Power Lunch - Big Biotech Buyout, Power Players Pt. 2 7/28/23

Episode Date: July 28, 2023

There’s a massive biotech buyout underway, with Biogen paying over $6 billion to bulk up its rare disease portfolio. We’ll explore the “arms race” brewing in big pharma.Plus, we have more ‘power players’ joining the show. Valley Bank’s CEO gives us a read on rising rates and new bank rules, while the Union Square Hospitality Group CEO gives us insight into the consumer. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon on a sweltering Friday. Welcome to Power Lunch alongside Courtney Reagan. I'm Tyler Matheson. Glad you could join us. Coming up, a massive biotech biogen, paying more than $6 billion to bulk up its drug and treatment portfolio, continuing what's been a bit of an arms race in the space of late. Plus, another day and another two power players. First, the CEO of Valley Bank, higher rates, new bank rules, power regional holding up. Then we'll speak to the CEO of Union Square Hospitality Group for more insight into the consumer. First, let's give you a check on the markets. All three indexes are higher today. This, of course, after the Dow did snap that 13-day winning streak yesterday, but hey, maybe we can make it 14 days out of 15 that are higher. The busiest week of earnings coming to an end, Chevron's result hit by the drop in oil prices for solar beating estimate, seeing larger sales volume. Meanwhile,

its rival in-phase reporting lukewarm demand and P&G beating results, but releasing a gloomy outlook. All righty here to help us dig into earnings as well as some of the other stocks, stories we'll be discussing across the hour, Sarat SETI. He is managing partner and portfolio manager at DCLA. He's also a CNBC contributor. We are delighted to have you in the house today. Thank you. Let's talk about earnings and what you see as the standouts, both positively and negatively,

maybe drill in a little bit, so to speak, on the oil companies. So the oil stocks, they met expectations. We knew earnings were not going to grow. You had pretty much two years where oil was over $100. So I think what we were looking for what we saw was stabilization. And if you look at capital spending, sure, they're still spending money, and they're returning capital shareholders. So the dividends are there. And that was a fear a couple of years ago when oil was close to $30, $40, that can these companies still survive?

And I think given the run that they've had in two years, I'm actually pleasantly surprised that they're only down, you know, Chevron 1%. But I do think if you are a long-term investor and you want a diversified portfolio, companies like a Chevron. You need to be there. You need to be there. Great cash flow, great dividends. One of the other things that, you know, in the last couple years, investors flocked to these stocks because when interest rates were zero, you were getting a four or five percent dividend yield. That does not matter to a lot of people, especially, you know, people are looking for growth. So you don't have the momentum investors and you don't really have the income investors anymore because these stocks are volatile as well.

The beta is much higher than the market when you look backwards. But I think part of a diversified portfolio you want to own, especially something like a Chevron, that continues a strong balance sheet and grows its dividends. Strong balance sheet, very strong in the Permian Basin and around the world. Let's move on then to some of the consumer names that have reported, P&G among them. So P&G pricing still there. So in a way, good for the market that companies and consumer staples, they're not cheap. They traded above market multiples. Unlike a Chevron and those that trade below market multiples, P&G is north of 20.

But what they showed was that we can pass price increases on. The consumer is not going down label. The question is can you get price increase going forward and can you get volume growth? Most of the increase has been on price and volume not as much, especially when you look at other companies like a Nestle and other. But again, this is a solid balance sheet. These are companies you want to own right now. Everybody's looking at momentum and, you know, how do I get into AI? But companies like a...

Give me more Nvidia. Give me more Nvidia. Exactly. You know, can I get another chip that will do really well? or can I get Microsoft to do something, you know, different. But these are stocks that today the momentum investor is not looking for. But again, when things do slow down, which we know eventually that does happen, these are stocks that you want to have in your portfolio.

I kind of want to do one of these Tyler compound questions. So continuing on the consumer theme, we heard from MasterCard, American Express Visa, talking about this resilient consumer, sort of to your point. And I guess I want to know what you think about those names specifically, but also if then that frustrates the Fed to some degree because the consumer is still spending and they're trying so hard to sort of slow things down economically. So that's a really excellent point. So what's happened, so Digamix, which is a stock that we own.

And we like it. It's 15 times earnings. Great balance sheet. And really what they focused on, they spent a lot of money during COVID, which a lot of other companies did not do. And they're reaping the benefits of it. Now, the stock has come back a little bit since they had earnings, only because they didn't match or beat expectations.

