Power Lunch - Netflix crushed & a top bond fund manager weighs in on the powerful rally in yields. 4/20/22

Episode Date: April 20, 2022

Netflix shares plunge. The company losing tens of billions of dollars in market cap after a reporting a disappointing quarter. There are real questions about the company’s business model, the industry’s long-term growth and the consumer. Plus, the winner of Morningstar’s Outstanding Portfolio Manager award on how she’s successfully navigating the steep and sharp rise in yields. And the CEO of Breeze Airways on the coming summer travel boom. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

And welcome everybody to Power Lunch. Kelly will join us in just a minute. I'm Tyler Matheson. The story of the day, of course, is Netflix. The stock having one of its worst sessions ever. It's now down 63% in 2022, making it the worst performing stock on the S&P year today. Can you even imagine that? It is massively deploying results. That's what is what's driving the stock down, raising questions about the company, the industry, and shifts in consumer spending. And moments ago, Morningstar announced the winners of its awards for investing excellence. One of them is with us. She's a top bond fund manager who says the powerful move in yields is good news for investors. We'll explore why.

Kelly? Look forward to that. Tyler, thanks. Hi, everybody. Netflix is dragging down the NASDAQ, but the Dow and the S&P are higher. The S&P up about a third of 1%. The Dow up about 1% right now. As you can see here, the NASDAQ down two thirds of 1%.

So Netflix, the latest. It's even worse in the session today than it was last night. It's down 36%. It's more than $50 billion wiped off its market cap, which now sits below $100 billion. Yesterday, this company was worth $157 billion. And at its peak, it was worth more than $300 billion. And that was just last November, Tyler, just five months ago. $300 billion to where it is today.

Just an amazing phone. We're going to spend some time, believe it or not, here with Netflix. Wall Street, of course, reacting to that Netflix implosion. last evening. And no one is saying, buy the dip, not a soul. Evercore going as far as to say, there is no fixing the problem right now. Steeple pointing out all good growth has to end. And Piper Sandler pointing out that this loss is more than just a post-COVID hangover. Barclay's asking a key question, is the broader streaming party over? So is Netflix's biggest problem streaming overload or as the list of platforms expand each year?

And with consumers tightening their belts, streamers could be competing for a slice of a smaller market. Let's bring in our panel, Julia Borsden, New York Times assistant editor Ed Lee, and Loop Capital's Netflix analyst Alan Gould. Alan, let me start with you. What do you think ails Netflix most of all? and what does the next, what do the next two or three years look like for this stock and this company? Is it just an ordinary stock now? Thank you, Tyler.

I think the thing that alms them the most is saturation in the U.S. market, the largest market. You know, with password sharing, they're probably close to 85, 90 percent of the market right now. Where's the stock going from here? I think the event path is going to be pretty tough for the next year or two until they rollout, charges for password sharing and advertising. The second quarter is going to be this down two million sub quarter. Third quarter, they're going to have the comp against Squid Game, their biggest product ever.

And they're going to also go against Amazon's release a Lord of the Rings, the most expensive series ever. So you've got tough competition, and they've got to basically edit the model to add in advertising and add in password sharing. Julia, let me turn to you and ask what the, what the, what the, out in Hollywood and in the entertainment business about what happened to Netflix. Are people yapping about it? Are people saying, hey, wait, we have to rethink the whole streaming business in light of this?

What's the buzz? Well, there is a lot of yapping about it, as you put it, Tyler. But I also think this identification of the fact that Netflix has always done things its own way. They didn't worry for many years about cracking down on password sharing. now they're shifting their perspective. They were anti-advertising. Now they're talking about trying to get an ad-supported model up and going in the next year or two. And so I think this realization that you have to really generate revenue from all of your viewers

is something that the more traditional media companies that have gotten into streaming have been pushing for for a long time. And it makes these companies such as NBC Universal with Peacock or HBO Max with an ad-supported version or Paramount with, an ad-supported version of Paramount Plus look smart in that they were thinking about multiple price points for different types of consumers and trying to make sure that they could keep their prices down with ads. So I think there's also this sense that Netflix is going to have to make not just a massive quantity of content, but really focus on quality. And this is something that co-CEO Ted Sarandoz also mentioned in that earnings call yesterday. Alan, why do you think their guidance was so bad? I mean, not this way. They obviously know why,

But why have they decelerated so quickly into such an extent? Yeah, well, Kelly, first of all, the second quarter is always weaker than the first quarter. So I was surprised that the second quarter expectations were for a flattish amount versus the first quarter without the Russia impact. But, I mean, down two million. That's a very negative amount. Also, but keep in mind, Netflix has 220 million subs. every quarter percent of churn equals about 1.7 million subs. So churn ticks up just slightly, and that's a difference from roughly having break-even subs and being down 1.7 million.

