Closing Bell - Closing Bell: Stocks fade into the close, Spotify CFO on results, Hawaiian Airlines chief talks travel 4/27/22

Episode Date: April 27, 2022

Stocks closed well off their highs in a choppy day of trading, with results from Visa and Microsoft boosting the Dow, while Boeing and Alphabet dragged. Victor Jones from Tastytrade and Megan Horneman from Verdence discuss the read-through from tech earnings for the rest of the mega-cap names. Hawaiian Airlines CEO Peter Ingram joins to talk about his quarterly earnings and his deal for in-flight WiFi with SpaceX, as that stock takes a dive. And the CFO of Spotify breaks down subscriber and ad trends as the streaming platform makes a move lower.

Stocks are trading in a wide range today. We're off the highs but holding on to gains as we head into the close. Most important hour of trading starts right now. Welcome everyone to Closing Bell. I'm Sarah Eisen. Here's where we stand right now in the market. Dow's up about 200 points. We got as high as up 457, but we also dipped negative at one point in the session. So it's really been all over the place. Looks like the gains are holding here. The S&P 500 up half a percent. We're still down about 2% for the week, at least on the Nasdaq, which has been really the eye of the storm lately on earnings and on selling. It's up today up a third of 1%, but there is weakness there on some of the names, including Alphabet and Meta,

which reports later. Chart of the day, though, goes to Boeing, falling hard after posting a much wider than expected quarterly loss. It is by far the worst performer in the Dow, down 9%. Coming up on today's show, the latest read on the travel industry. Hawaiian Airlines stock is tanking today on the back of earnings. We'll talk to the CEO in a first on CNBC interview. Also, check out shares of Spotify. They are sinking as well. Following results before the bell, down 12%.

The CFO joins us with the latest read on subscribers, advertising, demand, and more. That guidance, disappointing the street. Let's get straight to the market, though, in today's Action in Technology. Alphabet, the latest mega cap to disappoint the street, and it comes after Netflix shed a third of its value on the back of the shocking subscriber numbers. It's also down 4% today. So what is the read-through for the rest of tech, including meta after the bell, Amazon and Apple tomorrow? Joining us is Victor Jones from Tasty Trade and Megan Horniman from Verdans Capital Advisors. Good afternoon to both of you.

Victor, Meta not taking it well. Down another 4% and now down almost 50% for the year. How do you trade that setup at earnings today? Well, the market is still implying a rather big expected move here at something like 13 percent PayPal, another one with around a 10 percent implied move. You know, we're having conversations with our customers on a day to day basis. And one of the things that shocked me the most, Sarah, is how often, you know, series I bonds are coming up, how quickly we went from talking about buying the dip in long duration securities to capital preservation, protecting your capital against

inflation or protecting your capital against capital depreciation. And there's been a lot of talk about what's priced into this market and what is not priced into this market. And I think a week ago, that was sort of a hard pill to swallow, that the market had priced in all bad news. You're looking at these FANG stocks trading at or near all-time highs. In the last five days alone, Facebook, Amazon, Netflix, Google, and video, these things are down more than double digits in the last five days. I think the good news is the biggest risk for this market was concentration

risk. And as you get through this week into next week, the idea that people are starting to swallow the lower demand pill, they're starting to realize that even if you pay up, pay a premium for more predictable cash flows and gigantic stock buybacks, these stocks with their monopolies, or I should say their moats, are not impervious to a breakdown in demand for the individual consumer. I think this is a positive thing. The bond market has, by all intents and purposes, effectively digested what the Fed has been telling them. And if you listen to Bill Dudley at the beginning of this month, he said, look, if the stocks don't move lower, we're going to have to help them. And I think the idea that we are getting a repricing is good. But don't get me wrong. Obviously, it's painful to go through as an individual investor. Megan, can you make a case at this point yet to buy tech,

especially the mega caps? Alphabet earnings. OK, they were disappointed. I know you can't talk specific stocks, but just for flavor, Alphabet numbers were disappointing on sales. They're exposed to Europe. It was a YouTube issue, still growing double digits. FX is also a problem with the dollar strengthening. But the Nasdaq is down 20 percent this year. So would you buy it? Not yet. I still think there's quite a bit of volatility that we're going to see throughout this year as we navigate through the Fed removing that ultra accommodated monetary policy. Remember, this is a decades old theme that has really supported these stocks. It's supported heightened valuations. It's also supported speculation. I think those days are over. So I think there still is room for these stocks to

reprice that valuation. I would be cautious right now from a seasonality perspective. Also, remember that the S&P 500 as a whole in May and June can be some quite volatile months. There's other areas of the market, though, that I think are overpricing some of the pessimism on economic growth that we would focus on. Like what? Like the small and mid-cap area of the market. If you look at those valuations, if you look at how much they've declined, small-cap growth down almost 30 percent from its high. Small cap value. These areas of the market have priced in, I think, a lot of this negative news. And if you can withstand the volatility as we kind of figure out where we stand from economic growth standpoint, these can look good from a long term perspective. Small caps have been hit harder than the rest.