They did very well. It's double-digit growth. But they're going after Gen Z. This is the generation that wants to have experiences. They want to have the Amex card so that when you're traveling overseas, something happens, hey, I'll just call Amex. Very different from calling a Visa or MasterCard. We all know the service level at Amex is incredible.

They are seeing resilience and expenditure. And to your point about the Fed, it's because wages are still going up. So as wages keep on going up, we have embedded inflation in our system. And that's going to be something really tough for the Fed to fight, is to get to 2%, how can you still have wages going up? How can you still have price increases on input prices and things like that? So I think that's a tough thing for the Fed to do, which is basically why you're seeing kind of rates stay where they are.

A lot of key earnings coming out next week, Apple, Caterpillar, Amazon, and others. Obviously, Apple is a bellwether stock here. It's in that category of the Chevrons and the Exxons. You've got to have it in a diversity. portfolio. And I think Apple's going to be interesting. Look, if we sat here 10 days ago and I told you Google and meta are going to exceed expectations, most people would say, well, we're not really sure. There are a lot of headwinds. So with those two companies, I think Apple has a high bar now because people are looking to see how is Apple going to keep on growing. Great cash flow

machine. But what's the 15 going to do? What is the service revenue going to do? How are they going to keep on growing? And they are a really good tell on the state of the consumer, global consumer. For sure. Right? So people are going to be looking very closely to that, especially if you look at where the dollar is and if the dollar starts getting weaker, we can talk more about that later, but that's going to cost more for people overseas.

So I think we're going to have to look at Apple. I think Uber is going to be a really interesting story. Uber's up 80% for the year. Are they continuing the growth of cash flow? As people travel more, are they going to do more rides and food? So I think that's a stock that also has a high bar as well. Starbucks is reporting. That's a good stock for global.

How are people doing overseas? We know Europe is slowing down. What are they saying about China? We know China is spending a lot of money to grow again. So how does that portend for Starbucks? But you've also got higher unemployment in China now than maybe in decades. So it's a very mixed picture there. The Chinese thing is interesting because it's pretty opaque, right?

They're telling us one thing. We don't really know what's going on over there. They didn't have the COVID rebound that we did. Right? People expected that. So will they, you know, their real estate is in a tough situation. But they can print money just as like we printed money, right? I mean, if you think about the money. So that's going to be interesting as well. All right. So you're going to stick around with us for most of the hour and we're glad to have you to do that. Thank you. And take part in these interviews. Absolutely. When questions come to mind, you jump in. Earlier this week, we saw the Fed raise borrowing costs for banks by a quarter of a point. After it paused in June, regionals have been a full.

for investors after deposit runs led to the collapse of SVB and signature bank earlier this year. But this earning season is showing that relief may be underway. You could see the regional bank ETF, KRE, up 19% month to date on pace for its best month since 2016. Valley Bank is one of those names reporting results. Had a slight miss, but the company saw greater stability in capital and growth in deposits than the market expected. For more, let's bring back. our friend Valley Bank CEO Ira Robbins. Ira, how's business?

Much better than what it was back in March. Wonderful to see you again, Tyler. Yeah, that's good. Why don't you go sort of segment by segment? The one thing everybody seems to be worried about here is commercial real estate. What's your exposure there? It's mostly office buildings that seem to be attracting the greatest worry. It's a great question.

I think back in March there was this fear that there was a systemic exposure across the entire mid-cap regional bank space. I think as you saw with earning results this year, strength and resiliency were two variables that came out of it. Deposits were strong for many of the regional banks such as ourselves. And I think when you look at credit, you know, it really was a benign quarter for us. Valley has about $3.2 billion of office across our entire portfolio. We have $153,000 of non-accrual loans. That's it in the entire office portfolio. And I think there was this misnomer that there was a lot of commercial real estate exposure that sits in the regional base. You saw Wells Fargo put their reports out 7.5% reserve on office. 60% of their non-accruals and commercial real estate are

sitting in office. I think when people really dive in and look at the underlying metrics and 10 cues that the regional banks are putting out, I think you can find a very different story than what's been promoted for the last couple months. I have a question, Ira, on this Basel 3 endgame that's being proposed. I understand it's an open comment period. Now we were talking about it yesterday. Though you have to have more capital on hand to comply with this new regulation, what would you take it away from, share buybacks, dividends? Yeah, I think it's really just going to end up holding more capital, right? So you think you've got to think about sort of how you think about your return on investments and what types of asset classes that you're in. I think the Fed and the other

