS

and Azure. Could you repeat the first part of the question, please, John? I don't remember the first part of the question, but tell me about what you're seeing on the sales cycles specifically, just kind of comparing those last quarter to this quarter and how the confidence is going from a macro perspective. So it's about the same as last quarter. Our macro piece is still a bit uncertain, but our sales cycle last quarter, we said, is modestly elongated. People are taking a little bit more time doing a good TCO analysis, which, by the way, plays in our favor because we generate strong TCO. But the inspection, deal inspection takes a bit longer. And it's remained about the same this quarter as last quarter. So, no real change on that front. Rajiv, it's Morgan. You mentioned a number of partnerships, including this new one that you just unveiled earlier this week with Cisco. Talked about the fact that it's going to be an expanded market opportunity for both organizations. Walk me through what that

opportunity potentially looks like. Yes. First of all, what it is, is Cisco is selling a combined portfolio, taking our Nutanix cloud software, combining it with their unified compute, as well as their networking and security, and selling a combined offering in the marketplace. It's great for customers because they get to buy a fully engineered, pre-worked, complete solution for their hybrid cloud and data center. It's great for Cisco because they're now partnering with the market leader in hybrid multi-cloud and hyper-converged.

And great for us because it gives us an expanded market reach with Cisco's go-to-market engine. Rajiv, I got to ask about service provider, especially as I compare you guys and VMware, two competitors both reporting after hours. That's a channel where there's some potential for you guys. How did you see that develop during the quarter, and what do you expect from here? Yeah, in fact, we're actually seeing, we are much earlier in the service provider game compared to some of our other competitors. So for me, that represents a huge opportunity. So we're growing our service provider route to market significantly. We've gotten some good deals even this last quarter with respect to our service providers coming on board.

I see that as a big opportunity. I also see that, again, as something that the Cisco partnership could also help elevate. All right. With that stock up about 12 percent, we'll let you get ready for the earnings call. Rajiv Ramaswamy, CEO of Nutanix, thanks for joining us on Overtime. Thank you, Don. When we return, the data that matters the most to the Fed. Mike Santoli returns with a breakdown of today's inflation read and a preview of what to expect from tomorrow's jobs report. With less than three weeks to go until the Fed's next rate decision.

And as we head to break, take a look at the biggest winners in the S&P 500 in August. Arista Networks, Eli Lilly and Global Payments all locking in sizable gains. Overtime, we'll be right back. It is time for a CNBC News update with Contessa Brewer. Contessa? John, President Biden will visit Florida Saturday to assess damage caused by Hurricane Adalia. In remarks made at the FEMA headquarters, the president called on Congress to pass more funding for the Federal Disaster Relief Fund to help with the hurricane response. The president said he spoke with Florida Governor Ron DeSantis this morning after officially approving a major disaster declaration for that state. Mitch McConnell was medically cleared to return to work after appearing to freeze for a second time at a public event yesterday. The U.S. Capitol doctor said he

consulted with McConnell and his neurology team, and the 81-year-old is medically cleared to continue his schedule. It's the first time McConnell's team has acknowledged the spells he's been having could be lingering effects from a fall and a concussion in March. Thousands of purple flags were planted in Boston today to honor the International Overdose Awareness Day. The 22,000 flags represent the lives lost in the state since 2011. The Centers for Disease Control estimate more than a million Americans have died from a drug overdose in the last two decades. What a harsh reminder. Guys, I'll send it back to you. It's heartbreaking. And you know what? It needs to be discussed. It needs to be

discussed a lot more. Absolutely. Fantastic, Brewer. Thank you. Some key economic data hitting the tape today ahead of tomorrow's jobs report. Initial jobless claims came in below estimates, falling for the third straight week. And the personal consumption expenditures index posted its smallest monthly increase since December, rising 0.2 percent in July. So let's bring in Mike Santoli for his take on all of this data. Mike. Yeah, Morgan, the trends remain relatively reassuring. Take a look at the PCE core inflation number. This is a three month average of the annual inflation rate.