They're underperforming again today. Victor, what do you think? Down 23% from the highs on small caps, even worse than the NASDAQ. And that is with a domestic economy that is faring better than the rest of the world and also where stocks are ultimately doing better than even bonds. Yeah, it's true. I think that Tina argument becomes more and more difficult to hold on to, especially in the face of repricing FANG stocks. I do think small caps are probably a tale of two stories. You have still, in many cases, in small caps in Russell 2000, cases of ridiculous or, I should say, higher valuations than historical measures. And then in some cases, I would agree with your guest here that you do have some attractive valuations. I think the problem

here, in my personal opinion, is as you look out to what the bond market is pricing, they're pricing five-year, five-year inflation expectations somewhere at 2.4%, let's call it 2.4%, which is down from 2.65% somewhere we were just a couple of weeks ago. The risk here maybe isn't that we're at peak inflation. The risk from here on out is what is sticky and what is durable. And I think as we get closer to the end of the year, the Fed has told everybody that our long-term or long-run expectations of Fed funds rate to somewhere around 2.4%. And the risk here is that the durable part of inflation, we're not going to

get down to their levels of, I think it was something like you know 2.6 or 3 by the end of this year you know that becomes a lower probability the closer we move to the end of the year and the market continues to have to reprice and i think you know regardless if you're going to find value here my point to the individual retail investor is you can use volatility as an asset class you know money managers, they have to be fully invested at all times. They're going to look at things like utilities and staples and energy, but individual retail investors don't have to take unlimited downside risk. You can use elevated volatility for your advantage. And as volatility cools down here, which inevitably we will, moving forward with buying some put protection, selling some calls reducing your basis these are strategic ways to navigate

a marketplace that's completely uncertain the vix is telling you that there's literally two times more uncertainty priced into this market than the long-term average and i think as an individual investor you don't have to sit there and take unlimited downside risk you can utilize options for risk management which is the opposite of how people have been talking about retail investors using options for just upside speculation. And I think we're seeing that encouragingly at Tasty Works. Victor, Megan, thank you both for joining us with some advice there. As we see the S&P 500 up about half a percent, three sectors have gone red, communication services, utilities, and real estate. Coming up, travel stocks largely rebounding today, but

Hawaiian Airlines is the exception, falling sharply on earnings. We'll talk to the CEO about the quarter and that new deal with Elon Musk's SpaceX for internet. You're watching Closing Bell on CNBC. We are watching shares of Carvana trading lower after being halted twice in the last hour. Down about 4%. Dow Jones reporting Apollo Global Management, the PE firm, about $1.6 billion of bonds being sold by Carvana. That's roughly half of what the company had put up for sale to fund its purchase of another used car auction network.

Shares are already down around 70% this year. This was an industry that was on fire coming out of the pandemic. Used cars, prices rose, and it's basically hit a growth wall. And the stock has plummeted. And this shows you with an interest rate, according to that report, of 10 and a quarter percent, that it is tough sledding out there right now for names like Carvana. Meantime, take a look at shares of Hawaiian Airlines falling hard today after reporting first quarter earnings yesterday despite beating revenue estimates. The company, though, and here's what hits investors, suspending guidance for the full year, citing ongoing travel restrictions and international markets like Japan. Here now for our first on CNBC interview is Hawaiian Holdings CEO

Peter Ingram. So, Peter, Wall Street doesn't like that, taking away the outlook for the year. What made you go there? Why is it so uncertain? Hi, Sarah. It's great to be with you. We've had guidance for the full year for capacity and for cost for ASM, which is obviously capacity is a big determinant of that because it's the denominator of the calculation. Because of the uncertainty of the timing of when we can resume a fuller schedule to Japan, we made a decision to suspend that guidance. But we've got guidance out there for the second quarter. We've got revenue guidance. And there's a lot to be encouraged about in our story right now as we're seeing really strong demand in the markets that are fully open. What do we know

about Japan, which is obviously so critical to your business? When those restrictions might ease and what demand might look like now that their currency has also fallen to a 20-year low? Well, we've seen a gradual relaxing of some of the restrictions in Japan, an increase in the caps, the limitations that are in place in terms of the number of arrivals per day. It's not nearly enough to satisfy the underlying demand right now. And so we're going to have to wait on the timing of that. We think it is probably going to be at least another month or two before we see meaningful change in that. But, of course, it's up to the government of Japan to make those changes. But we do feel that there is going to be a really strong resurgence.