I think the biggest issue, though, is competition right now. Yeah, and Ed, to that point, the rest of the streaming complex is selling off today. And as Lauren Martin said last hour, she thinks that's a sign that consolidation may actually get sped up here. Obviously, we can't have this many standalone players. Where do we go from here? So again, I think the issue of passion training was not, it's not real issue, right? Because that's been happening since the beginning of Netflix.

I think, you know, competition, as Alan pointed out, is the real bugaboo here. And, you know, does that mean, you know, if most households are paying for about three or four services, is that really it? It can only have that much with some smaller players or sort of single, sort of single interest players sort of in the smaller route? I think so. I think that's where it's going to head. I think Netflix to get its supercharged growth back, whatever it needs, whether it's gaming or other things or even theme parks, they have a lot of IP, if you want to look at it in those terms, would be capital intensive. So at their current trajectory, growth is not going to be the same. You know, if 300 million is the top line for them, they'll get there. It'll just take that much longer. And that's what investors are responding to. It's just they're looking at the multiples thinking like, well, we used to trade this at 60, 100 times forward earnings. Now it's 30. times. I think that's where it's going to sort of level out. It's going to be like that's the new Netflix going forward unless they do something big. The consolidation could be it. Yes. Isn't it odd, Ed, to hear people saying, you know, and kind of rightly saying they need live news, they need sports, you know, the very business models that themselves were disintermediated by

Netflix are now disintermediating Netflix. Is that right? They're the followers now, right? If they're going at ad supported, they're a follower. They were leaders in every. respect now all of a sudden their followers, which the ad thing surprised me more than anything else. Not that they're doing it, but that they didn't do it for so long. Hulu was probably the first, I think the first to really have a sort of a sexy ad-supported version of it. Their ad tier generates more revenue per user than their non-ad tier, and that's been true for years. I know Netflix knows this. I don't know why they never thought, well, why don't we get in that game as well. As Reid Hastings said, you know, I always favor consumer choice, and that's how he sort of, you know,

justified this, this pivot, but they should have been doing that years ago. And I think that's, that was a sign of just sort of poor thinking, frankly, on their part. Adam, Julia mentioned, and I'll get Julia's thought on this in just a minute, and that is the question of password sharing, which you referenced a moment ago. Two questions for you, Alan. Why does it take so long? I think you referenced the idea that this was a 2023 effect or implementation. Why does it take so long for them to crack down on password sharing. And what kind of, what do we know or what do we estimate is the amount of money they will collect if they force me to drop my mother-in-law from my Netflix account?

Confession. Yeah, so mine's on as well. But let's say they've got 100 million people that are accounts that are sharing passwords. Say they charge $3 a month. that'd be five times 12 month that'd be 3.6 billion and then what percentage of people are going to take so maybe 25% take maybe it's a 900 million dollar increment i think one thing that's going to occur is maybe password sharing and advertising occur simultaneously so that when they start charging for password sharing and raise your price three dollars they simultaneously give you the option of having a lower price ad supported tier that's five dollars less right so that you're net price for Netflix is not higher. All right. Julia, your thought on why did it take them so long to get to this point? Look, I think there's always been this question. Is Netflix a tech company? Is it a media company? And as it's transitioned from being more of a tech company to being more of a

media company, creating more of its content, it has this huge presence in Hollywood as it's been investing in original content, paying a lot of money to big content creators. We've seen that they've had to adapt how they think about things. It's not just unprofitable growth. It's about trying to grow profits as well as revenue and subscriber numbers. And I think that's what we're seeing right now. They're adapting to be a little bit more like a traditional media company. Julia, Ed, Alan, thank you. Lynn, my mother-in-law, sorry. See you soon. Love you. Let's get to some breaking news now from the Fed. It's the release of the beige book with all those key details on what's happening with wages and the economy. Steve Leasman, how's it looking?

some interesting comments here. I was hoping, or some people were hoping that we might see some signs of peak inflation from this report. That's not the case. The Facebook saying that inflationary pressures remained strong. Firm's continue to pass, quote, swiftly rising costs onto consumers. There were steep increases in raw materials, transportation, and labor costs. Well, to remember that this covers the beginning of the invasion by Russia of Ukraine. So obviously moved down from that. a bit, but it's still out there as big issues. Here are the comments on the consumers that were very interesting. A few districts reported negative sales impacts from rising prices. That is, consumers perhaps balking at some of these higher prices. New York, for example, reported that high prices had eroded consumer spending power. But there was more bad news on inflation, where inflationary prices were expected to continue over the next coming months.