regulators need to be very careful about what they're doing here. You know, when we think about what's happened since 2010, we've really taken a large segment of assets and taken them entirely out of the banking space. We've got private credit funds as an example, $300 billion of outstanding in 2010. $1.5 trillion are sitting in the shadow banking system today through private credit funds. This is really where we want to put some of these specific assets. 30% of these credit funds are owned by public pension funds. So really what's happening is the Fed increases, regulatory requirements on some of these banks. We're now saying these assets are far too risky for banks, and we're putting them in the public pension funds. Is that really what we want

from a global market perspective? I think the Fed is knee-jerk and reacting as to what they're doing when it comes to some of these capital ratios, and they need to think through some of the unattended consequences here. Our question for you on loan growth, where are you seeing the biggest loan growth in the last quarter and where do you see that kind of going forward? And on the other side is, are they things that you didn't expect in terms of long growth coming down in certain areas? I think the consumers really slowed a lot of their loan growth down. We look at the auto portfolio. We have a billion-eight auto portfolio across the whole eastern seaboard. That's really come down,

I think, is where consumers look at interest rates. Inventories have increased a little bit across that space. So there really hasn't been much long growth for us in the auto space. Residential mortgages have come down, really a function based on inventory across the entire environment, the refinanced market is basically dead. So what we're seeing is a little bit of growth still in commercial real estate and a little bit in CNI. I think we did over 10% on the link quarter in CNI. That said, our borrowers are very concerned about what interest rate environment is going to look like. So I think they're beginning individually to hold back their desire and ability to move forward on certain projects.

So for us, we did about 10% loan growth annualized for this quarter. But our pipelines are about a third of where they were. Ira, are you in the camp that believes the Fed will keep interest rates higher for longer? And if so, and that inflation may stay higher for longer. And if so, what will the impact be on your business, specifically on, let's say, the residential mortgage business where people may be less inclined to take out mortgages at nearly 7%. Yes, I do believe rates are going to be higher for longer. I think, as was mentioned previously, this is a function of where wages are.

And as long as there's wage growth, there's going to be inflation. And I believe that that's going to really prevent the inflation from coming down to some of the desired feds targets. So as a result, we're going to end up being in a higher interest rate environment. Is that good for business for you? Really, it's the curve and the slope with the curve that impacts us. I think overall results for us were positive based on an inverted curve. Inverted curves are cyclical. They don't stick around forever.

They're going to go back to a more normalized pace. A leveling off of a higher interest rate environment is good for banks, and it's good for the economy in general. We've had asset inflation across the entire spectrum of any individual assets based on the easy monetary policy that we've had. That leads to a whole network of other issues, and I'm happy to see a higher interest rate environment. All right, Ira, thank you very much. Ira, Robbins, we always appreciate your time. Thank you very much. Surat, let me get a quick thought before we move on, on regional banks generally.

Where are you on? So I think after we had, quote, the disaster, it's going to be tougher for regional banks to really compete with the big banks. I think, you know, Irish is doing a great job there. But if you think about how some of the JP Morgan's Bank of Americas are now really in everything, and if people want to get full service for everything, I think that the share is going to go over there over time. And especially what we haven't seen is any crack in the credit market. Because if you get a crack in the credit market and you want to work with a bank, you're going to go with the largest one. So it's becoming more utility-like, but I would just, I think the valuations for regional banks were not going to get back to where they were before just because we just don't know of the unknown, right?

I mean, could you have predicted what would have happened then? And then also you have to really, the risk management's got to be there. I mean, one of the things you heard was deposit growth going up, going up. But we know what happened when deposit growth went up for Silicon Valley Bank, right? It's managing risk. You have to become a cash manager at that point. and you can't have any slip up there. So there's no backstop.

Yeah, the deposit grew until it left. Right, right. We know within five minutes deposits can go now. This is no longer, it takes a week before you get your deposit out. So I think that puts a lid on kind of valuation metrics as well. You don't see the lines waiting outside banks anymore. It's invisible. Well, coming up, Biogen betting $7 billion on Riazza's rare disease portfolio.