You can see it in the desire for Japanese to travel domestically, where they're open to traveling now. You can see it internationally for us in terms of demand to Hawaii from places like Australia and South Korea that have opened in the last couple of quarters. Japan's got a tremendous historical affinity for travel to Hawaii that has really sustained a lot of ups and downs over decades. And I have every confidence that it is going to come back very strong when people are free to travel a little more openly. So talk to us a little bit about this deal that you made with SpaceX. It's interesting because it's the first of its kind.

So you are using his satellites for free internet on the planes. How does it work? And do you expect your competitors to follow through with this sort of deal as well? This is something we're really excited about. We've waited for a long time to put connectivity on our airplanes because, frankly, the current generation and prior generations of satellite connectivity for aircraft haven't really worked very well over the Pacific. And the low Earth orbit satellites that Starlink uses, that SpaceX is putting up by the thousands, are really a game changer in terms of the technology, in terms of being able to support streaming on the aircraft from everyone on the aircraft using the device.

We know our guests are going to be delighted and we can't wait to get to doing these installations over the next year or so. We expect to start installing the satellite antennas on our airplanes starting in 2023, and it's going to be a great partnership. I think the free Wi-Fi is going to make people happy. It's always annoying to have those charges. But Peter, you know, speaking of the competition, there's been a lot of excitement in the industry lately with the return of travel and consolidation as well. Spirit and Frontier trying to merge and then JetBlue swoops in and tries to acquire Spirit. Where does that leave you? Are you going to eventually need a bigger partner to compete right now? very successfully serving the needs of people traveling to, from, and within Hawaii. We're seeing strong demand coming back as markets have opened over the past year.

We're all performing our competitors on revenue generation throughout our network. So I think we're very well positioned to continue to be successful for many decades to come, as we have been in the past. Peter Ingram, thank you for joining us. Appreciate the interview on a day like today where the stock is lower on, again, that suspension of guidance. Let's check in on the markets right now. The Dow's up about 146 points. So we've lost a little steam here at the final hour of trade. The S&P holding on to gains of a third of one percent. The Nasdaq, those gains are slipping a little bit. It is a kind of tale of two texts today because you've got Microsoft soaring on one hand.

A lot of the Chinese internet stocks are also doing really well today. Pinduoduo, JD.com, Baidu, all higher. Salesforce is rebounding. But Meta, Alphabet, Netflix, those names continue to get hit hard. The small caps underperforming, down a third of 1%. Still ahead, you will hear from the CFO of another big earnings mover, and that is Spotify. We'll ask him what he makes of the street's negative reaction to that print. And after the break, Mike Santoli taking a look at the strength of the U.S. dollar in today's dashboard as the dollar index jumps to multi-year highs. And as we head to break, check out some of today's top search tickers on cnbc.com. Ten-year yield gets the most interest again. And actually, we started out with yields a little bit lower on the session.

We've turned higher now. Prices, they're selling off. Microsoft, a big earnings winner, up 5.4%. Boeing, a big earnings loser, down 9.3%. Tesla rebounding a little bit after a 12% sell-off yesterday. And Alphabet, down 4 percent on earnings. We'll be right back.

The U.S. dollar has been on an absolute tear lately. The dollar index currently trading at the highest level since March 2020. That was peak pandemic fear. Mike Santoli taking a closer look at the dollar for his dashboard today. So nice of you. Well, Sarah, it's a dramatic look on a 10-year basis, isn't it? I mean, take a look here. You mentioned the highs here just under 103.

That was where we were March 2020, as you said. Also here, back around 2017, after the 2016 election, there was this idea of Fed tightening. You had differentials in growth and expected yields. And it shows you maybe it's a little bit of a ceiling. But, of course, Sarah, you know what happened here in 2014, negative yields in Europe. So the euro really cracked at that point. Obviously, the yen is weak right now. Chinese currency not really reflected in here. So everything going on amounts to, of course, in part, a tightening of financial conditions. That is one of the things that a rising dollar means. And it shows you, along with higher Treasury yields and collapsing

mortgage applications, that the Fed's policy of tightening is starting to take hold before it even does much in the way of rate increases. Now, take a look at financial conditions and how they have tightened, especially if you exclude what's going on with the stock market. Goldman Sachs Financial Conditions Index is really still pretty easy. If it's down on the chart, it's easy. Coming into this week, you see right here, you really hadn't even gotten back to the low end of this long-term rates except if you take stocks out of that you're almost there in this neutral area so that means stock valuations are the one thing that maybe have to compress more to get the fed where it wants to be if in fact it needs the