The economy expanded at a moderate pace. Employment increased at a moderate pace. as well with strong demand for workers. But couldn't hire all those workers because hiring was held back by a lack of available employees, a recurring theme in the Bage Book. There were some signs of improvement in worker availability. We'll have to see if that continues in the months ahead.

Firms did report significant turnover as workers left for higher wages. It actually mentions the term footloose in terms of footloose workers leaving their jobs. Wage growth was strong and inflationary pressures were contributing to higher wages. I'll leave it there, guys. But just no relief at all in the Bayesbook's characterization of the inflation dynamic rippling through

or ripping through the economy is maybe a better way to put it. I will say Ukraine was mentioned 37 times, having not been mentioned at all in the prior base book. Russia mentioned 10 times. So this is clearly now a new issue and was seen as pretty much a shock to the economy here. But it takes on some greater significance these days, Steve, because this is the Fed trying to listen out there to see if inflation expectations are becoming entrenched, right? And to the extent that their own reporting tells them that there are still these pressures, they're not really abating,

that's got to make them tend towards the hawkish side of things, right? Can I bottle that explanation up, Kelly, which is exactly how the Federal Reserve uses this beige book. And it goes beyond that because what they're watching here is they're watching the inflationary dynamic work through the economy. So they're watching and they're listening to businesses say, hey, we have higher prices. We're passing them along. We have higher wages. We're passing them along. We have a worker shortage. We're bidding up wages. So you're right. Not only does it tell them what's going on in the economy. It tells them the economic dynamic that's going on. And I know there's a lot of people out there that want to believe in this concept of peak inflation. And I don't think you can

tell that story from this report. It looks like there's more stuff to. to come down through the pipeline into consumers. With the big question being where we kind of started is you get to a point where consumers don't have enough money to pay the higher prices and whether or not they balk and you have what they call euphemistically in this report a negative sales reaction, as in a-uh. Right. Not going there. Done.

All right, Steve, thanks. Steve Leasman. Coming up, the winner of Morningstar's Outstanding Portfolio Manager Award. She is successfully navigating the extreme moving yields and will tell us if they've topped out. And from the crazy bond market to crazy commodities, Bank of America's Francisco Blanche tells us if oil prices will spike even further over the next few weeks. But first, a look at some of the stocks hitting new 52-week highs in today's session, including HCA Healthcare, Boston Scientific, Dollar Tree, Marriott, Palloges. Welcome back to Power Lunch, everybody. Bond yields pulling back after hitting nearly four-year highs yesterday. The 10-year yield, government yield, remains just under 3%. Yields are up more than 100 basis points since January. The move, dramatic, hard to navigate. But our next guest has successfully been able to do it. She's the winner of Morningstar's 2022 Awards for Investing Excellence announced just minutes ago, top of the hour. Mary Ellen Stanick is the co-CIO of Baird Advisors and Baird Funds, President. and winner of Morning Stars' Outstanding Portfolio Manager Award.

Mary Ellen, congratulations on the award. Thank you, Tyler. Great to be with you. A lot of hard work went into it. A lot has changed. I mean, the award basically recognizes performance in 2021. A lot has changed in a hurry in 2022. What have you, and I know you're not a believer in market timing, trying to move in and out

because it rarely works. But what kinds of moves have you made in your portfolios this year to protect investors and position your portfolios for eventual higher yields and better profit? Well, certainly, as you suggest, we've seen a significant rise in interest rates this year. And largely because of the reported inflation numbers and also more deliberate focus fed on fighting inflation. And so in a lot of ways, the bond market has been doing the work in advance of actual moves on the part of the Fed. So as you suggest, our recognition and our team is humbled by the recognition for Morningstar, but we're long-term investors. We do not try to time short-term movements in interest rates. We think that generally is a loser.

Many times investors get caught off sides and end up not delivering. the same long-term values. So we take a very much an all-weather approach, try to build portfolios for the long-term. That said, right now, some of the areas that we've continued to selectively nibble in is as spreads have gotten wider on investment grade credit, taking advantage a little bit there.