What impact could this have on the space? Plus, IV beleagued, the university system, going through some serious growing pains, costs of attending, and the weight of student loans, putting a bad taste in younger Americans' mouths. While this all is happening, the emissions process constantly at the center of debate and controversy, so why not talk about it? We're going to discuss it when Power Lunch returns. Welcome back to Power Lunch. Big news in Big Pharma today, Biogen buying Rihata pharmaceutical for more than $6 billion in an attempt to diversify and expand its portfolio for the rare disease drug market. Rata shares surged more than 50% before halting pre-market. Let's bring in biotech analysts at Jeffreys, Michael Yee. And of course, Sarat Sethi is with us as well.

Michael, I guess I just want to begin. What does this mean for biogen, this purchase in the long run? Well, great to be here with you. Look, biogen has been talking about doing more M&A. This has been a common theme within the biotechnology sector, which is why we think the sector is going to start to pick up. obviously this is important to get growth back at biogen. This stock has been a total laggard over the past few years. So this is a story about not only them doing deals, which we think it's a good deal, but also important as we've talked about in the past, really important to deliver on the Alzheimer's drug Lecombe, which was recently approved and is five times bigger than this acquisition today.

I was just going to ask you, is Lecombe the biggest catalyst for this stock? You have a buy rating on biogen? Yeah, look, I think that's the right message. We are excited about biogen over the next one to two years, but of course that is around the core focus of Lakeb, which can be a $5, six, seven billion worldwide long-term drug that's critically important for biogen. Look, in addition to the Alzheimer's drug, Rihanna, and this deal is important. It's about a billion dollar drug. And certainly the execution on Alzheimer's is critically important, given the size and scope and the importance of what that means for everybody. So, Michael, a couple of questions for you. I mean, given the current administration's view on mergers acquisitions, do you feel this could run into any issues?

And then secondly, you know, if this, you saw the stock reaction. I mean, it's rare when the buyer goes up, which is good news for the stock, good news for the market. Who do you then see in your crystal ball doing more acquisitions because the farmer space is really not delivered for the last couple of years, and you've got Bristol trading it, you know, eight times earnings, you've got Pfizer now down. Where do you see that going in? And what kind of areas do you see the acquisitions happening? Well, very good. I do think what we were hearing this morning was some increased chatter around the potential for Senator Warren to probably raise more concern. She has been doing that in the past, certainly with the Horizon deal and the Pfizer deal, both, though I would acknowledge, $27 billion in

$40 billion, certainly much larger than these $7 billion today. But expect there could be some, particularly because Biogen historically has had some questions around rebating, kickbacks, and some other bad acting things. We think the deal will go through, but I do want to emphasize that's certainly possible. That brings me to the second point, which is, look, Biogen doing this deal today. I agree with you. Bristol is probably the other actor, I think, has to go out and do some deals. AbVee as well. Abvi made a comment yesterday on the earnings Paul Rick Gonzalez saying he thinks the FTC is going to try and deter some of these deals, but as long as there is really no real case there, it's going to take time, but these deals are still going to get through,

if that makes sense for you. All right, Michael, we have to leave it there last, but thank you very much for your perspectives today. As always, good to see you, Michael Yee. And Intel's results giving Wall Street welcome signs for recovering demand for chips. Strong results, as well, across much of big tech. So is everything we learned this week, pointing to a big beat for NVIDIA later in August? We'll be right back to talk that and more. Welcome back, everybody. Time for today's tech check, Deirdre Bosa, looking back at the big week we had for technology earnings and what it could mean for, among others, Nvidia going forward. Hi, Dee. Well, Invidia specifically, arguably the biggest earnings winner of the week, and it didn't

even report. However, it was the unspoken giant in the room as the other mega-caps, talked about their spending plans, all of which will benefit the chipmaker. Alphabet Microsoft, Meta, in one way or another, they talked about increasing CAPEX to take advantage of the opportunity in AI. And between the three of them, there's a combined market cap of $5 trillion and 37 mentions of CAPEX on their earnings calls. Capax are capital expenditures. Those are the big purchases that a company makes to position it for the future.