So it's kind of a moving quarterly snapshot of the annual change in core PCE inflation. You see, it's basically roundtrip since the early part of 2021. It's just under three percent right now. Clearly, the Fed wants to see it get much lower than that. This, of course, is core. The actual inflation target is overall PCE inflation. And there were some elements of this report that maybe caught some people's eye. Some elements of non-housing services ticked higher. But a lot of it was these imputed prices based on financial services and, you know, financial services advice, which is just based on what the stock market does. So, so far, so good is the way I would call this. Now, weekly jobless claims, they are up off near record lows

or like 60-year lows in the last several months, but they curled lower just at the very end of that chart. It's very hard to see, but they did actually back down a little bit in the latest week. Still up off those lows, as I mentioned. Of course, the whole chart broke during the pandemic when we had mass layoffs throughout the entire economy. The thing to watch is you have seen these curls higher in the unemployment claims leading by various amounts of time recessions in the past, although I am focused on a couple of things such as that in 2018, where you had an uptick and then

a further retreat. In other words, it was a bit of a false signal. So I think it's a so far so good. But sometimes weekly claims don't give you a whole lot of forward notice that, in fact, the economy, the job market is buckling. We'll see what those numbers say tomorrow. Everyone is going to be good, I think, with a cool but not cold employment gain number, payroll number. And then, of course, the wage tracker is going to be key in there, too. Yeah. I mean, there's a lot to parse here. What's interesting to me, particularly with the claims, is that those have been getting watched with this yellow bankruptcy in mind, too, because that was going to result and has resulted in tens of thousands of layoffs and yet not necessarily showing up in the data. So not quite sure what to make of that. It is a little bit tough to read. Yes, we are braced for something like that. A lot of those claims to hit. There also

have been some issues, I think, in various states where people aren't quite sure if we should take the numbers at fair value. Now, this is a four week average. So I do think that smooths out some of those effects. But, you know, I would point out there have been these times. I think that might be Hurricane Katrina. So sometimes you get these one-off events that are going to look like a change of trend that don't end up being. Interesting. Mike Santoli, thank you. All right. Up next, a deep dive into how Americans are really spending their money right now and the retailers poised to cash in on those consumer trends when overtime returns. Welcome back to Overtime. Retail stocks have been all over the map recently as many questions remain about the state of the consumer. So we asked Courtney Reagan,

who else, to break down exactly how and where consumers are spending their money, really how that's been reflected in the results we've seen from retailers. Courtney? Yeah, John, this was actually a little harder to do than you might think. So even when we laid out retailers by subsector, it leaves still a lot of nuance when it comes to summarizing how the consumer and then retail is doing. So we tried to pick out retailers selling a variety of goods and prices spanning needs and wants. So those in red here, as you can see, they put up more or less disappointing quarters and forecasts. Yellow kind of mixed.

And then green were overall stronger performance. Now, the bottom left, this skews, of course, we've got lower prices, but also typically more of that need category, a staple. So you've got grocery and consumable goods more over here. Upper left, that's some needs, but also usually higher price, like a dishwasher, right? If it breaks, you need to buy it, but that's higher price than milk or pet food, computers, for instance, at Best Buy. And then lower right, this is skewing more towards wants,

like apparel and footwear, typically lower price points here than the wants in this upper right quadrant. So right now, consumers have money to spend, at least when they think it's valuable to them. So Gap Brands apparel really wasn't desirable to consumers, even when it was on sale. Abercrombie, however, really was, even at full price. Higher and discretionary retailers like Tapestry, for instance, or Estee Lauder, they're showing some emerging cracks among higher income consumers. And they've got multiple brands that span multiple geographies.

And again, category kind of mixed. Walmart is attracting shoppers that are sensitive to inflation in its grocery business. So you can see that over here on the lower left. They're also attracting some higher income consumers. So they're picking up some more in their discretionary categories, though that area is still down year over year, but not pressured as much as rival Target has seen for discretionary goods. Now, Home Depot and Best Buy here up in the upper left quadrant, those are examples of pretty good execution, even amid softer sales after really strong sales spikes that we saw during the pandemic. So in some cases, you've got deferred spending on big ticket items due to the macro environment, or frankly, just waiting until replacements are really needed to make those purchases again.