Investing is as much what you choose not to own or underweight significantly, And an area that we believe is going to see further pressure disproportionately is the U.S. government agency mortgage market pass-throughs. And so we're significantly underweight there. As those spreads are widening, we will start nibbling back. And then finally, municipalities. Municipals have suffered and interest rates have risen even more significantly in the Muni market.

And actually the relative value there is quite attractive across the curve. And you look at the fundamentals underlying the sector, and we see a lot of strength there and very good fundamentals. So there's a number of things we are doing selectively, bottom up, bond by bond, positioning the portfolio from our total. Yeah, you're real bond pickers in the sense that Mario Gabelli on the stock side is a stock He's not a macro kind of investor. Let's talk a little bit about this.

Go back to the first quarter, which had to be a quarter. There are a lot of investors and maybe even some portfolio managers and researchers on your team who have probably never seen interest rates go up the way they did in that first quarter and never seen the kind of principal or net asset value declines that some funds had to have to, had to endure. How do you explain that to investors and how do you keep them calm? And how do you keep your team calm when they go, whoa, man, I've never seen anything like this before. Well, you have to stay focused on what matters most. And what matters most is for units of risk. Are you being paid to take that risk? And ironically, having done this now for decades,

started my career, along with some other senior portfolio managers on the team, back in the late 70s, early 80s. And so at the time, you know, dubbed, were dubbed as the bear market babies. But it allowed us to have some framework. So what do we do now? You know, again, being freed from having to make those big top-down interest rate calls, it allows us into the volatility to look at relative valuation and relative value for those units of risk we're taking. And we find that as volatility picks up and the more dislocated a market gets, the more opportunities that often are presented as others need to sell and get out of the way. Others are trying to shift their portfolios because they've been on the wrong side of a macro call that they had on in the portfolios.

And so think of it as, you know, very laser-like surgery that we're doing. And that's how we add the value. We do it in a lot of ways. It's now baseball season. So our baseball analogies work great. We try to hit a lot of singles. We'll take, you know, a walk. We'll take a get on base with a hit pitch if need me.

And then we have very high batting averages. What we don't try to do is hit home runs. Because if you look at those home run hitters, they often have very high strikeout percentages as well. So we try to compound high average batting averages and compound a lot of consistency while providing our investors a predictable ride, consistent quality with liquidity. Well, with that analogy to the home run hitters striking out,

you could be describing the New York Yankees, Mary Ellen. Thank you very much. And in fact, I was just reading an article, home runs are down in baseball this year dramatically. So same two in the bond market. Congratulations on the award, Mary Allen. Thank you again, Tyler. You bet.

That was a very meta-basedball analogy. Yes, yes. It was. Further ahead on the show, we have a big mover, Wall Street call and earnings preview all on the menu in today's three-stock lunch. There's a little preview of the names. Plus, there was a ton of hype around ESG alternative food names like Oatley and Beyond Meat. But those stocks are face-planting this year.

We'll discuss when Power Lunch continues. Welcome back to Power Lunch. I'm Dominic Chu. Now, it's a big day for Big Blue with IBM now on pace for its best day in nearly two years, up more than 7% in trading so far after reporting earnings and revenues that both came in above analyst forecast. Now, that was thanks in part to strong performance in its hybrid cloud platform business. The company also issued upbeat guidance for the rest of the year. Today's move now puts the stock in positive territory for 2020 with IBM now less than 5%. from its most recent high back in June of 2021. Big day, Big Blue. Kelly, Tyler, back over to you guys. Big disparity between IBM and Netflix. Now let's get to Bertha Coombs for a CNBC News update, Bertha. Hey, Kelly.

Here's what's happening at this hour. Treasury Secretary Janet Yellen walked out of a G20 meeting when a Russian representative began speaking. She was joined by several finance ministers and central bank governors from other countries. Florida's Senate has passed. bill ending special tax benefits for Disney World. It follows Disney's opposition to the state's new law limiting discussion of sexuality in schools. It's expected to pass the House and be signed

into law by the governor. A trial has been delayed that would determine how much Alex Jones's Info Wars owes families of the Sandy Hook School massacre. Info Wars sought bankruptcy protection after Jones lost defamation cases over his claims that the mass shooting was a hoax. And Walmart wants a new trial after a jury found it wrongfully fired an employee with Down syndrome and awarded her more than $125 million in damages. Go to CNBC.com for more on why Walmart opposes that verdict. Tyler and Kelly, back over to you. All right, Bertha, thank you very much.