The big investments, in the case of big tech, much of that is cloud infrastructure, giving it the compute power to run their technologies. In the age of AI, that means less traditional server chips, more advanced GPUs that Invidia makes. And that shift was crystal clear this quarter. On the losing side of that shift, though, is Intel, a chip company that is stuck in the traditional world of server processors. B of A writes in a note, in our view, this most negatively impacts Intel and AMD over time,

as AI server CPU demand is offset by slowing non-AI spend. Of course, guys, Pat Elsinger, he is working to change that. But the pressure is on and the tech giants, they're making their spending plans now. They're also working on their own AI chips. All right, Deirdre, thank you very much. Deider Bosa report. Well, coming up on Power Lunch, we keep hearing a consumer slowdown is coming, especially for things like dining out. But according to the data this week, confidence remains high. Spending picked up in June, and inflation is somewhat under control. So will restaurants keep traffic coming? We'll speak to the CEO of Union Square Hospitality Group to talk about it.

Welcome back to Power Lunch. I'm Contesta Brewer with your news update. The soldiers who ousted Niger's president say the country's constitution is now suspended. And they declared their coup leader, General Chene, as the head of state today. The soldiers overthrew the democratically elected president earlier this week over claims of bad governance and worsening security. But before this uprising, this week, Niger was seen as the West's most reliable ally to fight. jihadists in the region. Liberty Mutual is pulling its business owners policies from the wildfire prone state of California. That change in effect from October 1st. A company spokesperson said the exit is

because of profitability challenges. Liberty joins a growing list of major insurers backing away from California. Earlier this year, we saw State Farm announcing it would no longer sell new homeowners insurance policies there. And it will soon be illegal to vape in indoor public spaces in Illinois. Governor J.B. Pritzker signed a law Friday banning e-sigs anywhere. Smoking is already prohibited. The law takes effect at the beginning of next year, and violators can be fined as much as $250. Courtney? Oh, Contessa, thank you very much. Well, while inflation is starting to cool, restaurants are still facing a host of challenges, and it's not just related to food costs. My next guest says high construction costs, they're also impacting his business.

Chip Wade is the CEO of Union Square Hospitality Group, which owns a bunch of marquey restaurants, in New York City. Our guest host, Surat Sadi, of course, is still with us as well. Chip, thank you so much for joining us. You know, we were speaking earlier on the show about the state of the consumer and where exactly consumers are right now. When it comes to being able to still do things like eating out, even in the face of still high inflation, albeit the rate of inflation has come back. What's your viewpoint on what consumers are willing to pay for right now? Well, first of all, thanks. I'm delighted to be here, right? The consumers are I think in courage for us, we see demand is very, very strong.

Our traffic is up. And so we're excited about the trends that are happening here in New York. New Yorkers are remarkably resilient. And so while they are certainly sensitive to inflationary increases in commodity costs as well as labor costs, that has not slowed them down materially from dining at our restaurant. Are you seeing consumers making any trends? trade downs when it comes to any of the restaurants within your portfolio, perhaps, or even the menu items that they're choosing when they are eating out of their homes? Yeah, I would say we're saying a couple of things.

From number one, we're seeing consumers dine a bit earlier versus the pre-pandemic, right? And so we are seeing traffic up significantly between four and six. That's six o'clock hour, is now vibrant. alive and it was the old 730 or 8 o'clock. With regard to your question, yes, I think the consumers are making different choices. Maybe instead of a full bottle of wine, they're getting a glass of wine engine, just being more strategic with their choices. So six is the new eight. Why are people doing that? Is it because they want to get home sooner or because they're not chained to their desks until six o'clock and then on a 7.30 table. What is it? We think it's really this new

workforce dynamic, right? The idea that people are working from home, certainly that is happening more on Fridays and Mondays. We believe that because there's no boss around the corner, that they may be shutting down their computers at 430 and then heading out to our restaurants and other restaurants here in New York. So are your Friday? You just sent something very interesting. Diner's going earlier. Are your Friday evenings less busy because people aren't in the city

and or maybe getting away to go either to their weekend house or just go to their home and stay there? The answer to that is yes, right? But that is now our Thursday business is significantly busier. The Thursday is the

new Friday for us at the USDA. Chip, when you look at the changes that happened during COVID. Are you seeing more delivery? Are you seeing people ordering and picking up? Has that moved? Has that changed for you? And kind of how does that affect your business? Sure. It's moved up significantly. We have a brand here in New York called Daily Provisions. We have four of those locations. It's a fine, casual, three-part restaurant. And so catering, as well as to go and pickup is up in excess of 25%. Yeah, we go to Daily Provisions all the time.