whole thing to get as tight as as this chart imply. And we're starting to see the real life impact of that stronger dollar. Monolith, the big snack company, says a 17 cent hit to earnings because of the strong dollar. It does a lot of overseas business. Even Alphabet, downward revisions to coming quarters because of currency. But it also shows our imports are on fire. Imports 11.5% last month in our trade deficit. Mike, thank you. We'll see you in the market zone. Spotify shares falling sharply after reporting weaker than expected ad-supported revenue. It was the guidance, really. The stock is down nearly 60% this year. Up next, CFO Paul Vogel discusses the results and why investors have been so down on this stock. We'll be right back. Beyond Meat shares rallying on reports McDonald's will make the McPlant Burger a permanent item on its menu,

but the stock is off the highs of the session. Kate Rogers joins us. Kate, what is going on here? Getting some mixed messages. Yes, Sarah. So shares of Beyond Meat halted twice after that Fast Company headline implied that the McPlant would be a permanent menu item at McDonald's. Beyond Meat CEO Ethan Brown and McDonald's CMO Morgan Flatley were in conversation about the McPlant at a Fast Company summit, but McDonald's telling us that that headline was misconstrued. There are no menu updates to be made in the U.S. Flatley certainly expressed that there was confidence in the two brands' partnership and future,

which clearly excited investors who seized on that headline. Beyond shares have taken a beating over the last six months, down around 60%. What's interesting here is that analysts at BTIG were not positive on the McPlant even just this spring, saying that it was underperforming franchisee expectations and sales performance was underwhelming. So making it a permanent menu item this soon

was a bit of a surprise, but as mentioned, Flatley was very confident about the future of the partnership between the two brands. Told it on to gains of 12%. It's a good day for Beyond Meat either way. Kate, thank you. Kate Rogers. Another big mover today is Spotify. Those shares sinking more than 12%.

Even though the company did beat earnings estimates, it was Q2 guidance that fell short of analyst expectations. Joining me now in an exclusive interview is the CFO of Spotify, Paul Vogel at Post9. Welcome. Nice to see you. Thanks for having me. Even on a tough day, the forecast, $209.6 million operating loss is one of the biggest losses that you have seen, right, in your history as a public company. Market's not in the mood for those kind of losses. Yeah, so let me take a step back and say, first of all, thanks for having me. Congratulations on your new show.

Thank you. But, you know, first of all, I think if you take a look at the quarter, the quarter was actually really strong. And so I think when we look at, you know, backing out Russia, and obviously we exited Russia, but when you look at our user growth above expectations, subscriber growth above expectations, revenue in line, gross margins better than expected.

So all of our main metrics are actually really strong in the quarter. And when we look at guidance, our guidance on our user metrics are also really strong. So strong subscriber growth, 6 million net additions. And again, adjusting for Russia, we're expecting 14 million net user additions in Q2 of this year. That's better than the 9 million we did last year. And even if you go back to 2020, when everyone was talking about the COVID benefit and stream benefit, we're actually expecting to do more user growth in Q2 of this year than we did two years ago at the beginning of the pandemic. So it's not a user growth problem, but it's a profitability problem. Correct. So when you go through, let's kind of unpack that. So first, let's get the gross

margins. And when we look at the gross margins of our business, we know there are investors who are looking at us and saying, when do we start to see real gross margin expansion in the business? And we look at it a little differently than that because what we've seen is on our core business, the business that we were part of in 2018 when we did our direct listing, that's the core music business and our core marketplace business. We've actually seen gross margins expand nicely in that business. Now, that's being hidden a little bit because of all the investments we're making. And we're making investments in original content

and podcasting and all of those things. And so that's then translating into some of the losses you've seen. Now, why are you seeing losses? Well, A in Q2, one of it is just currency. We have more of our operating expenses in US dollars. And as a result, about 50 million of the loss actually is just a currency translation.

And so the- But you've multiplied revenues over the last few years. And the losses have only grown. So is there a period where you have to shift strategy if the market loses patience on this investing for growth idea? Yeah. So we're well aware that the market is not in the mood for business that are investing right now. But that being said, we're looking at our business over the long term, 1, 3, 5, 10 years. And we put a plan in place to invest aggressively six, nine months ago. And you're

seeing that right now. So where is that investment going? So one is going to continue in original content in our podcasting business and in improvements to the product. So that's number one. Number two, so we've hired a lot of engineers, a lot of data scientists, over 50% of our headcount growth, which has been a big part of our OPEX growth is in R&D. It's in building all these tools and services. We're also a business with $3.5 billion of cash on the balance sheet. We're a free cash flow positive business. So even though we're showing losses from an income statement, we generate positive free cash flow every year. So our balance sheet is strong and we're generating real free cash flow. So we feel like this is a perfect time to invest when we see all the benefits of our investment bearing fruit.