And ahead on Power Lunch, commodity prices going haywire this year, climbing to highs but for some investors, it is fueling recession fears. We'll discuss that. Plus demand for flights pointing to a massive summer travel season. We'll speak to the CEO of one airline looking for a bigger piece of the big three's airspace. Welcome back, everybody. 90 minutes left in the trading day, which the Dow has been leading. So let's get caught up across the markets on stocks, bonds, and commodities.

We begin with Bob Bassani down at the New York Stock Exchange, where Netflix is kind of hanging over everything, Bob. That's right. And that's the reason the S&P is kind of flat, and the Dow is holding up very well. Dow up despite Disney, S&P barely even, that's the Netflix problem. But I am encouraged by the fact that several sectors that have been in a downtrend are putting together two nice updates. I'm talking about transports doing a lot better. I'm talking about the Russell 2000, small cap stocks doing better the last two days. Banks have turned around a little bit.

Even industrials have stabilized. These have had a very tough month overall. and it's nice to see two up days. Elsewhere, old school tech. Remember, they used the write off IBM, but what a great report this morning. We saw software strong, services strong for IBM. So call it old school tech, whatever you want to call it, Oracle, HP, the old HP, HP, HQ, Q, even doing well, Apple on the flat side. Not participating in the rally, interestingly, is Kathy Wood and all the arc stocks. So you see Shopify, Spotify, Twilio. Roku's now because it's a victim of Netflix, but the whole sector, high multiple tech stocks not participating in the rally.

That's very interesting. Still a lot of pressure there. Finally, don't kid yourself about these rallies. The new high list is basically utilities and defensive stocks. It's Alta Beauty. It's Coca-Cola. It's Walmart. It's Altria.

These stocks, General Mills, these stocks have been on the new high list almost every single day. Still very defensive. Kelly back to you. Exactly. That is the word, Bob. Thank you very much. And as you might have guessed, that means yields pulling back from those multi-year highs, especially event of the day, Rick, you tell me 20-year auction, how strong that was.

Yes, and believe me, the interest rates were already moving lower. They started moving lower in Europe even before our time zone. But at one Eastern, look at the intradate chart of a 20-year, the highest yielding instrument on the treasury curve. And boy, they were fighting each other to buy it. Almost 76 percent of the auction was taken by indirect bidders. and part of that category, of course, is foreign interest. Now, if you look at a week-to-date of two-year no yields, you'll see how they've risen.

Now, look at the contrast with a week-to-date of 10-year yields, and the longer maturities all look like that, a completely different look. As a matter of fact, the longer maturities are toying with yesterday's low yields, where you look at short maturities, they're hovering near unchanged. And if you look at what's going on on a week-to-date of 10-year tips, yes, your eyes aren't deceived. you, we visited positive territory. Open the chart up. It's the first time we've done that

since March of 2020. And many traders were telling me yesterday that they looked at that as a sign. And the sign was to fade the trends. Kelly, back to you. Good one to point out. Rick, thank you very much, Rick Santelli. Meanwhile, oil closing for the day lower right now, around $102 a barrel. Once again, that balancing act between tighter supplies and the potential for lower demand if the global economy slows. You can see, again, not a ton of movement here. As you've probably noticed at the gas pump, we're kind of just hanging in there around $4 a gallon. And let's also look at natural gas, which soared above $8 on Monday, is back below seven today, still elevated by recent standards. Our next guest says we could see another mini spike in oil prices in the near term. Let's bring in

Francisco Blanche. He's head of global commodities and derivatives research at B of A Global. Francisco, it's great to see you again. And now that China's starting. to come back online and the supply situation hasn't changed for the better, could we see a spike in oil prices again? Well, I'm glad you ask and thanks for having me. Look, when we think about our airports, you go to a Newark airport or you go LAX, you probably feel like flights are buzzing. But actually, if you look at China, the Shanghai index for road transport is down to the ground. Many cities are in lockdown, and frankly, most emerging market air travel has actually gone backwards in the last few months.

So there's a huge amount of pent-up demand, and I think we're about to start seeing that the next six, 12 months, when people in emerging markets, I think about China doing revenge travel, right? How is that going to look? So we are constructive on energy. We still think oil is going to hit 120-plus dollars a barrel into the summer months. We think demand for gasoline is going to be very strong this year. And of course, remember, oils 106, 108 on Brent, the lower WTI, with China, mostly in lockdown right now and having cut back their imports by 14% in the past month. So that's where we are.