sandwiches. Oh my gosh, they're so good. If you haven't had one, you got to try it. But I do want to ask you, Chip, about inflation when it comes to running the business. We talked about consumers, but what are you dealing with right now when it comes to the cost that you're facing? Sure. First and foremost, labor costs continues to escalate. And there's a number of factors that are contributing that. But we have not seen a material reduction in labor costs the way that we have in commodity and food costs. The second area with regard to inflation is the cost to build new restaurants. The general contractor costs, their labor, just the cost to get equipment is significantly higher, again, than the pre-pendemic period. And when it comes to availability

of labor, is that difficult right now in New York City? The answer to that is yes, right? And I think we continue to see across the country, but here in New York, employees making different choices, maybe moving into different industries, maybe they're leaving the city because of the cost of housing. But yes, we are certainly feeling this issue with regard to a shortage of hourly and management personnel. Fascinating stuff. Chip Wade, thank you very much for joining. Thank you. Delighted to be here. So, Rott, do you own any restaurant stocks? We do not at this point.

You know, I asked the question about delivery because we own Uber. Uber delivery has done really, really well. But I think it's hard to own restaurant stocks over a long term. You've got to get them when they're really cheap. And they haven't become cheap because during COVID, you know, some of them became pretty expensive. But it's a business that you have to manage your costs in a very quick and adjust. You have to adjust really quickly, especially now with the wages going up. And we haven't seen any balls in unemployment.

Yeah. All right, Sarat, thanks very much. Appreciate the guests from Union Square Hospitality. Coming up, Beauty's Tech Makeover, will hear from the CEO of a software startup, trying to be a one-stop shop for beauty and wellness, companies and their business operations. Power lunch to be right back.

As the U.S. economy continues to power ahead, small businesses are adding to the technology tools that help them get through the pandemic. And today, John Fort brings us up close with the CEO of a software company that helps salons, barbers, makeup artists, and others run their operations. Hi, John. Hey, Tyler. Yeah, Danielle Cohen-Schot is the founder and CEO of Gloss Genius,

whose tools help with scheduling payments, customer management, that kind of thing in the beauty and wellness industry. The company announced a $28 million series C round this week, led by P.E. firm El Catterton, bringing Gloss Genius valuation over a half a billion dollars. Danielle's interest in the sector kicked off at Princeton, when she helped classmates get ready for social events, but she traces her entrepreneurial roots to a boost she got before her teen years from her grandmother.

My grandmother would write very old-fashioned, very traditional, would write a lot of cards and notes to folks that she knew, whether they were thank you notes or happy birthday notes or congratulatory notes. And I remember visiting a hallmark store with her, one afternoon. And I saw her pick up a lot of different types of notes. And, you know, she, she bought quite a few of them and I had realized that I could make these. And I asked her if she

gave me a little bit of time to make some of them. And I sent her a package of greeting cards that I had hand-painted. And, you know, I sent them to her. And she called me and she said, I'd like to buy some from you. What a way to get your granddaughter started. Well, Danielle spent some time on Wall Street at Goldman Sachs before launching Gloss Genius. It's a crowded field in beauty and wellness software that now includes rivals like fresha and style seat on the beauty side, mind body in fitness and wellness. When I talked to Danielle this morning, she told me she thinks demand in her industry will hold up, even if consumer spending falters. And she can win by delivering better features to her target small business companies.

customer. The beauty wellness category is made up of experiences and important, you know, kind of small delights that consumers reach to. And there is such things as a lipstick effect when, you know, during periods of economic, you know, kind of stress, it seems like the sector and spend is up because people want to look better and feel better about some of the things that they're doing, and particularly in the job force that they're in, too. There's been a lot of studies there. And when I look at all this taking together, I think there's still a lot to watch on the macro front,

but the category has throughout time proven resilient, and we're expecting to see the same type of resilience throughout this period, too. So, guys, there's a revolution happening right now in software for small and medium business and in specific industry verticals. It's somewhat reflected in stocks like Intuit and Build, on the SMB side, ProCore, Samsara, and Toast in Construction, Logistics and Restaurants.