Court, so it seems to show, what you illustrated there, that the luxury consumer at the higher end maybe is doing a bit better. The retailers that appeal to luxury and needs are doing a little bit better than wants. Yes, although I think that there's some obvious cracks in the higher income consumers too. And I think they're also being fairly discerning. I think the international picture is a little muddy as well. I think for some brands, China has been fairly good and for others it hasn't. And I'm going to call it Abercrombie again there. I mean, Abercrombie sells items that are largely very discretionary, but they've had a really good business in China and in the United States, where others like Estee Lauder are really struggling,

actually, in China right now. So I think it's really important. And you said this at the top, but I just want to revisit it. The fact that this color-coded, amazing wall and all the context you've shared with us is about the fundamentals and the read-through to the consumer specifically. It's not about how the stocks have responded. Yes, and that is a really good point. I'm not sure that I made that clear because, for instance, Walmart really had a very good quarter if you looked across the board at their performance,

but their stock price fell in immediate response. And look, I'm not a stock trader. Perhaps that was some taking on profits. Obviously, expectations were really high going into the print. But that's why we wanted to really take a careful look at this, because if you just did a stock screen, I think you'd actually see a very different colored picture than what we put up here on the wall. I'm working with my kids right now. They're on that Investopedia virtual stock trading platform to understand expectations. I'm trying to get them to understand how the market works, right? But just virtually.

So, you know, expectations, just because a company reports strong results doesn't mean the stock's going to go up because maybe people expected them to do that. So especially in this environment, investors have to take that into account. Absolutely. And then even on the flip side, I mean, Target's report, frankly, on a fundamental basis was pretty bad. But their stock went up because expectations were so low and they were able to execute fairly well when it came to sort of different cost-cutting measures, sort of corporate scenarios that helped squeeze out a little bit more profit.

But the sale's really disappointing and so was the forecast. So, again, if you looked at the two stock performances of Walmart versus Target, an immediate reaction to their earnings, it was actually the opposite color of what we put up here on the wall. China, has that net has that been a net positive for retailers this quarter? I mean, I just think about Lululemon, who reported just earlier this hour. Yeah, I would say in general, no, it's probably been more bad than good. Vast generalization, though, because I pointed out that actually it was pretty good for Abercrombie. Obviously, Nike is struggling in China, and that is a big growth area.

So, again, it's so hard to paint everybody with a broad brush. I've got, like, a lot of different color-coded graphs here trying to help me figure it out and trying to pick some of them that best represented these areas. It was a harder exercise than I thought it was going to be. It's a great illustration. Nobody else could have done it. We appreciate it. It was great, guys. Courtney Reagan, thank you. Well, up next, we will have much more on the state of the consumer and the lending market when we are joined by the CEO of Buy Now, Pay Later company, Klarna. Stay with us. Welcome back.

At a time when the pharma industry and Medicare pricing are in focus, just this week, one company is looking to make drug development more than global. For years, the International Space Station has been used for biomedical experiments, but such research had never been done in a fully commercial capacity. That changed on June 30th when Varda Space successfully completed a 27-hour experiment in orbit in its own mini lab, growing crystals of HIV treatment ritonavir. This is something where we can build this company into sort of billions of dollars a year of revenue. I like to sometimes give the example of there are certain compounds where even with our, call it conservative 2%, 3% 2%, 3%, you know, take that, you know, we could fly on the order of like 10 to 12 missions a year

and, you know, do more revenue than basically all the, you know, 1200 satellites, you know, in Starlink combined. And so it's this, you know, sort of surprising world where drugs are really just the like highest margin, you know, physical product and highest revenue physical product by unit mass. Well, as access to space has become more commoditized and more affordable, it's enabled startups like Varda to target in-space manufacturing. Now, for drug makers, microgravity can unleash new formulations. Case in point, Merck's blockbuster treatment Keytruda, which has spent some time on the ISS. Varda's spacecraft, though, this was its first test, first spacecraft. It's still on orbit. It needs to attempt to land still.

It's waiting for the green light as the first company seeking a reentry license under new FAA regulations. But the full interview, which is about 30 minutes, with two of the co-founders of Varda Space, Will Brewey, a former SpaceX engineer and Founders Fund partner, Delian Asparov, can be found on this week's Manifest Space, which is out wherever you get your podcasts. I see a great movie plot there where like this drug that's need to say that humanity is is in space and it's on its way back. But there's a problem. Very interesting. Manifest Space. Well, we talk about supply chain, right? Global supply chain, like maybe bringing it off the globe as one step. Manifest Space. Up next, all the afterours earnings movers that need to be on your radar

as the calls with analysts get set to kick off. We'll be right back. Welcome back to Overtime. August going out with some heat as a batch of companies reported results. Broadcom beating across the board, though Q4 revenue guidance was just in line with the street. It's lower. MongoDB with a huge beat. EPS came in more than twice what Wall Street expected, and third quarter guidance was very strong. It and Dell are a lot higher. Dell turning in a big beat on EPS, also topping revenue estimates. And PagerDuty doubling EPS