Over the next few months, you point out, and that we enter the peak driving season here in the U.S. People are on the roads going back and forth to weekend destinations and so forth. But after that, what happens and can't, or is it so? unpredictable right now, given what all is going on, that you really can't even make a prediction about what the average price of oil, West Texas or Brent, will be. Well, again, one of the hard parts in this cycle is that inventories are very, very low. And when inventories are low in commodity markets, prices have to do a lot of the work to adjust supply and demand to bring them into balance, because inventories are generally a cushion.

that helps you bridge a gap between what people want to buy and however much is available to be sold. And that buffer is now very low on a commercial basis. But even if you look at the strategic inventories, right, we've been drawing those down quite extensively in the last six months, right? Some worry that we not only have very little commercial buffer, but we also have very little strategic buffer if something else happens. Now, to your point, it is difficult to.

forecast prices past this summer season, and the summer season I think is going to be strong, because the whole Russia-Ukraine conflict could have abated, and we could see Russian energy flows being a little more normal. Russia has lost more than a million barrels a day of supply in the past month and a half because of the different issues regarding sanctions and self-sanctions. But that's a big issue. And then the other big issue is Iran. What happens to Iran deal, if it comes back, it doesn't come back. So I would say it's a little more cloudy. But again, the big friend of the post-COVID demand recovery is still going to be with us, I think, for the next 12, 18 months. Francisco makes me wonder if prices do spike again.

And again, you're not saying anything extreme, maybe 120 barrel type of thing, but it would put upward pressure on gas prices again. We're going to be getting closer to the midterms. What other levers do politicians have to pull? We've already seen a number of states to spend their gas taxes. We've already seen the release of barrels from the SPR. Like you said, we don't have a lot of buffer left there. Right. And that's one of the things that scares me the most.

I mean, we got to keep our fingers crossed here and hope nothing else bad happens to the supply side. Because we've been releasing strategic oil mostly for political or call it moral reasons, because we want to impose some costs on Russia. But in reality, we've also been curtailing taxes, not just in the U.S., but around the world. I mean, pretty much every country around the world has cat fuel taxes. Now, economics tells you that if you cat fuel taxes, people are not going to consume less gasoline and less diesel. You're going to consume more gasoline and more diesel. So we've kind of put ourselves in an impossible situation where we've drawn down our strategic storage.

We don't have a lot of OPEX spare capacity left. We've reduced the price of elasticity of demand by cutting taxes. And as we know, because of ESG considerations and just general. financial considerations, energy companies are unwilling, are reluctant to plow money back into the ground and develop those resources. So that's the other issue you have. So it really is really coming in all ways into the oil market, into the energy markets, really. So it's well said, Francisco, your concerns are very well outlined. Thanks for joining us this afternoon. Thank you. Francisco Blanche. All right, after the break, this summer could be a major comeback for

airlines, but amid the heightened demand, is there an opportunity for smaller airlines to disrupt the big guys? We'll discuss that when we return. Welcome back to Power Lunch, everybody. Airline stocks mostly higher this afternoon as travel demand comes roaring back. Budget Airlines Breeze Airways hoping to capitalize on that by adding new transcontinental routes out of Westchester, New York. Philaubo has more on the plans with Breeze Airways CEO David Nealeman. Phil? Thank you, Tyler. Hey, David, how are you? I know you're joining us from Hartford, where you guys, you're busy expanding and adding flights, but today you're adding transcontinental flights in addition to other flights out of White Plains to San Francisco,

to Los Angeles. What are you seeing in terms of that demand right now for those transcontinental flights? It's good. Air travel demand this summer is great. There's a ton of pen up demand. You know, fairs have gone up because of the higher fuel prices, but, you know, people seem to, you know, be ready to travel and get out and see their friends and family and new places. David, you've been around a block a time or two in your career. Have you ever seen a market like this where there's so much demand that even as fares rise as much as they have over the last six months or nine months, people are still saying, I want to go and I will pay. It's quite incredible. You know, it seems like there's an insatiable demand. I'm, I'm,

I'm interested to see what happens come September and October, but at least for the summer, things look really good. And it's the same in Brazil, too, with Azul. It's, you know, it's off the charts. So it's, you know, universal between here and Brazil and it seems like everywhere else. David, as you know, a number of the regional airlines, they've had to cut back because they don't have the staffing that they expected to have because the industry has got a shortage of pilots, flight attendants, maintenance, you name it. Has that opened up more opportunities for Breeze because you have been targeting secondary markets and saying, you know what, I think there's a market here. Maybe markets where regional airlines might have had to abandon or cut back their service?