I know you hate the Netflix comparison, but you're getting it. It was the first question on the earnings call today. And Daniel, I had to spell out exactly why you are not Netflix. But explain to the audience why, because you do rely on a subscriber growth model. You're pouring tons of money into original content as they are. And there's increasing competition and shifting habits and also by the way inflation which is crimping consumers yeah so i'd say a couple things first of all i don't want to talk about someone else's business so i'll talk about my own but first of all we do we are a dual revenue stream business right so we do have a premium business but we're now up to 15 of our revenue comes from advertising and we expect that to be 20 to 30 percent of our business going

forward so we have a business model that is is from that. Now if you go back, again at our direct listing, we were much higher percentage of our business from just a pure subscription business. So we've evolved beyond that. We also were building a platform. So we're becoming a platform company that's available to all different types of creators and a tremendous amount of content on our platform.

So unlike some of these services that are more sort of service-oriented businesses, we're really becoming a platform company. That's music, it's podcasting, and it's other tools and services for creators to monetize. So that's kind of point one. Point two is when you look at the landscape for us, it hasn't really changed very much. So one of the things you've seen in all the other streaming companies is competition has really changed. You've got so many new entrants into the market. We've had competition since we started. Like you go back five, ten years,

we've had some of the biggest tech companies in the world. So nothing has changed from a market dynamic for us. We've had to compete with these guys for a long period of time. So that is kind of where we've been all along. So we look at our business model is different. We are investing in original content, but we're not solely relying on original content. A lot of our differentiation is our product. It's in our engineering, it's on the playlist and the algorithms that you have. So that's a big differentiator for us. We have multiple revenue streams, subscribers and advertising and others that we're developing.

And again, we're in a market that we think is massive. We think audio is completely under-monetized and a huge opportunity for growth. I have a feeling this is not the first time you made that case today. Probably not. Paul Vogel, thank you very much for joining us, taking the tough questions on a tough day. CFO of Spotify, we're getting some breaking news on Arkegos founder Bill Hwang. Leslie Picker with the details. Leslie. Hi, Sarah. Yes, as you recall, Bill Hwang was arrested earlier today in connection with an indictment surrounding the blowup of Arkegos, his family office. We are learning from several reports now

that he was released on a $100 million bond secured by $5 million cash bail. He was released after he had been indicted, as I mentioned, with several charges, including racketeering conspiracy, securities fraud, wired fraud. That, of course, stemmed from the blowup of the family office, which took place in March of 2021, led to about $10 billion in losses for major Wall Street firms. It's an ongoing story. We'll keep you posted with the latest, Sarah. Please do, Leslie. Thank you for the update. Leslie Picker, here's where we stand right now in the markets in this final half hour of trading. NASDAQ still remains positive. We've lost a little bit of our gains, though. The Dow's up 142. S&P still up four tenths. Small caps are still underperforming today. You do have some notable strength in some of

the earnings winners. Materials are getting a nice bump up today. So is technology, energy, staples and industrials. Is Barbie about to get swept up in this year's record private equity buying spree? That's the buzz on Wall Street. We'll share the details next. What's Wall Street buzzing about today? A potential toy takeover. According to published reports, Mattel, which makes iconic toys like Barbie and Hot Wheels, has held early stage talks with private equity firms for sale. Apollo Management and Elkatterton. It's been a big year so far for leveraged buyouts, with a record $944 billion in deals announced just in 2022. And a deal for Mattel would make that number jump. The Toymaker stock is up 14 percent this year.

It soared 80 percent since Yannone Kreitz became the CEO back in 2018. And the company now has a market cap of nearly $9 billion. Kreitz said earlier this year that it's now in growth mode and completing its turnaround, which makes it interesting that it would be approached by private equity. Mattel is set to report earnings, though, today after the bell, so we'll get a better sense of that growth and perhaps new details about any deal talks that are happening. And you'll get an even better sense later. Don't miss Jim Cramer's exclusive interview with the CEO, Inon Kreitz. That's tonight on Mad Money, 6 p.m. Eastern.

Shares of Meta sinking again right now ahead of results after the bell. They're now down almost 50% on the year. We'll ask an analyst with a buy rating on the stock what he expects to hear from management. Plus, the final moments of this wild up and down trading day when we take you inside the market zone. Lost a little bit more steam.