estimates at 20 cents per share, but that stock has turned sharply lower. Now, don't miss an exclusive interview with PagerDuty's CEO. That's tomorrow at 1 p.m. on The Exchange. All right. We'll be tuning into that. Buy now, pay later from Klarna. Meantime, recorded one month of profit in its second quarter, but still missed out on profit for the first half of the year. Despite macro concerns, the company posted its third consecutive quarter of gross profit in the U.S. Joining us now is Klarna CEO Sebastian Semyatkovsky. Sebastian, great to have you on the show,

back on the show. You didn't mince words in this release. You said today's results clearly rebut the misconceptions about Klarna's business model. You also said some claimed Klarna would face difficulties in the tough macroeconomic climate with high interest rates, but basically that you've had a strong and resilient business model. I guess walk me through what you see as the misconceptions and let's put it to rest. Well, I hope, you know, at least nothing else like last May, last year we posted, you know, a negative EBITDA of $120 million. And this 12 months later, we did the slight positive. And the main, main reason for that is that we have a very different type of credit product than the one that the credit card companies and banks offer.

So when consumers use our credit product, they have zero interest or very low interest. They pay in installments. We underwrite on a real-time level every transaction. We don't use all the income data from two years ago. And we don't encourage people to accumulate too much debt, which is why the average outstanding balance is just $100 compared to $5,600 on a credit card, right? So what that means is when macroeconomical changes come, as they have, when we change our underwriting model,

it takes us two months so that 50% of the balance sheet is underwritten according to the new standards, which takes, banks may take over three years. And so it gives us a very agile and robust business model and allows us to adjust to new conditions. And I'm, you know, really happy to see the results. Like you offer healthier credit, you get healthier outcomes. And that's what we're seeing. Okay. So just looking at the U.S. specifically right now, at a time where American consumers have now taken on a record amount of credit card debt, it's now topped more than a trillion dollars. And there's this controversy or at least debate swirling within the analyst community about what student loan repayments starting back up is going to do to the space and to consumer spending behaviors. Your take on all of that and whether specifically student loan repayment is going to be a headwind or not.

Well, I think, again, like it's obviously it depends so much on the different consumer groups. I think it was very interesting that McKinsey did a research where they identified in the U.S. market, there's about 20 percent what they call self-aware avoiders. you to show your credit limits to make you overspend or put all of your transactions on credit rather than offering you debit or credit at every transaction to make a healthy decision. So I think that what you're seeing is that those self-aware avoiders are much more mindful in how they're spending money. And in general, I was speaking the other day to Ryan, the new CEO of Visa, and so far because employment levels have held quite well, you know, loss levels are still not severely impacted or haven't seen significant shift in

credit card portfolios in the U.S. either. So as long as employment stays healthy, I'm not expecting direct change. And also some of this is obviously some of these numbers look a little bit odd because we have to remember during COVID, people really cut their spending and used a lot of the checks that were flying from government in the U.S. to pay down debt. And so now you're kind of seeing slightly a rebound of that. I think some of it is just we're comparing apples and bananas slightly. But in general, we have to be mindful and have a close and continue to follow it closely. Sebastian, your rivals over there at Affirm already public, their stock's up 50% for the week, which isn't a bad comp for you.

And I think they actually saw delinquencies, bad paybacks going down, something, quite a few basis points. What are you seeing in your customer base? Is the algorithm working? Is it doing what you expected? Are people paying as expected? Yeah, I think, you know, the competitor you mentioned, there's similarities and some large differences. I think more subprime, more kind of high ticket items, more low frequency, everyday purchase spending, and more kind of the self-aware avoiders. So just kind of slightly different populations. But with that said, I do think that on the similarity side is definitely this what I talked about, which is the agility of the models

and the ability to underwrite on a real-time basis. We have to remember that a credit card today works so that you apply for it, you have a credit check at the time of application, and then actually that's kind of it. Most of the data then is quite ancient, and it's just not as good of a model comparing to underwriting in real time. And that makes a huge difference because, again, it gives you the agility when macroeconomical fundamentals change like they have. Interesting. Interesting point. Some people thought that buy now, pay later was risk riskier might turn out to be quite different. Sebastian C. Mikowski, CEO of Klarna. Thank you. Thank you for having me.

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You can go to CNBC.com slash OTOH as well. Morgan, quite a week packed with earnings. We're going to have the jobs number tomorrow. It's huge for now. That's going to do it for overtime. Fast money begins right now.