Yeah, I'm not aware. We have 75 routes. I'm not aware of any that where a regional carrier was there and left. You know, those airlines primarily feed hubs for the majors and those aren't routes we fly. I would say 98, 5% or 98% of our routes, we have no nonstop competition. And it's new routes like, you know, Westchester to LAX. No one's ever flown that before. So people, you know, can go out of White Plains Airport and go nonstop.

You know, now the furthest you can go west is Chicago. So, you know, if you develop those routes and you lower the fares, it really stimulates traffic. David, you mentioned earlier, it'll be interesting to see what happens in the fall. You know that this industry has traditional peaks in vass. summer time being a peak, the holidays at the end of the year being a peak, does that stay that same peaks and valleys for the industry, or do you think that perhaps we're not going to see that valley in the fall? You know, we'll see.

There's a lot of pen of demand, but I do worry that inflation is everywhere. You know, it's the mills that you go out with when you're on vacation or, you know, the rental car you get or the hotel. So, you know, we're keeping a really close eye on it, but, you know, I don't think there's an unlimited amount of money. you know, you can raise your fares in this environment. So, you know, thankfully we have really fuel efficient airplanes. You know, we're flying between routes where nobody else flies. We're stimulating traffic. But, you know, it's something, you know, with the economy generally,

we're keeping a really close eye on it. David, we have to keep it short today, a busy day with earning season in full swing. We appreciate you joining us today from Hartford as a breeze adds transcontinental flights, more transcontinental flights flying from white plains out to California. We have a number of earnings, as I mentioned, coming up today and tomorrow in the airline industry, including, thank you, David, including United after the bell. And don't miss our first on CNBC interview with Scott Kirby, CEO of United Airlines coming up on fast money. We'll get his take in terms of what he's seeing with demand in this market. Guys, send it back to you.

Again, noteworthy that breeze is expanding while others are trimming. their schedules. Phil, thank you very much and our thanks to David Nealman. After the break, we're 3D with some major stock movers. Our trader will tell you whether to buy or sell. Get seated, get ready. We're back after this. Welcome back, everybody. It's time for today's three-stock lunch, where we trade three of the day's big movers. We're looking at Roblox, which is being accused of deceptive marketing practices in a complaint to the FTC, the stock down about 10%. We're also looking at Avis Budget Group, who shares are up 12 percent. We're looking at on an upgrade at Barclays.

And Tesla lower ahead of its quarterly results after the bell. Our trader today is Carter Worth. Let's bring him in. He's market strategist at Worth charting. It's great to see you, Carter, and let's start with Roblox. What do you do with the stock? Well, I mean, just the facts are sad in the sense that, what, it's a weak stock in an established downtrend.

There's no way around that. Two, it has the inconvenient fact that it broke its IPO price. We know on March 9th of 2021, it came out at $45 a share, printed as high, is 70, and here it is at 37. And so the history of stocks that break their IPO are not good. Basically, 70, 80 percent have negative returns on a five-year basis. And then, of course, there's this. The street doesn't know what to do with it. The highest price target in the street is 100. The lowest is 50. Here's the stock at 37 below its IPO price. No thanks. Well, the company's responding to those allegations about deceptive marketing saying,

quote, we have strict guidelines for developers that want to promote or use ads within their experiences, including specific rules to protect users under 13. And Carter, this was always a stock that was kind of seen as, all right, Metaverse is common. Maybe they've got a decent foothold in it. All true. And yet, its results for investors or holders of the shares have been anything but. And then there's also this. Of course, 30% of the float is tied up by venture capitalists. They're stuck kind of no way out. If they ever were to come out, I think that's another problem. Carter, it's good to see you. I usually see you closer to the cocktail hour. We've got three stock loans, so we'll do some day drinking here.

Let's do Avis Budget Group, a stock that you describe as perpetually underrated. What do you think now? Well, that's right. I mean, it's good to be underestimated often in life. I mean, think about it. This stock was in 1998, put it this way, it was $52 a share in March. And in March of 2021, it was $52 a share. That's 23 years with no progress.