Dow remains positive, though, up 120. Got as high earlier as 457. We'll be right back. We are now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, our fill-a-bow on Boeing's big sell-off, Steve Kovac on a big day for Microsoft, which is leading the Nasdaq right now. But I will say the Nasdaq just went negative on the session. Let's check out the broad market picture right now. Stocks mostly in rebound mode after yesterday's

big sell-off, but we are coming off of the best levels and continuing to sell off here into the close. Dow was up 457 points at the session high. And as I mentioned, the Nasdaq just went negative. It's sort of unchanged right now. Mike, a lot of people have been watching the credit market as a leader. It turned us around yesterday and it seems to be giving us some signal today because HYG, which is an ETF that tracks high yield bonds, is lower. What do you make of what's just happened in the last hour or so? Yeah, it backed off right around 2.30, the high-yield ETF did, so therefore people are getting a little more nervous.

It coincided with these headlines that Apollo was going to be buying part of this Carvana debt issuance, Carvana having to restructure the set of financing in the junk bond market to try and get more capital in there. And I assume the takeaway from this news is that, you know, they had a struggle, had to reset terms. Apollo's getting 10 plus percent. And it might just reflect on, you know, weakening demand for riskier credits, at least in this instance. But it's also just an apprehensive market right now. I wouldn't say credit has been the main sore point, but it has eroded as equities have over the course of the last few months.

And right now, today, it's one of these days where a lot of movement back and forth, but nothing much has been settled because we're trading entirely today within yesterday's range. So it seems as if there's a lot of apprehension, very low conviction. The market's got to move around through these air pockets to find buyers and sellers. S&P up a little less than half a percent right now. Boeing is the biggest loser in the Dow today after reporting a much wider than expected quarterly loss and a big revenue miss because of higher costs for commercial and defense aircraft. The aerospace giant also burning through more cash than Wall Street was expecting. It's taking 79 points off the Dow right now.

Our fellow Bo spoke exclusively with the CEO, Dave Calhoun, earlier this morning about the disappointing results. through more cash than Wall Street was expecting. It's taking 79 points off the Dow right now. Our fellow Bo spoke exclusively with the CEO, Dave Calhoun, earlier this morning about the disappointing results. Listen. Messier quarter than any of us would have liked. Familiar themes, supply chain constraints, COVID, inflation have disproportionate impact on our company in one specific area, and that's our fixed price development contracts that we do with our defense business. have disproportionate impact on our company in one specific area, and that's our fixed price development contracts that we do with our defense business. Bill LeBeau joins us now. Phil, I'm sure you've been digging through these questions all day long. What is the main problem here with travel in such a strong period and also defense spending up so much?

Well, let's take two parts of that, Sarah. First on travel and the commercial business. They are not delivering 787 Dreamliners, so that hurts your intake of revenue. And they are also pulling back in terms of production for the 777. So now you've got a company where half of its commercial business, not half, but a good chunk of it is really not performing. And then on the cost side, look, they had $1.5 billion in charges that I'm not sure Wall Street was expecting. And he alluded to two of those being real problem areas. One, higher costs for Air Force One, the work they're doing there, and the T-7A trainer jet. Both of those are fixed cost programs, Sarah. You enter into those contracts, you have to deliver at a certain price. Inflation kicks in, you're dead in the water.

And he basically said on the conference call with analysts, yeah, we probably shouldn't have entered into the agreement with Air Force One, but what are you going to do? They entered into that, by the way, with the Trump administration. So is it a Boeing problem or is it a macro problem? I know it's a little bit of both, but how much of a tell is this? Because, you know, you're covering some of these other industrials and transports and the outlooks have been better. Right. The outlooks

have been better. Look, inflation is hitting Boeing just like it's hitting all of the industrials right now. So there's your macro part of the problem for Boeing. But there are some specific Boeing problems. We alluded to the issues when it comes to the 787 Dreamliner. Yes, they have submitted a plan to the FAA for certification and resuming deliveries of the Dreamliners, but who knows when that's going to happen? They think it'll happen in the second half of this year. They have got 100 Dreamliners, Sarah, 100 of those planes in inventory, built, that need to be basically certified before they can be delivered. That's a real drag on the cash flow. Yeah, wow, 100 of them. Bill, thank you.

Phil LeBeau. On the flip side, Microsoft's a big DAO winner today after the software giant beat Wall Street earnings estimates. Forecast fourth quarter revenue for each of its three business units ahead of expectations. Steve Kovach joins us now. Steve, Microsoft reporting 46% cloud growth in the quarter, which was also the same growth from Q2. I guess not a big concern there about a slowdown. Yeah, well, Sarah, there was at first. The stock immediately went negative when this report came

out after hours, and then today we see what's happening. But yeah, that is the concern around Azure, that this hyper growth is over. Now, again, anyone would love their business growing 46 to 50 percent every quarter, but that's just not going to happen with Azure. But look, what Satya Nadella said on the call is, you know, a lot of the growth came from this pandemic demand as more companies try to digitize how they work. But they don't see that ending anytime soon. In fact, Satya was talking about

on the long term, we got like a decade to go of this digital transformation among businesses. So they are incredibly optimistic, Sarah, about the growth prospects for Azure. Is the hyper, super hyper growth over? Sure, maybe, but the growth is still there. I agree. I read that first answer on the conference call from Satya Nadella saying all his conversations with CEOs, they're not going to cut their IT budgets this time. They are looking at this digital transformation and they are prioritizing it. Is there a strong read-through here for Amazon and any of the other competitors? Well, one thing that really stuck out to me on this call, and I was talking about this earlier, is the China warnings.