Danielle at Gloss Genius is one to watch and how it plays out in beauty. Are her customers mostly salons or individual makeup professionals, artists? It's mostly, well, I don't know the answer to that. It's a combination of salons, artists, barbers, and then, you know, estheticians, you know, people doing nails and whatnot. So it's various sizes. I don't know sort of by volume, probably by volume. individuals, like a number of accounts, but I think the volume of accounts at this point

is probably coming. So it's a payments, a record keeping a scheduling tool? It is, absolutely. And there are more, it's interesting, there are vertical players that deal in a specific industry. And then you've got horizontal players in the small, medium business software industry, like Augusto, that are just trying to provide that capability to all sorts of businesses. And so there's a bit of a push-pull.

Are the horizontal players going to sort of roll up? and overpower the vertical players or the vertical players going to be so good at serving that particular niche. That they're going to win out. And will a big player, like an Oracle, did a while, eventually roll everything up?

Who knows, right? But there's a lot of action there because smaller businesses realized during the pandemic, we really need this software because we need that data on our customer. We need to be serving them in all kinds of ways.

It can't all be done in slips of paper and in cash. Makes a lot of sense. John, thanks for bringing that to us. Thank you, John. We'll still ahead of Battle Beer Brewing in higher education, so-called legacy admissions under fire in the wake of the Supreme Court's ruling on affirmative action. So would ending the practice help increase opportunity or unfairly punish

some students who are still deserving of a spot? And who should decide? We'll explore when power runs returns. All right, higher education in focus, big time after the Supreme Court's decision on affirmative action last month. The discussion around fair admissions, far from over, though. Federal probe launched into Harvard's admission preference for so-called legacy admissions. At the same time, more and more schools announcing they are ending the practice altogether. We're going to talk about it now with Biddy Martin, former president of Amherst College, who dropped legacy admissions during her tenure there. And Sarah Harborson, CEO and founder of Application Nation and former Associate Dean of Admissions at UPenn.

Welcome to both of you, ladies. Biddy, let me start with you. why did you cease legacy preferences for the children of alumni? And what has the effect been? It's a great question. Thank you. I'm delighted to be here. We did it as the next step in a series of steps Amherst had taken to try and level the

playing field and diversify the student body, socioeconomically and racially. And how it's gone, there's only been one class admitted since. we did away with legacy preference, and the percentage of legacy students admitted went from about 11% down to 6% over the course of that year. With just one year of data, it's really hard to say what the effect will be long term. But as we knew, you see that there are legacy students who are highly qualified. He will continue to enter elite private institutions. We're going to get to that question because I think it's sort of, there's a little bit of chicken and egg here, I guess, in this whole area.

But, Biddy, let me, as you debated, as I know you've stepped aside as president, so you may not know this, I'm wondering how much as you debated doing this, the idea that, well, now, alumni aren't going to contribute the way they used to. How big an issue was that as you debated whether to end legacy admissions or not? It's a really important issue, and it's not just whether alumni would continue to give. I think, you know, alumni bodies are one of the few remaining intergenerational communities in the country. It's important for young people and for people of every generation that we continue to build intergenerational community. And what alumni do for colleges and universities is not just give money, but actually support in a whole host of other ways. So, yes, we did worry about it. We looked at data.

Everything we did was heavily data-driven. Amherst has an extraordinary Dean of Admission and Financial Aid from MIT. But in the end, we realized that it was what opportunity insights has now shown it was, and that is a problem in driving disproportionate numbers of the very wealthy into elite college. Sarah, I'm curious if you have an applicant to a college that is a legacy student, but also checks all the other boxes that that college would want to have in a prospective student. Are you dinged if you're a legacy or are you just not added given any extra consideration? In the current state and college admissions at most of the selective colleges in the country that still value legacy, that legacy student is going to be significantly, has a much higher chance. of getting admitted.

But all students aren't equal. So it's very difficult to compare a really strong legacy applicant to a really strong non-legacy applicant. And the variances and the nuance is so subtle when you're in that admissions committee room. I want to invite Sarat into the session because in just a moment, because he just has a daughter who's starting at a California state institution where they do not have legacy emissions. But Sarah, let me come back to you. Are legacy admittees getting in?

because they are legacy or because they are better applicants? Well, we'll have to... Or a little of both. We'll have to ask the colleges. The colleges are not very transparent about any admissions data. Trying to get our hands on the acceptance rate between legacy applicants and non-legacy applicants is really hard to find. What we've heard through this complaint and the investigation by the U.S. Department

of Education. At Harvard. Against Harvard is that legacy applicants at Harvard are seven times more likely. to be admitted to Harvard than non-legacy. But we don't know whether that's because they are really the better applicants. Now, they may be the better applicants because their parents are legacies with higher incomes and can afford test tutoring and so on and so forth that helps boost them. There is a polish to an application when a student is coming from the-

Surat jump in. So actually, a question for both of you, because when you look at the universities who are started down this path, the endowments are pretty good. They're actually the largest per student that we have in our country, which is great. But what about looking at it from the other side to say, well, if we have such a big endowment, why don't we increase our class size so that we can provide the same quality? As long as you can maintain that, then you will still have the issue, but you will actually be able to give the education to more people.