And this breakout, it's now a very strong stock. And still, it's underestimated. Basically, the price target on the street is 230. It's trading at 310. No one believes it. They've never liked it. It's a strong stock in an established uptrane, a good business that makes money. Roblox loses money.

Well, that's always a key differentiator, isn't it? What about Tesla? And what are you expecting tonight? And what do you do with the stock? You know, it's funny. Tesla, for me, is a pair of twos, which is not particularly bearish or bullish, sort of fair money, dull money. Stocks don't always have to be buys or sells. we know sometimes they're kind of where they belong.

And I think that's the case for Tesla. You know, it's the same price it was three months ago, six months ago. I think it just stays in this range. I would bet against volatility, actually. Wow, that's maybe the biggest bet of all in Tesla's case. There are some outlandish price targets on this stock, though. I mean, not that you have to agree with them. It's all over the place here, too.

And it just shows what hard work that is. I think the highest price target is $1,500 a share. the lowest is down at 300. These are prominent big investment banks, marquee names. It just shows very smart people wrestling with what to do with this very important stock that has a lot of market cap.

And yet, it's probably at the end of the day, a risky bet. If I had to be directional, I would be underweight or short. Carter, put you on the spot, your three drinks in now, so you'll tell us what your true feelings are. What do you do with, let's call it the NASDAQ, underperforming again today,

rates not even higher? That's right. And I'm not sure it really has anything to do with rates. That's the premise that somehow the long-term cost of capital, but still, it's still very cheap, you know, sub-3%. I just think they were loved and they're a little less loved now. And it's a heck of a thing when money comes into a security and moves it up. It's the same thing on the way down. Money's coming out. We don't want to be in the wrong side of money flow. All right. Carter, a pleasure. Really wisdom there. Carter, thank you. Appreciate it. Great to see you. Yeah. All right. Still to come. It seems that money might not grow on trees. Stocks tied to the plant-based food craze are sinking this year. More on that ESG play next on Power Lunch, base plant. Alternative food and beverages have been billed as better for you and better for the environment, but they haven't been better for investors. Let's go to Kate Rogers now for more on that. Hi, Kate. Hey, Tyler. Well, first up, take a look at Oatley, hitting a new,

52-week low just this week of just over $4. It's down about 70% over the last six months. The big storyline at the company has been ramping up production, but that has been both expensive and timely. Guggenheim noting that in the U.S., it was hit with issues related to spare parts and electricity at its Ogden, Utah plant, which had production at about half capacity in March. Supply is tightest for its U.S. business, and the firm says it's at 85% volume for Starbucks oatmeal drinks this year, and other suppliers will have to supplement the coffee. giant. Now, Beyond Meat, also down around 60% in the last six months. 2022 is the big year for partnerships with brands like Pepsi and McDonald's.

It just launched a jerky product with Pepsi. It also expanded its chicken nuggets into retail, which has been struggling compared to its restaurant business. But Peter Saleh at BTIG said a few weeks back that its McPlant test with McDonald's was underperforming franchisee expectations and that a national rollout was not likely in the near future. Now, last quarter CEO Ethan Brown pointed to intensified, competition in the U.S. over the last year with many new entrants. And on the point of market saturation, the Good Food Institute says there are more than 1,000 plant-based brands, food and drink brands, rather, in the U.S. retail right now. And that includes 123 that launched in 2021 alone,

guys. Back over to you. Is there just too much competition in this area, or is demand the problem here, Kate? So we asked NPD Group, and demand has actually held steady over the last few years, particularly with young people, you know, expressing interest about one in five, say they do want to increase their intake with plant-based foods and brands. So that means that the demand is there. But as we said, 100 new labels launching in the last year alone. I mean, that is market saturation. There are a lot of competitors out there beyond meat impossible or the two big ones on the food side. Oatley's definitely a leader when it comes to oatmeal.

But you have so many options if you're a consumer that's looking to integrate that into your diet, right? Yeah, yeah. I do like the oat milk in my coffee. I find it very good. And there's a particular creamer that's hard to find. But oatmeal, we may be at peak oak milk. I don't know. Kate, thanks.

Thank you. O'c prices have certainly been going up. Let's take a quick check on Netflix before we go. We watched the stock falling about 37% earlier. And as the market overall is under a little bit of pressure, starting to trade a little heavy here, the Dow's only up 178. Netflix shares still down about 37% weighing on that NASDA. All righty.

What do you think, everybody? Yeah. Time to go. Time to go. Thanks for watching, Powerline. Thank you.