And we all know Microsoft, not a hardware business. They're a software business, but they do make a little hardware. There's the Xbox video game consoles. There's the Surface computers. And they rely on other computer makers in China to sell Windows licenses to. So there are some warnings about that. If these COVID shutdowns go and extended to early May, that could be a problem not just for the Windows business, but also hurt their gaming business as well. Steve Kovach, Steve, thank you very much for flagging the China issue. The other reason the Dow is outperforming today besides Microsoft is Visa, which is also adding

about 84 points to the Dow. The company beating analysts' profit and revenue estimates thanks to a surge in payment volumes, very strong domestic spending, and a travel rebound. Kate Rooney joins us now. How important, Kate, was that cross-border, which had been a weak spot during the pandemic? Yeah, that's right, Sarah. That was a big part of this beat for Visa. Cross-border is Visa's most lucrative side of the business, highest yielding, and that grew 38 percent year over year. So that was really a bright spot here and something that has been a drag on Visa and the other payment companies. During restrictions, they talked about pent-up travel demand. They talked about people now going back across borders, traveling to places like

Europe, and really the strength of the consumer. Al Kelly talked a lot on the call about inflation. Yes, it's there, but he doesn't see it weighing on consumer spending, which was also very strong in the quarter. So people are just spending more, want to travel more, and it's helping cross-border. And I also learned from Jim Cramer this morning that Russia is the second biggest credit card market in the world. Did not expect that. So clearly an impact there. How is it affecting these companies? It's interesting. I was told earlier that Visa actually may have seen that as sort of a lag effect, that we may not see that show up for

a couple of quarters here. But again, Al-Khali is saying, you know, we're through that uncertainty and that macro uncertainty, at least as far as that really being a surprise to analysts. And it's a decent chunk of their business but again he was saying despite all of this you know they're reiterating guidance they talked about strength of the consumer and it's it's a bigger part of the business than you would think but uh he seemed to be confident and optimistic when it comes to being able to outperform even in the face of a slowdown and just not having payments at all in russia yeah and clearly he's getting rewarded for it Mike what do you do with the stock like this I mean clearly it's higher today Kelly Al Kelly did not take the bait at

all no slowdown even though the market has suggested otherwise so what does it mean for for visa and for the group which has been so slammed on cyclical concerns no it's fascinating I think Visa and Microsoft are very similar in the sense that not all that much changed fundamentally with the path of the business along the way. But what happened is after, you know, early 2020, they went from merely slightly expensive stocks to being incredibly crowded and people ramping their, you know, forward P's up to 35, highest on record, or at least in a long time. And that's kind of bled away. Yes, obviously, concerns about consumer spending trends and cross-border activity is weighing on Visa to some degree, but it's much more about, you know, what the hedge funds were willing to pay at the highs versus what they're willing to pay right now, because

payments was a massively crowded area in terms of tactical money. I know some hedge funds, multi-billion dollar ones, it was most of their book, and that's all been kind of backed away, fintech and payments. Yeah, it's still down for the year, even with a surge today, one percent or so. Kate, what does it mean for PayPal, which reports after the bell today? It's interesting. PayPal has sort of been an outlier when it comes to things like inflation and hasn't traded really with the big credit card names. But guidance is by far the biggest thing to watch today for PayPal. Wall Street really wants to know what's in store for this name. Going forward, there's been a lot of uncertainty around the stock. PayPal, for instance, scrapped its net

new active goals last quarter, completely got rid of it. CFO John Rainey is also leaving for Walmart. And some of the risks that PayPal talked about when it comes to 2022 guidance have been inflation, Russia, lockdowns in China, none of which were really a drag on Visa or Amex. So we're going to see if PayPal here is a different story. It's not up in sympathy with Visa. I'll tell you that. It's down another 1.4 percent. Kate, thank you. Mike, PayPal is right there with Netflix on the worst performers list of 2022. Who would have thought those would be the worst performers and Occidental Petroleum would be the best?

Absolutely. I mean, this real sharp downscaling of expectations for earnings. It's very, very hard to own these growth names while the estimates are still going down. And they've been going down pretty quickly. You know, for 2022, the number's gone from 521 a share down to 462.