Because you're just getting your endowments getting so large. And then now you're getting the states looking at it too. So how is that coming and are those discussions happening or is it just that we just want to stay at these sides? Biddy, why don't you take a first whack at that and then we'll come back to Sarah? Yeah, I'd be glad to. Yes, those discussions are occurring. Princeton has already made the decision significantly to increase the size of its student body, as you may know. And there may be others who try.

At Amherst, we went up a little bit. There are a lot of constraints. you ask about what else it would entail. If part of the secret sauce of these institutions is a faculty to student ratio that gives students much more access to great faculty, then you have not only to add students, but you then need to add faculty as well.

So Sarah, let's go ahead. Finish your thought, Biddy. I'm sorry. No, no, no. My thought was just I do think the schools that were featured in this, opportunity insight study should be considering the possibility. And that's all. So let me layer something, Sarah, onto what Sarat's question was.

And that is, you know, you can expand the court and thereby admit more students who are non-legacy and maybe lower income. But is another way at it to reduce the price of college? I don't see that happening. I don't see that happening either. at all, but if you want to make college more accessible and have a more diverse class, that would certainly be one way to do it. And, you know, I was just in a documentary Exclusion U and a big argument.

Exclusion U, that's great. And the big argument was these institutions have such a high endowment, yet the class size has really remained the same at most Ivy League institutions. Biddy mentioned Princeton. That's unusual. The class size has stayed the same. But I'm an admissions expert, so I want to get back to something really important and why Harvard is under the microscope. It is because they admit to giving legacy applicants an additional look. But working at an Ivy League admissions office for 10 years of my career, that additional look is quite significant.

When I worked in an Ivy League undergraduate admissions office, it was a separate office doing a second read with a separate legacy committee. So we've got to be aware of the fact that these Ivy League institutions aren't just saying, well, we've got two equal applications. One's a legacy and one's not. There's a lot more involved when it comes to those legacy applicants. Longer reads. Fascinating. Fascinating conversation here. We'd like to have you both back to explore it because this is one that is going to be lingering for months, if not years.

Biddy, Martin, thank you very much. Sarah Harbison. Thank you. And Sarat, thank you for Brum. for bringing in a little personal note as my son, a 17-year-old, gets ready to apply to schools. All righty. I'm glad I have 15 years to go until we started doing with us. Well, more power lunch is coming up next.

Stick with us. Well, welcome back. Before we go, Surrett, let's get some final thoughts on the market. I know earlier you mentioned the dollar and you want to talk about that a little. Yeah, and I think it's going to be important because one of the things that we rarely talk about are commodities. And, you know, commodities today are 3% of the S&P. Apple and Microsoft market cap is bigger than the energy and commodities sector completely. But as the dollar gets weaker over time, the demand for commodities as they increase is going to increase the prices.

So people need to look at that. I think that's an investable area, whether it's a copper or aluminum steel. The demand for that is still going to increase. And guess what? With inflation, you want to own hard assets too. So that's an area, I think, that's unloved, underappreciated. And I think there could be some good opportunity there. People have forgotten the 10 years of growth, go back to the late.

90s in the early 2000s, what was some of the areas that did really well? And those were hard assets. No, hard assets, yeah, absolutely. Do you see the market struggling at all over the next couple of months? Usually it's a seasonally tough time. We've got about 20 seconds. I think you need the rest of the stocks other than the 4-9 for the 7 to come back. You're seeing a little bit of that, but I could see the market kind of pulling back

just because we've had a 20% wrong really quickly. Sarat, thanks so much. Thank you. It's always great to see you. Yeah, it was a little great. Fantastic. Nice to be with you, Corte. And thank you for all.

watching power lunch. Frozen bell starts right now.