For next year, it's down 650 down to 575. I mean, it's just not to say that the value is not going to be there at some level, but I do think that that's been happening. I mean, until people get confidence, you know, they've stabilized it, and the big-picture opportunities are going to be more tangible for the company. And, you know, again, the unwind of the massive fintech trade is weighing on this stock. Well, speaking of the unwind of massive growth trades, Meta shares are also under pressure today. Again, down 3 percent ahead of results after the bell.

Now down about 48 percent on the year. Joining us, Rohit Kulkarni, Internet Analyst at MKM Partners. Rohit has a buy rating on Meta. I guess, Rohit, the latest numbers out of Snap, Netflix, Alphabet don't inspire a lot of confidence about what we're about to hear from Meta tonight. What do you expect? Yeah, absolutely. I think the expectations for Meta have been declining and have been declining even further after the three companies that you just mentioned reported, Google, Snap and Netflix. I think Facebook already talked about pressure from

ukraine they already talked about european softness i think what the expectations for 2q guidance uh single legit revenue growth probably lower are probably going to be what that matter the most also commentary around what is happening with TikTok, what is happening with Apple and IDFA. Those two topics are front and center. Apart from guidance, which I think is not going to inspire a lot of confidence, any qualitative commentary around is TikTok still affecting them and is Apple IDFA still affecting them? If so, how long and what is the plan? I think that's what is going to matter and turn the stock around.

So how much are these companies, and I know you cover Alphabet as well, and you also have a buy rating on that one. You have one on Facebook, too. How much are they affected by a slowdown in Europe, in global growth, in foreign exchange, all these issues which they're clearly susceptible to, which the market really should have known. I'm not sure that the Google numbers were any huge shock, but how susceptible are they if we go deeper into these problems? In a way, I think each of those problems, Europe adds a couple points in incremental growth headwinds. FX adds a couple of points in incremental growth headwinds. And already, you have other headwinds in online advertising like what is happening with apple and what is happening with uh competitive headwinds so each of these when you add them all up all together i think for for a company like facebook it cuts

their revenue growth into half almost or even more so so i think the amplified effect is what is uh shocking people right now and i think that that's where the haircut to forward-looking estimates is taking an even deeper knife. And I think we are there. If you are looking to look beyond, say, June, July, August for these companies, I think you would come back and say, OK, Facebook around closer to $150 was a very, very good buy. I think we are not there yet, but I think we will be probably at some point if the ongoing tape continues. So you're sticking with buy on both, but lowering targets just to sort of catch up? Is that the story? We have already lowered targets on Facebook last week. Our target is still at around $315. But what I'm trying to say is at current levels,

so long as you are looking to look beyond the current tunnel of macro, FX, and various different things happening with Facebook, it feels like a highly asymmetric risk reward. There is downside risk, but it is highly asymmetric. Roya Kalkarni, thank you for joining us, getting us ready for those meta earnings. We've got just about two minutes to go in this session.

And Mike, a lot of these sectors that were higher at the start of the hour have turned red, like healthcare, financials, and utilities. What do you see in the internals right now? You know, they've been holding up, but that's just because we did have that strong rally in the morning. And so therefore the market breadth

has not really turned too negative, although before it was about two to one to the positive side. And now you see it's almost even advancing versus declining volumes. Wanted to check in on crude oil, and it's kind of out of the headlines a little bit because it has not been making new highs. But take a look at this pattern, just this kind of triangle, right?

It's just sort of an indecisive pattern. It's sort of lower highs, higher lows. So at some point, this has to break one way or the other. The bulls are saying it's hanging around 100, even when we're talking about trying to shut down. Maybe that's a good thing. But you've got to watch for the next big break from that one. The volatility index is down a point and a half, although it had been down more than three points earlier. So it's still very apprehensive.

Again, we're still not wanting to get in the way of a potential mega cap earnings downside surprise. And I think that's why people are traveling light going into the close, Sarah. Meta out in just a few moments, Amazon and Apple tomorrow. Mike, thank you. As we go into the close, those gains are slipping away so much for a rebound. We're up 75 points on the Dow, and that's largely thanks to Microsoft and Visa, two earnings winners. Salesforce also having a little bit of a bounce, but Boeing and J&J dragging us lower, along with the financials like JP Morgan. S&P 500, we've got strength and energy, as Mike showed us. WTI back above $100 a barrel. Materials, technology remains strong. Some rebound there in some of those names, but communication services under a ton of pressure off Alphabet and Meta. Real estate, utilities, financials, health care now all lower.

The Nasdaq goes positive at the close, just barely. Small caps underperform again, down a third of 1%. That's it for me. I'm closing bell. Have a good evening.